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As the Federal Reserve continues to stress test banks and complete the Comprehensive Capital Analysis and Review process, various banks are being given the green light on their capital plans. While some of these capital plans include increasing dividends on common stock or beginning a share repurchase program, others include redeeming Trust Preferred Stock (TruPS) that will no longer be treated at Tier 1 Capital. At the same time, other financial institutions have been issuing new perpetual fixed-rate preferred stock that does count as Tier 1 Capital and is a low-cost source of funds for them.

Called Preferreds

Four major financial institutions have announced the redemption of Preferred Securities recently:

Bank of America (NYSE:BAC)
Bank of America has announced the redemption of two traditional preferred stocks in the coming months, although neither of them have been called early. The Bank of America 8.20% Non-Cumulative Perpetual Fixed-Rate Preferred, Series H (ticker: BAC-H) has been called for May 1, 2013 and the Bank of America 8.625% Non-Cumulative Perpetual Fixed-Rate Preferred, Series 8 (ticker: BML-Q) has been called for May 28, 2013.

PNC Financial Services Group (NYSE:PNC)
PNC announced the redemption of a very high-cost traditional preferred stock, the PNC 9.875% Non-Cumulative Perpetual Fixed-to-Floating Rate Preferred, Series F (Ticker: PNC-L) for April 19, 2013. As of February 1, 2013, the position had become a floating rate position that paid 3-Month LIBOR (3ML) plus 6.330%. With 3ML currently at 0.28%, this would make the coupon on this position 6.610%. Given that PNC was able to issue two traditional preferreds in 2012 below this rate and that this position was only going to become more expensive for the company to continue paying as time went on (as 3ML rises), it's not surprising that PNC called this position.

Citigroup (NYSE:C)
On March 15, Citigroup announced the redemption of four Trust Preferred Securities:

  • Citigroup Capital VII, 7.125% TruPS (ticker: C-V)
  • Citigroup Capital VIII, 6.950% TruPS (ticker: C-Z)
  • Citigroup Capital XIV, 6.875% Enhanced TruPS (ticker: C-O)
  • Citigroup Capital XV, 6.500% Enhanced TruPS (ticker: C-U)

All four of the TruPS have been called for April 16, 2013.

Credit Suisse (NYSE:CS)
Credit Suisse announced that it would be redeeming its Exchange-Traded Debt on March 28, 2013 for $25.07132. This is the initial optional redemption date for the Credit Suisse 7.90% Tier 1 Capital Notes, which is outlined in the Prospectus.

New Preferred Stock Issues

If you have found yourself with an upcoming need to invest when you receive cash for your redeemed preferred securities, there are five new preferred issues that are worth taking a closer look at.

Astoria Financial (AF) 6.50% Non-Cumulative Perpetual Fixed-Rate Preferred Stock, Series C (ticker: AF-C)

Astoria Financial is a "well capitalized" financial institution by all three capitalization ratios. AF-C is rated non-investment grade by both Moody's and S&P, and will make its first dividend payment on July 15, 2013.

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

Citigroup 5.80% Non-Cumulative Perpetual Fixed-Rate Preferred Stock, Series C (ticker: CITGL)

Citigroup is a "well capitalized" financial institution by all three capitalization ratios. CITGL is has non-investment grade ratings from both Moody's and S&P, and will make its first dividend payment on July 22, 2013.

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

Wells Fargo (WFC) 5.25% Non-Cumulative Perpetual Fixed-Rate Preferred Stock, Series P (ticker: WFC-P)

Wells Fargo is a "well capitalized" financial institution. WFC-P has investment grade ratings from both Moody's and S&P, and will make its initial dividend payment on June 15, 2013.

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

Texas Capital Bancshares (TCBI) 6.50% Non-Cumulative Perpetual Fixed-Rate Preferred Stock, Series A (ticker: (temp)TCBPP, (perm)TCBIP)

Texas Capital is a "well capitalized" financial institution by all three capitalization ratios. TCBPP is rated non-investment grade by both Moody's and S&P, and will make its first dividend payment on June 15, 2013.

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

Prudential Financial (PRU) 5.70% Junior Subordinated Notes (ticker: PRH)

PRH is an exchange-traded debt security, and while not exactly a preferred stock, since it is a hybrid security that trades on the NYSE I am including it in this list.

Prudential Financial is a "well capitalized" financial institution. PRH has investment grade ratings from both Moody's and S&P, and will make its initial payment on June 15, 2013.

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

Risks of Preferreds: Prior to investing in any bank preferreds, I recommend that potential investors make sure they understand the risks and nuances associated with the asset class. An overview of these risks is available in Navigating The Risks Of Buying Bank Preferred Stocks.

Ticker Reference Table: To help find preferred stocks on your trading platform, please see the Preferred Reference Table that I have posted.

Source: 5 New Preferreds To Replace Recently Called Securities

Additional disclosure: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of the author. Investors are strongly encouraged to do their own research and discuss potential investments with an investment professional.