Two Michigan banks issued long-term subordinated notes this week, signaling to some observers that a freeze on longterm issues may be coming to an end.
Comerica Inc., of Detroit, issued $120 million of 30-year notes, joining only a handful of banks to issue notes of that duration. First of America Corp., of Kalamazoo, Mich., issued $200 million of 10-year notes.
Late Wednesday, Chemical Bank issued $150 million of subordinated debt due 2006.
While banks have been issuing floating-rate debt in record amounts this year, reflecting uncertainty over the direction of interest rates, long-term debt has been. scarce.
In the first half of the year, subordinated debt issues reached roughly $5 billion, while, floating-rate debt issues neared $21 billion, according to Securities Data Co.
'Window of Opportunity'
"We felt that the market presented an opportune moment to do an issue of this length," said Ronald D. Marks, first vice president with Comerica. "If you look at bank spreads, they are clearly tight and a window of opportunity opened for us."
The bank would not say why it needed the funds, except to say for general bank operations.
The Comerica note, which is not callable for 20 years, was priced at 99.322 to yield 8.437%, 92 basis points above the 30-year Treasury.
The FOA note, underwritten by Bear Stearns & Co. and Merrill Lynch, is priced at 99.347 to yield 7.845%, a spread of 71 basis points above the comparable 30-year Treasury bond.
FOA, which also cited the advantageous rate environment, said its notes would help finance its recent acquisitions in Florida of Goldome, F&C Financial and Presidential banks.
Those acquisitions had been financed under a short-tenn revolving line of credit, but a FOA spokesman said the bank felt more comfortable now with a fixed rate than with a variable One.
Return to Long-Term Issues
Does this mean banks are back in the long-term issues game?
"We think there will be a pickup in activity because it has been so quiet recently," said a syndicate official on the team that underwrote the Comerica notes. Lehman Brothers headed that team, which included CS First Boston, Kidder Peabody and Salomon Brothers.
One bond analyst expressed uneasiness, however, with the Comerica issue.
"I do think it is a long maturity for a financial institution," said Katharine Rossow, a bond analyst with Salomon Brothers. "Thirty years is a long way out for the banking industry. Think about where banking was 30 years ago."
Ms. Rossow also disputed whether a new wave of subordinated notes was about to emerge, particularly from other Midwestern banks. While loan demand has been up, she said, deposits grew last year, enabling banks to meet this year's surge in loans without resorting to new debt.