Bank Preferreds

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Sep 22, 2008 4:30 pm

What do you guys think of BAC or JPM preferreds?? I think they're a buy at 9% yields.

Sep 22, 2008 4:34 pm

EZ - I like Canadian Bank Preferreds as well as Commons. I realize our situation is different then the U.S Banking system. BAC I would think ( or I really hope ) can stay the course?

Sep 22, 2008 6:27 pm

Yield alone is only half the story.  Dig deeper.   How did it get so high?  Take a look at the huge price drop/fluctuation on just about any financial's preferred over the past year, and ask yourself if your more conservative income clients would be happy with such volatility in a supposedly conservative investment.   Perhaps they are a good long term play, but getting conservative clients to ignore huge unrealized losses is a real challenge.

Sep 22, 2008 8:34 pm

Why not look at some of the closed-end Preferreds?  They are trading at a very steep discount, are well diversified, and still have an attractive yield.  Look at John Hancock and Black Rock. 

Sep 22, 2008 9:04 pm

Those closed-ends scare the willies out of me.  I have never made any money with them. I feel many divvie cuts coming up and then the year end tax loss selling.  I would wait 3 months and you will get them at an even larger discount than today and save yourself the grief of having to explain what is going on with it when the client gets their DEC statement.  I am tired of having to explain what is going on with the fixed income portion of my clients accounts AS WELL AS the equity portion.  You really should not have to be worrying about both at the same time.  The individual corp pfd's have got some very nice yields right now because everyone is wondering whose div will be suspended next. One certainty is that there will be another one going down.  I am feeling that GS and MS could be on the hunt for a deeply discounted regional bank to buy/takeover without denting their balance sheet such as HBAN, NCC, FITB, FBC,  since they will be a bank now that needs the infrastructure.

Sep 25, 2008 2:27 pm

Much of the preferred market is mom and pop investors. According to RBC, about 70% of the market is retail. Many of these investors have been scared out of the market thus drying up the bids and creating the downward pressure. Careful selection of preferreds in general and financial preferreds in paticular would be the kind of guidance that seperates you from Scott trade. As I speak GE.A 6.50% Aaa/AAA is yielding over 7%. That's a deal folks. By the way GE.with 45% of it's revenue from its Capital unit is a financial firm. An unleveraged one.

 
There is a lot of value out there. Our clients aren't paying us these fabulous fees and commissions to cower in a fox hole. Get out there and play in traffic. And as always, tax free bonds offer tremendous value.
 
As for clients who can't stomach volatility, the three month T Bill is a fine fit.
Sep 25, 2008 3:53 pm
BondGuy:

Much of the preferred market is mom and pop investors. According to RBC, about 70% of the market is retail. Many of these investors have been scared out of the market thus drying up the bids and creating the downward pressure. Careful selection of preferreds in general and financial preferreds in paticular would be the kind of guidance that seperates you from Scott trade. As I speak GE.A 6.50% Aaa/AAA is yielding over 7%. That's a deal folks. By the way GE.with 45% of it's revenue from its Capital unit is a financial firm. An unleveraged one.

 
There is a lot of value out there. Our clients aren't paying us these fabulous fees and commissions to cower in a fox hole. Get out there and play in traffic. And as always, tax free bonds offer tremendous value.
 
As for clients who can't stomach volatility, the three month T Bill is a fine fit.



After the last month, I've done the "coming to Jesus" meeting.  He told me to sell them annuities.

Sep 26, 2008 8:46 am

I know over the next 12 mths I will be way ahead buying JPM, BAC, GE , and GS preferreds with an avg yield of about 8.75%.

Sep 26, 2008 10:44 am

Long time observer. First time poster.

 
There is tremendous value in the preferred market, but don't get glossed over by yield. BAC, JPM, and WFC look to be the stongest in the financials right now and they are trading at a discount. (JPM.I, BAC.H, BWF are attractive). Barclays has more risk and is trading at 20.25 with a 10% yield
 
Insurers have been battered lately, but look at Prudential (PHR) and  Allianz (AZM).
 
A great play might be Constellation Energy (CEG.A) which is at 22.06 and yielding 9.78%. Mid-American (Buffett) just bought them. Win, win on this one. If Buffett pays it off, then you make 13%. If he doesn't or until he does, you get a 8.625% div on a Buffett owned company.
 
Super high risk - FNM.T. Now, before you laugh, treat it as a very, very high risk 2-4 year zero coupon bond. Think about it. Was more attractive at 1.02 than the 3.15 today, but you get the idea.