Citicorp issued $350 million of preferred stock on Monday, taking advantage of low interest rates to increase its capital.

The 14 million shares of noncumulative depositary perpetual preferred stock were offered through underwriters led by Merrill Lynch & Co.

The dividend yield is 7.50%, a half percentage point lower than Citicorp paid on a preferred stock issue in May.

The reduced borrowing cost was attributed to lower long-term interest rates, on which preferred stock dividend yields are based. Improved credit ratings for Citicorp were also cited.

In July, Moody's Investors Service upgraded Citicorp's noncumulative preferred stock to an investment-grade Baa3 from a junk rating of Ba2.

Capital raising has been an important part of Citicorp's blueprint for recovery. The bank has issued $675 million of preferred stock this year and $1.5 billion of subordinated debt, according to Securities Data Co.

Citicorp has mainly used proceeds from the subordinated debt offerings - which can be used to beef up Tier 2 capital - to refinance higher-cost issues.

The bank wants to increase its capital ratios to levels closer to those of its peers. Citicorp had a 5.65% Tier 1 capital ratio in the second quarter; the average for money-center banks tracked by First Boston Corp. was 8.91%.

Adding to Tier 1 Ratio

Monday's issue will add approximately 17 basis points to the Tier 1 capital ratio, said a Citicorp official. Chairman John Reed has said publicly that the bank wants the Tier 1 ratio to reach 6% by yearend, up from 4.90% at yearend 1992.

Management is also aiming to raise the debt ratings of the subsidiary Citibank into the double-A levels, from the current single-A levels.

The preferred stock issued Monday is not callable for five years and is rated BBB-minus by Standard & Poor's Corp.

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