TCF Financial Corporation
) joined the bandwagon of major financial institutions and
announced the redemption of trust preferred securities (TruPS)
worth $115 million. These include the redemption of 10.75% TCF
Capital I preferred securities. Over the last couple of weeks,
banks have been redeeming TruPS since these will no longer qualify
for Tier 1 beginning in 2013.
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TCF Financial 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 July 30, 2012. The company
further mentioned that it will use net proceeds from the public
offering of its depository shares completed on June 25 to fund the
redemptions. The stock offering raised net proceeds of $166.6
million in total. Wilmington Trust Company, a subsidiary of
M&T Bank Corporation
), is acting as the paying agent.
TCF Financial issued 6.9 million depositary shares, including
over-allotments to the general public at an offer price of $25 per
depositary share. The Preferred stock has a par value of 1 cent per
share. Each share represents a 1/1,000th interest in a share of the
company's Series A Non-Cumulative Perpetual Preferred Stock.
TCF Financial's decision to redeem TruPS follows the announcement
of the new capital rules by the Federal Reserve earlier this month.
As per the new proposal, the TruPS issued prior to May 19, 2010
would not be considered for the calculation of Tier 1 capital
Apart from TCF Financial, many other banks have announced the
redemption of TruPS in the last few weeks.
Bank of America Corporation
) announced the redemption of $3.9 billion in TruPS,
) announced the redemption of $3.1 billion of TruPS, while
JPMorgan Chase & Co.
) would be redeeming nearly $9 billion in TruPS.
SunTrust Banks Inc.
) stated that it will be redeeming TruPS worth nearly $1.19
), whose extra capital deployment request was rejected by the Fed,
has also announced the redemption of TruPS.
Redemption of TruPS is a positive step for the banks, enabling them
to bring down interest expenses, as these securities demand higher
rates than other securities. 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.
In March 2012, TCF Financial repositioned its balance sheet with
the prepayment of $3.6 billion of long-term debt. Moreover, it also
sold $1.9 billion of mortgage-backed securities. The restructuring
of the balance sheet has also reduced interest rate risk of the
company and is expected to be more accretive to the net interest
We expect the company to maintain its superior position in the
market based on its positive approach to market conditions and
improving top-line growth. However, the regulatory reforms might
affect the company's near-term results to some extent.
TCF Financial currently retains a Zacks #3 Rank, which translates
to a short-term Hold rating.