Reply #13: US banks get securities buy-back window [View All]

[Demeter]

The US financial reform bill has opened a 90-day window for banks to buy back $118bn in high-cost securities, a move that would enable them to replace the instruments with cheaper capital but is likely to cause tensions with regulators and investors
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http://link.ft.com/r/FG6LAA/0GWWCW/DXJ2Y/C53XXI/LQPE75/1G/t

What fresh hell is this? It looks like a nightmare....


Trups – equity instruments that pay interest like bonds – became popular in the financial crisis when banks sold more than $40bn-worth to investors ranging from Warren Buffett to small savers. Financial groups are interested in buying back the securities because Trups are an expensive form of capital. Banks needed to offer high interest rates to entice investors...Moody’s estimates that US banks have about $118bn of Trups outstanding. The securities account for a significant part of tier one capital at lenders like Bank of America, JPMorgan Chase, Morgan Stanley and Citigroup, according to the credit rating agency.

Banks have an extra incentive to redeem Trups because the new law states that they will no longer count as tier one capital – a key gauge of financial strength – from 2013.