Banks Looking for Some Perpetual Growth: Street Whispers
NEW YORK (TheStreet) -- The former sharks of Wall Street are turning into guppies while conservative lenders like Wells Fargo(WFC) , U.S. Bancorp (B) , BB&T (BBT) , Capital One (COF) and JPMorgan Chase (JPM) may be taking the the reins as the next generation of risk takers in the financial sector.
That's because once conservative banks are issuing paper - called perpetual preferred securities -- that will allow them to grow their balance sheets in coming years, while the titans of Wall Street have to sit on the sidelines.
Banks have issued $8.4 billion in perpetual preferreds in 2012, a near doubling compared with the $4.5 billion of securities issued at this time last year, according to Dealogic, and as they brace for a big redemption of trust preferred securities starting in September, the trend may just be beginning.
Strong second quarter earnings growth from traditional lenders and a drop in first half Wall Street-based earnings to 2008 levels tells part of the story on a quickly shifting balance of power in finance. Still, investors should track the banks that take advantage of low interest rates to issue cheap perpetual preferred securities as a way to discriminate between those positioned to take on risk in coming years and those who will further retrench.
The key is that after large cap banks recapitalized during the crisis, the firms that move fastest in an industry-wide race to build new capital may actually be preparing for a lending and growth push, in coming years.
Already, recent financial moves made by the likes of Wells Fargo, US Bancorp, Capital One and JPMorgan, among others, signal that traditional mortgage, corporate and consumer lenders are positioning their balance sheets for an increase in lending - think risk - and hopefully earnings growth.
A divergence in the growth profiles of America's largest banks may soon be seen in how they handle an upcoming refinancing of billions in trust preferred securities that are up for redemption starting in September and going through 2012.