Citicorp, attracted by low interest rates, will launch a $350 million issue of preferred stock this week.

The noncumulative stock will initially carry a dividend of about 7.5%, according to a capital markets source. Merrill Lynch & Co. is lead manager.

Foreign Banks Attracted

Preferred-stock dividends are based on long-term interest rates, so the recent drop in the yield on the 30-year Treasury bond gives Citicorp the chance to cut its borrowing costs.

The proposed dividend is 50 basis points lower than that offered on Citicorp's previous offering of preferred stock in May.

On July 15, Moody's Investors Service Inc. raised the rating on Citicorp's noncumulative preferred stock from a junk grade of Ba2 to an investment-grade Baa3.

This also contributed to the lower borrowing rate.

The drop in long-term rates is also attracting foreign bank's attention. Britain's Midland Bank PLC reportedly is set to issue about $200 million of preferred stock in mid-to-late September, and a number of other European banks are deciding whether to follow suit.

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