JPMorgan Chase to Sell New Preferred

Giant banker JPMorgan Chase (JPM) will be selling a new preferred issue.

Of course we all know this new issue will be at a rock bottom coupon. The company will be redeeming their 5.45% JPM-A issue with the proceeds. You can see here that we had plenty of snoozers on this one as the issue closed yesterday at $26.00

The new issue will be lower investment grade so I am thinking a coupon in the 4.80% area, but as Gridbird reminds us “names count” and there is no bigger name than JPMorgan Chase.

Of course the issue will be non-cumulative, but qualified.

The preliminary prospectus can be found here.

Thanks to C Malcolm ferreting this one out on the Reader Initiated Alerts page.

38 thoughts on “JPMorgan Chase to Sell New Preferred”

  1. 2WR, When i read your posts a few minutes ago, it made me happy.
    I wasn’t happy that you were wrong ( I think highly of your skills), but that i didn’t experience “Senior Moments” when using math.

    “Not only do I not know what’s going on, I wouldn’t know what to do about it if I did. ” George Carlin

  2. I saw this on the FINRA, but how did you know what the preferred was going to be priced at on SEC ? What’s the best way to look for the terms of the new issue ? The FINRA site when i clicked on the icon did not automatically link to the SEC coupon rate

    1. Alex–one has to watch the FWP (free writing prospectus) on the SEC site. Or better yet, just sit back and let me or someone on the Reader Initiated Alerts page do the work for you–without fail you will find it here within a hour of any announcement.

      https://innovativeincomeinvestor.com/reader-initiated-alerts/

      The SEC data is here.https://www.sec.gov/Archives/edgar/data/19617/000119312519281373/d822543dfwp.htm

      I use a RSS feed to get all the data from the SEC

      1. Got it. Thanks Tim. I have experience with bonds, but still new to the preferred stocks and your website has been extremely helpful and glad to have found it.

        I have several preferreds that I’m sitting on big capital gains due to declining rates, but I’m hesitant to get rid of them because I don’t want to do deal with re-investment at a lower rate. Admittedly I still have some that are of lower quality but still holding on to for the higher coupons and call dates 3-4 years ago.

        Dilemma due to the Fed actions.

      2. The SEC must have a whole division of staff dedicated to just dealing with JPM FWP’s. Good grief do they generate A LOT of paperwork over there…

  3. As I understand it, JPM-A will be redeemed on 12/1/19. This is the pay date. So by announcing the redemption on 10/31/19 (which is the Ex date), JPM has met the 30 day notice requirement and the redemption only on the pay date requirement also. Since dividends only accrue from pay date to pay date, only to owners of record one day prior to the Ex date, any purchases made between now and the redemption will bear no dividend.

    Is this correct?

    1. I see where this was discussed in Reader Initiated Alerts yesterday and confirms my thoughts. Sorry I missed it.

  4. It’s going to be well received. I’d see this at 26 in a week or less. JPM.C at 28.30 is a 2.6 ytc.

    1. Someone explain to me how to look at this….I own JPM-C….it’s a 6% preferred and can’t be called before 3/1/24…current price is 28.49 and just went x….current yield is 5.2%….I have a nice capital gain but as I look at this new offering at probably 4.875% or less, I’m asking myself why would I sell what I have for a less offering especially with my call date 4+ys out….how do you look at this….thanks.

      1. Craig – you need to look at YTC, too. On JPM-C it’s 2.59%. On the new issue, assuming it come out of the gate at par (trading 25.05 now), the YTC will essentially be the coupon.

        Buy-and-hold types should switch and get the new coupon as YTC. More active manager types will probably hold, planning to get out before that cap gain goes away. Sometimes it works, sometimes not.

      2. Craig–many of us would look at this from a ‘yield to worst’ perspective. YTW is the return you would receive if the issue was to be called on the 1st available redemption date on 3/1/2024. For JPM-C the YTW is around 2%. So if you thought that you would hold the issue for the next 3.5 years your return would be pretty meager. On the other hand my experience shows that the price of the issue will not start to drop in react to a potential call until maybe a year (in this case) before the potential call. So the new issue would provide a superior return to the JPM-C issue if held to call. Now we wish it were as simple as the above—if interest rates rise the C issue will hold up better than the new issue as these low coupons can drop like a rock on rate increases. So the answer to your question is –how long will you hold the issue–and what is your outlook for interest rates.

        Craig–just to edit as I see Bob-in-DE was answering at the same time as I was. Bob used YTC (yield to call)–I used YTW (yield to worst)–we are both talking the same thing.

      3. Craig, do not get suckered into trading away your 6% coupon JPM-C with 5 years of call protection for a sub 5% yielding new issue from the same company just because of a YTC calculation. You can wait until July 2024 to revisit the question, which should be plenty of time to exit the position gracefully before the market reprices the shares. Even better…get in the habit of reviewing your portfolio on a quarterly basis and write down your thoughts and feelings about each position you hold. Review those thoughts monthly to see if they still reflect your current thinking. Trust yourself before all others.

        1. Thanks for the responses…..those were somewhat where I am….With JPM-C…if you calculate a 5% yield because of it’s far out call date, based on whats offered today I could see this going to $30…but I have never been greedy with making money and sold my IRA portion this morning for $29.52…I’ll hold my regular acct portion….Because of the low rates offered now adays on issues I am familiar with I took that money and bought more ATT….thanks again Tim and everyone, I visit this site everyday….take carre

        2. Citadel… If rates remain the same, and it is called, that would be in April of 2024. If you wait until July (assuming rates stay the same or worse) then July is too late. It is already called. I usually make decisions on big cap gains 1-2 years before call date. Why? If you think this issue is worth 2 years of dividends and there is a few months before the call date? Then you have already lost the cap gains. Why? Because the price should be lowered over time to match call expectations. Now you have lost your opportunity for cap gains. This is ok, it just means you are a long term holder and not taking the opportunity to sell an issue for a premium.

            1. Citidel–exactly how it is playing out on the JPM issues right now with JPM-H, JPM-G and JPM-F—all of which have tumbled on the announcement–the 3 I mentioned are redeemable in March and 2 in September, 2020.

              that is why in the explanation I gave Craig I said here is the YTW, but in my experience they tumbler a few quarters before the redemption date.

              1. Tim – I know you’re always looking for alternatives to money markets, so have you thought of the declines in your JPM’s as now great alternatives like KYN-F has been? For example last trade on JPM-H was at 25.71. At 25.71, with almost certain call at first call on 9/1/2020 given today’s interest rate environment, a purchase at 25.71 today gives you a 3.86% YTC at stripped price. You would think that there’s not much chance of large price variation between now and 9/1/20 because if interest rates go down further, any price move would be up and if they go up, you’re protected by the actual coupon of 6.15% vs today’s 4 3/4% or so. Not a bad place to put idle funds……

                  1. IYP and Newman – I use Fidelity’s bond calculator available at https://gpi.fidelity.com/ftgw/interfaces/pyc/ Given we’re only interested in the yield to 9/1/2020, the first available call date, I put in 6.15 for Annual Coupon Rate, change Coupon Frequency to quarterly, and put 9/1/2020 as maturity. Then change Par Value which defaults to $1000 to $25.00 and Quantity to 100 (so it’s easy to recalculate for stripped yield. Now put in your price at 25.75 and let ‘er rip. It will show you a yield to maturity of 2.452 HOWEVER, it also shows you accrued of 27.33. You have to subtract that from your original 25.75 and given the amount entered is 100, the math is 25.75 – .273 = 25.477… Now use 25.477 for Purchase Price and recalculate. You now come up with an accurate yield to maturity of 3.78% if held to 9/1/2020. This is yield calculated as a bond using all standard assumptions the bond world uses to calculate YTM…. Math skills be damned… lol

                    1. Hmm, If the ex-div is 7-31 that pays on 9-1-2020.
                      I read the prospectus quickly and saw that they were not paying any undeclared dividends. I took that to be August of 2020 is dead money.
                      Am i wrong?
                      Further, if ex was 10-31-19..and today is 11-01-19 what date was used for accrual?
                      Amazing that my super power was the ability to fool people into believing i was a smart fellow.

                    2. i NEED TO CORRECT MY STUPID POST ON JPM-H! Just like JPM-A, JPM-H’s ex-dividend date for the 12/1/2019 coupon payment has passed…. It is completely improper and inaccurate to subtract the “accrued” to calculate the YTC on JPM-H as I did in my example because a purchaser on 11/1 would not be entitled to accrued for it…. THE CORRECT YIELD TO CALL today at 25.75 is 2.45%. I hate being sloppy and my apologies…. The Fidelity bond calculator is only as accurate as you use it and in this case, I used it improperly.

                    3. Thinking this through even further, I think actual Yield to call on JPM-H would be even less than 2.45% because a true bond calculator such as Fidelity’s will assume that you will be accruing divs/interest from the settlement date of your purchase, but in reality, if you buy JPM-H now, you “accrue” nothing between 11/6 and 12/1. So in full apology mode, I say to you, Newman, KUDOS to your math skills! I believe you’re more accurate than a bond calculator in this case.

                1. 2WR. My math skills are poor.
                  In my computation i get 2.13 % roughly

                  3 divs to come= 1.15 less the premium =.40 net gain for a 9month holding period assuming you sell 8-1-20 at par

                2. Hi 2WR—I have had over 1,000 shares (1200 now I think) of KYN-F all year so am full up on that one. And yes I a looking for some $25 anchored issues and are looking at all of those with call certainty to see were I can squeeze out a 1% here or a 1% there.

  5. NTRSP seems safe for the 12/12 ex div, since it was declared by company.

    Northern Trust Declares Quarterly Dividends on Common and Preferred Stock

    CHICAGO–(BUSINESS WIRE)–October 22, 2019–

    Northern Trust Corporation (Nasdaq: NTRS), holding company of The Northern Trust Company, has declared a quarterly cash dividend of $0.70 per share on its common stock ($1.66-2/3 par value), payable on January 1, 2020, to holders of record at 5:00 p.m., Chicago time, on December 13, 2019.

    Northern Trust Corporation also declared a cash dividend of $365.625 per share of its Series C non-cumulative perpetual preferred stock (resulting in a distribution of $0.365625 per depositary share), payable on January 1, 2020, to holders of record at 5:00 p.m., Chicago time, on December 15, 2019.

  6. Wow, calling a 5.45% preferred. I thought WFC-P was rock solid safe from getting called given the 5.25% coupon but maybe not so. That said, WFC can’t issue at JPM’s 4.8 rate. Big difference in the names.

    1. Sole Bookrunner : J.P. Morgan

      Since they are paying themselves the underwriting discount, I guess they are willing to refi at a lower spread.

  7. Here are the current credit ratings on JPM

    Moody’s S&P Fitch
    Outlook Stable Stable Stable
    Long-term issuer rating A2 A- AA-
    Short-term issuer rating P-1 A-2 F1+
    Senior unsecured A2 A- AA-
    Subordinated debt A3 BBB+ A+
    Trust Preferred Baa1 BBB- BBB+
    Preferred stock Baa2 BBB- BBB

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