Regions Financial Corporation
) jumped on the bandwagon of trust preferred securities (TruPS)
redemption. On Thursday, the company announced that it will
redeem TruPS worth $345 million, including the 8.875% securities
issued by Regions Financing Trust III. Over the last few months,
major financial institutions have been redeeming TruPS, since
these will no longer qualify for Tier 1 capital ratio
calculations beginning 2013.
Regions stated that these preferred securities will be redeemed
at $25 per trust preferred share. The redemption amount will also
include accrued and unpaid distributions until the redemption
date arrives. The TruPS redemption will take place on December 3,
2012. Moreover, Regions will fund the redemption amount with the
proceeds of the recently completed preferred stock offering.
Regions' 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.
Redemption of TruPS will enable Regions to further bring down its
interest expenses as these securities demand higher rates
compared to others. The company's interest expenses were $147
million in the third quarter compared with $205 million in the
Further, the redemption will lead to a reduction in Regions'
long-term borrowings, which will go a long way in improving its
overall financials. As of September 30, 2012, the bank's
long-term debt stood at $6.2 billion compared with $10.1 billion
as of September 30, 2011.
Apart from Regions, many other banks have been actively engaged
in the redemption of TruPS in the last months. Among others,
TCF Financial Corporation
) redeemed TruPS worth $115 million,
Bank of America Corporation
) $3.9 billion,
) $3.1 billion and
JPMorgan Chase & Co.
) $9 billion. Moreover,
The Bank of New York Mellon Corporation
) has announced the redemption of TruPS worth $550 million.
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
Currently, shares of Regions maintain a Zacks #3 Rank, which
translates into a short-term Hold recommendation.
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