) announced the redemption of trust preferred securities (TruPS)
worth $3 billion. The securities to be redeemed include 7.125%
TruPS issued by Citigroup Capital VII, 6.950% TruPS issued by
Citigroup Capital VIII, 6.875% enhanced TruPS issued by Citigroup
Capital XIV and 6.500% enhanced TruPS issued by Citigroup Capital
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Citigroup stated that these preferred securities will be redeemed
at $25.00 per redeemed TruPS along with accrued and unpaid
distributions until the redemption date arrives. The redemption
is scheduled to take place on Apr 16, 2013.
The company's decision to redeem TruPS follows the Federal
Reserve's approval for the company's planned capital actions
under 2013 Comprehensive Capital Analysis and Review (CCAR).
Along with the request for TruPS redemption, the capital plan
included a request for $1.2 billion common stock buyback program
through the first quarter of 2014 and the continuation of the
current common stock dividend which stands at 1 cent per share.
However, buyback of common stock and dividend declaration remains
subject to the consent of Citigroup's board of directors.
The redemption depicts Citigroup's efforts toward making its
funding and capital structure more efficient under Basel III.
Notably, beginning 2012, the company has redeemed $9.4 billion of
TruPS, 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 as estimated under Basel III. Yet, Citigroup's Basel I
Tier 1 capital and its Basel 1 Tier 1 capital ratio are
anticipated to reduce by about $3 billion and 30 basis points,
Apart from Citigroup, many other major banks including
Bank of America Corporation
Wells Fargo & Company
) received clearance from the Fed to move ahead with their
planned capital actions. The Fed's approval of capital plans for
most of the major U.S. banks reflects stability in the banking
system to a great extent. Moreover, such accomplishment for banks
will definitely boost shareholders' confidence.
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 retains a Zacks Rank #3 (Hold).