Waterbury regional lender Webster Financial Corp. is preparing to redeem $136.1 million of securities that U.S. and international bank regulators have disallowed as a capital source. More lenders inside and outside Connecticut are likely to follow Webster's path, authorities say.
The parent of Webster Bank said Monday the redemption of its outstanding 30-year Webster Capital Trust IV 7.65 percent preferred securities will take place July 18.
The $19 billion-asset bank issued the hybrid form of securities in 2007 to boost its regulatory capital levels.
Webster spokesman Robert Guenther said Monday the bank's Tier 1 capital levels – the mandatory financial cushion to ensure solvency – will be more than adequate without the trust securities. Banks have a four-year window to replace the notes with more acceptable forms of capital, such as common and preferred stock or retained earnings, authorities say.
Indeed, the bank is eager to retire a debt-security whose interest is well above prevailing rates of 1 percent on bank deposits to 3.7 percent for a 30-year mortgage, Guenther said.
"This is basically like a homeowner taking advantage of today's low-interest rate environment to pay down debt,'' he said.
Webster is one of a number of U.S. banks that had been awaiting the final signal from the Federal Reserve System that trust securities were expendable, authorities say.
That occurred when the Fed formally declared in recent weeks that trust securities are no longer valid sources of capital, in keeping with new domestic and international standards for bank capital. A spokesman for the Federal Reserve Bank of New York had no immediate comment Monday.
In the U.S., the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 spells out stricter capital requirements and forms of capital for bank and nonbank lenders.
Those capital standards mirror ones set by the so-called Basel II and III accords, crafted before and after the near-global financial meltdown in late 2008 that threw the U.S. and most major nation's economies into a deep recession whose echoes continue.
Webster isn't alone in redeeming trust securities.
One week ago, Ohio super-regional lender KeyCorp. aired plans to redeem July 12 some $700 million outstanding face value of preferred trust securities bearing interest rates of 5.7 percent and 8 percent, according to its latest 8-K filing with the Securities and Exchange Commission.
KeyCorp. has $87 billion in assets.