On Tuesday, JPMorgan Chase & Co. (JPM) has announced that it will redeem about $425 million in trust preferred securities (TruPS). These include the redemption of 17 million worth of 7.20% preferred securities, issued by BANK ONE Capital VI. Following the redemption, JPMorgan will be left with preferred securities with liquidation amount of $100 million.
JPMorgan stated that 7.20% of preferred securities will be redeemed at 100% of the liquidation amount. The redemption amount will also include accrued and unpaid distributions until the redemption date.
JPMorgan further mentioned that it will use existing available cash to fund these redemptions. The redemption of the TruPS will take place on April 30, 2012.
In mid-March, the Federal Reserve informed JPMorgan that its capital deployment plan, submitted under Comprehensive Capital Analysis and Review (CCAR) or the stress test, has been approved. Consequently, the company announced a dividend increase and a new share repurchase authorization. The redemption of TruPS follows the approval.
Moreover, the clearance of the stress test is a testimony of JPMorgan’s solid capital position. With its proven cash generating capacities, the company remains committed to its shareholders by enhancing their wealth through dividend hikes and share buybacks.
Last week, among JPMorgan’s peers – The PNC Financial Services Group Inc. (PNC) also announced the redemption of $306 million in TruPS, which will take place on April 25, 2012. These include redemption of 6.125% capital securities of $300 million, issued by the PNC Capital Trust D and $6 million of 10.18% MMCapS capital securities issued by Yardville Capital Trust III.
Our Take
Redeeming TruPS will enable the banks to bring down their interest expenses, as these securities demand higher rates than other securities. Moreover, according to Dodd-Frank Act, from 2013, banks will no longer be able to consider these securities as regulatory capital.
JPMorgan currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. However, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.
JPMORGAN CHASE (JPM): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
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