BofA Predicts $800 Million Pretax Charge on TruPS Redemption

(Bloomberg) -- Bank of America Corp. expects to book an $800 million pretax charge in the second quarter as it redeems $3.5 billion of trust preferred securities, eliminating much of its remaining stockpile.

Trust preferred securities are equity-like debt instruments that pay interest like bonds. Banks favored issuing them during the financial crisis because they were treated like equity, and not debt, for regulatory purposes. The redemption will occur on June 6, Bank of America said Monday in a statement.

The firm had $4.73 billion in TruPS outstanding at the end of 2017, according to an earlier regulatory filing -- which would leave it with about $1.2 billion after the June redemption. The firm said it would also redeem junior-ranked notes that underpin some of the TRuPs.

Banks have been redeeming outstanding TruPS after the instruments lost preferential regulatory treatment. Bank of America also booked a $612 million charge in 2015 as it redeemed TruPS related to its purchase of Merrill Lynch six years earlier. Morgan Stanley in 2016 won regulatory approval to redeem all of its trust preferreds.

“Bank of America has received all necessary approvals for these redemptions,” the Charlotte, North Carolina-based company said Monday.

The plan calls for redeeming almost all of ten series of securities, including notes linked to purchases of NationsBank, Fleet Bank, BankBoston, MBNA and Merrill Lynch. It will fully retire the trust-linked security with the largest face value -- a 7 percent subordinated bond due 2036 issued by a Countrywide Financial subsidiary. Those notes traded at 25.7 cents on the dollar Monday, according to Trace data.

The bank’s shares were little changed at $29.94 in extended trading as of 6 p.m. in New York.

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