BY DAVID SPEAKMAN
In a move similar to homeowners refinancing mortgages for lower loan rates, Greater Bay Bancorp of Palo Alto recently floated $150 million worth of five-year senior notes to raise cash.
Greater Bay says the strategy is cost effective and takes advantage of lower interest rates.
“The $150 million was really a replacement of some zero-coupon bonds that we issued back in April of last year that we were able to retire at a discount during 2002,” says Greater Bay CFO Steven Smith. “So the new funds will be used for liquidity purposes at the holding company.”
Led by Keefe, Bruyette & Woods Inc. of New York, the notes bear a fixed annual rate of 5.25 percent with interest paid every six months starting Sept. 30. The notes mature May 31, 2008 and cannot be called for early cash out.
Smith said Greater Bay will most likely invest the money in securities that can be cashed in when needed for future expenses.
“Being a holding company with 11 banks, you need to have some excess liquidity capacity,” Smith says. “So we’re doing it for stability and it also gives us extra cash should there be any small acquisition opportunities.”
But with the tough economy and the Federal Reserve putting pressure on net interest margins, Smith says his company is not looking into buying other banks.
That follows the general trend in California of few acquisitions in banking because of unrealistic price expectations of potential sellers, according to new research by RBC Dain Rauscher Inc. of San Francisco, which looked at the California banking industry during the past few weeks.
RBC analyst Joe Morford said despite Greater Bay’s exposure to a weakened commercial real-estate market, credit trends in its portfolio remain healthy.
“Not only is this portfolio well-diversified … more than two-thirds of the loans have personal guarantees,” Morford said. Research predicts it will take up to 10 years for all the vacant office space in the Bay Area to be leased. Morford also praised the recent $150 million note sale as helping Greater Bay’s debt restructuring efforts.