A $1 billion preferred stock filing Tuesday by General Motors Corp. may force some bank issuers to the sidelines until next year, capital markets specialists said.
For banks willing to brave the market, the prospect of a big GM offering may force the payment of higher dividends - already on the rise because of heavy preferred stock issuance and a spike in interest rates.
Market sources said yet another new issue of preferred looms, $500 million worth from a major industrial company. They declined to divulge the name of the company, which has not yet filed with the Securities and Exchange Commission.
Fertile for Tier 1 Capital
The preferred stock market has been the easiest source of Tier 1 capital this year, with banks raising a record $6 billion, according to Securities Data Co.
Bank and utility companies have historically been the major sources of new preferred stock. Bur investment bankers say it appears that new issuance by industrial companies such as GM will make it more difficult for banks to tap the market.
For example, a $1 billion issue of preferred stock by Ford Motor Co. last month weighed heavily on the market. Before Ford's issue, industrial companies had sold only $900 million of preferred stock this year, according to Securities Data.
Tepid demand forced First Chicago Corp. last week to cut the size of a preferred stock sale to $100 million, from $150 million, and to increase the dividend on the securities.
Spain's Banco Santander has been forced to raise the dividend price talk to 8.75% to 9%, from 8.5% to 8.625%, on a $150 million U.S. issue that has been marketed for more than a week and may be priced this week.
Bank of New York Co. began marketing a $100 million issue of preferred Monday with dividend price talk of 8.375%. Market sources said it was too early to judge whether that pricing would stand.
Preferred stock typically has no stated maturity and carries a fixed rate. Its value falls when long-term interest rates rise. Yields on the benchmark 30-year U.S. Treasury bond have risen from 7.22% in September to 7.6% Tuesday.
Most preferred stock issues by banks this year are trading below their issued prices. Of the 22 major bank nonconvertible issues, totaling $4.6 billion, 18, totaling $4 billion, were being bid Tuesday at levels below their issue price, according to a Wall Street source.
Only four issues, totaling $510 million, were being bid at or slightly above their $25 per share issue price.
Banks' Plans Pending
A number of banks have recently filed or announced plans to issue preferred stock. Mellon Bank Corp. intends to raise $150 million in preferred in connection with its planned purchase of the Boston Co. from American Express Co. But this issue is not expected until next year. Chase Manhattan Corp. has been rumored to be eyeing the market.
Banco Bilbao Vizcaya of Spain recently filed to issue $500 million in preferred stock.
"The market needs a rest," said a capital markets source. "The best thing that could happen to this market is for people to wait until next year."
But an official at another Wall Street firm said higher dividend yields could still attract investors.
"The preferred market will survive and be a good source of capital as long as people don't get carried away," the official said. "You have to do a deal on terms the market wants now, not based on what some competitor got a few months ago."