JPMorgan Chase & Co . ( JPM ) announced its decision to redeem about $5 billion in trust preferred securities (TruPS). The redemption is scheduled on May 8, 2013.
The redemption will be in accordance with the voluntary redemption provisions present in the documents relating to the TruPS. Further, JPMorgan has fixed the price of redemption of securities at 100% of the liquidation amount. The company will pay this redemption price along with the distribution outstanding and due on the securities up till the date of redemption to its shareholders. JPMorgan further added that it will utilize the existing available cash to fund these redemptions.
The TruPS to be redeemed by JPMorgan includes securities of series J, K, L, N, P, S and X worth $4.8 billion. The interest rate on these securities ranges from 6.2% - 7.2%. Further, it will redeem 7.2% preferred securities amounting to $100 million.
Earlier, in Jul 2012, JPMorgan redeemed about $9 billion in TruPS. The redemption included $5.7 billion worth of capital securities related to different series and Fixed-to-Floating Rate Capital Securities worth $3.3 billion.
In Apr 2012, JPMorgan redeemed about $425 million in TruPS, which included the redemption of 17 million worth 7.20% preferred securities issued by BANK ONE Capital VI.
The redemption of the TruPS is expected to auger well for JPMorgan as it will provide an opportunity to the bank to reduce its interest expenses since these securities demand higher rates than other securities.
Apart from JPMorgan, other financial institutions that have planned TruPS redemption include Zions Bancorp . ( ZION ) and Citigroup, Inc . ( C ). Zions plans to redeem 8% Series B TruPS comprising 11.4 million shares, having a collective liquidation value of $285 million. On the other hand, Citigroup plans to redeem TruPS worth $3 billion.
JPMorgan is scheduled to announce its first-quarter 2013 earnings on Apr 12, 2013. The Zacks Consensus Estimate for first-quarter 2013 is pegged at $1.36 per share on revenue expectations of $25.3 billion. The earnings ESP (Read: Zacks Earnings ESP: A Better Method ) for the company is +5.15% for first quarter 2013. This, along with its Zacks Rank #2 (Buy), make us confident of a positive earnings surprise.
We also like another major bank State Street Corporation ( STT ) with a Zacks Rank #2 (Buy).