Bank of Boston Issuing Debt to Finance a Surge in Loans
Siegel, David, American Banker
To keep up with surging loan demand, Bank of Boston Corp. said on Tuesday it plans to raise as much as $350 million of subordinated debt by the end of next week.
Loans and leases at the super-regional bank grew 10.2% in the last two quarters, far above the industry average. The proceeds of the issue are needed to buoy risk-adjusted capital levels as the bank adds assets.
"Loans grew a lot, which is good news, and we need to keep pace in levels of capital," said Brad Warner, a treasury executive at the bank.
Bank of Boston's situation stands in contrast to those at the vast majority of banks that have tapped the capitai markets since the start of last year.
Banks have generally issued subordinated debt, which counts as Tier 2 capital, to lift capital ratios, finance acquisitions, or refinance higher-cost issues. Rarely, if ever, did they issue debt to boost capital levels in the face of loan growth.
There's been little need to. About 90 of the 152 banks tracked by the investment firm of Keefe Bruyette & Woods Inc. had loan growth in the 12-month period ending Sept. 30, with 62 reporting a decline. The median change in loan holdings was only a 1% rise.
Bank of Boston's loans grew by $1 billion in the second quarter and $1.6 billion in the third quarter, excluding the effect of acquisitions, said John Kahwaty, director of investor relations. Loans and leases totaled $27.9 billion at Sept. 30.
The third quarter increase included $600 million in commercial and industrial loans, comprising loans to middle market companies in New England and other regions. In addition, the bank increased its consumer loans by $450 million and added $500 million in international loans. …