Royal Bank of Canada has announced:
its intention to redeem all of its issued and outstanding Non-Viability Contingent Capital (NVCC) Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series AZ (Series AZ shares) (TSX: RY.PR.Z) on May 24, 2024, for cash at a redemption price of $25.00 per share to be paid on May 24, 2024.
There are 20,000,000 Series AZ shares outstanding, representing $500 million of capital. The redemptions will be financed out of the general corporate funds of Royal Bank of Canada.
The final quarterly dividend of $0.23125 for each of the Series AZ shares will be paid separately from the redemption price for each of the Series AZ Shares and in the usual manner on May 24, 2024 to shareholders of record at the close of business on April 25, 2024. After such dividend payments, the holders of Series AZ shares will cease to be entitled to dividends.
RY.PR.Z is a NVCC-compliant FixedReset, 4.00%+221, that commenced trading 2014-1-30 after being announced 2014-1-21. The extension was announced 2019-4-12. The issue reset At 3.700% effective May 24, 2019. I recommended against conversion and there was no conversion. This issue is tracked by HIMIPref™ and is assigned to the FixedReset-Discount subindex.
Thanks to Assiduous Readers Peculiar_Investor and bluehawk for bringing this to my attention!
That explains why my ry.pr.j went up a lot today. Darn, I was hoping it would reset at a good rate. Time to look for something to move into that hopefully won’t get redeemed.
ya. looks like that banks will redeem most of their prefs over time. i’m personally focused on the insurance issues now. not likely to see redemptions, but definitely good value.
The market is acting like all bank resettable preferred’s will be redeemed. The #1 question in my mind: have there been any bank preferred resets in the last year? If no, then the market sentiment is likely correct. The question for me on some of these, with their values already close to par, is whether to cash in now and seal in my profit, or wait.
Here’s an indication of market bias toward the redemption scenario:
CM.PR.S, series 47, price 22.53 , yields 6.52% , will reset 31-Jan-2028.
CM.PR.P, series 41, price 22.90 , yields 4.27%, will reset 31-Jan-2025.
Under normal circumstances series 47 would have the higher price. The analysis must also consider that series 41 would reset at a higher yield come next January, likely around 5% at par.
Several other bank preferred’s resetting soon are now tracking close to par.
NA.PR.S just reset yesterday:
https://www.nbc.ca/about-us/news-media/press-release/2024/20240415-nbc-conversion-rights-dividend-rates-shares-series-30-31.html
NA also reset NA.PR.E and NA.PR.G in the last year.
BMO reset BMO.PR.E last Oct
https://newsroom.bmo.com/2023-10-26-BMO-Announces-Dividend-Rates-on-Non-Cumulative-5-Year-Rate-Reset-Class-B-Preferred-Shares,-Series-44-NVCC-and-Non-Cumulative-Floating-Rate-Class-B-Preferred-Shares,-Series-45-NVCC
Oddly enough, RY just reset RY.PR.S 3 months ago:
https://www.rbc.com/newsroom/news/article.html?article=125865
this was a slightly higher reset spread than Z.
Something has changed it would appear and it is not just the 5yr GOC I dont think,
Something has changed it would appear and it is not just the 5yr GOC I dont think,
See this comment by IrateAR.
This is well outside my comfort zone, but I believe banks are moving to LRCN’s which are Tier 1 capital, while resettable preferred’s are not. But that shift has been in motion since 2020.
LRCN’s which are Tier 1 capital, while resettable preferred’s are not.
All bank reset preferreds currently outstanding are Tier 1 capital. There would be no point in issuing them otherwise. See the definition of Tier 1 Capital in the RBC Annual Report 2023 (page 131 of PDF):
LRCNs are just preferred shares sold in brown paper wrapping to enable lying.
Portfolio Managers lie to their clients about what they’re buying: ‘Oh, of course they’re bonds, Mr. Dobbs. Look, see? They have a maturity date and pay interest and everything! We wouldn’t buy preferred shares – they’re risky!’
Banks lie to the CRA about what they’re selling: ‘Oh no, sir, these are bonds. They have a maturity date, so they must be bonds, not those horrible perpetual preferred shares! Therefore the interest we pay on them is tax-deductible!’
It gives a nice little fig-leaf of respectability to yet another federal subsidy for banks.
I thought anything redeemable could not be Tier 1.
From investopedia – “Tier 1 capital represents the core equity assets of a bank or financial institution. It is largely composed of disclosed reserves (also known as retained earnings) and common stock. It can also include noncumulative, nonredeemable preferred stock. ”
I’m thinking nonredeemable means ‘nonredeemable by the holder’ in light of what you said.
I’m thinking nonredeemable means ‘nonredeemable by the holder’ in light of what you said.
Yes, although we should say “non-retractible” in that case. Or it might be that the rules ard different in the US and investopedia goes by the US rule-book.