Magazine article American Banker

Banks Issue Fewer Bonds; Trend Likely to Continue

Magazine article American Banker

Banks Issue Fewer Bonds; Trend Likely to Continue

Article excerpt

Bank bond issuance tapered off in November and is not expected to pick up again despite falling interest rates.

Banks issued $7.2 billion worth of debt in November, off from $11.6 billion in October.

Some market sources note that there are few reasons for banks to go to the capital markets, since loan growth is sluggish and profitability is high.

"I think everybody feels very good about funding levels and isn't encouraged to go out and issue bonds," said John Mack, treasurer of NationsBank Corp.

Mr. Mack added that banks are also taking advantage of longer than normal credit costs in recent history.

"If there is no fundamental reason to use the money, then you're not going to issue paper into the debt market," he said.

Some market sources said that the frenzied issuance of new trust securities -- Quips and Toprs -- is partially responsible.

"You can not issue this quantity of [preferred] debt without some impact on the bank bond market," said bank bond analyst Katharine Rossow of Chase Securities Inc.

NationsBank issued $600 million of the tax-advantaged securities last week. Market sources expect roughly $2 billion in Quips and Toprs this week.

Quips or Toprs are the only securities that enable banks to meet tier I capital requirements and take a tax deduction on the proceeds -- making it one of the most inexpensive ways for the banks to raise regulatory debt.

Ms. Rossow said that standard debt issuance by banks and preferred securities should have little effect on each other because they appeal to different investors. …

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