Yesterday HSBC Holdings (HSBC) USA announced the redemption of $1.265bn of preferred securities. I would usually say this was a 'surprise' announcement as some of the issues called, particularly HUSI-F, were trading below par. But as I said in my article about last week's UBS redemption, there is a distinct trend of this activity in Europe based banks.
The full announcement can be found on Yahoo Finance here, but to summarize, the following securities were called -
- 20,700,000 shares of Floating Rate Non-Cumulative Preferred Stock, Series F (ticker symbol: HUSI-PR F);
- 373,750 shares of Floating Rate Non-Cumulative Preferred Stock, Series G and 14,950,000 Depositary Shares, each representing one-fortieth of a share of Floating Rate Non-Cumulative Preferred Stock, Series G (ticker symbol: HUSI-PR G); and
- 373,750 shares of 6.50% Non-Cumulative Preferred Stock, Series H and 14,950,000 Depositary Shares, each representing one-fortieth of a share of 6.50% Non-Cumulative Preferred Stock, Series H (ticker symbol: HUSI-PR H).
HUSI-F was only costing HSBC 3.5% as the yield was based on 3 month LIBOR + 0.75% or 3.5%, whichever was higher. Obviously they won't be able to issue anything with a lower yield, so the redemption must have been forced upon them. In fact Yahoo reports,
'The redemptions announced today were approved by the Federal Reserve Board as part of HSBC North America's planned capital actions pursuant to the 2015 Comprehensive Capital Analysis and Review (CCAR), and reflect the strategy of HSBC North America Holding Inc. and HSBC USA of continuing to optimize their capital structures according to U.S. Basel III'
This I find very interesting as if these regulations are forcing redemptions, why is nobody predicting this? HUSI-F traded at $22.5 at yesterday's open, so anyone in the know made an easy 10%. And as I reported last week, UBS-D holders made a whopping 52% gain on redemption.
Also, these regulations are costing banks money. Where did HSBC find $1.265bn to call these stocks? Looking at the share price performance of European banks, it looks like something is wrong. This isn't the time to be make costly regulations.
How does a HSBC stock holder or bond holder feel, seeing HUSI-F being redeemed. Will one of them say "thanks for improving the capital structure" by redeeming this 3.5% stock.
Other stocks to be redeemed lately include - BCS-C, RBS-E, RBS-I, RBS-G
What stocks could be next?
AEG preferreds, ING preferreds, DB preferreds, PUK preferreds, SAN preferreds, etc. ... Every one's job has to be to dig deeper into the redemptions and to find the next one trading bellow call price.
Conclusion. Too many redemptions from European banks have to mean something. Is there another storm coming? Would you redeem UBS-D or HUSI-F if you weren't forced to do it?
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in HSBC over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.