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Banker Capital One Financial Sells a Quality Preferred

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Banker Capital One Financial Corporation (NYSE:COF) has sold a new preferred stock offering.  Moodys rates this issue as investment grade, while Standard and Poor’s has it a notch below investment grade.

As you might expect with a quality issue the coupon is meager–just 5.20%.  The issue has now begun trading on the OTC Grey Market with a temporary ticker symbol of CITLP and is trading in the $25.06/share range which goes to show that even with modest coupons the yield hungry marketplace is anxious to own quality issues.  For those not familiar with the OTC Grey Market and potentially buying issues at “wholesale” prior to big board trading we have a short primer at this link.

COF has 4 other preferred issues outstanding at this time with coupons ranging from 6 to 6.7% and all of them are trading well above the $25/share issue price.  You can compare this new issue with the other issues outstanding on our “swaps” page where we lay them all out in a manner which makes them easy to compare.  Our swaps page is here.

Being a bank the preferred stock issues of COF are non-cumulative, but are qualified for preferential tax treatment.  This means if the company does not declare a quarterly dividend it is gone for good.  Holders of the security in a taxable account will pay taxes on dividends at the lower capital gains tax rate.

Potential buyers should be aware that while they may be willing to accept the lower coupons on the quality issues there will be a price to be paid when/if interest rates move higher (of course no one is expecting that anytime soon) as the share price of low coupon issues are apt to fall hard.

Details on this new issue can be found here.

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