Profit after Commissions/ DATE
GYB $76.06 10/2010
PYT $685.02 9/2010
GJS $64.08 10/2010
$ 244.53 11/2009
$168.15 2009 (3 ENTRIES)
GRAND TOTAL: $2411.49
Some of my prior trades of GYB can be found in the following posts: Added another 100 GYB in Regular IRA at $11 Bought 50 GYB at $11 Sold 50 GYB at $15 Pared Trades in Roth: Sold 100 PYT at 19.25 & Bought 100 GYB at 18.98 Sold 70 PYT at 18.66 and Bought 70 GYB at 18.49 in Regular IRA Sold 50 GJS @ 16.20 & 100 GYB @ 19.9 Sold 100 GYB @ 19.4
I do not have high expectations for a purchase of GYB at $19.07. If GS survives and I held the security until the underlying bond matures, I would receive $25 for each share in 2034. It is extremely doubtful that I will hold onto these shares for more than a few months or a year.
GYB is a trust certificate that has as its underlying security a trust preferred issue from Goldman Sachs. While this security has multiple legal layers, I view the underlying security as a GS junior bond. While the underlying bond has a fixed coupon of 6.345%, www.sec.gov, GYB is a synthetic floater that pays the greater of 3.25% or .85% above the 3 month Libor rate, but no more than 8.25%, www.sec.gov. The float is created by a swap agreement with UBS.
The trustee for GYB collects the fixed coupon payments at 6.345% from GS and then exchanges those funds with UBS for either the guarantee of 3.25% or the amount due under the Libor float. So, that is a good deal without question for UBS now. UBS takes no risk of a GS default, which is borne by the owners of the TC, and collects the difference between the applicable rate now which is the 3.25% guarantee and the 6.345% paid by GS. The worm will turn against UBS when the LIBOR rate exceeds 5.495%. It is what it is and I can not be concerned about the merits of the deal for UBS but only whether I am satisfied with the terms of GYB at the $19.07 price. I would say just barely satisfied, and only barely in light of the Jihad by the Fed against savers now in its third year. So, it is relative.
At a total cost of $19.07, the current yield based on the 3.25% guarantee is 4.26% paid quarterly, which would be the minimum yield. The maximum yield, hit when the 3 month LIBOR hits .074% (maximum of 8.25% minus .85%=.074%), would be 10.82% (just multiply .0825% times the $25 par value and then divide by the total cost per share of $19.07) For as long as GS pays the interest due on the underlying security, I will receive a yield somewhere between 4.26% and 10.82%. I only own the synthetic floaters in retirement accounts due to complex tax issues associated with the swap agreement.
If the LIBOR rate rose to say 6% in the distant future, then the yield would rise to 8.69% at that total cost number.
Of course, if UBS goes bankrupt, and the swap agreement terminates, then the owners of GYB would receive the fixed coupon amount of the underlying bond paid on its schedule. JBK had this happen when Lehman, its swap counterparty, went bankrupt, and the trustee took the position that the owners of JBK were thereafter entitled to receive the the 6.345% of the 2034 GS TP rather than the much lower amount due under the swap agreement.
Information about the underlying bond in GYB can be found at FINRA.
GYB fell 51 cents yesterday to close at $18.7.
4. Sold 50 HPQ at 43.11 (see Disclaimer): Since I am admittedly not a tech investor, I will just try to trade them, clip a few bucks, and then move on to something where my comfort level is higher. HPQ may very well be undervalued at the $43.11 price. I certainly believed that the stock presented good value when I bought those 50 shares 38.2 in mid-September. I am not impressed with the actions taken by the Board and several Board members recently, or over the past several months. HPQ closed up 1 cent at $42.88 yesterday. The main reason for selling the shares is summarized in the opening part of this post.
5. Pared Trade: Sold 50 BMLPRJ at $18.73 and Bought 50 KRBPRD at $25.14 (see Disclaimer): I waited until my limit order on BMLPRJ was filled before entering an order on KRBPRD. Both of these securities are Bank of America obligations. BMLPRJ is an a non-cumulative equity preferred stock, originally issued by Merrill Lynch, that pays the greater of issue of 4% or .75% above the 3 month LIBOR rate. The KRBPRD security is a trust preferred security, that contains as its underlying security a junior bond originally issued by MBNA, which was acquired by BAC.
KRBPRD has a 8.125% coupon and a $25 par value, so my current yield is close to the coupon rate. It is rated the same as the other TPs originally issued by BAC. According to QuantumOnline.com, Moody's rates KRBPRD at investment grade, barely, at Baa3 and S & P has it rated BB, a junk classification. You can find these ratings also at Bank of America's web site: Bank of America | Investor Relations | Fixed Income Investor Relations
Bank of America also has links to the prospectuses for its trust preferred and equity preferred securities, along with some basic information about them at Bank of America | Investor Relations | Capital Issuances.
The TP and the underlying bond in the TP mature on 2/15/2032. This one has both credit and interest rate risk. Interest payments are made quarterly, and the distributions are cumulative. BAC would have to eliminate the common and equity preferred dividends in order to defer payments on its TPs. Any KRBPRD payment which is deferred will earn interest at the coupon rate. Assuming no activation of the stopper provisions, deferral can not be longer than 5 years. (see particularly page s-12 of the prospectus: www.sec.gov)
I own a similar security, KRBPRE, in the Roth IRA, but it was yielding less than KRBPRD yesterday. Both of those securities were yielding more than a TP, originally issued by BAC, that matures at around the same time. Bac Capital Trust I, BACPRW (2031-not owned); BAC Capital Trust VIII, BACPRZ (2035 not owned); & BAC Capital Trust IV, BACPRU (2033-not owned). Those TPs yield less than 7% at yesterday's closing prices.
The reasons for the pared trades include a higher current yield in favor of the TP, its higher priority, the presence of a maturity date which is absent in BMLPRJ, and the cumulative nature of the TP's distributions. Given the current uncertainty in the foreclosure mess, I will move up the priority chain for more protection and, in this case, a higher yield.
I mentioned in a prior post that some recent developments relating to BAC have increased the OG's anxiety. Item # 3 BAC
6. Sold 50 WAG at 34.45 (see Disclaimer): I bought those shares in June at 30.15. The reason for selling those shares has less to do with WAG than the trading strategy currently being followed here, summarized briefly in the opening part of this post.
WAG closed at $34.44, up 37 cents.
I will discuss the earnings reports from MBVT, FNB, WSBC and FIBK, all positions in the regional bank basket, in the next post. Merchants Bancshares continues to impress. I also have one other purchase, a TC yielding around 8.75%, to discuss from Monday.