) announced the redemption of trust preferred securities (TruPS)
worth $369 million. The securities to be fully redeemed include
6.100% enhanced TruPS issued by Citigroup Capital X.
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Citigroup stated that these preferred securities will be redeemed
at $25.00 plus $0.0042361 per redeemed TruPS along with accrued
and unpaid distributions until the redemption date arrives. The
redemption is scheduled to take place on Oct 1, 2013.
The redemption depicts Citigroup's efforts toward increasing the
efficiency of its funding and capital structure under Basel III.
Notably, beginning 2012, the company has redeemed $25 billion of
senior debt, subordinated debt, preferred and trust preferred
securities, including the current redemption.
The planned TruPS redemptions will not affect Citigroup's Tier 1
common capital and related Tier 1 common ratio, either under
Basel I or Basel III. Yet, Citigroup's Basel I Tier 1 capital and
its Basel 1 Tier 1 capital ratio are anticipated to reduce by
about $0.37 billion and 4 basis points, respectively.
TruPS redemption is viewed as a positive step for the banks,
enabling them to bring down interest expenses, as these
securities demand higher rates than other securities and often
the banks replace TruPS with equity or other low-cost debt.
Further, according to the Dodd-Frank Act, banks are no longer
allowed to consider these securities as regulatory capital
Currently, Citigroup carries a Zacks Rank #3 (Hold). Some banks
that are worth considering include
) with a Zacks Rank #1 (Strong Buy), while
Fifth Third Bancorp
The PNC Financial Services Group, Inc.
) carry a Zacks Rank #2.