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JPMorgan Chase Redeems $9 Billion in Trust Preferreds (Update 1)

Updated with increased earnings estimates from UBS analyst Brennan Hawken, and with stock information for JPMorgan.

NEW YORK ( TheStreet) -- JPMorgan Chase (JPM - Get Report) announced late Monday that it would redeem $9 billion in trust preferred securities on July 12.

Because the new regulatory capital rules announced by the Federal Reserve exclude most trust preferred equity from Tier 1 capital, the regulatory changes qualify as a "Capital Treatment Event," allowing JPMorgan Chase to redeem the relatively high-yielding securities at par value, rather than at their premium market values. The following trust preferred issues will be redeemed:
  • JPMorgan Chase Capital XV, Series O, with a coupon of 5.875%, for $92.9 million.
  • JPMorgan Chase Capital XVII, Series Q, with a coupon of 5.850%, for $500 million.
  • JPMorgan Chase Capital XVIII, Series R, with a coupon of 6.950%, for $750 million.
  • JPMorgan Chase Capital XX, Series T, with a coupon of 6.550%, for $909.6 million.
  • JPMorgan Chase Capital XXII, Series V, with a coupon of 6.450%, for $913.8 million.
  • JPMorgan Chase Capital XXV, Series Y, with a coupon of 6.800%, for $1.5 billion.
  • JPMorgan Chase Capital XXVI; Series Z, fixed-to-floating-rate, for $1.8 billion.
  • JPMorgan Chase Capital XXVII, Series AA, with a coupon of 7.000%, for $1 billion.
  • JPMorgan Chase Capital XXVIII, Series BB, fixed-to-floating-rate, for $1.5 billion.

UBS analyst Brennan Hawken on Tuesday raised his 2012 earnings estimate for JPMorgan Chase to $4.70 a share from $4.65, and his 2013 EPS estimate to $5.55 from $5.45, "driven by the redemption of the TruPS."

Hawken maintained his "Buy," rating for the shares, with a price target of $46, and said the target "assumes JPM will trade at 1.3x our 4Q12 [tangible book value] estimate in 12 months (vs. 10-year avg. of 1.9x)," adding that "we believe the trading incident," announced on May 10, with hedge trading losses estimated at $2 billion, "will not permanently impair JPM's ability to generate mid-teens [returns on tangible equity], and believe its current valuation of 1.0x TBV will prove a highly attractive entry point."

JPMorgan's shares closed at $32.82 Monday, for a flat year-to-date return, following a 20% decline during 2011.

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The shares trade for 0.9 times their reported March 31 tangible book value of $34.91, and for six times the consensus 2013 EPS estimate of $5.33, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.33.

Interested in more JPMorgan Chase? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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