Rapid growth in Banc One Corp.'s home equity loan portfolio is spurring the bank to tap the asset-backed securities market for funding, industry sources say.
An estimated $300 million to $500 million asset-backed offering is said to be planned following a burst of growth that saw the bank's home equity portfolio grow by 10.8% in the first quarter, to nearly $5.4 billion at March 31.
Carole Berger, a regional bank analyst with Salomon Brothers Inc., said the offering will give the bank an alternative source of funding.
"It's good to tap funding markets on at least a semiregular basis to make sure you have access at a good price," she said.
While the offering will be Banc One's first public home equity offering, Ms. Berger pointed out that the bank has frequently used the asset-backed securities market to securitize other types of consumer loans. In the past, the company has publicly issued securities backed by automobile and credit card loans.
The home equity-backed debt market has grown steadily since the beginning of the year.
According to research prepared by Merrill Lynch & Co., home equity loans accounted for 20.3% of the $57 billion of asset-backed securities issued through May 31. The share was 16.5% at March 31 and 12.2% at Feb. 29.
During 1995, home equity-backed issues accounted for 15% of last year's $105.5 billion new-issues market.
Len Blum, managing director of Prudential Securities Inc.'s asset-backed securities group, said a growing universe of issuers "has given the market more liquidity and frequency of issuance.
"We're seeing continued growth and continued acceptance among investors for this product," he said.
A key reason for the increase in investor appetite is the stability these instruments offer, he said. Even the poorer-quality loans in this market are less sensitive to changes in interest rates than other types of consumer loans.
For issuers, this means funding costs have fallen by nearly 50% since the late 1980s. These days, an issuer in this market may pay as little as 105 to 110 basis points over comparable-term Treasury securities.