Citi, Other Banks, Offer Sweet Deals: Preferred Stock at 7% Yields -- Barrons.com

Andrew Bary

A spate of new bank preferred-stock deals are offering investors yields of more than 7%, a nice premium relative to the 4.6% available on 30-year Treasury debt. Tax benefits add to the appeal.

Citigroup priced a $1.75 billion issue of 7.125% preferred on Tuesday. That follows deals so far in May from M&T Bank and Citizens Financial Group.

The $750 million M&T issue carries a dividend yield of 7.5% and a $25 face, or par, value. The securities are trading on the New York Stock Exchange under the ticker MTB PrJ at around $25.20, a small premium to face value. The $400 million Citizens Financial deal (CFG PrH) also changes hands on the Big Board at a small premium to its face value of $25 a share.

The Citigroup preferred, Series CC, has a $1,000 par value. It follows a $550 million, 7.2% preferred deal sold earlier this year by the bank. Citigroup has redeemed some preferred deals this year.

The new deal is perpetual and resets its rate in five years based on a formula using the 5-year Treasury rate plus 2.69 percentage points, according to an offering document. Investors can get information on Citi's many preferred deals on the company's website.

One factor driving the new issuance is that banks are redeeming outstanding preferred and are offering new deals to replace them. This is the case with Citi.

Like most preferred, the Citi issue is callable at par in five years. And like most $1,000 preferreds, it won't be listed on the NYSE. It will be available to retail investors over the counter, like corporate bonds, using a Cusip number, or identifier, rather than a ticker symbol. The $1,000 preferred market is dominated by institutional investors.

Many retail investors like preferred stock because dividends are tax advantaged, like those on common shares.

In addition to the new preferreds, there have been some subordinated debt deals priced recently. AES sold $950 million of 7.6% bonds due in 2055. Entergy sold $1.2 billion of 7.125% bonds due in 2054, according to Bloomberg. And Dominion Energy offered $1 billion of 7% bonds and $1 billion of 6.875% bonds.

Write to Andrew Bary at andrew.bary@barrons.com

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May 21, 2024 17:33 ET (21:33 GMT)

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