WinTrust Financial Sells a 6.50% Fixed to Floating Rate Preferred

WinTrust Financial (ticker:WTFC)), a Chicago area banking company, has sold a fixed to floating rate preferred issue.  These fixed to floating rate issues are getting to be quite popular with the banking companies, although we believe they are not necessarily positive to the investing public.

With fixed to floating rate issues the issuer is able to price these shares at 1/2% or so below a typical fixed rate perpetual preferred (i.e. this issue is at 6.50% for 10 years, while a fixed rate issue would have probably priced at 7 or 7.25%).  The issue ‘floats’ starting in 2025 and the coupon is reset quarterly–in this case it is based upon 3 month libor (currently .29%) plus 4.06%.  So for 10 years you are receiving a substandard coupon and starting in 2025 you have a unknown (at this time) coupon.

On the other hand these issues have tended to trade better than a fixed rate issue when interest rates rise as investors perceive they have some rate protection.

Because these shares are perpetual we have no interest at this time, but the issue may trade favorably to fixed rate issues for those looking for a decent coupon for the time being.

Details of the issue are here.