Citigroup to Redeem $2B TruPS - Analyst Blog

On Thursday, Citigroup Inc. C announced the redemption of trust preferred securities (TruPS) worth $2 billion. The securities to be fully redeemed include 6.000% TruPS issued by Citigroup Capital IX, 6.000% TruPS issued by Citigroup Capital XI and 6.35% enhanced TruPS issued by Citigroup Capital XVII.

Citigroup stated that these preferred securities will be redeemed at $25.00 plus certain amount per redeemed TruPS as accumulated and unpaid distributions until the redemption date arrives. The redemption is scheduled to take place on Apr 28, 2014.

The redemption depicts Citigroup's efforts toward increasing the efficiency of its funding and capital structure under Basel III. Notably, in 2013, the company redeemed $12 billion of senior debt, subordinated debt, preferred and trust preferred securities.

The planned TruPS redemptions will not affect Citigroup's Tier 1 common capital and related estimated Tier 1 common ratio under Basel III. Further, Citigroup's Basel III Tier 1 capital and related Tier 1 capital ratio will be unaffected, under fully implemented Basel III rules.

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 better-ranked major regional banks worth considering include BankUnited, Inc. BKU, Wells Fargo & Company WFC and Fifth Third Bancorp FITB. All 3 carry a Zacks Rank #1 (Strong Buy).