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You wrote, I bought last year at a nice discount, planning to hold until it got called. Since it is a TRU-PS it will almost certainly be called in 2012. The idea was to buy it for the YTC, 9% built-in capgain (due to the discount) plus $0.45/quarter dividend.

Now it's selling slightly over par. It hasn't been called yet, but I could effectively do a pseudo-call by selling it.
Tring to decide if I should do that, or just keep it and collect the dividends until the call.

Selling now would be in keeping with the original planned strategy. Of course, whether it's me voluntarily selling or them calling, I have to re-invest my proceeds. My heart tells me "take the money and run". My greed tells me to hold on and keep collecting that nice 7.2% dividend.

My intellect tells me that I've achieved my objective and so I should roll into another BAC preferred TRU-PS that is still at a discount and will also probably be called in 2012. I'd re-establish the discount but lose a little bit of yield but greatly increase the YTC (assuming that these TRU-PS's will all get called).

Also, the ex-dividend date is Mar 10, so should I wait until then if I decide to sell?

Any thoughts or suggestions?

Food for thought...

First, there are no great deals in any of the BAC trust preferreds now.

Second, FBF-M last traded at $25.09; but it is trading with about 39 cents worth of accrued, but unpaid interest. To call the issue tomorrow, BAC would have to pay $25.39 - a 30 cent/share premium to today's market price. Adjusted for accrued interest, today's price is really more like $24.70.

Third, at the moment I don't think BAC really wants to spend its cash reserves on paying down debt ... though some of the higher priced issues might be good candidates. FBF-M isn't their highest coupon trust preferred issue. That would be KRB-D at 8.13%.

Fourth, there's no guarantee that FNF-M will get called in 2012 or even later. It all depends on how much BAC would need to pay to raise the same capital in other markets and whether or not they do so before interest rates rise.

Fifth, if you hold the issue in a taxable account you'll get hit with capital gains which might make the early swap seem pointless - especially if you swap into another BAC trust that then gets called as well. Of course that depends on how deep a discount to par you're looking at.

I'm holding 2 BAC issues that are much more likely to to be called. KRB-E (8.10% coupon; 7.98% YTM) and CPP (8.05% coupon; 7.77% YTM). I bought these as a calculated bet that BAC wouldn't be the first big bank to refi their trust preferreds and if I could get them at least no higher than par plus accrued interest, I would still make a tidy sum on the interest payments. (In fact, I bought most of my CPPs well below par.)

Of course I'm also holding CFC-B as my largest BAC issue - CFC-B is more middle-of-the-road in their capital trust's coupon heirarchy at 7.00%. I bought all of those while they were deep under par (they closed at $24.46 today) and I expect to see some of their higher coupon issues called before I have to worry about these.

On the other hand I have in the past sold some of my CFC-Bs in my IRA to diversify and increase my effective yield and I've recently been thinking about selling more to buy something else. But the question has to be, What else am I going to replace this with? At the moment I only have a couple of ideas that might be a better choice.

And to address your concern a little more directly, consider this: BAC will almost certainly call the trust preferreds in order of coupon - high to low. If you sell FBF-M today and replace it with a lower coupon issue, it could be a good long while before BAC actually calls that lower coupon issue. Do you think the loss of yield will make your YTC superior ... when you don't even know when that call date might be?

- Joel
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