Magazine article American Banker

Money-Center Yields Are Reaching Parity

Magazine article American Banker

Money-Center Yields Are Reaching Parity

Article excerpt

After being in the doghouse for several years, bonds of money-center banks have caught up with the rest of the industry.

Ten-year subordinated debt securities of money-center banks now trade at yield premiums of 10 or fewer basis points above issues of other banks with similar credit ratings.

This is a sharp improvement from the extra yield of up to 200 basis points that weaker money-center bonds carried in the secondary market two years ago.

No More 'Money-Center Taint'

"What I think you're seeing here today is there is no longer a money-center taint to these names," said Allerton Smith, analyst at First Boston Corp. "I would say they are on par with their superregional counterparts in terms of spread."

The convergence of yields in the secondary market means money-center banks are no longer handicapped by higher borrowing costs than regional bank issuers when they tap the markets.

The bonds of lower-rated money-center banks such as Citicorp, Chase Manhattan Corp., Chemical Banking Corp., First Chicago Corp. have show the most improvement.

More highly rated money-centers such as J.P. Morgan & Bankers Trust New York Corp., and Republic New York Corp. did not stumble in the 1980s and so have not had a sharp rebound in their bonds.

On Tuesday, 10-year subordinated debt issues of Citicorp, Chemical, First Chicago, and Chase were quoted at 78 to 85 basis points over the 10-year U.S. Treasury note, compared to a 78-basis-point spread for First Union Corp. …

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