A seller's market has developed for bank securities.
Last week, BankAmerica Corp., Norwest Financial Inc., and a unit of Westcorp bank issued $650 million worth of securities at notably cheap prices.
BankAmerica came to market on Friday with a $350 million issue of 10- year subordinated debt, which was priced at 55.5 basis points over Treasuries. BankAmerica paper usually is issued at about 63 basis points over Treasuries, said traders.
On the same day, Norwest Financial issued $150 million of two-year notes at a spread of 15 basis points over Treasuries, when most of its paper trades at spreads in the mid-20s.
A unit of Westcorp came to market with $150 million of 10-year subordinated securities, also on Friday. The Irving, Calif., banking company was priced at 275 basis points over comparable Treasuries. Traders said its B1/BB+ company's securities usually trade at higher prices.
At the same time, Citicorp filed a $5 billion shelf for senior and subordinated notes with the Securities and Exchange Commission, indicating it plans to issue such securities.
Bank bond analyst Thomas Flynn of Morgan Stanley & Co. said the favorable pricing on bank securities is attributable in part to the short supply of bank paper.
Bank bond issuance tends to slack off during summer months and toward the end of a quarter. But Mr. Flynn and other analysts acknowledge that the climate for issuing securities is ideal and predict some banks will come to market to take advantage of prices.
Interest rates on government bonds, bills, and notes remained low and favorable.
"Across the board, bank paper remains well bid because the fundamentals and interest rates are good," said Mr. Flynn. "This will always help the spreads."
The cheaper issuing prices, however, do not mean that investors are paying more, said analyst Stanley T. August, head of bank bond research for First Union Capital Markets. Mr. August said that although BankAmerica was priced at 55.5 basis points over Treasuries, investors bought it at 61. Norwest's and WestCorp's paper were also issued at lower prices, traders said.
The difference comes out of the pockets of the underwriters. Mr. August said investment banks underwrite the issues anyway, because they want to maintain relationships with the issuing banks.