Norwest Corp. came to market with $300 million in senior paper, taking advantage of a receptive market to raise cheap funds to meet loan demand.

Lead underwriter UBS Securities Inc. initially priced the three-year, medium-term notes at 23 basis points over comparable Treasury bills. The price later widened to 27 basis points over Treasuries.

In a "bought" deal like this one, "an underwriter prices tightly in order to get the business ... and then some time afterward the (spread) widens," said Katharine Rossow, an fixed-income analyst with Furman Selz. "Norwest really got a fabulous price for this,"

Ms. Rossow added that the prices for debt are generally "very low" and that Norwest, like other banks, is "taking advantage of the low interest rates so that they can lock in the price."

The yield on the notes may be low for investors, said Ms. Russow, but they are getting a safe bond. The notes were priced at 99.981 to yield 6.25%

The $300 million issue was the Minneapolis-based bank's fourth and largest of 1996. The bank issued $200 million in medium-term notes on Feb 5; $200 million on Feb 12; and $200 on March 18.

Norwest, like other banks, is issuing debt to help build its funding base, said Blaine Frantz, a fixed-income analyst with Citicorp Securities.

"Loan growth is outpacing deposits" explained Mr. Frantz "In general, as long as banks have some trouble growing their deposit base, they will use wholesale funding, which has been cheap."

The banking industry "is becoming more reliant on noncore funding for growth" because they have lost ground to other providers of deposits, added Sheryl Harrison, a fixed-income analyst with PNC Institutional Investment.

In other news, Standard & Poor's affirmed its ratings on $225 million of Mercantile Bancorp. debt, but lowered the outlook on the company's long- term debt to stable from positive.

In affirming the debt ratings, the agency noted the strength of the St. Louis bank's franchise. S&P said it was lowering the outlook because of an increase in consumer-related credit expenditures, notably in the credit card portfolio.

Mercantile "had two super years" and may find it difficult to continue at the same level, said Thomas Abruzzo, analyst at S&P.

Affirmed were the BBB-plus rating on Mercantile's corporate credit and the BBB rating on its subordinated debt.

S&P also affirmed the A-minus/A2 rating on Mercantile Bank's uninsured certificates of deposit, the BBB-plus rating on its subordinated notes, as well as Mercantile's A-minus long-term counterparty rating and A2 short- term counterparty rating.

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