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TCF Financial to Redeem $115M TruPS

Zacks Equity Research

On Monday, TCF Financial Corporation (TCB) joined the bandwagon of major financial institutions and announced the redemption of trust preferred securities (TruPS) worth $115 million. These include the redemption of 10.75% TCF Capital I preferred securities. Over the last couple of weeks, banks have been redeeming TruPS since these will no longer qualify for Tier 1 beginning in 2013.

TCF Financial stated that these preferred securities will be redeemed at $25 per trust preferred share. The redemption amount will also include accrued and unpaid distributions until the redemption date arrives.

The TruPS redemption will take place on July 30, 2012. The company further mentioned that it will use net proceeds from the public offering of its depository shares completed on June 25 to fund the redemptions. The stock offering raised net proceeds of $166.6 million in total. Wilmington Trust Company, a subsidiary of M&T Bank Corporation (MTB), is acting as the paying agent.

TCF Financial issued 6.9 million depositary shares, including over-allotments to the general public at an offer price of $25 per depositary share. The Preferred stock has a par value of 1 cent per share. Each share represents a 1/1,000th interest in a share of the company’s Series A Non-Cumulative Perpetual Preferred Stock.

TCF Financial’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, the TruPS issued prior to May 19, 2010 would not be considered for the calculation of Tier 1 capital ratio.

Similar Actions

Apart from TCF Financial, many other banks have announced the redemption of TruPS in the last few weeks. Bank of America Corporation (BAC) announced the redemption of $3.9 billion in TruPS, BB&T Corporation (BBT) announced the redemption of $3.1 billion of TruPS, while JPMorgan Chase & Co. (JPM) would be redeeming nearly $9 billion in TruPS.

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


Redemption of TruPS is a positive step for the banks, enabling them to bring down interest expenses, as these securities demand higher rates than other securities. Often, the banks replace TruPS with equity or other low-cost debt. Further, according to the Dodd-Frank Act, banks will no longer be able to consider these securities as regulatory capital beginning 2013.

In March 2012, TCF Financial repositioned its balance sheet with the prepayment of $3.6 billion of long-term debt. Moreover, it also sold $1.9 billion of mortgage-backed securities. The restructuring of the balance sheet has also reduced interest rate risk of the company and is expected to be more accretive to the net interest margin.

We expect the company to maintain its superior position in the market based on its positive approach to market conditions and improving top-line growth. However, the regulatory reforms might affect the company’s near-term results to some extent.

TCF Financial currently retains a Zacks #3 Rank, which translates to a short-term Hold rating.

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