notes to market last week, despite investors' rising concern about credit quality. The noncallable notes were initially priced at a spread of 45 basis points over comparable Treasuries, and started selling at around 50 basis points over Treasuries. The low spread underscored strong support for Norwest, but analysts said the 5-basis-point uptick reflected wariness in the marketplace. Craig R. Stine, a finance company analyst at Salomon Brothers Inc. said investors have become concerned with the overall credit quality of the financial services sector as a result of higher delinquencies reported by American General and the Money Store."The market has softened a bit," he said. Analysts noted that the Norwest issue appeared to be easy to sell, and that the investor interest in the company's debt is still generally high. Indeed, they said Merrill Lynch & Co. would still profit from the transaction, even though Norwest secured somewhat favorable pricing. "Norwest is viewed by many as the cream of the crop in finance land, along with Associates and G.E. Capital," said John Works, a bond analyst at J.P. Morgan & Co. Some analysts warned that Norwest could imperil its ratings if it were to bid for First Interstate Bancorp or parts of the Prudential Mortgage Co. "If they are a white-knight bidder for First Interstate and a major bidder for Pru, their bonds could weaken," said one bank bond analyst. But a more sanguine view still prevails. One analyst argued that Norwest is not likely to dilute its capital levels appreciably by purchasing parts of Prudential or endanger its ratings with a First Interstate acquisition. "I would be highly confident that Norwest will distinguish itself as one of the companies with good asset quality and a high level of profitability," said Mr. Stine. "I see no reason for that to change." Allerton G. "Tony" Smith described the event risk at Norwest as "low." "The only time a bondholder at Norwest Financial would be concerned would be if these deals were done and would somehow impact Norwest Financial," said Mr. Stine. "Clearly, it is not my view that Norwest has any intention of impairing the existing financial condition of Norwest Financial. It is a huge profit engine and a significant contributor to what goes on at the holding company."
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