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Close Out the Week Quietly?

Equity futures are barely moving this morning and interest rates have moved up a couple of basis points. Since we have just 1 piece of economic news at 9 a.m. (central), the leading economic indicators (LEI) which is not going to move markets we may stay quiet all day. It is almost that time of year when folks start heading out early on Fridays—so volumes will start to fall off.

Yesterday the economic numbers were pretty much tame. There was not a large jump in 1st time unemployment claims so no early warning there. Housing starts and building permits slowed quite a bunch as home builders claimed traffic looking at houses has slowed as mortgage rates have remained over 7%–of course as they said this rates moved a bit below 7% as the 10 year treasury headed lower. If rates would move just 25 or 50 basis points lower you would see a giant escalation in traffic–and likely much higher prices.

Last night we had giant regional banker Citizens Financial (CFG) price a new issue of perpetual preferreds with a coupon of 7.375%. This is a big issue of 16,000,000 shares. Proceeds will be used to redeem the 6.375% fixed to floating rate preferred (CFG-D)–this issue is now in the floating rate period. The new issue pricing term sheet is here.

I did no buying or selling yesterday–and likely won’t today. What I did do was start an article on short maturity issues—which I like the most and why. It has been quite a while since I have written longer articles and I was surprised after 2 hours of work I had only scratched the surface of the topic. I suspect it will take me a total of 5 hours to wrap it up. This is in response to a reader comment (from ‘money doesnt grow on trees’) and it is nice to get back to some basics in an article. To often in recent times a person forgets that a large segment of the folks on the website haven’t been investing in preferreds and perpetuals for 20 years like a lot of us have and some items we toss around like folks know what we are talking about–many times they don’t. I hope to get back to writing more on some basic items.

10 thoughts on “Close Out the Week Quietly?”

  1. Tim; Have Your or any of the other bank experts on this site done any serious homework on CFG?? The issue looks intriguing to me but I fully admit I have done no DD at this point. Probably my biggest concern would be how exposure to they have to “commercial loans” which is a big question mark these days and what % of their loans are delinquent and non performing. I just got notice from Schwab that one of my FHLB bonds (6.5%) is being called on May 24th. Possibly some of you have received the same notification.

    1. Chuck, no idea
      CFG 37.16 price – mkt cap 16.91 billion
      last qtr. report
      Citizens Financial Non-GAAP EPS of $0.79 beats by $0.03, revenue of $1.96B in-line
      MTB 153.79 price- mkt cap 25.66 billion
      last qtr report
      M&T Bank Non-GAAP EPS of $3.09 misses by $0.03, revenue of $2.27B beats by $10M
      Both have been around since the 1800’s I think a bigger question to ask and what I have learned this past year is what kind of management do they have?
      Yes, commercial loans caused the problems but it was management who were responsible.
      NYCB is an example and they have been cleaning house. It remains to be seen if the new management can right the ship but they have invested money and have skin in the game.

      1. Good comments Charles. Thank You. On the “surface” it doesn’t look to bad but I certainly am no forensic CPA which sometimes you need to dig into their financials. Like you said they’ve been around a long time. I thought maybe Tim would chime in on this bank as the coupon certainly looks good.

        1. Chuck, I know nothing. I trust my local bank EXSR but I don’t bank there! lol
          Last summer I was getting about 5.5% yield on the stock. I thought highly of UMPQ and owned it until COLB bought them out.
          I think BEA and myself own a small under the radar bank in Ohio. I follow TCBK and hope they fall back to where they were during the panic. Mid size regional bank that is a good buyout candidate and claimed not to have any customer deposits over the FDIC limit that would bail in a panic.
          Right now Tim is out of banks due to risk and Grid only plays with a few to flip. I am more of a believer in the babies getting thrown out with the bath water and willing to take a risk to increase my income.

  2. Tim I look forward to your article also. Past history and considering the market is forward looking. I get somewhat conflicted and hope you throw your thoughts on this aspect of short term investments. I started back in 1980 investing when they were handing out the Price Waterhouse booklet in newsprint. No idea what I was doing. I looked at the financial section of the local newspaper and saw on the AMEX exchange that San Diego gas and Electric preferred paying like 14- 16% and bought some. Later I sold them. Years later I wish I had kept them.
    How are you balancing the income you are getting with now and what may happen to that income in few years?
    I noticed you haven’t talked about buying bonds yourself, but you have bought ETD (exchange traded debt) like MGR

  3. Thanks Tim, look forward to your article!
    re “large segment of the folks on the website haven’t been investing in preferreds and perpetuals for 20 years like a lot of us”
    >Exactly I am not financially savvy on investing in pref, baby bonds etc etc but I am not a newbie to investing at 65 yrs of age either. (As we age increasing the fixed income becomes more and more important for many)

    Thanks for helping/attempting to teach an old dog new tricks! Your website has many followers who are very savvy in this niche area of the investing market. Perhaps your article can also serve as a poll of sorts to get those savvy 20 yr veterans of pref investing etc to share some of their favorite short term issues and their search process and tools (approach) for further due diligence
    Knowledge is Power!

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