On Thursday,
The PNC Financial Services Group Inc.
(
PNC
) announced that it will redeem trust preferred securities (TruPS)
worth $967.5 million in total. The decision follows the new capital
proposal that the TruPS issued before May 19, 2010 would no longer
qualify for Tier 1 capital ratio calculations beginning 2013.
TruPS redemption by PNC Financial will include 7.750% PNC
Capital Trust E worth $450 million as well as 8.0% National City
Capital Trust IV TruPS worth $517.5 million. While the former has a
scheduled redemption date of March 15, 2038, the latter's scheduled
maturity date is September 15, 2047.
Both categories of TruPS would be redeemed at $25 per TruPS. It
represents 100% of the liquidation amount, in addition to accrued
and unpaid distributions until the redemption date arrives. PNC
Financial will use its existing available cash to fund the
redemptions on July 30, 2012.
The paying agent for the PNC Capital Trust E TruPS is
The Bank of New York Mellon Corporation
(
BK
) while The Bank of New York Mellon Trust Co., a part of The Bank
of New York Mellon, is the paying agent for National City Capital
Trust IV TruPS.
Taking into account these redemptions as well as other trust
preferred securities redeemable at par in the fourth quarter of
2012, PNC Financial anticipates that the second half noncash
charges in aggregate would be $162 million. This is above the prior
projection of $150 million, which the company disclosed in its
first quarter 2012 filing with the Securities and Exchange
Commission.
Previous TruPS Redemptions
Earlier in April, PNC Financial announced the redemption of $500
million in TruPS, which took place on May 25, 2012 at $25 per
share. It included redemption of 6.625% preferred securities worth
$500 million issued by National City Capital Trust III.
Also in March, PNC Financial announced the redemption of $306
million in TruPS, which took place on April 25, 2012 at $25 per
share. It included redemption of 6.125% capital securities of $300
million, issued by the PNC Capital Trust D and $6 million of 10.18%
MMCapS capital securities issued by Yardville Capital Trust
III.
The redemption of TruPS by PNC Financial follows the Federal
Reserve's nod for the company's capital actions. As part of its
capital actions, PNC Financial made a proposition relating to an
increase in its quarterly common stock dividend. Moreover, the
company projected a moderate share buyback program under its
existing common stock repurchase authorization.
In April, PNC Financial announced a 14% hike in its quarterly
dividend. With this increase, the quarterly cash dividend now
stands at 40 cents per share, up 5 cents from 35 cents paid
earlier. Moreover, PNC Financial also intends to buyback up to $250
million of common stock under its existing 25 million shares
repurchase program, during the remainder of 2012. The clearance of
the stress test bears testimony to PNC Financial's solid capital
position.
Our Take
The redemption of TruPS is a strategic fit as such moves provide
banks the opportunity to lower their interest expense. Moreover, it
will also help in satisfying the regulatory norms since according
to the Dodd-Frank Act, from 2013, banks will no longer be able to
consider these securities as regulatory capital.
Similar to PNC Financial, other Wall Street biggies have also
come up with plans for TruPS redemption.
JPMorgan Chase & Co.
(
JPM
) announced its plan to redeem about $9 billion in TruPS in July.
The others are
Sun Trust Banks Inc.
(
STI
) and
Citigroup Inc.
(
C
).
PNC Financial currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we also maintain our long-term Neutral rating on the
stock.
BANK OF NY MELL (BK): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
PNC FINL SVC CP (PNC): Free Stock Analysis
Report
SUNTRUST BKS (STI): Free Stock Analysis Report
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