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J.P Morgan chase is perhaps the most solid super bank in the group. I got the following "opportunity" from Schwab (I interpret the writeup to say that after 5 yrs the rate will float off of the w mo. Libor which is currently less than 0.3%.):

Issuer Name: JPMorgan Chase Cumulative Deferrable Capital Secs.
Issuer Description: This hybrid preferred offering has fixed
five year rates and floats off of 3 months libor thereafter.
JPMorgan Chase & Co. provides global financial services and
retail banking. The Company provides services such as
investment banking, treasury and securities services, asset
management, private banking, card member services, commercial
banking, and home finance. JPMorgan Chase & Co. is traded on
the NYSE under symbol JPM.
Type Of Bond/Security: Hybrid Preferred Security
Expected Credit Rating*: Moody's, A2 Negative Outlook; S&P,
BBB+ Negative Outlook
Expected Bond Maturities*: 12/30/2039
Investment Amount: 100
Anticipated Yield to Maturity: 7.25%
Payment Frequency: Quarterly
Expected Call Features: 12/30/2014 or after @ 25
Expected Settlement Date: 12/18/2009

brucedoe
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Bruce,

If the hidden question in your post is whether you should buy the bond or not and you're soliciting answers, then I'd say to pass on it. Floating-rate bonds have to be regarded as derivatives cooked up by wunderkind for the sole purpose of fleecing a greedy, gullible public.

If you buy the bond, who is the opposite side of your trade? Someone who is betting that they won't actually have to pay out the putative 7.25% coupon.

But suit yourself, Charlie
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No. of Recommendations: 5
brucedoe,

This appears to be an exchange-traded preferred issue. I'm curious as to whether this is a capital trust preferred (debt-secured trust obligation) or a direct preferred issue.

I don't find any JPM-related security that quite fits your description on Quantum Online, nor do I find any new SEC filings that match within the past two weeks. Did Schwab provide you an expected symbol or a prospectus? If they delivered an actual prospectus by PDF, could you post it somewhere like Google Docs?

I follow bank exchange-traded issues and I find it interesting to see what new issues are being offered, how they're structured and what the market is willing to pay for them. For instance, the structure of the new BAC-S issue is interesting, but I don't see how I could play it since I think its highly likely the shareholders will approve the issuance of new common to convert the shares before any actual interest comes due. (The interest on BAC-S starts at 10% and ratchets up 2%/year, capped at 16% until the shareholders vote to convert the shares to common. There are also common share warrants attached that expire worthless if the conversion occurs at the first meeting. But since I don't expect the vote to go against the board, I don't see any value in buying any BAC-S...)

- Joel
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Given that Schwab's email matches the description in this filing, I would presume it's this (filed today):

http://www.sec.gov/Archives/edgar/data/19617/000119312509251...

Tom
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This MorganChase "opportunity" and the BAC one mentioned in another reply, suggest to me that the financial industry is at it again. Who would buy these things? It sure seems like gambling to me. I think they are designed to fleece the naive.

brucedoe
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brucedoe,

You wrote, This MorganChase "opportunity" and the BAC one mentioned in another reply, suggest to me that the financial industry is at it again. Who would buy these things? It sure seems like gambling to me. I think they are designed to fleece the naive.

I don't know about the Chase securities; but I think I do know about BAC-S. The point of BAC-S is to create a security that is designed so that the probability of it NOT being exchanged/converted to common shares is very, very low. A potential buyer should be someone interested in buying shares of BAC. BAC-S should get you into BAC shares for a small discount. Mitigating the risk of not being converted is the fact that these shares should pay a hefty dividend if they don't.

Now where things are back to the status quo is in how the company's board treats its shareholders. By issuing BAC-S, BAC's board of directors are FORCING its shareholders to accept the dilution of the common stock for the benefit of the executives without allowing them to vote on it first. By issuing BAC-S, the dilution is a fait accompli, because the penalty for not accepting the dilution is so harsh. The arrogance shown here is really quite staggering.

I'm not so sure the Chase issues are really in the same category. Those look like they're just another derivative product designed to garner Chase a small margin from the equity obtained from their sale. Honestly, I have no real problem with that. Despite how much bashing these products get in the press these days, by themselves they are not what caused the credit crisis.

- Joel
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