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Learning, Sharing, and Teaching => Investor Alley => Topic started by: bwall on April 22, 2014, 08:42:50 AM

Title: Preferred stock shares?
Post by: bwall on April 22, 2014, 08:42:50 AM

I have a question for the former/current stock broker professionals on the board.

I recently found a bank that is offering preferred stock shares, dividend is 6%+. To me, it seems like there must be a catch. Why would a bank raise funds from the stock market when the gov't is loaning at 0.25%? What am I missing? What is the additional risk (beyond the standard stock market risk)?

Stock symbols: CYN-C  and CYN-D.

Title: Re: Preferred stock shares?
Post by: brewer12345 on April 22, 2014, 12:23:15 PM

Why would they issue stuff?  You are right, if they were just funding loans they would just drum up some more deposits at under 1% yields.  However, preferred stock is a very different animal.  Banks are required to keep themselves within certain ranges of % equity on their own balance sheets or they get in trouble with their regulator(s).  Preferred stock gets counted as a form of equity, so this is a way to raise capital for the bank.

What are the risks?  You would be buying what looks a lot like a bond, but it is very deeply subordinated to everything else.  If the bank gets into trouble you can probably kiss your investment goodbye.  The other risk is that these securities either have very long maturities or are perpetual (no maturity).  If rates rise, you get whacked.  Finally, they are usually callable after 5 or so years.  If rates fall, your upside is capped.

Title: Re: Preferred stock shares?
Post by: bwall on April 23, 2014, 09:30:36 AM

Thanks for the primer. Not nearly as good as it appears at first glance.

Title: Re: Preferred stock shares?
Post by: brewer12345 on April 23, 2014, 12:46:31 PM

Quote from: bwall on April 23, 2014, 09:30:36 AM

Thanks for the primer. Not nearly as good as it appears at first glance.

Heh, "it" rarely is.

Title: Re: Preferred stock shares?
Post by: GoldenStache on April 23, 2014, 12:58:28 PM

Were you looking at MS - Morgan Stanley and GS-Goldman Sachs?

http://seekingalpha.com/article/2153243-goldman-sachs-6_375-percent-is-good-but-peers-are-better

I saw this yesterday myself.

Title: Re: Preferred stock shares?
Post by: bwall on April 23, 2014, 08:18:50 PM

Quote from: GoldenStache on April 23, 2014, 12:58:28 PM

Were you looking at MS - Morgan Stanley and GS-Goldman Sachs?

http://seekingalpha.com/article/2153243-goldman-sachs-6_375-percent-is-good-but-peers-are-better

I saw this yesterday myself.

I was looking at these: CYN-C  and CYN-D. Solid, but not quite Goldman. I'll be taking a pass on the preferred.. . ..