U.S. CORPORATE FINANCE - BANK PAPER PRESSURED
Debt securities issued by major U.S.
banks are under pressure in the secondary market as investors
shy away from the paper because of Brazil's suspension of
interest payments last month, analysts and traders said.
    On February 20, Brazil said it would suspend interest
payments on 68 billion dlrs owed to foreign commercial banks.
No date was established for the renewal of payments.
    "Buyers have backed away from bank paper. These securities
have become very difficult to sell despite a rise in their
yields," said one corporate bond trader.
    "Debt issues of major money center banks will probably
continue to trade off until such time as the Brazil situation
is resolved," said Loretta Neuhaus, a vice president with
Merrill Lynch Capital Markets.
    "I have not told any of our investors to stay away from the
banks in general," she added. "But I have not received too many
inquiries by prospective buyers lately either."
    Traders said debt securities of U.S. banks that are
perceived by investors to be heavily exposed to Latin American
debtor nations declined moderately in price last week. They
said the difference between bids and offers widened.
    "There is not much trading of bank issues these days," an
underwriter said, referring to the wider bid/offer spreads.
    However, he and others pointed out that the secondary
market has not seen heavy selling by institutions, funds and
other investors.
    "The selling has been steady over the past couple of weeks.
But it has been far from panicky," said another trader.
    In addition, institutional sources told Reuters on Friday
that Salomon Brothers Inc lowered its investment ratings on the
stocks of all U.S. money centers. But the sources said it is
understood the action is not a sell recommendation.
    While institutional sources said Salomon lowered the
ratings to M from O-plus on bank stocks, bond traders said this
carried over to the secondary market and further undermined
confidence in bank paper.
    The banks affected by Salomon's change in investment coding
were Bank of New York Co Inc <BK>, Bankers Trust Co <BT>, Chase
Manhattan Corp <CMB>, Chemical New York Corp <CHL>, Citicorp
<CCI>, Irving Bank Corp <V>, Manufacturers Hanover Corp <MHC>,
J.P. Morgan and Co Inc <JPM>, Marine Midland Banks Inc <MM>,
Republic New York Corp <RNB>, Bank of Boston Corp <BKB> and
First Chicago Corp <FNB>, sources said.
    The institutional sources said Salomon cited a filing with
the Securities and Exchange Commission by Citibank, the lead
bank of Citicorp.
    Citibank said Friday it told the SEC its earnings could be
reduced by 50 mln dlrs after-tax in the first quarter, and 190
mln dlrs in the year, if it has to declare 3.9 billion dlrs of
medium- and long-term Brazilian loans non-performing.
    "I believe there will be some renegotiation along the way
between Brazil and the banks such that the banks will not have
to charge off their loans to Brazil," Merrill Lynch's Neuhaus
commented.
    But until then, investors are widely expected to remain
leery of buying bank paper, according to analysts and traders.
    In an unrelated development, RJR Nabisco Inc <RJR> paid
what some bond traders said amounted to a "penalty fee" when
the company tapped the domestic debt market on Friday.
    RJR Nabisco sold 500 mln dlrs of sinking fund debentures
due 2017 via lead manager Shearson Lehman Brothers Inc. The
debentures had an 8-5/8 pct coupon and were priced at 98.675 to
yield 8-3/4 pct, or 115 basis points over the off-the-run 9-1/4
pct Treasury bonds of 2016. The yield and premium over
Treasuries was greater than a similar financing in January.
    On January 22 Nabisco sold 500 mln dlrs of same-maturity,
same-rated sinking fund debentures priced to yield 8.62 pct, or
107 basis points over the 9-1/4 pct Treasury bonds.
    Both issues were rated A-1 by Moody's and A by S and P.
    Bond traders noted that Nabisco has called for redemption
around 1.2 billion dlrs of its 11.20 pct notes of 1997. Nabisco
will buy them back at 107.50, traders said.
    "The redemption of an attractive double-digit yield issues
has tainted Nabisco in investors' eyes," said one trader.
"Obviously, a lot of prospective buyers believe Nabisco should
pay a higher yield because of that."
    Traders also asserted that the higher yield in Friday's
pricing reflected the total debt issuance of one billion dlrs
so far this year by Nabisco.
    "Investors may be showing some signs of indigestion,"
remarked one trader. Traders said they expect Nabisco will
float more debt in the coming weeks to finance the redemption
of the 11.20 pct notes.
    Officers on Shearson's syndicate desk declined to comment.
    IDD Information Service said the 30-day corporate visible
supply rose to 3.28 billion dlrs last week from 1.79 billion
dlrs in the previous week.
 Reuter
