Wells Fargo & Co. brought to market a tightly priced $500 million in 10-year bonds Wednesday, one of the largest bank debt issues in recent memory.
Wall Street analysts said Wells has not been a particularly active issuer of bonds.
"Whenever this bank issues, it's unusual," said John Works, a bank bond analyst at J.P. Morgan Securities. "This is one of the biggest bank deals on record."
A spokeswoman for the bank said the bonds are intended to help manage the combined risk-based capital level of Wells and First Interstate, which it acquired Monday.
"The issue will maintain the risk-based capital level within our guidelines so that we can continue to have the flexibility to repurchase shares," she said.
Wells received some positive news Wednesday, as Moody's Investors Service upgraded the long-term debt of both Wells and First Interstate to A1 from A2. Wells had been on positive credit watch since Oct. 18, when it announced its bid for First Interstate.
Moody's said the rating outlooks for Wells Fargo & Co. and its principal subsidiary, Wells Fargo Bank, as well as for Wells' other rated bank subsidiaries, remain positive after the upgrading.
The rating agency has been extremely positive on the benefits of bank mergers.
Moody's estimated that $12 billion of securities of the California banks are affected by the upgrading.
Analysts said the new offering by Wells may reflect some weakening of its core deposit base. They also were surprised at the yield on the bond, which was lower than that for higher-rated banks.
The bonds were priced at 62.5 basis points over the 10-year Treasury security, which is five or six basis points tighter than most analysts had expected. By comparison, Citicorp's higher rated 10-year bonds trade at 63 basis points over Treasuries.
Lower yields make issuing debt cheaper for banks. If the yields are too low, however, investors may not buy the deal until it is offered at a greater spread.
Such a scenario could create an unfavorable environment for future bonds.
"Bank bonds appear to have hit the wall, and the price on this is one millimeter into the wall," said David Hendler, a bank bond analyst at Smith Barney.
"The sector has given investors everything they could hope for for the last four to five years, and it seems to be hitting a point where it can't get any tighter," Mr. Hendler said.
The Smith Barney analyst said a deal like this shows that there is much more value in Yankee bank paper - dollar-denominated debt issues floated in the United States by foreign companies.
"You can buy Bangkok Bank of Thailand for 118 basis points over 10-year Treasuries, which is 100% cheaper than the Wells deal," he said.