Magazine article American Banker

First Chicago Stirs Speculation

Magazine article American Banker

First Chicago Stirs Speculation

Article excerpt

First Chicago Corp. may use an upcoming $300 million preferred stock issue to facilitate a planned balance-sheet cleanup or to make acquisitions, analysts said.

In its filing with the Securities and Exchange Commission, First Chicago said it would use the proceeds to refinance debt and for general corporate purposes. It declined to elaborate, but analysts suggested a variety of potential uses for the new funds.

"Certainly, its capital is at acceptable levels already, but more capital would increase" the company's "range of flexibility," said John Leonard, analysts at Salomon Brothers Inc.

Help for Capital Ratio

A $300 million preferred stock issue would add about 60 basis points to the company's Tier 1 capital ratio, which was 6.4% at June 30.

Added capital could support an "opportunistic purchase" of assets, such as a credit portfolio or bank in the Chicago region, Mr. Leonard said.

The company could also use proceeds of the preferred stock to facilitate a restructuring of up to $3 billion in assets, analysts said.

In the second quarter, the company announced plans to dispose of problem real estate and nonstrategic assets. It said it is considering moving the assets to a separately capitalized "bad bank."

Whether or not First Chicago opts for a bad bank, a restructuring would cause it to increase reserves, thus potentially eating into capital.

In a July 15 report, Salomon estimated that $350 million to $450 million in additional reserves would be needed if the assets were written down but kept within the bank. …

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