Magazine article American Banker

Banks Resume Issuing Preferred Stock

Magazine article American Banker

Banks Resume Issuing Preferred Stock

Article excerpt

Banks Resume Issuing Preferred Stock

After an August vacation, a few banks are testing the market for fixed-rate preferred stock.

H.F. Ahmanson & Co., Los Angeles, issued $175 million in fixed-rate preferred stock on Aug. 29, and a U.S. unit of Banco Santander is currently marketing a $150 million offering.

Meanwhile, Chase Manhattan Corp. filed a shelf registration in August to issue up to $250 million in preferred stock. And National Westminster Bank, the U.S. branch of National Westminster Bank PLC, is also rumored to be readying a new issue of its own.

Recent Dry Spell

The current pace is on target to match the $1.2 billion in preferred stock that banks issued during the first half of this year, said Jeffrey Peek, a managing director at Merrill Lynch & Co.

The pickup comes after several weeks when banks issued no preferred stock, according to Securities Data Co. In July, however, volume was $325 million.

The latest issues also coincide with low interest rates. That means banks can set dividend rates relatively low and keep their funding costs down. It also means investors are more willing to buy preferred stock because yields on lower-risk securities such as government bonds are unappealing.

Banks like to issue preferred stock because they can count it as Tier 1, or equity, capital under the risk-based capital rules. At the same time, issuing straight preferred stock that is not convertible into common does not dilute existing common shareholders' ownership. …

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