Monday Morning Kickoff

The S&P500 opened last week at 2971 level and ended the week at 2990–darned quiet overall.

The 10 year treasury opened the week around 2.03% and then drifted lower for the next couple days all the way down to 1.94% on Wednesday. Friday brought the strong jobs report which launched the yield back to 2.07% before finally closing the week at 2.05%.

The Fed Balance Sheet data for last week was not released because of the July 4th holiday. We should see this data sometime today.

The average $25 preferred stock and baby bond rose by 7 cents last week and is now at $24.99/share. The previous week we had seen the average price drop as huge numbers of issues went ex-dividend so we bounced back a bit as one might expect. There are now 179 issues trading at $25 or less as compared to 206 last week–bargains are becoming more and more difficult to find (as we all know) as these prices rise.

We had no new income issues announced last week–not unusual for a holiday week as folks are on vacation many times.

16 thoughts on “Monday Morning Kickoff”

  1. The Deutsche Bank discussion is very confusing to me. The US traded DB common has not been paying a dividend, so what has changed? Is there a German common that paid a dividend?

    1. David, DB has been showing a 11 cent one time yearly dividend since it was reinstated a few years ago from a brief suspension. I personally did not confirm the common payment or suspension Franklin mentioned. I was just addressing the issue that the preferred payments are not conjoined. They are separate payments.

  2. Thanks for the help Grid, Affinity and Ins…i’m pretty conservative, sold off a lot of DXB last week because have had it for 3 years, and got a nice price run (bought at 22+) in addition to those good dividends…i take your point Affinity but i think the bank has years of retooling and i don’t like the div being non-cum (a switch after issuing), so just now sold the rest, took my profit, even though price dipped from last week and i’ll be patient. (i do have small position in the bank’s bonds, i’ll prob hold).

  3. Does anyone know what is going to happen to DXB now that Deutsche Bank has suspended its dividends? It’s a Trust Preferred Security that got dumped from Tier 1 to Tier 2 a while ago. Seems to be trading normally today (although has dipped below par; has a 6.55% coupon). I’m not familiar with this type of situation: does this type of preferred automatically get suspended because the stock’s dividends have been suspended? Appreciate any insight you can give.

    1. Franklin, the trust preferred is unrelated to the common stock dividend. However, an elimination of the common is a warning signal of the stress the bank is under. Of course it has been troubled for many years. There could be pricing pressure on the issue though.
      I didnt delve deeply, but these Euro trust preferreds are not like the few smatterings of US TRUPS though. Meaning Deutsche has converted this issue into a non cumulative. If they suspend this payment you will never get it. The US trust preferreds are cumulative usually with 5 year mandatory limits on suspension of the underlying debt payment.

      1. As I recall, DB has suspended the dividends for a very long time, even when the Chancellor Merkel vowed NOT to bail it out. Nonetheless, DXB just like DTK are Trust Preferreds, already been qualified as Tier 1. Here is some of the text from QOL.com:
        3/28/2008 — Deutsche Bank has elected to qualify the following Contingent Capital Transactions as Tier 1 capital: Deutsche Bank Contingent Capital Trust II (ISIN: US25153X2080) Deutsche Bank Contingent Capital Trust III (ISIN: US25154A1080) The effect of such qualification is that the distributions on the securities will be made on a non-cumulative rather than a cumulative basis from the next payment date and that the securities will rank pari passu with Deutsche Bank’s other hybrid Tier 1 securities. Distributions will continue to be paid at the same rate, namely 6.55% and 7.60% respectively. The rationale for the qualification is to increase the capital base to support the core capital ratio and to accommodate asset growth.” They could technically suspend the dividends for up to 20 quarters without ever having to pay the suspended dividends. SNV-E Synovus Financial, rated BB- by SP (does have Amazon.com biz) is now $25.48 changed from $25.47 ( I bet that it could be filled with $25.47) with its 5.875% coupon. DBX is now $24.7864. Difficult decision because I had a history of STAYING with the issue too long. Yet, this is the first day which we see drastic drawdown following the common. I will either get out and stay out. My cash balance is on the low side. Just get that 2.2% Annual yield from Ally Bank. Or watch it for a few days.

    2. The price will likely dip but the dividends should keep coming in. At least for now… I own the sister DKT and it’s only down 1%. No big deal at all. I view these changes as a positive. Remember, if they eliminate the common dividends, they ‘have’ more money avail for the turnaround and to pay the items higher up in the debt stack, like our holdings. There is a possibility of a call here, but I doubt it since they are not sitting on a lot of cash. They could issue new debt, but that also is going to be tough. At first glance, I didnt see where they are allowed to defer payments on DKT, but surely it may happen. So we roll the dice.

      I’d recommend checking out the prospectus in detail if you’re seriously worried. As for now, I’m sitting tight w/o many worries.

      1. I checked again. Actually I have only 200 shares of DXB. The news is on the commons, 2 years of no dividends. I will watch for a few days while continue to hold. Nothing great to replace. I bought some APLE common for my wife after dumping one of the AHT preferreds. NYMTN seems attractive. I can’t understand why NYMTO is trading higher with the lower coupon more call protection. The market seems to “reward” shorter call date. Ditto for CODI-B cumulative longer call protection vs. CODI-A, non cumulative unit preferreds with shorter call date. To me this is silly. The issuer has the right the call BUT not compelled to call when it becomes Callable. Am I missing something?
        BTW, Pendragon of Rida’s machine kept on writing on risky BDC’s e.g. NEWT (I was lucky to get out without net loss) ditto for Arturo Neto wrote on WPC overvalued. Someone in SA wrote on weakness of VTR. Sold it. Despite its meager dividend, VTR has been deemed having debts getting IG by rating agencies. Beware. Good to read the article especially the comments from the readers. LOL.

    3. The suspension of the common dividend removes the protection layer from DXB – whose dividend is now exposed. As the dividends are non-cumulative, any elimination means no recourse, we lose the dividend entirely.

      Let’s hope it does not happen, but who knows. I have a minimal position in DXB.

    4. Franklin, I bought a total of 400 shares circa March and April 2017, slightly above par. Doug Le Du’s subscription website, showed the info, concurred by Fidelity.com that
      DBX annouced 5/3/2019, ex div 8/21/2019 to be paid on 8/23/2019. DB has not yet called the higher DKT the other trust Preferred with juicy 8%. Then DB did call DTK as I recall, something in the high 7%. I suppose it depends on the cap size. I did sell some DB preferreds when Chancellor Merkel announced that the Bundesbank would not bail out the DB. DB had the misfortune of two lousy CEO’s. Here are some of the news from Fidelity.com
      Deutsche Bank’s ( DB
      Loading…
      Loading…
      ) major retrenchment should help a handful of large U.S. banks gain a bit of market share in areas such as trading and investment banking, according to Credit Suisse. On Sunday, Deutsche Bank ( DB
      Loading…
      Loading…
      ) said it plans a “fundamental transformation” as it seeks to improve its capital position. That includes cutting 18,000 employees, stopping global equities trading, and transferring 75 billion euros of “risk- weighted assets into a so-called bad bank,” Financial News reported. In theory, Deutsche Bank’s ( DB .) strategic reset is as sensible as it is overdue. In practice, it will require flawless execution and may not go far enough. Germany’s top lender laid out a radical restructuring plan on Sunday.
      Most European banks such as CS (credit suisse) went down more than 1% as the unemployment rate came out lower than anticipated, resulting in market sentiment that the Feds would not lower the interest rate. I suppose DB would love to see our Feds to lower the rate making it easier to steer bank to become whole. Please see Gridbird’s reply and mine found in QOL.com.

      1. I have found nothing that states they are suspending the dividends on anything but the common shares. Here is a link to their dividends page. As far as I can tell, the Trust preferreds are doing just fine and will keep paying for now.

        https://www.db.com/ir/en/dividend.htm

        1. A4I, you are correct, the suspension is only on the common.
          However, this removes a protection layer, so now the Preferred dividends are on the front line.

          If I were the DB CEO, I would be tempted to just declare Trust Preferred dividends stopped – immediate savings to the bottom line since they are noncumulative; may make a lot of folks unhappy and destroy whatever confidence is left in the Bank – but it saves cash, he might even get a bonus for improving the cash flow.

          Then when they try to secure future financing, no one is gonna step up to the plate, he will be fired with a generous severance.

    5. The underlying for both DKT and DXB are non-cumulative preferred, not bonds as you have with many trust preferred. Having underlying bonds is much better from a security stand point.

      The best protection for a non-cum pref is a dividend paying common. I have no special insight into DB but structurally, the TP are weak issues if the common is non-dividend. Despite protestations from DB they really seems to be in trouble.

Leave a Reply

Your email address will not be published. Required fields are marked *