Yesterday I added a ‘taste’ of the Lincoln Financial Group (LNC) 9% non cumulative preferred (LNC-D). I already had a position in this issue and it fell $3/share in the last 2 weeks. This buy came off a GTC buy order.
All insurance issues have been hammered fairly hard because of the banking crisis and the ‘mark to market’ debate. This issue is investment grade and was issued after the company took some massive write downs which destroyed the company equity. With a new CEO I believe they will do just fine–over time.
Users who liked this:
Thx for the inspiration.
I‘m looking (here from Germany) at these preferred shares of your US banks with hawk eyes as I see a chance to get a sound massive divident payer for the future.
Just keep in mind: The value of the common stocks is from my point of view completly unknown. If new equity is injected this will heavily diluted the current common shares (eventully may lead to a very unatractive yield permanently). Also if the bank has to ask for emergency luiquidity, this will come at a costly price and this will definitly reduce any future dividents (again leading to an unatractive yield).
In contraste, the preferred shares cannot be diluted nor will the divividens reduced. All you have to worry is: will this company survive?
If they do, they will pay the defined divident.
True, most of the bank‘s preferreds are non-cumulative and a non-payment can be declared. But…
This is according to my understanding not arbitrarily but rather subject to strict conditions.
So if the bank starts to make a profit (even if just a small one) at one day again (otherwise it would go bancrupt anyways) – the pref. divivdents have to be paid.
Also, if you check on barrons how much is actually paid to preferred shareholders in relation to net profit available to common stockholder, this is less than 5-10%. for the banks I checked.
Last thoughts – will the US Gov. and the FED allow that further banks go into insovency? I doubt it as the risk of further bank runs will return and what that would mean to the US economy (and the rest of the world!!)?
(Will they make the banks pay for any costs that come with efforts to keep it safe? Sure, but this is the worry of the common shareholders).
One last private remark – correct me if I‘m wrong but it seems to me that SVB, Signature Bank and Silvergat were heavily involved in krypto currency (other than e.G. PacWest, Western Alliance etc.)
I don‘t wear tinfoil hats and I acctualy
own a bit of bitcoin, but if I was the FED/Gov. I would have used this situation to make it cristal clear to the world that anyone playing with street urchins (in the FED‘s/Gov‘s eyes, not mine) is not welcome anymore…
Greetings from Germany
Frank
Re the Lincoln pfd 8%: Quantum says divis are taxed at Ordinary rate for first year, and Thereafter at the usual 15% (for most of us). I hurredly scanned the prospectus but see no mention of tax qualifications… What is this ‘after first year’ item? Something new in the 1.1.23 tax bill?
Sorry – got the Lincoln tangled up with a Jackson 8% pfd JXN-A. The matter of the 1-year ordinary tax issue remains ~
The five year CDS ( Credit Default Swap) of Lincoln has almost doubled in March. And this is for Lincoln debt, so the preferred would be under that in the debt stack. Implies that the risk of halting preferred payments has also materially risen. Might be a reason they had to float -D with a 9% coupon. . .
https://twitter.com/DiMartinoBooth/status/1639404903834570752/photo/1
We do not own LNC anything in any account.
Any takes on the new Jackson (JXN) preferred?
I was reading detailed analysis of bank preferreds and bank debts where in the pecking order. I don’t quite understand but they are saying but….. there’s much value. We aren’t going the way of Euro Coco’s.
While yes LNC isn’t a bank, many other bk pfds are insanely cheap right now. I see Credit Sights has upgraded the whole arena to Overweight. Calling it the buying opportunity of the decade.
Hopefully you don’t regurgitate on your tasty lunch
I have purchased both common and preferred. The common is trading at 52 week low. There is a good chance the dividend on the common will be reduced. However, I like the chances of the common delivering a nice capital gain which will receive step up basis for my estate. LNC problem was not so much claims as terrible actuary. I suspect it will be a rough trading year for LNC but for my expected long term gains, worth the risk.
We study law and finance so our children can study art and philosophy? (John Adams)
Potter. I am a descendant of a family that has taught each generation a sense of duty. One important duty is to provide for the next generation as we were provided for. My sons both worked jobs while attending wonderful private schools. Not out of necessity but rather to instill value. I worked full time while pregnant with two sons and have worked every day since. I am blessed with a wonderful legacy to maintain. There are many such famalies. Kindness to you and all.
Tim, your headlines of interest yesterday mentioned AM Best and it caught my eye with the heading insurers had 26.5 billion in underwriting loses last year.
Course that is old news.
Hopefully there is less hurricanes, tornadoes, major fires, or people dropping policies due to recession and job losses.
Crisis = OPPORTUNITY
Azure–yes it does. Some would rather buy high and panic sell low. This too shall pass.