First Interstate Bancorp has repurchased $145.6 million of high-coupon outstanding debt since September 30.
The bank said Wednesday it will record a $9.5 million after-tax charge at yearend to cover the costs associated with the buyback.
The bulk of that repurchase, believed to be about 100 million, was done last week, according to capital markets sources.
Analysts said the bank has retired high-cost capital a few times already, this year, including $833 million of long-term debt and more than $250 million of preferred stock.
Balance Sheet Shrinks
Like many other banks. First Interstate is already well capitalized and is not likely, to see significant asset growth over the next few quarters.
In fact, the bank has seen its balance sheet shrink in size from $55 billion at the end of 1990 to $50 billion on Sept. 30 as it dealt with problem loans.
"The certainly don't need financing at this point," said John Leonard, stock analyst with Salomon Brothers Inc.
First Interstate reportedly Purchased the big chunk of debt, which had a face value of about $100 million, from a Wall Street dealer, which had bought the bonds from the Boston office of money manager Loomis Sayles & Co. A Loomis Sayles official declined to comment. The bank reportedly paid about $120 million for its debt. That recently retired debt, due in 2001, paid 9.9% interest.
Assuming that the $145.6 million in debt paid an interest rate of 9% to 10%, the bank will eliminate estimated $5 million per year after tax in interest payments, or 6 cents a share.
The previous buybacks of debt and preferred shares will add about 28 cents to the bank's earnings per share next year, according to a report by Mark Alpert, an analyst with Alex. Brown & Sons.
First Interstate earned $1.80 per share, or $150.5 million, in the third quarter.
Big Part of Loomis Portfolio
The bonds First Interstate purchased last week represented the largest single block of an estimated $400 million portfolio of bank bonds that Loomis put out for sale among Wall Street brokers last week.
The portfolio included sizable holdings of debt issued by Bank-America Corp., Security Pacific Corp., Bank of Boston Corp., NationsBank Corp. and Chase Manhattan Corp., said sources.
The portfolio was said to have included bonds issued within the last two to three years that carry higher interest rates than available currently, leading some observers to speculate that Loomis was selling the bonds to realize gains.
Minor Pullback in Market
Loomis' sale appears to have contributed to a recent minor pullback in the secondary bankbond market. Subordinated debt issues of BankAmerica. First Interstate. Nationsbank and Chase Manhattan were all trading at yield spreads Wednesday that were 1 to 5 basis points higher than on Nov 1. said one secondary-market source.
But Bank of Boston's subordinated debt bucked that trend, tightening by I basis point.
Bonds of some other banks that were not sold by Loomis have actually rallied 2 to 5 basis points since the start of the months. That group includes Fleet Financial Group. Mellon Bank Corp., Republic New York Corp. and Norwest Corp., the source said.
Advanta Issues Debt
Elsewhere in the market. Advanta Corp. on Wednesday issued $150 million of three-year senior debt. The issue was priced to yield 5.162%, or 77 basis points over Treasuries, and was oversubscribed, said a market source.
Advanta's Colonial National Bank USA subsidiary manages $5.4 billion of credit card, mortgage, and other loans.
The bank's offering was rated Baa3 Moody's Investors Service vice and BBB-minus by Standard & Poor's Corp. CS First Boston was the lead manager of the offering.