This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bank of America 'Best Positioned' for Trust Preferred Switch

Stocks in this article: BAC C WFC

JPMorgan estimates that banks under its coverage have "redeemed over $38 bil in TruPS, but issued only $10 bil in Preferred stock thus far in 2012," and estimates that the group "would need to issue about $40 bil of additional Preferred stock to reach 150bp of current risk weighted assets." which is the limit of preferred equity included as Tier 1 capital under the Fed's proposed rules. Juneja expects all of the large banks to have preferred shares making up at least 150 basis points of their Tier 1 capital ratios. "Very few banks are likely to hold excess Tier 1 common equity instead of issuing Preferred stock as it is a more expensive form of capital," he said.

The money center banks "would need to issue the most Preferred stock based on current risk weighted assets - $18 bil for Citi, $8 bil for Bank of America and $8 bil for Wells Fargo," Juneja said, estimating that Citigroup's 2013 earnings under this scenario would decline by 11 to 18 cents a share, or between 3% and 4%. "In contrast, for Bank of America, we calculate a net EPS gain of $0.03 or 3% of our 2013 EPS forecast, as it has a large amount of high cost TruPS outstanding (much of this came along with its acquisitions) and has some Preferreds outstanding already."

Among the large regional banks, "Regions and SunTrust are likely to see higher impact at about 5% hit to 2013 EPS. WFC, PNC, BBT, and USB would have the least impact - modest 0%-1% hit to 2013E EPS," Juneja said, adding that U.S. Bancorp "does not need to issue any additional Preferred stock as it issued a large amount this year and the impact is already in the EPS run rate."

Some of the largest banks are likely to see their balance sheets continue to shrink, which is a very important strategic goal for Bank of America and Citigroup. Juneja said that "for BAC, if risk-weighted assets were $50 bil lower, it would need to issue about $1 bil less and EPS accretion would increase a tad but stay around 3% or $0.03," and that for Citigroup, a $100 billion reduction in risk-weighted assets, which is quite possible as the company's Citi Holdings subsidiary winds down, "would reduce Preferred issuance by $1.5 bil to about $17 bil and EPS dilution to 3% from 4% currently."

RELATED STORIES:



-- 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 TheStreet.com 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.
3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs