Santander Preferreds: Are N American Grandmothers Brave, Ignorant Or Insane?

There is - at to the lowest degree alongside North American grandmothers who are the natural buyers of American listed banking concern preferred securities - a honey of yield.

Santander (the Castilian mega-bank) has preferred securities issued inwards America - they generally replaced the preferred securities of Sovereign Bank - a Santander-owned USA regional bank. 

But they are equity securities of Santander - taking total equity risk for a high (but limited) yield. 

Linked (here) is the Google Finance page for 1 such security. Par value is $25 as well as the final merchandise is $25.65 - a pocket-size premium to par.

What could perhaps drib dead wrong?

OK: enough could drib dead incorrect - but nosotros don't quest to analyse whether the Castilian mega-banks volition succeed or neglect - all nosotros quest to create is notice how bizarre the pricing is. Why would you lot ain this preferred when you lot could ain the common? The ADR is trading at $5.66 - as well as proficient turn a profit (2009 would you lot believe) were $2.24 per ADR. The mutual is ii as well as a chip times normalized earnings. The no-failure turn a profit yield on the mutual is xl part (and if it does non blow upward you lot volition teach uppercase appreciation). The prefs are at 10 part yield.

There is a proficient risk that Santander never in 1 lawsuit again earns "normalized earnings". There is a crisis going on... 

But drib dead enjoin that to the preferred holders who are happy to accept a real similar risk to the mutual for a 10 part yield and no risk of uppercase appreciation. They must envisage a basis where Santander is saved yesteryear equity dilution that somehow leaves them intact. After all they are presuming (through their holdings) that the preferred is to a greater extent than attractive than the common.

And they believe that but equally the Castilian Government injects 24 billion euro into Bankia.

Brave. Or is it ignorant? 

Or create the holders await the Castilian authorities to bail out banks at no toll to the preferred holders equally per much of North America? That does non look probable to me. Or fifty-fifty possible.

John

PS. I lost proficient coin on Washington Mutual preferred stock. But I purchased them at 25 cents inwards the dollar. This 1 is going to merchandise at that spot real shortly inwards my estimation. 

Disclosure: trading curt on the preferred. Covered the mutual a few dollars upward from here. But you lot guessed that.

PPS. In the interests of disclosure I should annotation that the borrow has drib dead tight on this safety (which  from my perspective is a pity).