Below are some fairly recent bank presentations from some of the regional and community banks which have preferreds outstanding which have been crushed in the panic sell off.
I have small positions in the Bridgewater issue which has a current yield of 9.48% and the Heartland Financial issue which has a current yield of 7.71%
I am getting very antsy — I want to buy more, but would like to see this debt crisis resolved — then we can move on to the next ‘worry’, which is the potential recession ahead. Last week I did nibble a bit–will post what I did this weekend.
May 12 Bridgewater Bank (BWB)
May 16 Western Alliance (WAL)
May 24 Dime Bancshares (DCOM)
May 11 Atlantic Union Bancshares (AUB)
May 10 Heartland Financial (HTLF)
As I was reminded by one of our readers/commenters there is a Goldman Sachs Fixed to Floating rate issue (GS-J) which has now entered the floating period which has a high ‘potential’ coupon of around 9%. The issue is just shy of investment grade. This issue is at risk of a call and is trading around $25.08 now so you don’t want to pay more than that level. It is highly likely this issue will trade no higher than $25 plus accrued dividends. Will they call it now or will they let it hang around a few quarters?
We are looking at different time horizon, but I think GS-J is a much better preferred share option than BWB. Yes, GS-J is subjected to call risk, but GS needs to give you 30 days notice if they decided to call it. 30 day interest on 9%, you can get at least 0.187 in interest + 25 face value. You won’t lose any money even if the issue is called. Another way to look at the problem is why GS did not give a notice to redeem GS-J when it turned into floating rate on 10 May? If GS can’t refinance its preferred share at a rate better than 9%, then 9.48% on BWB is definitely not a good idea. In my humble opinion, the regional bank crisis is not over until they can issue a baby bond or preferred share again. Now the capital market is just close for them. They can’t issue equity (too much dilution, and it creates panic if not successful), the preferred share market is closed (look at e.g. GS-J), their only way of survival is to offload loan book and takes the hit like PacWest. Don’t buy this dip, it is just too dangerous. WFC-Q is going to be ex-dividend soon, I think that is a safer option.
There are a couple dozen fixed to float/high coupon pfds out there w 2024 or less call dates. Not much upside but the coupon. And maybe a bang if you strip out accrued. The risk is …if things get much worse there is plenty of downside. Vs a 5% no risk. I still buy the fxd to floats its just a crazy market
Tim, interesting read on SA ,two of the banks your interested in are mentioned. His suggestion is the same as yours, small bites. But he also mentions no long term holds until we are 9 to 15 months out from this panic to see how banks are faring with loan losses, earnings decline, etc.
https://seekingalpha.com/article/4601386-beaten-down-bank-stock-list-analysis
Tim, interesting read on SA ,two of the banks your interested in are mentioned. His suggestion is the same as yours, small bites. But he also mentions no long term holds until we are 9 to 15 months out from this panic to see how banks are faring with loan losses, earnings decline, etc.
https://seekingalpha.com/article/4601386-beaten-down-bank-stock-list-analysis
Lately I bought WAL PRA at $9.
Maybe the first time I catch something at the very bottom.
And these:
AUB PRA at $19.75
MTB PRH at $21
SPNT PRB at $21
I know some ‘people’ who are very positive on MTB
Looks like the debt ceiling is resolved.
https://www.ig.com/en/indices/markets-indices/weekend-wall-street
I’m too old and risk averse buy bank preferred stocks, but I’m sure tempted to take a chance with T, VZ, and especially BTI. All three are probably debt laden value traps, but they just feel more comfortable than regional bank preferred stocks with commercial real estate loans — especially large office buildings.
Thanks for posting these and they are an interesting comparison point.
I am considering COF N as an option in the event that my NLY N or G get called. COF N has a 4.25% coupon and trades around $16.38 with a call date a few days after the call date of the BWB issue. COF issue has YTW of about 18.6% while the BWB issue has YTW of about 22.9%. Note all the COF issues appear to be trade pretty tight have have approx. the same current yield so it’s really about picking the call date.
COF is obviously larger market cap, the common pays a (nominal) dividend, also Buffet is in the COF common. So you have a couple of signals on the COF that you don’t have on the BWB (for example). If Buffet sells or if they zero out the dividend. You don’t get these indicators on the BWB issue.
Also – and perhaps I am just being paranoid – but I just find it very difficult to to imagine regulators getting together with a team of bankers from JPM (on Sunday afternoon over a Zoom call) and zeroing out preferred shareholders in a Buffet owned company. Call me crazy.
Given the way the BWB and COF preferred issues are priced, and that they probably have the same call risk profile I would probably go with the COF issue. I like being Sr to Buffet and I like the signal that a common dividend sends to preferred shareholders.
Curiously @Tim – what are your thoughts concerning Eagle Point Credit Term Preferred?
Tim i bot a hundred of HTLFP at 20.50 ; i thought here is a quality issue yield over 8.5%
also your thoughts and the members here ; i bot USB+A at $710/sh
here is a $1000 issue price and a floater; investment grade with a 8%+ yield
way beyond the other PFds from USB ;very thin so I’m planning on keeping it;
i’m trying to figure out how much of a hit the rate will take with the change from LIBOR to SOFR; i figured it based on 3/23 rates and it would have been
6.36 libor and 6.27 SOFR ; ; i could use some help on the Window it is measured ; how many days and when beginning and end for the 6/30 ex date
Hey Tim,
Bridgewater is interesting. Heartland is way too levered for my comfort levels. Their return on average assets being just a bit over 1% and generating average return on equity between 18% and 20% (2022 and 1st quarter of 2023). At least in my opinion, that’s a lot of leverage.
J P Morgan return on assets in 2022 was 1.07%.
Hey Chuck,
I like to look at the ratio ROE/ROA. In 2022, JPM had a return on equity of about 13.7%. 13.7/1.07 is pretty reasonable compared to Heartland’s 18/1.02.
Just my opinion.
Link you provided to AUB goes to Dime
NG: here’s the link for AUB presentation:
https://d1io3yog0oux5.cloudfront.net/_1449e37ece21f861a597ae4c1a0ee76f/atlanticunionbank/db/1912/18102/pdf/AUB+4Q22+Investor+Presentation+-+vF.pdf
Thank you. I have owned their preferred since it was issued. I have done the
same with UCBIO. They are each down about 20% since the bank industry
bad news. They were issued at about the same time and pay the same rate.
I really like both and keep holding.