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With so much uncertainty surrounding the market right now, my recent focus for my personal account has been bank preferreds. As I outlined back in September, there are a number of banks that are going to continue paying dividends because of their strong balance sheets (despite the interest rate pressure that they are under that is driving profitability lower). Many of these banks have issued Traditional Preferred Stock (versus Trust Preferred Stock, or TruPS) that will continue to be treated as Tier 1 Capital. My investment thesis has been to invest in banks that have continued to pay dividends on their common stock, that have solid Tier 1 Capital ratios, and have a strong business mix.

The biggest outstanding question surrounding bank preferreds right now is the tax treatment of dividends. Many bank preferreds are only taxed at 15% (whereas other preferred stocks can be taxed as normal income). If the tax code that allows these preferred stocks to be taxed at 15% expires, the after-tax yields on these positions will be worse than they currently are and they will look less compelling when compared with preferred stocks that currently are not taxed at 15% (preferred stocks of Mortgage REITs, for example). This means that the prices may decline in order to keep the returns competitive.

Monthly Performance

To track the performance of the bank preferred market I look at three ETFs - PowerShares Financial Preferred (NYSEARCA:PGF), PowerShares Preferred (NYSEARCA:PGX) and iShares S&P US Preferred Stock Index (NYSEARCA:PFF). The bank preferred market was slightly down for the month of November, which was in line with the overall market - the Dow was down by 1.565% (207 points) and the S&P 500 was down by 0.799% (11.4 points). As you can see from the below chart, the bank preferred market was not subject to the same volatility that was seen in the greater marketplace.

(click to enlarge)November 2012 Market Performance - Bank Preferreds vs. Overall Market

New Issues in the Month of November

It was a fairly busy month for new issues in bank preferreds as seven banks came to market with new securities.

Oriental Financial Group (NYSE:OFG), 7.125% Series D Non-Cumulative Perpetual Preferred Stock

OFG-D Summary Table

(click to enlarge)OFG-D Price Chart

A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.

City National Corporation (CYN), 5.50% Series C Non-Cumulative Perpetual Preferred Stock

CYN-C Summary Table

(click to enlarge)CYN-C Price Chart

A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.

EverBank Financial Corp (EVER), 6.75% Series A Non-Cumulative Perpetual Preferred Stock

EVER-A Summary Table

(click to enlarge)EVER-A Price Chart

A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.

Wells Fargo & Company (WFC), 5.125% Series O Non-Cumulative Perpetual Preferred Stock

WFC-O Summary Table

(click to enlarge)WFC-O Price Chart

A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.

First Republic Bank (FRC), 5.625% Series C Non-Cumulative Perpetual Preferred Stock

FRC-C Summary Table

(click to enlarge)FRC-C Price Chart

A copy of the prospectus is available in the Investor Relations portion of the First Republic website, which you can get to by following this link.

Taylor Capital Group (TAYC), 8.00% Series A Non-Cumulative Perpetual Preferred Stock

TAYCO Summary Table

(click to enlarge)TAYCO Price Chart

A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.

Webster Financial Corporation (WBS), 6.40% Series E Non-Cumulative Perpetual Preferred Stock

WBS-E Summary Table

(click to enlarge)WBS-E Price Chart

A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.

Month-End Summary

In the month of November, there were seven new bank preferreds issued. Here is a quick snapshot of how they stack up:

(click to enlarge)November 2012 New Issue Summary

October New Issue Performance

It is also important to keep an eye on how the new issues from the previous month performed. In October 2012 there were four new bank preferreds issued: Discover Financial Services (NYSE:DFS) 6.50% Series B Non-Cumulative Perpetual Preferred Stock (DFS-B), Goldman Sachs Group (NYSE:GS) 5.95% Series I Non-Cumulative Perpetual Preferred Stock, BB&T Corp (NYSE:BBT) 5.20% Series F Non-Cumulative Perpetual Preferred Stock, and Regions Financial Corporation (NYSE:RF) 6.375% Series A Non-Cumulative Perpetual Preferred Stock (RF-A).

October 2012 Summary

(click to enlarge)October 2012 New Issue Price Chart

It should be noted that both DFS-B and RF-A started trading ex-dividend (without their forthcoming dividend payment) during November and are both paying their initial dividend in December. If you add the dividend payments that are going to be paid (if you purchased them prior to the ex-div date), then your effective price is $0.203 higher for DFS-B and $0.19 higher for RF-A.

(click to enlarge)October 2012 New Issue as a Percent During Month of November

All of the October 2012 new issues were down for the month of November, but this is in line with the overall bank preferred market.

Bank Preferred Stocks Called in the Month of November

Three banks - Citi (NYSE:C), Capital One (NYSE:COF), and Regions - announced redemptions of preferred stocks in the month of November and substantially all were Trust Preferred Stocks (TruPS). Many of the preferred stocks have a clause that allows them to be called early if there is a change in the treatment of capital. Since TruPS are no longer going to be treated at Tier 1 Capital as per Dodd-Frank, a number of them have been and continue to be called. The preferred stocks that were called in November are:

November 2012 Called Securities

More information is available in the investor relations portion of each company's website.

November 2012

Overall it was an active month for the issuance of bank preferred stocks. With the overall market down slightly, it's no surprise that the bank preferred market was also down. However, when the overall market was down over 5% mid-month, the bank preferred market was only down about 2%. This lower volatility may make bank preferred stocks more attractive to certain investors who are looking to put their cash to work.

Source: Bank Preferred Stocks: Strong New Issues In November 2012