Magazine article American Banker

First Union Leads Bank Rush to Borrow at Bargain Rates

Magazine article American Banker

First Union Leads Bank Rush to Borrow at Bargain Rates

Article excerpt

Falling interest rates and strong investor demand are enabling banks to issue debt at rock-bottom yields.

First Union Corp. on Friday floated $150 million in 10-year notes that will pay investors a puny 7.29%.

That is the lowest yield on long-term debt offered by a commercial bank since last fall and among the lowest in years.

What's more, the yield was a scant 89 basis points above that of 10-year Treasury notes, the smallest spread enjoyed by the North Carolina-based bank in a decade, according to treasurer Ken Stancliff.

The issue was one of several totaling $800 million that were offered Friday by banks and thrifts taking advantage of falling interest rates and tight spreads.

The other issuers: Chemical Banking Corp., Pittsburgh National Bank, and World Savings and Loan Association.

Lowest Yields Since September

Banks have not floated 10-year subordinated debt yielding less than 7.3% since last September, said Amit Agrawal, associate analyst with Moody's Investors Service Inc.

And among debt issued by banks with low investment-grade ratings, the First Union issue has the lowest yield "in many years" for 10-year subordinated debt, Mr. Agrawal said.

Investment bankers said the issue sold out within hours Friday.

First Union's subordinated debt is rated Baa2 by Moody's and BBB-plus by Standard & Poor's Corp.

The last 10-year issue to yield less than First Union's came last Sept. 8, when BankAmerica Corp. …

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