Citigroup to Redeem $369M TruPS


On Thursday, Citigroup Inc. (C) announced the redemption of trust preferred securities (TruPS) worth $369 million. The securities to be fully redeemed include 6.100% enhanced TruPS issued by Citigroup Capital X.

Citigroup stated that these preferred securities will be redeemed at $25.00 plus $0.0042361 per redeemed TruPS along with accrued and unpaid distributions until the redemption date arrives. The redemption is scheduled to take place on Oct 1, 2013.

The redemption depicts Citigroup’s efforts toward increasing the efficiency of its funding and capital structure under Basel III. Notably, beginning 2012, the company has redeemed $25 billion of senior debt, subordinated debt, preferred and trust preferred securities, including the current redemption.

The planned TruPS redemptions will not affect Citigroup’s Tier 1 common capital and related Tier 1 common ratio, either under Basel I or Basel III. Yet, Citigroup’s Basel I Tier 1 capital and its Basel 1 Tier 1 capital ratio are anticipated to reduce by about $0.37 billion and 4 basis points, respectively.

TruPS redemption is viewed as a positive step for the banks, enabling them to bring down interest expenses, as these securities demand higher rates than other securities and often the banks replace TruPS with equity or other low-cost debt. Further, according to the Dodd-Frank Act, banks are no longer allowed to consider these securities as regulatory capital beginning 2013.

Currently, Citigroup carries a Zacks Rank #3 (Hold). Some banks that are worth considering include BankUnited, Inc. (BKU) with a Zacks Rank #1 (Strong Buy), while Fifth Third Bancorp (FITB) and The PNC Financial Services Group, Inc. (PNC) carry a Zacks Rank #2.

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