Washington Federal Inc.
) has announced the sale of securities and repayment of its
long-term debt. The company has decided to restructure its balance
sheet is an effort to mitigate the effects of interest rate risk
and improve earnings.
Over the last 10 days, to reduce interest rate risk Washington
Federal sold $2.4 billion worth of fixed rate mortgage backed
securities for a pre-tax gain of $95 million. These securities
yielded 3.22% (on annualized basis) in July. Further, the company
pre-paid $876 million of costly long-term debt (weighted average
rate of 3.94%) at a pre-tax loss of $95 million.
Nevertheless, Washington Federal also bought certain assets -
short as well as long term - worth $1.7 billion, having an average
weighted yield of 1.85%. Moreover, the company increased the
maturity period of an additional $100 million of long-term debt to
bring down the weighted average rate to 3.33% from 4.04%.
Similar to Washington Federal,
CIT Group Inc
) has been constantly restructuring its balance sheet to bring down
its cost of capital and improve profitability. CIT announced that
it would redeem $681 million of its 7% Series C Notes maturing in
2016 on September 17. With the completion of this redemption, the
company would have redeemed or refinanced approximately $31 billion
of high-cost long-term debt since 2010.
The ongoing macro economic conditions and low interest rate
environment prompted Washington Federal to restructure its balance
sheet and enhance capital ratios. This will lower the interest
expense burden and fuel net interest income growth. These
restructuring initiatives will also assist in fencing margin
pressure and provide more financial flexibility.
Management anticipates similar actions to continue in the
future. We believe all these initiatives to favor growth going
Washington Federal currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we also maintain a long-term 'Neutral' recommendation
on the stock.
CIT GROUP (CIT): Free Stock Analysis Report
WASH FEDL INC (WAFD): Free Stock Analysis
To read this article on Zacks.com click here.