Discount New York has sold its remaining holdings in TruPS (trust preferred securities) of other banks at a $22.1 million loss, according to the company's reports published yesterday. It is believed that the bank sold these securities for $180 million, making the bank's loss on its investment 12%.
Discount New York's decision to liquidate its portfolio was due to the Basel 3 provisions applying to US banks from January 2015. These regulations require banks to retain more capital for TruPS investments, and the bank therefore decided to sell its investment, even if it incurred a loss.
TruPS are actually a hybrid combination of a share and a bond, usually from banks. TruPS are like preferred shares with a limited lifespan, which are usually repaid after 35 years. They are usually issued by banks' holding companies, with a dividend paid by the bank to its shareholders serving as a source for repayment of the TruPS.
During the 2008 financial crisis, these shares suffered major declines, and have not completely recovered to this day. Discount New York originally invested hundreds of millions of dollars in them, and had hundreds of millions of dollars in losses on paper on the investment, reaching loss of over 40% on some of them. When the markets began to recover, Discount New York began selling off its investments in these securities, and finished the liquidation of its portfolio in the second quarter.
The big loss limited Discount New York's profit to $2.2 million, more than 70% less than in the corresponding quarter in 2013. Excluding this loss, the profit was $14.4 million. The bank earned a profit of $15.3 million in the first half of the year, down 16%, compared with the first half of 2013.
Published by Globes [online], Israel business news - www.globes-online.com - on August 7, 2014
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