This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bank of America 'Best Positioned' for Trust Preferred Switch

Juneja also said that on a fully phased in basis, with all trust preferred shares being redeemed and required perpetual preferred shares being issued to more than make up the difference, Regions Financial (RF), SunTrust (STI) and Citigroup (C - Get Report), "would see higher EPS hit than peers."

Among large regionals, Juneja expects PNC Financial Services Group (PNC) to complete the redemption of all of its trust preferred shares before the end of the year.

Juneja said that "large cap banks have redeemed or announced plans to redeem $38 bil in TruPS in 2012, with interest costs averaging 6.7% - well above deposit and long-term debt rates," and that the redemptions of trust preferred shares have helped net interest margins "hold up better than feared by reducing funding costs to offset some of the decline in asset yields." But trust preferreds that have not yet been called "can no longer be called due to regulatory change - securities will need to reach their call date in order to be eligible to be redeemed," and others "may not be called near term because they are floating rate or hedged and provide attractive low cost long-term debt funding," according to the analyst.

The largest U.S. banks have lagged the regionals in redeeming trust preferred shares. Juneja estimates that at the end of 2012, Citigroup (C - Get Report) will have $12.4 billion in remaining trust preferred shares, with $10.5 billion for JPMorgan Chase (JPM), $10.1 billion for Bank of America, and $4.8 billion for Wells Fargo (WFC - Get Report).

For Citigroup, things get a bit complicated, because the Federal Deposit Insurance Corp. is holding $3.025 billion of trust preferred shares -- including $800 million on behalf of the U.S. Treasury -- and it is "unclear if FDIC will allow these TruPS to be redeemed before 2014 call date, but if so, Citi will likely have to call at par, which would be a hit to capital and book value," according to Juneja, who added that "Citi also has $2.4 bil of TruPS with average coupon of 7.9% that are not callable until 2015 or 2036."

The analyst added that "Bank of America has called nearly $10 bil of TruPS in 2012, but still has $10 bil outstanding, most of which is callable," and that Wells Fargo's outstanding trust preferred shares "are also mostly callable."

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $16.75 0.00%
C $54.97 0.00%
WFC $56.00 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs