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URL:  http://boards.fool.com/brucedoe-you-wrote-many-thanks-for-your-detailed-28512939.aspx

Subject:  Re: HFC-B Date:  5/15/2010  4:04 AM
Author:  joelcorley Number:  30859 of 35400

brucedoe,

You wrote, Many thanks for your detailed explanation of bank preferreds. Since C is no longer paying a dividend on their common stock (I believe), I guess they could defer payment on Capital Trust Preferreds if they want to. If they have Direct Corporate Preferreds, they can suspend paying the dividends and you will never get anything. BAC is still paying a penny a quarter on their common stock, the last I looked, so they MUST continue to pay the dividends on their Capital Trust Preferreds. Have I got this right?

Precisely. ... Though I personally won't touch Citibank. I thought it was too much of a risk during the crisis and even with government support, it's at best on par with my personal favorite, Bank of America. That's not to say I like Bank of America's deposit products - just that they're huge, make plenty of money and their books are sound enough that I'm willing to bet on them surviving this downturn and thriving through the next. The fact that they have some weakness in their balance sheet just helps improve the yield on their debt enough to make it attractive to me.

And, Still, the ability to defer the dividends on Capital Trust Preferreds for 20 quarters is 5 yrs. I'm 79 and I couldn't stand loss of dividends for 5 yrs, though the company would also not pay dividends on their common stock for that long also.

I can see that. Our time horizons are different. I'm 45. During the beginning of the credit crisis, I made a decision to use the falling price of debt as an opportunity to switch much of my portfolio out of equities and into debt. Right now I'm into long(er) term, riskier debt. I still probably have 10 years before I retire and hopefully I'll need the income from that money for another 30 years after retirement. But for now I can take some risks and I can afford to wait if I get into a suspended capital trust preferred.

Finally, I'm sure I have irrational fears, but, just the same, I think I won't get involved. You obviously know lots about this so I'm sure you will do well in investing in bank preferreds.

It's not that irrational. I'm guessing you probably figure you have at most 10 years of life expectancy. Risking that you lose income from half that is certainly a problem. Of course the potential loss is one reason Capital Trust Preferreds pay more than senior debt instruments from the same issuer. And anyway, I'm sure I'll move some of my own investments into safer, shorter term securities when I get to be your age.

As for my experience - I have none directly working for a bank. But my degree was business oriented, so I know how to read a company's books and I can read and understand a prospectus and SEC filings. And it probably doesn't hurt that my girlfriend works for a bank.

- Joel
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