Back to top

Analyst Blog

Huntington Bancshares Incorporated has jumped on the bandwagon of trust preferred securities (TruPS) redemption. On Monday, the company announced that it will redeem TruPS worth $114 million, including the 6.65% securities issued by Huntington Capital III.

Over the last couple of months, major financial institutions have been redeeming TruPS since these will no longer qualify for Tier 1 capital ratio calculations beginning 2013.

Huntington stated that these preferred securities will be redeemed at par. The redemption amount will also include accrued and unpaid distributions until the redemption date arrives. The TruPS redemption will take place on September 5, 2012.

Huntington’s decision to redeem TruPS follows the announcement of the new capital rules by the Federal Reserve in June 2012. As per the new proposal, the TruPS issued prior to May 19, 2010 would not be considered for the calculation of Tier 1 capital ratio.

Similar Actions

Apart from Huntington, many other banks have come up with the redemption of TruPS in the last couple of months. TCF Financial Corporation redeemed TruPS worth $115 million, Bank of America Corporation $3.9 billion, BB&T Corporation $3.1 billion and JPMorgan Chase & Co. $9 billion. Moreover, Fifth Third Bancorp has also announced the redemption of TruPS worth $575 million.

Conclusion

TruPS redemption is viewed as a positive step for the banks, enabling them to bring down interest expenses, as these securities demand higher rates than other securities and often the banks replace TruPS with equity or other low-cost debt. Further, according to the Dodd-Frank Act, banks will no longer be able to consider these securities as regulatory capital beginning 2013.

Huntington Bancshares shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation.

Please login to Zacks.com or register to post a comment.