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Preferred stock investors aren't happy about banks buying back their trust preferred shares...

Preferred 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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Comments (11)
  • Tortoise #1
    , contributor
    Comments (431) | Send Message
    This is the reason we buy Preferred within an ETF! If one or more are called, the effect is moderated by the large number of holdings!
    9 Oct 2012, 11:44 AM Reply Like
  • Tack
    , contributor
    Comments (13562) | Send Message
    Anybody holding preferreds, near or past their call dates, and at any significant premium to par, is just begging to lose a nice chunk of money.
    9 Oct 2012, 12:09 PM Reply Like
  • Epistuff
    , contributor
    Comments (4) | Send Message
    You only lose a chunk of money if you had bought them above par.
    9 Oct 2012, 01:15 PM Reply Like
  • Tack
    , contributor
    Comments (13562) | Send Message


    No, you lose all the premium above par, no matter what your acquisition price.
    9 Oct 2012, 01:55 PM Reply Like
    , contributor
    Comment (1) | Send Message
    A Capital Treatment Event in the offering enables them to do so . Given the current rates wouldn't you do it if you were the banks?
    9 Oct 2012, 04:32 PM Reply Like
  • sikkabooyah
    , contributor
    Comments (473) | Send Message
    I wouldn't blame the banks for exercising their prerogative if it were not for the fact that a Capital Treatment Event can be triggered by a bank teller sneezing.
    30 Oct 2012, 03:48 PM Reply Like
  • Joe X
    , contributor
    Comments (72) | Send Message
    The reward has pretty much been squeezed out of the bank preferred market at this point, with most issues trading at or slightly above par. If you were fortunate enough to have bought well below par over the last two years, it's probably time to reassess where you are anyway. An early call just forces the issue.


    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.
    9 Oct 2012, 08:29 PM Reply Like
  • Tack
    , contributor
    Comments (13562) | Send Message
    Yep, pretty much on the money.


    For bank-preferred spelunkers, here's one that still has appeal: SNV-T.
    9 Oct 2012, 09:03 PM Reply Like
  • sikkabooyah
    , contributor
    Comments (473) | Send Message
    OK, but before you plunk your $$ down on SNV-T you might wanna check out what has to say about this B3/B- rated mandatory convertible security!
    30 Oct 2012, 03:53 PM Reply Like
  • Tack
    , contributor
    Comments (13562) | Send Message


    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.
    30 Oct 2012, 05:53 PM Reply Like
  • dividender
    , contributor
    Comments (2) | Send Message
    Are ETFs e.g. PFF, PGF, and PGX which hold preferred shares at risk of large scale repurchases by their issuing corporations which then in turn might drive down the dividends and share prices of the ETFs I've listed?


    10 Oct 2012, 03:10 PM Reply Like
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