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Preferred Stocks


dcollon

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Anybody has an exhaustive list of preferred trust. I guess some of those must have gone down quite a bit with the volatility. I'm interested by Trust Preferred because they won't count as Tier 1 capital pretty soon. So even if you are buying 30Y preferred you might get the principal back much sooner.

 

BeerBaron

 

There are trust issues intermingled here, and it is an otherwise useful reference for preferred shares: http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html

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I always wanted to thank Dcollon for this thread.  One of the Preferred issues that looked okay back then I have held ever since. 

 

Royal Bank of Scotland:  RBS.PR.P on the NYSE - 0.0625% on par value of $25.00

 

I have quadrupled my position in this in the last two weeks.  It traded up around $18 last winter and has sort of been in decline ever since. 

 

Right now the yield is around 13%... It is trading at 50% of its par value. 

 

Now for RBS - I am by no means an expert on the company.  However, they have passed all the stress tests they have been through.  We are at least a year away from the worst of the mortgage morass.  Their core capital tier 1 ratio is 11.5%.  Obviously they will feel some effect if a major Euro power defaults but that is built into the stress tests.

 

Finally, correct me if I am wrong but I have not seen a bank anywhere default on its preferred shares completely, that has remained a going concern.  RBS thought these securities were cheap two years ago and tried to buy them in at $14.00.  I dont think they got too many.  The float still seems pretty robust.

 

Al, I thought RBS suspended the dividends on all their preferreds as a condition of the govt support they received. Did I miss something?

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OEC,

 

yes, the dividends were suspended (cept for the "F" series) - and the pfds are not cummulative...

 

 

Please note that following discussions with the European Commission RBS has agreed to the deferral of coupons and payments on certain hybrid capital securities for a period of two years. This two year deferral period commenced on 30 April 2010 for RBS Group securities and will commence on 1 April 2011 for RBS Holdings NV (formerly ABN AMRO Holdings NV) securities. For a list of affected securities refer to the Schedule.

 

http://www.investors.rbs.com/preference_dividends

 

The bank appears to be doing well with its reorganization. Perhaps it is time to re-visit these!

 

 

 

 

 

 

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OEC,

 

yes, the dividends were suspended (cept for the "F" series) - and the pfds are not cummulative...

 

 

Please note that following discussions with the European Commission RBS has agreed to the deferral of coupons and payments on certain hybrid capital securities for a period of two years. This two year deferral period commenced on 30 April 2010 for RBS Group securities and will commence on 1 April 2011 for RBS Holdings NV (formerly ABN AMRO Holdings NV) securities. For a list of affected securities refer to the Schedule.

 

http://www.investors.rbs.com/preference_dividends

 

The bank appears to be doing well with its reorganization. Perhaps it is time to re-visit these!

 

Thanks. Maybe I am anchored to the crazy yields we saw in 2009 but the RBS-Ps don't scream out to me just yet, especially with suspended dividends. I was short RBS common in the low teens but have covered most of my positions.

 

Seems to me the US banks are much further ahead in terms of restructuring and capital strengthening and offer much better risk/reward tradeoffs. The yield on BAC-L is not far off RBS-P's. I'm more attracted by the potential returns on bank common, warrants and LEAPs given that they are trading at such huge discounts to book.

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In 2009, we could get similar or even better returns while taking lower risk by buying preferreds instead of common.

 

Today, bank common (and derivatives) offer the potential for significantly higher returns over preferreds in return for not materially higher risk.

 

That's my take, anyway, fwiw.

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Oec/Eric, You are correct on the dividends.  I got confused with another security.  Trying to follow too much in this volatile market.  The Ps return to dividend paying capacity in April, assumming they are not resuspended.  They will have to start these back up before issuing new ones to re-establish trust.

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I compared several of the RBS pfds and if they are priced at a ~14% yield (cept they aren't paying). The paying F series trades at a yield of 10.3%. There's ~40% upside if the other pfds to trade at a 10% yield and ~115% if they trade at par.

 

The bank is still losing money, but has passed the EU's stress tests and is making progress on the disposal of non-core assets.

 

There's still a lot of unknowns and this is in the too hard pile for me.

 

 

 

 

 

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I recently came across this article that lays out some scenarios for the European banks (including RBS) given what the author (Egan-Jones) deems likely outcomes in the each of the peripheral nations:

 

http://online.barrons.com/article/SB50001424053111904637304576434180949687522.html#articleTabs_panel_article%3D2

 

They actually estimate the RBS exposure at €105b and that 70% of that will eventually be written down.

 

This is one of the clearer summaries that I've read of the situation in Europe as it pertains to the Euro-banks.

 

 

 

 

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  • 2 years later...
Guest hellsten

I'm bumping this thread because I think it's one of the best on this board and also because I don't fully understand preferreds. I have never really considered investing in preferred stocks during 2009 or after, but this thread has changed my mind; too bad the party is over…

 

Looking at this spreadsheet is enough to see what opportunities I, and others who didn't invest in preferreds, missed:

https://spreadsheets.google.com/pub?key=pal75Wd8M5DN4QaPNLKc0IQ

 

RBS-P was a lottery ticket that paid off nicely by rising close to par. RBS-P has paid an incredibly high dividend to those who bought low and hold it until redemption.

 

What I don't understand is why RBS-P is up more than 750% since March 2009, and RBS (ADR) is up 120%. Maybe someone here, perhaps Uccmal, knows the story?

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Heavens, I made so much money off WCF-L, HBC-, ORH-A, TSX:CCS-E and a preferred that was issued by Epcor.  Some of those purchases were just silly obvious as they were effectively a binary outcome of a return to near-par or a complete zero if armagedon of the financial system occurred.  And if the financial system did totally blow up, would any financial asset have been worth anything?  Effectively, had I been uncomfortable with any of the tickers that I listed, then logically I should instead have put my money into non-perishable food, ammunition and gold bullion!

 

Good memories!

 

SJ

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  • 6 years later...
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Anyone seeing any bargains here yet? Ns-c is one that I follow that has been crushed

 

I bought some Synchrony preferreds on Monday that seemed like a great deal to me.  My first ever purchase of preferred stock.

 

This seems like a way under-researched area of the market.  I'm not sure if that's because these things tend to take a dive during a downturn, or beacuse of the financials concentration most people don't go near it, or if it's just a weird space b/t FI and equity that nobody takes a look. 

 

If anyone has recommendation in terms of ways to get up to speed quickly i'd love to learn more.  The CEFs on preferreds have gotten killed along with the rest of the CEFs and I'm sure there's something here...

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