Wild TriState Capital Ride

As we mentioned we had entered an order for the new Tristate Capital (NASDAQ:TSC) 6.375% fixed-to-floating rate preferred (TRSXL) this morning.

Our initial bid was $25.30, but it appeared this was inadequate, but didn’t intend to chase. We went ahead and entered a $25.50 order as the shares hit $25.92. Shares then fell back to the $25.50 where after 2 hours our order executed.

Into the close the share price started running again and closed at the high of the day of $26.00

This issue is following the trend of all of the smaller regional backs that are issuing fixed to floating rate preferreds–huge demand and skyrocketing prices.

TriState has a 6.75% fixed to floating rate issue (TSCAP) which is now trading at $26.90–see it here.

Merchants Bancorp sold a 7% fixed to floating issue (MBINP) which has traded as high as $27.60 recently–see it here.

Citizens Financial sold a 6.35% issue (CFG-D) that is trading at $26.65–see it here.

There are others. Quite honestly these are less than investment grade issues with current yields now under 6%, on many. If we owned any of these they would be gone in a minute. The risk reward is inadequate at these prices and yields.

We will flip out of the TriState Capital new issue at $26 or over–this is all we are after–4-6 steak dinners. There is too much froth in these issues and it will end badly for some investors.

29 thoughts on “Wild TriState Capital Ride”

  1. The strange trading pattern of this issue continues. Almost no volume all day until the last 1-2 hours and then highest day yet for trading volume 84,000 shares. Closed down at $25.52

    Who releases OTC volume on a Friday afternoon at 2 pm or later? Plus, it’s Friday afternoon before a 3-day holiday weekend. I don’t get it but then they paid the price with the 0.48 cents a share drop

  2. Please forgive my ignorance. I am a new investor. Where is the best place to scout new bond issues? I’d like to try and take a crack at buying some of these bond issues when they first start trading. Is there a service I can subscribe? Thanks for any help you can offer…

    1. Mike, you are looking at the best source. It’s this site. I discovered it – 1 year ago. It’s free

      Note in today’s reader initiated alerts. Ford will likely have a new $25 issue next week paying 6.2% early next week.

      I have not missed one new issue on this site in a year.

      1. Thank you. I just need to watch this site more diligently. I’ve really enjoyed the content here and the knowledge I have gained. Good luck to all…

      2. What is the minimum purchase for an issue like this? Ford paying 6.2%. Likely too high for me right now.

    2. Mike – there are numerous sites to search for bonds. This site is for preferred issues and baby bonds, which are similar to preferred issues. Your broker will have a whole section devoted to bonds. H

  3. “we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”

    1. P, Its hard, but I try to keep this quote in the back of my mind too…
      “More money has been lost reaching for yield than at the point of a gun.”

      1. I went there yesterday, more or less. Luckily I am fully invested. I actually had $14.70 in hard cash a couple weeks ago, seriously, lol. In December I loaded up on other peoples money and they think now is a good time to get back in. Good.

        1. Hard to believe but German 10 yr bund is getting within a few whiskers of its all time low negative yield again. Last couple weeks I got the rail cart back on its tracks. About 80% in ute preferreds again…If I can be generous an indulge myself one liberty of including Enbridge as a ute.

          1. Grid, I have a much higher quality portfolio on average than last year. I try to stay within guardrails. I do colors on my spreadsheets rather than articles of clothing. Green, around 60%, is IG (not Eagan), yellow, around 30%, is high junk or not rated but deemed worthy, red, around 10%, is mad money. About 50% of green is ute ( I included enb) , about 10% of yellow is utes. This all isn’t the whole nut, it’s about 70%. It excludes my allocated 20% bond & CD, and 10% SPY. Only buy IG bonds, and SPY is what it is. FYI, I turned green on TOO if including the flips and divvy. Go mad money!

  4. I bought 160 shares to amuse myself yesterday at $25.25 when they were laying there for the taking on TradeKing. I should have bought a 1000 and sold them all today already. I dont know if profits from 160 can squeeze out a good steak dinner. May be relegated to TGIF for happy hour special and beer with this trade.

  5. Can someone help me understand the trading on this one? They filed for 2.8 million shares, with an optional overallotment of 420,000 shares. There is plenty of demand, and presumably the underwriters should be happy to sell for $25. My quote system says that 54,000 traded today, and I think yesterday’s volume was lower. Are they waiting for the NYSE listing? If so, why? Why aren’t they happy to sell at these prices today? I’m not sure if demand is high, or if supply is limited, or perhaps being manipulated. Perhaps those of you with more experience can explain.

    1. I don’t have the experience. Seems very strange to me also. $25 par gives them a nice profit of about 3% ( I think they pay the company somewhere around $24.25 a share – it would be in the SEC filings – I didn’t check in this case but seems to be around the norm). If they want to be PIGS, I can only hope they get slaughtered but they will not on this issue.

    2. Roger, probably a couple issues at play…Could be holding back supply to keep demand up is one possibility. Another probably more important is we dont know how many blocks were directly issued to funds and institutions that by pass the volume count you are seeing.

    3. Roger—exactly my thoughts. I can’t believe they have that much institutional demand–but maybe.

  6. Crazy pricing on this issue. I pulled my bid this morning as I could see that at $25 it wasn’t going to fill. I’ll wait for all the silliness to fade on these new issues. I’m not chasing anything in this market. Cash is actually looking pretty strategic. Logic in pricing will eventually return.

    Flipping for a few steak dinners works but I need more certainty. I just found out that the electric rate for the recently purchased condo on Oahu is 34 cents per kWh which is four times what I pay in North Idaho. I’d be limited to one cheeseburger and an electric bill.

  7. Agree with you fully but let me add a few points because I don’t believe CFG belongs in the group.

    (1) CFG is close to investment grade at BB+. (2) It is a SIFI bank which means it has much more regulatory oversight than smaller banks. (3) it was spun off in 2014 and has done well since ( of course that could be the economy).

    Full disclosure, I still hold CFG/D. This you were able to purchase at IPO for a small premium over NAV. My plans are to continue to hold it unless it spikes to a 10% profit over my purchase price.

    The others I agree with you 100%

    1. Steve,

      What makes you think the other banks don’t have regulatory oversight? Also, do you not look at financials and balance sheet info before making a decision about investing? I’m trying to figure out why you agree with Tim on the others.

      1. Perhaps, I should word it differently. The SIFI banks undergo the Fed’s stress test(s) to determine company viability in the event of a financial crisis. That is unique to the largest banks in the country. I consider that a more in-depth regulatory oversight perhaps it is not technically oversight but in my view – it is.

        Yes – I look at the financials but am I better than others? NOPE. I really like what I saw with TSC. I worked in a bank for 10+ years same asset size as TSC ( I was an IT guy before retiring). They have a really unique strategy. With that said, Kroll is not not a credible rating agency, Schwab says sell common, they don’t pay a dividend, lots of short interest, and no track record in a downturn. The point about downturn is their commerical real estate business in particular. Would I have brought at Par? That’s what my bid was. 4% over Par. NOT happening. If it makes sense for others, I am happy for them.

        1. Ok, got it. I actually didn’t notice about the lack of the common dividend. That is good to note.

      2. David – SteveA is correct. CFG is designated as a systemically important financial institution (SIFI) whose failure could possibly start a financial crisis. SIFI banks are typically large regional banks and the major national banks and are audited to a greater degree that smaller commercial banks. CFG has total assets of over $160 billion with an equity in excess of $20 billion.

        Merchants Bancorp and TriState are much smaller institutions with stockholders equity of just under $500 million in both cases. Generally banks of this size may sometimes lack the portfolio diversity and financial flexibility of larger institutions. These characteristics need to be well understood by long term fixed income investors when considering investments in relatively smaller financial institutions.

    2. SteveA–I just tossed CFG in to keep you folks awake. Really just a very quick note I wrote. The point is some of these issues trading in the 5.9% area–too low for current credit ratings.

      1. Understand and taking profits on them – I agree with. I just want more profits on CFG-D since it is SIFI and not too extreme compared to C’s and WFC’s premiums on their floating rates ( CFG is more comparable to C)

        1. Steve, stick to your guns and personal investing style. And as far as the IPOs go, what hasnt been mentioned is what goes around, comes around….It wasnt too many years ago the worm turned and the best time to buy an IPO was a few weeks after it came out. As people jumped in too early and overpaid. This forth will cause that to occur at some point. The yield might need to get ratcheted down 25-50 more bps, but it will get there again.

  8. The reason these prices are skyrocketing is because the larger banks are issuing preferred with subpar pricing. BAC, JPM are all issuing new preferred at or below 6%. Additionally, the 10 year note is below 2.3%.

    There is a lot of demand for yield right now, and these issues are providing it. Where I disagree with you is on the quality of the issues. While these banks are small, their financials are solid and stable. I am not sure why you are predicting things will end badly. The only way they will tank is if the 10 year goes above 3.0%, which is not happening any time soon.

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