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Some of the preferreds of the major financials that are making day-to-day headlines are trading at very high yields.

The BAC-L convertible has hit a 20% yield. Most other BAC preferreds are yielding in the vicinity of 16-18%.

That's quite a yield, and seems to be interesting. It's also certainly safer that nibblin' at the common. However, the danger of the gov't becoming a major stakeholder and sitting on shareholders is a major concern. The question is, how much of the risk is already accounted for? I think that with the administration change, we have even more uncertainty and further downside, especially if Citi needs additional capital injections leading to fears of its outright nationaliation.

So, the question of the day, is how safe are the dividends? Most of the BAC preferreds are non-cumulative. They can be suspended at will. As long as they pay a dividend on the common, they have to pay them though. And, they've gone to great pains to make sure that common dividends can be kept at one cent. So, from that perspective, the dividends will be maintained.

Question 1:
The question then becomes Uncle Sammy. Can the Feds impose a dividend suspension on preferreds? Have they done it in the case of Freddie/Fannie? In any other case? It seems like they've avoided affecting the preferreds in most cases, no?

Question 2:
Can the distribution be reduced, but not suspended? I don't believe that they could cut the dividend of a preferred of any type, but I'd like to be certain.

With these issues trading at 30 cents on the dollar, aren't they getting tempting? If the dip continues, BAC preferreds will be trading with yields like Ford preferred notes. Isn't Mr. Market overdoing it a bit???
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