PNC to Redeem $306 Million TruPS - Analyst Blog


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On Thursday, The PNC Financial Services Group Inc. ( PNC ) announced that it will redeem about $306 million in trust preferred securities (TruPS). These include 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.

PNC stated that 6.125% of capital securities, with a maturity date of December 15, 2033, will be redeemed at $25 per share. The company further affirmed that Yardville Capital Securities, with a maturity date of June 8, 2031, will be redeemed at $1,050.90 per $1,000.00 in liquidation amount. Both redemption amounts will also include accrued and unpaid distributions until the redemption date.

PNC further mentioned that it will use existing available cash to fund the redemptions. The TruPS redemption will take place on April 25, 2012.

Last week, the Federal Reserve gave a green signal to PNC's proposal regarding the hike in its common stock dividend. In the latest round of stress tests, the Fed reviewed the company's capital plan and did not object to any of the capital actions proposed by the company. The redemption of TruPS follows the approval.

In its capital actions, PNC made a proposition relating to an increase in its quarterly common stock dividend in the second quarter of 2012. Moreover, the company projected a moderate share buyback program under its existing common stock repurchase authorization.

While these capital actions were approved by the Fed, in its next planned meeting on April 5, 2012, PNC's Board of Directors may consider a hike in its quarterly common stock dividend.

Moreover, the clearance of the stress test is a testimony of PNC's solid capital position. With its proven cash generating capacities, the company remains committed to its shareholders by enhancing their wealth through dividend raises and share buybacks. Its cash and due from banks, standing at $4.1 billion as of December 31, 2011, position it well to increase its dividend in the following month.

Our Take

By redeeming TruPS PNC will be able to lower the interest costs, as these securities demand higher rates than other securities. Moreover according to Dodd-Frank Act, from 2013, banks will no longer be able to include these securities as regulatory capital.

PNC currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, among PNC's peers, Wells Fargo & Company ( WFC ) retains a Zacks #2 Rank, which translates into a short-term Buy rating.

PNC FINL SVC CP ( PNC ): Free Stock Analysis Report
WELLS FARGO-NEW ( WFC ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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