(Bloomberg) -- Morgan Stanley is offering to sell a type of bank capital security that the country’s biggest lenders neglected for almost two years.
The bank is looking to raise $250 million through a perpetual preferred share issue on Tuesday that pays a fixed rate for life, according to a person familiar with the matter who asked not to be identified. The prospective issue, which targets retail investors with its $25 dollar chunks, is callable after five years.
This type of note has been a rarity among the so-called Big Six in recent years, as big lenders focused more on preferred issues sold to institutional clients with more complicated pay structures. Retail investor-friendly preferreds gained prominence this year among regional lenders as a way to raise capital while giving small investors a way to profit when interest rates drop.
“The fixed-for-life structure will benefit retail investors because they have no ability to hedge rates,” said Spencer Phua, senior desk analyst at Piper Sandler Credit Trading, who flagged the potential for good price performance if rates come down.
Morgan Stanley and other banks involved in the deal can rely on their strong retail networks, Phua said.
Morgan Stanley didn’t respond to a request for comment.
Preferreds with smaller denominations are traded on exchanges and often pay a fixed coupon until the bank decides to redeem it. Those with larger denominations change hands over-the-counter and pay an initial fixed rate until the first early redemption option, after which they switch to a floating rate, similar to the Additional Tier 1 bonds used to raise capital by banks in many other countries.
Just over two months ago, Buffalo, New York-based M&T Bank Corp. managed to score the same cost of capital as Goldman Sachs Group Inc. with a retail preferred issue. Back then, some investors raised questions about the amount of capital that could be raised with a $25-par preferred.
Prior to Morgan Stanley’s offering Tuesday, no bank among the Big Six — a group comprising Goldman Sachs, Morgan Stanley, JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp. and Citigroup Inc. — had sold preferred stock in $25 increments in almost two years.
Also on Tuesday, Citigroup tapped the market in an effort to raise at least $500 million with an institutional investor-focused note callable after 10 years.
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