Between the holidays and wrapping up books for year end, December is typically a quiet month. With the "fiscal cliff" being thrown in our faces left, right and center it felt a little bit different this time around. Some dividend payments were moved into December, other companies paid special dividends, and some even moved all 2013 dividends into one December 2012 distribution.
With the uncertainty around the "fiscal cliff" and the typical year-end wind down, the bank preferreds new issue market was quiet.
December felt like a month where the market moved on hope and rumors, which is always a dangerous market to get involved in. While there were some opportunities in the bank preferreds market with prices lagging heading into the "fiscal cliff", the overall bank preferreds market was not overly volatile, although it was down on the month.
I use three indices to track the performance of the bank preferred stock market - PowerShares Financial Preferred (NYSEARCA:PGF), PowerShares Preferred (NYSEARCA:PGX) and iShares S&P US Preferred Stock Index (NASDAQ:PFF). The overall bank preferred market was down less than 1% for December 2012, while the overall market was up thanks to a late-month, two-day rally. The Dow was up by 0.603% (78.6 points) and the S&P 500 was up by 0.707% (10 points). As you can see in the below chart, the bank preferred market was not subject to the same volatility (to either the upside or downside) that the overall market was subjected to.
New Issues in the Month of December
As I mentioned above, it was a fairly quiet month in terms of bank preferred stock new issuance as only two new bank preferreds came to market. As a quick disclaimer, 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.
TCF Financial Corp (TCB), 6.45% Series B Non-Cumulative Perpetual Preferred Stock
This is the second preferred stock that TCF Financial has outstanding, the first having been issued in the Summer of 2012. TCB-C has traded below par since being issued (so there is no premium risk), offers a current coupon of 6.595%, and is currently fairly liquid with a 10-day average volume of 86,217 shares per day (and keep in mind that over the last 10 days of December trading volume may be lower with many investors not focused on the markets).
One potential downside to TCB-C is that it is not rated by Moody's and it is rated below investment grade by S&P. In their last filing, TCF Financial, however, is well capitalized by all three ratios, so this may give you comfort with the lower rating.
A copy of the TCB-C prospectus is available on EDGAR by either searching for company filings or by following this link.
SunTrust Banks (STI), 5.875% Series E Non-Cumulative Perpetual Preferred Stock
This is the first preferred stock that SunTrust has issued in awhile and it is the only fixed rate perpetual preferred that the bank has. STI-E has no premium risk since it has traded below par since being issued, it has a current coupon of 6.002%, and is currently very liquid with a 10-day average volume of 359,932 shares per day (keeping in mind once again that over the last 10 days of December trading volume may be lower with many investors not focused on the markets).
Both Moody's and S&P rate STI-E below investment grade, though SunTrust is well capitalized by all three ratios:
A copy of the prospectus is available on EDGAR by either searching for company filings or by following this link.
November New Issue Performance
It is important to also track the performance of newly issued bank preferreds during their second month as it gives investors the opportunity to analyze the first full month of performance data. November 2012 was a strong month for new bank preferreds as seven banks brought preferred stocks to the market: Oriental Financial Group (NYSE:OFG) 7.125% Series D, City National Corporation (NYSE:CYN) 5.50% Series C, EverBank Financial Corp (NYSE:EVER-OLD) 6.75% Series A, Wells Fargo (NYSE:WFC) 5.125% Series O, First Republic Bank (NYSE:FRC) 5.625% Series C, Taylor Capital Group (NASDAQ:TAYC) 8.0% Series A, and Webster Financial Corporation (NYSE:WBS) 6.40% Series E.
OFG-D is thinly traded and therefore more susceptible to price volatility. By taking OFG-D out of the price chart, the price changes of the other November new issues becomes easier to analyze.
It should be noted that OFG-D, EVER-A, and FRC-C all traded ex-dividend in December (and FRC-C paid the dividend in December as well).
With the exception of OFG-D, all of the November 2012 new issues traded slightly down during the month of December. This is in line with the overall bank preferred market.
It was a quiet month for new issuance of bank preferred stocks, although that is not surprising given that it is the end of the year and there is non-stop discussion of uncertainty surrounding the "fiscal cliff". The overall bank preferred market was down during December, but there was also substantially less volatility in the bank preferred market when compared to the overall market. This is something that also held true in November and should be taken into consideration when an investor is contemplating getting involved in the bank preferred market.
Disclosure: I am long CYN, EVER-OLD, WFC, FRC. 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. I am long the preferreds: CYN-C, EVER-A, WFC-O, and FRC-C