Huntington Bancshares Incorporated
(
HBAN
) has jumped on the bandwagon of trust preferred securities (TruPS)
redemption. On Monday, the company announced that it will redeem
TruPS worth $114 million, including the 6.65% securities issued by
Huntington Capital III.
Over the last couple of months, major financial institutions
have been redeeming TruPS since these will no longer qualify for
Tier 1 capital ratio calculations beginning 2013.
Huntington stated that these preferred securities will be redeemed
at par. The redemption amount will also include accrued and unpaid
distributions until the redemption date arrives. The TruPS
redemption will take place on September 5, 2012.
Huntington's decision to redeem TruPS follows the announcement of
the new capital rules by the Federal Reserve in June 2012. As per
the new proposal, the TruPS issued prior to May 19, 2010 would not
be considered for the calculation of Tier 1 capital ratio.
Similar Actions
Apart from Huntington, many other banks have come up with the
redemption of TruPS in the last couple of months.
TCF Financial Corporation
(
TCB
) redeemed TruPS worth $115 million,
Bank of America Corporation
(
BAC
) $3.9 billion,
BB&T Corporation
(
BBT
) $3.1 billion and
JPMorgan Chase & Co.
(
JPM
) $9 billion. Moreover,
Fifth Third Bancorp
(
FITB
) has also announced the redemption of TruPS worth $575 million.
Conclusion
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 will no longer be able to
consider these securities as regulatory capital beginning 2013.
Huntington Bancshares shares maintain a Zacks #2 Rank, which
translates into a short-term Buy recommendation.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
BB&T CORP (BBT): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis
Report
HUNTINGTON BANC (HBAN): Free Stock Analysis
Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
TCF FINL CORP (TCB): Free Stock Analysis Report
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