Market Currents
Preferred stock investors aren't happy about banks buying back their trust preferred shares...
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Tuesday, October 9, 2012, 11:31 AM ETPreferred stock investors aren't happy about banks buying back their trust preferred shares before the call date and often at face value (despite them trading at premiums), but new capital rules - "a capital treatment event" - allow the lenders to do so. Bank of America (BAC), says JPMorgan's Vivek Juneja, is likely to see the biggest benefit to its bottom line.
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This news story has 11 comments:
You only lose a chunk of money if you had bought them above par.
No, you lose all the premium above par, no matter what your acquisition price.
Looking at the big picture, bank credit spreads have tightened dramatically and preferred stocks are pinned against their $25 call price. What this is telling you is that it's time to move down the capital stack and roll into common, especially since BAC/C/JPM are still trading below book value. This obviously entails more risk than buying the preferreds, but the same credit forces that worked farther up in the capital stack are still working in your favor.
For bank-preferred spelunkers, here's one that still has appeal: SNV-T.
Good that you bring that up. I always use Quantum, one of my all-time favorite investment sites.
Presently, SNV is selling at $2.49. On May 15,2013, SNV-T will mandatorily convert into 9.00 shares of SNV, provided that SNV's price remains below $2.75. That means that at today's SNV price, those 9.09 shares are worth $22.63. SNV-T is presently priced at 22.50 and will make three more interest payments on the note, totaling $1.5468.
The foregoing means that at today's prices, on May 15, the holder will have received $1.5468 plus $22.63 in shares, for a total value of $24.1768. That is a gain of 7.45% for slightly more than six months holding, or 14.19% annualized.
Of course, one must measure such return against the possibility of adverse events in SNV common stock. Then again, if SNV rises, the returns will be even better.
Thanks