State Street Preferred: 6.7% From A Too Big To Fail Bank

Company Overview - State Street Corporation (NYSE:STT) recently issued a par $1,000 preferred stock with a coupon of 6.7% until March 15, 2029, with a reset every five years thereafter [4] - The company has a modest common stock market cap of $22 billion and is classified as a Global Systemically Important Bank (GSIB) [5] - State Street plays a crucial role in the financial system, primarily focusing on asset custody, managing $40 trillion in assets [8] Preferred Stock Details - The preferred stock has a coupon that resets to the 5-Year US Treasury rate plus a spread of 2.61% [4] - It is rated Baa1 (negative) by Moody's, BBB by S&P, and BBB+ by Fitch [4] - The issuance size of the preferred stock is $1.45 billion, with dividends paid quarterly and qualified for a 15% tax rate [4] Investment Considerations - The preferred stock is seen as a good value compared to alternatives, offering at least 0.9% more yield than comparable GSIB preferred stocks [12] - The STT preferreds provide an attractive spread of 261 basis points over the average BBB corporate bond market, which yields 5.55% [13] - The fixed-reset feature of the preferred stock mitigates interest rate risk, as the coupon will rise if interest rates increase [11] Market Position - State Street has the highest credit rating among US-based GSIBs, surpassing major competitors like JPMorgan and Bank of America [10] - The preferred stock is considered modestly undervalued in the current market, with potential for recovery to par value after any downturns [14] - The company is positioned to maintain stability and lower price volatility compared to traditional banks that take on credit risk [9]