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Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Preferreds-stocks-use-one-hand-catching-this-knife

Perspectives

Preferreds stocks - Use one hand catching this knife

Kris Xippolitos

By Kris Xippolitos

Head - Fixed Income Strategy

March 26, 2020Posted InFixed Income and Investment Strategy

To be fair, the sell-off is partially justified. Concerns around a global recession and the ability for banks to pay dividends has crept (back) into investors' minds. Share buyback programs have stopped and US and European banks have both been told by regulators to use precious capital coffers to support continuation of credit to households and businesses. European structures have equity conversion or coupon suspension risks also creating additional nervousness.

Fortunately, US and European bank balance sheets are starting from a position of strength. Post-Financial Crisis regulatory reforms had pushed the sector to raise significant capital to protect against future crisis. Common Equity Tier 1 ratios for most banks are well above the required threshold. Exposures to certain high-risk sectors (i.e., energy) appear manageable. 

In our view, preferred security valuations are historically attractive and offer long-term value. However, near risks remain and weakness may continue. Clarity around how severe the spread of Covid-19 virus is difficult to assess. However, the deep (though likely short natured) negative macro impact from public and factory shut downs is easier to predict. Liquidity in credit markets remains poor, though recent central policies should help. 

The largest price declines have been in recent new issues, which have low back-end spreads. Tactically, we would expect these structures to have a sharper rebound in normalizing market scenario. For longer-term portfolio construction, we favor high quality issuers. In the US, wider back-end spreads are preferred. More important, taking an incremental investment approach would be suggested.