Magazine article American Banker

Banks' Subordinated Debt Issues Surpass $1.3 Billion This Week

Magazine article American Banker

Banks' Subordinated Debt Issues Surpass $1.3 Billion This Week

Article excerpt

Banks continued their rush into the subordinated debt market Thursday, raising more than a half-billion dollars by offering investors handsome premiums over Treasuries.

Thursday's issuers were Bank of New York Co., Citicorp, and Banc One Corp.'s Columbus, Ohio, unit.

Ending October Lull

They brought the total raised this week through subordinated debt offerings to more than $1.3 billion. This matched the amount raised by banks through issuance of all types of debt in October.

The rush to market follows a lull that preceded the presidential election, when the lack of demand from wary investors kept banks on the sidelines.

"Prior to the election, investor demand wasn't there," said Kenneth R. Stancliff, senior vice president and treasurer of First Union Corp., which issued $225 million in subordinated debt Tuesday. "We have a little window here, but if history holds true, it will close down in December."

Investors normally do not buy securities that month but instead look to take profits on their holdings before yearend.

This week's window of opportunity was opened by falling yields in the Treasury bond market. The yield on the government's 10-year note, the benchmark for most bank subordinated debt, had fallen about 10 basis points, to about 6.75% Wednesday, from the week before. The yield backed up Thursday, to 6.80%, but remained below week-earlier levels.

The combination of lower yields and renewed investor receptivity made this week attractive for banks to raise subordinated debt, which counts as Tier 2 capital, either for liquidity or to ensure that their units qualify as "well capitalized" under new regulations. …

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