WFC to Redeem $5.78B TRUPs - Analyst Blog
September 06 2011 - 11:51AM
Zacks
Last week, Wells Fargo & Co. (WFC)
announced that it would fully redeem about $5.78 billion worth
trust preferred securities (TRUPs). These include $837.50 million
of 7.85% TRUPs and $690.00 million at 8.625%. WFC will also redeem
$2.50 billion of 7.7% instruments and $1.75 billion of 9.75% hybrid
securities.
The redemption is taking place as a result of a Capital
Treatment Event under the securities’ governing instruments. WFC
has resolute that a Capital Treatment Event took place with the
course of the Dodd-Frank Wall Street Reform and Consumer Protection
Act.
In the first half of 2011, WFC announced that $3.4 billion of
trust preferred securities will no longer count as Tier 1 capital
under the Dodd-Frank Act and the Basel Committee recommendations
known as the Basel III standards.
By repaying TRUPs, banks will be able to reduce interest costs,
as these securities pay higher rates than other securities.
According to Dodd-Frank Act, banks will be prevented from including
these securities as regulatory capital from 2013.
Similarly, in August, KeyCorp (KEY) announced
that it would fully redeem about $361 million of Trust Preferred
Securities (TRUPs) issued by KeyCorp Capital V, KeyCorp Capital VI,
KeyCorp Capital VIII and Union State Capital Trust I. These include
5.875% TRUPs, 6.125% TRUPs, 7% Enhanced TRUPs and 9.580% Capital
Securities.
Also, in May, Fifth Third Bancorp (FITB) also
issued a notice to the trustee of Fifth Third Capital Trust VII to
redeem 8.875% TRUPs. The company stated that each Trust Preferred
Security would be redeemed at a cash redemption price of
$25.18.
Though WFC’s results are likely to be affected by the volatile
operating environment along with costs of maintaining Basel III
norms, we expect the company’s business operations to continue to
fuel its credit quality, capital position and liquidity.
WFC currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Moreover, considering the fundamentals, we
are maintaining our long-term Neutral recommendation on the
stock.
FIFTH THIRD BK (FITB): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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