After a slow start to the quarter, U.S. financial institutions hurried to tap the debt capital markets last week.
The group of deals, and the few more expected for this week, is notable because it comes as investors have been cool to bond deals - including those offered by blue-chip financial institutions - in light of the Fed's series of interest rate increases. This has forced many financial institutions to delay raising capital or to take out shorter-term debt, which tends to be more easily accepted by risk-averse investors.
"What we've seen is a lot of bank and financial institutions behind in their capital-raising requirements for 2000," said Peter Aherne, a managing director in the financial institutions capital markets group at Citigroup Inc.'s Salomon Smith Barney.
During the first nine days of June, nongovernmental financial companies have raised $11.6 billion, according to Thomson Financial/Securities Data. Chase Manhattan Corp., Citigroup, Wells Fargo & Co., and U.S. Bancorp are among the slew of money-center and regional banking companies, investment banks, and finance companies that have issued bonds since June 1. Among commercial banking companies, Wells issued $1 billion of 10-year global bonds with a combined fixed and floating rate structure.
Lehman Brothers is expected to price a $750 million, seven-year global note issue this week, and Wachovia Corp. is slated to issue $500 million of five-year bonds.
But even if these companies were to keep up such issuance through the end of the month, the second quarter's volume would still be down 32% from the first quarter's volume of $205.6 billion.
"What strikes me as unusual has been the lack of appetite for this paper previously because the underlying credits of the major U.S. banks are very strong," said Sean Jones, a senior vice president at Moody's Investors Service.
Reluctance to bring big deals with longer maturities to market has been changing in recent weeks as general corporate bond spreads contracted and signs mounted that interest rates may be near their peak. The May job losses announced June 2 seemed to strengthen hopes for interest rate stability and spark a rush of new debt issues.
Chase was one of the first to act, issuing $500 million of 10-year bonds on June 2. U.S. Bank, the principal subsidiary of U.S. Bancorp in Minneapolis, introduced a $500 million, five-year issue on June 6.
Nonbanks have joined the stampede. Washington Mutual Finance, which carried out an aggressive marketing campaign before its offering in order to clearly distinguish itself from finance companies like the beleaguered Finova, brought out $450 million of five-year bonds on June 5. Morgan Stanley Dean Witter & Co. issued a whopping $3 billion of five-year bonds on June 6.
Though analysts say many banking companies have been flush with cash thanks to unused reserves tucked away last year in anticipation of year-2000-related computer problems, many still needed to raise regulatory capital before the end of the quarter. For instance, the Wells Fargo issue, led by Credit Suisse First Boston, used a unique structure that allowed it to raise Tier 2 capital, but because of the mixture of floating and fixed rates, the company was able to price the bonds closer to five-year securities.
Though this window of opportunity for financial institution offerings is expected to stay open a little longer - perhaps about a week - it is also expected to slam shut before the Federal Open Market Committee meeting, scheduled for June 28.
Capital One Bank, a subsidiary of credit card giant Capital One Financial Corp. of Falls Church, Va., is approaching investors before that happens.
It is expected to price a $750 million, five-year-plus "short floater" global issue this week, according to Salomon, the joint book and lead manager with J.P. Morgan & Co. It started a road show for U.S. and European investors Monday morning.