A sudden rise in bond yields has stymied what had looked to be a big week for bank issuance of subordinated debt.
About $800 million in subordinated debt was expected to come to market, but now it looks like some of that Tier 2 capital-raising will be put off until the market rebounds. Other banks, hoping to take advantage of low interest rates, wound up paying a lot more than expected.
Comerica Bank Detroit, a unit of Detroit's Comerica Inc., has delayed pricing $150 million of subordinated debt because of unsettled market conditions, said Paul Martzowka, chief financial officer of the holding company.
Deciding to Wait
"We were going to price it this week, but because of upset in the market we decided not to," he said. The bank was hoping to issue debt at a spread of 85 basis points over comparable Treasuries, Mr. Martzowka said. "It remains to be seen if that can be done."
Boatmen's Bancshares Inc., St. Louis, did brave the market, issuing $100 million of subordinated debt Wednesday. The 12-year subordinated notes were priced at par to yield 7.63%, or 111 basis points over 10-year Treasuries. When the deal was first shopped around, the price talk called for a spread of 100 to 105 basis points.
One Wall Street source estimated that Boatmen's would have paid 10 basis points less if it tapped the market earlier in the month. Jim Kienker, chief financial officer of Boatmen's, said, "The market's more difficult this week than it's been in the last two weeks."
He said, however, the borrowing rate was still attractive, noting that Boatmen's still paid one percentage point less than on a $50 million subordinated debt issue last November.
Westpac Banking Corp., Sydney, Australia, also issued subordinated debt this week. The $350 million 10-year issue was priced to yield 7.98%, 150 basis points over Treasuries. The price talk had been 125 basis points.
Huntington Bancshares, Columbus, Ohio, is also believed to be preparing to issue $200 million of subordinated debt. Company officials were unavailable for comment.
The cost of issuing subordinated debt has risen in recent weeks in part because of the rise in yields in the bond market. The 10-year U.S. Treasury note, the usual benchmark for pricing subordinated debt, has jumped 15 basis since last Friday.
On top of the rise in yields, the Premium banks pay over Treasuries has also increased. Underwriters are less willing to price deals at tight yield spreads because demand for new bonds is down.
In a Sept. 16 report. Keefe, Bruyette & Woods Inc. said the yield spread of its bank bond index had backed up to 105 basis points from 95 basis points near the start of the month.