LONDON -- After pulling back once, National Westminster Bank PLC has begun marketing an exchangeable debt issue of $300 million.

Earlier this month the London-based bank put the brakes on the debt issue because the market for preferred stock from foreign issuers was saturated, according to capital markets sources.

The issue of exchangeable capital securities starts as debt, which the bank can exchange for preferred stock if it wants to boost Tier 1 capital. The issue will be sold to traditional buyers of preferred stock, which are largely individual retail investors.

Marketing of Natwest's issue began with investors being offered a yield of 7 3/4% to 7 7/8% for the debt portion and 8 3/4% to 8 7/8% for the preferred stock, said a capital markets source.

This was within the price range the bank originally sought.

National Westminster is expected to expand the issue to as much as $400 to $500 million if investor demand is strong.

New Role for Smith Barney

As part of its second crack at the market, Natwest has tapped Smith Barney Shearson for a larger role. Smith Barney is co-lead manager of the deal, a more prominent role than in the previous attempt to market the issue, said market sources.

In this position it will be junior only to lead manager Merill Lynch & Co., which is managing the books, sources said.

National Westminster was apparently dissatisfied with the advice it received from lead manager Merill Lynch earlier this month.

Natwest subsequently asked Smith Barney to be lead underwriter of the issue, but the firm was unable to recruit enough underwriters to launch the issue, said sources.

Officials from Natwest, Merrill, and Smith, Barney declined to comment.

The Natwest deal marks the first time Smith Barney Shearson has flexed its muscle in the preferred stock arena since it bought the 9,000-broker network from Lehman Brothers this summer.

Preferred stock is traditionally sold mostly to individual investors via retail brokerage firms, and Smith Barney's purchase of Shearson's broker network gives it the second-largest broker force on Wall Street.

One part of the Natwest offering is being targeted to European investors, who have purchased sizable portions of similar deals in the past, according to a source.

The size of the tranche will depend on demand.

Spanish Offering

Separately, Banco Santander Finance, a subsidiary of Banco Santander of Spain, plans to issue $250 million of preferred stock.

The stock, with a price of $25 per share, is being marketed with a proposed dividend of around 7 3/8% through underwriters led by Goldman Sachs & Co.

The 10 million-share issue will probably be priced today, said sources. The issue is rated Al by Moody's Investor Service and A plus by Standard & Poor's.

Earlier this week, Chemical Bank issued $150 million of subordinated bank notes, priced to yield 6.142% or 90 basis points over the 10-year U.S. Treasury note.Banks Come to MarketRecent debt salesChemical Bank $150 million Subordinated debtUncoming capital issuesNational Westminster Bank $300 Exchangeable subordinated debtBanco Santander Finance $250 million Preferred stock

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