US Bank Corp (USB) recently announced that they can exit TRAP within a matter of a few weeks. The market didn’t have much enthusiasm on the news yesterday. I feel when that actually happen it will raise the eyebrows of many long term investors.
When that happen the prefer share’s dividend can possibly be used to pay out as common share dividend and it will be a major step closer to return to a sustainable dividend stream. It matters a lot as a bank. If a big bank can not pay dividend who can? I think the recent activities of some of the big banks like JP Morgan and US Bank to sell debt without Fed guarantee is a result of them trying to convince the government that they have the ability to repay TRAP. As you may remember one of the requirements of the government to allow banks to repay TRAP is to prove they can sell debt without federal guarantee.
So looking forward I feel those banks that are able to repay TRAP like US Bank(USB), JP Morgan(JPM) and Bank of New York Mellon (BK) will lead a small rally of the bank sector and traders should be very careful about taking short position on banks.
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