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BB&T to Redeem $3.1B TruPS

Zacks Equity Research

BB&T Corporation(BBT) is the latest bank to jump on the bandwagon of redeeming trust preferred securities (TruPS). Over the last couple of weeks, many financial institutions have been redeeming TruPS as these will no longer qualify for Tier 1 capital ratio calculations beginning 2013. The company has announced the redemption of $3.1 billion in TruPS.

The redemption includes $2.0 billion worth of capital securities related to different series and Fixed-to-Floating Rate securities worth $1.1 billion. BB&T stated that all these securities will be redeemed at 100% of the liquidation amount. The redemption amount will also include accrued and unpaid distributions until the redemption date.

BB&T further mentioned that it will use the existing available cash to fund these redemptions. The redemptions of all the TruPS will be completed by August 1.

BB&T’s decision to redeem TruPS follows the announcement of the new capital rules by the Federal Reserve earlier this month. As per the new proposal, beginning 2013, the TruPS issued prior to May 19, 2010 would not be considered for the calculation Tier 1 capital ratio.

Further, in mid-March, the Fed informed BB&T that its capital deployment plan, submitted under Comprehensive Capital Analysis and Review (CCARF) or the stress test, has received approval. Consequently, the company announced a dividend increase. The redemption of TruPS followed this approval.

Similar Announcements

Apart from BB&T, many banks have announced the redemption of TruPS in the last few weeks. These banks include JPMorgan Chase & Co. (JPM), which announced that it would redeem approximately $9 billion in TruPS on July 12.

Additionally, SunTrust Banks Inc. (STI) also stated that it will be redeeming TruPS worth nearly $1.19 billion. Likewise, Citigroup Inc. (C), whose extra capital deployment request was rejected by the Fed, also announced the redemption of TruPS.


TruPS redemption is modestly positive for the banks, enabling them to bring down their interest expenses, as these securities demand higher rates than other securities. At times, the banks replace TruPS with equity or other lower cost debt. Further, according to Dodd-Frank Act, banks will no longer be able to consider these securities as regulatory capital beginning 2013.

BB&T currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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