Wednesday, May 14, 2014

Banc of California Will Pay You 7.3% On Your Savings - What will Your Bank Pay?

Have you checked with your bank recently abut the interest rates on their savings accounts or certificates of deposit? I did. On a big sign, it said 'Get 1.0% on a CD' but in small letters it said 'Rate payable on a 10 year CD; penalty for early withdrawal.' Of course, on savings accounts and money market accounts, the rate can be less than a tenth of a percent.

So if you want a high yield, where do you turn? How about a bank? The Banc of California (BANC) has minibonds that are publicly traded with a current yield of 7.29%.  In case you missed the previous article about Goldman Sachs (GS) minibonds, you should check it out.

The Banc of California 7.50% Senior Notes (BANCL), which trade on NASDAQ, have a maturity date of April 15, 2020, and pay interest quarterly. These minibonds recently closed at 25.70 per share. You could almost think of it as a six year CD.

However, there are several risks:

  • These exchange traded notes are not protected by FDIC. They are solely based on the ability of the bank to pay the principal on interest in them.
  • The distributions are considered interest and not dividends, which of course prevents the investor from taking advantage of individual or corporate dividend tax benefits.
  • If interest rates go up, these will go down  in value.
  • There is no accrued interest between distribution dates.
  • Lack of liquidity. Not many shares trade on a daily basis.

So what are the advantages?

  • If the bank goes out of business, these notes have priority over the common stock and any preferred stock of the company.
  • Since there is a maturity date, there is some interest rate risk protection since at maturity,  they would be paid of at par value of $25.
  • These notes have small denominations, so you can invest unusual amounts (e.g. $16,375), as opposed to multiples of $5,000.
  • The payout is fixed and not subject to fluctuation, unlike the payouts on the common stock.

What about the underlying bank behind these securities? The bank recently reported an 88.1% boost in revenues; however, earnings dropped 18.5%. At least Banc of California is now flush with cash, as they just raised $50 million from the sale of common stock, and another $50 million from the sale of tangible equity units. Much of the proceeds will be used to purchase 20 California branches of Popular Community Bank. The bank has been in business since 1941 and has over 70 banking locations.

As long as you can accept the risks, you might want to consider these bank mini bonds, in order to help bring up your overall investment income. If you are interested in investments like this, your should check out the free stock lists at

Disclosure: Author didn't own any of the above at the time the article was written.


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