Seeking to cut dividend costs, NationsBank Corp. is redeeming a $250 million issue of convertible preferred shares.

Holders of the Series B shares have the option of taking $50.04 per share or converting their holdings into common stock, at 1.4035 common share per preferred share.

The latter option would put the conversion's worth at $60.35 a share as of Tuesday.

The difference in value is one reason that John Mack, the company's treasurer, said he expects virtually every shareholder to take the common shares.

To Save $10 Million a Year

The preferred stock, which has an 8% coupon, costs the Charlotte, N.C., banking company $20 million a year in dividends.

If all holders switch to common shares, NationsBank would save about $10 million a year in dividend costs, said Mr. Mack. Common stock pays $1.48 per share, a 3.5% yield.

"NationsBank will get rid of a high-yielding security and save some cash," said Moshe A. Orenbuch, an analyst at Sanford C. Bernstein & Co.

If all preferred shareholders opt for common stock, NationsBank would issue 7 million common shares. The preferred issue counts a Tier 1 capital, so the company's key capital ratios would be unaffected. Analysts said fully diluted earnings per share will remain the same.

Another Redemption

The redemption is scheduled Oct. 5, the earliest possible date by terms of the issue.

That is not the only redemption NationsBank has planned. Last month, it announced it would redeem $100 million in 11.125% subordinated notes due in 1997. The redemption will take place Oct. 1.

"We have already funded that redemption," Mr. Mack said.

In June, the company issued $350 million of subordinated notes, with a coupon of 8.125% -- 300 basis points less than on the outstanding subordinated notes.

NationsBank is one of many banking companies to redeem high-yield securities this year, and analysts expect the number of redemptions to grow further.

Effect of Rate Cuts

"You are going to see a lot of banks redeem both debt and preferred when they can," said Dennis Shea, an analyst at Morgan Stanley & Co.

Thanks in part to the decline in interest rates during the past year, banks can redeem debt or preferred stock to cut dividend payments.At a GlanceNationsBank's redemption offerUp for $250 million inredemption convertible preferred stockThe terms Either $50.04 in cash or 1.4 common shares for each preferred sharePurpose of NationsBankoffer expects to save $10 million a year in dividend costsWhen? Oct. 5 Source: NationsBank Corp.

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