Several major banks Wednesday denied market rumors that they would issue a controversial new security meant to sidestep pending legislation against "corporate welfare."
The new securities-known variously by the acronyms RACs, ROPEs, and CAPs-enable banks to warehouse the benefits of trust-preferred securities, which in turn enable banks to raise regulatory capital cheaply.
"We have no plans for issuing this kind of security," said spokesman John Stefans of Chase Manhattan Corp. A spokesman for PNC Bank Corp., John Williams, said that the Pittsburgh banking company also would not be issuing the security.
BankAmerica Corp. declined all comment on the matter.
Congress views trust-preferred securities as corporate giveaways and is readying legislation to bar the favorable tax status that makes them so attractive to banks.
Banks have issued more than $30 billion worth of trust-preferreds in the last seven months. They are expected to offer more-albeit in much smaller amounts-until sometime in June, the likely deadline for issuance.
The latest wrinkle in trust-preferreds, however, would allow banks to take advantage of the benefits of these securities, even if Congress acts. By the new mechanism, banks would issue notes or bonds with attractive yields that could be converted into trust-preferreds in two years.
KeyCorp and National City Corp. have already privately placed $750 million of these new "warehouse securities" in the last five days. Other banks are said to be preparing similar securities for market in the next two weeks.
But Chase Manhattan, which was out the gate early in issuing trust- preferreds and other similar products, is passing on this version.
Many of the country's biggest banks are also said to be passing on the product.