In early September of this year, I wrote an article regarding a new Citigroup (C) preferred stock. The issue discussed was the Series J preferred which had a 7.125% dividend rate. At the time, I stated:
Bottom Line: I like the new Citigroup issue and intend to position it within my income focused portfolios. The bank has been making progress in rightsizing and reducing their risk profile and the preferred should do well (change in rates aside, which will affect all income securities) from an idiosyncratic (non-systemic) standpoint.
Here we are approximately six weeks later and Citigroup is issuing a new series K non-cumulative perpetual preferred stock.
The following is a summary of the issuance:
The dividend rate is lower than the prior issue as the market has come back somewhat, but the preferred has begun trading at a discount on the break.
First, a look at how the new issue compares to other issues within the Citigroup name:
Based off the above table, I believe that the new issue compares favorable and can be had for a discount. The size of the deal at North of a billion, helps ensure liquidity.
While I find it attractive versus this set of peers, I recently wrote about a smaller bank, First Republic Bank (FRC), that I find even more attractive. Currently, the FRC 7.00% Series C has a current yield of 6.99% as well as a stripped yield of 6.99%. In my article on First Republic, I stated I liked the Series A more than the Series C, but the price on the Series A has increased a little, making the new Series C more attractive.
Finally, a look at the equities of the peer group as an indicator of market opinions on health:
C data by YCharts
The market appears to believe there is value in the Citigroup story, which supports the attractiveness of the new preferred. I will point out that the market also likes First republic, so take a look.
Bottom Line: I realize this is a non-cumulative issue and that Citi received a massive amount of aid (two recurring issues with bank preferreds), but I like the direction of the bank and believe that the preferred is attractive. As to the callability of the issue in 10 years, the LIBOR spread is significant, and if things have calmed down (and we should all hope and think so), there is a decent chance of redemption.