BB&T Corporation
(
BBT
) is the latest bank to jump on the bandwagon of redeeming trust
preferred securities (TruPS). Over the last couple of weeks, many
financial institutions have been redeeming TruPS as these will no
longer qualify for Tier 1 capital ratio calculations beginning
2013. The company has announced the redemption of $3.1 billion in
TruPS.
The redemption includes $2.0 billion worth of capital securities
related to different series and Fixed-to-Floating Rate securities
worth $1.1 billion. BB&T stated that all these securities will
be redeemed at 100% of the liquidation amount. The redemption
amount will also include accrued and unpaid distributions until the
redemption date.
BB&T further mentioned that it will use the existing
available cash to fund these redemptions. The redemptions of all
the TruPS will be completed by August 1.
BB&T's decision to redeem TruPS follows the announcement of
the new capital rules by the Federal Reserve earlier this month. As
per the new proposal, beginning 2013, the TruPS issued prior to May
19, 2010 would not be considered for the calculation Tier 1 capital
ratio.
Further, in mid-March, the Fed informed BB&T that its
capital deployment plan, submitted under Comprehensive Capital
Analysis and Review (CCAR) or the stress test, has received
approval. Consequently, the company announced a dividend increase.
The redemption of TruPS followed this approval.
Similar Announcements
Apart from BB&T, many banks have announced the redemption of
TruPS in the last few weeks. These banks include
JPMorgan Chase & Co.
(
JPM
), which announced that it would redeem approximately $9 billion in
TruPS on July 12.
Additionally,
SunTrust Banks Inc
. (
STI
) also stated that it will be redeeming TruPS worth nearly $1.19
billion. Likewise,
Citigroup Inc.
(
C
), whose extra capital deployment request was rejected by the Fed,
also announced the redemption of TruPS.
Conclusion
TruPS redemption is modestly positive for the banks, enabling
them to bring down their interest expenses, as these securities
demand higher rates than other securities. At times, the banks
replace TruPS with equity or other lower cost debt. Further,
according to Dodd-Frank Act, banks will no longer be able to
consider these securities as regulatory capital beginning 2013.
BB&T currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
BB&T CORP (BBT): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
SUNTRUST BKS (STI): Free Stock Analysis Report
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