ATT shares called

[kittypuppymom]

Why do they do this?

[The Virginian]

???I'm sorry, I don't understand your question.

[bimetalaupt]

Feb 22, 2012 9:03:12 GMT -5 kittypuppymom said:

Why do they do this?

These are full shares that were sold with underwriting???On the open market or are they restricted shares???
These sound like Preferred shares you are talking about. Many preferred classes are callable and they do call them when interest rates are this low to cut there cost.. Like high coupons callable bonds.. when the firms credit rating is improved and interest rates are very low they call the bonds.. Eckerd did this to me but I got the word before the high return bond was called.

Just a thought,
BiMetalAuPt

[bimetalaupt]

Consolidated Edison of New York is also calling all callable Preferred stock.

[Deleted]

Yes they have. ;D

[IPAfan]

Probably because the preferred stocks are yielding more than bonds but the dividends paid aren't tax deductible.

So if ATT can borrow at 4%, and pays 25% tax, then it effectively pays only 3% to borrow money. The preferred probably cost at LEAST 5% which is 2/3s more expensive after taxes than borrowing money.

[bimetalaupt]

Mar 11, 2012 11:22:15 GMT -5 IPAfan said:

Probably because the preferred stocks are yielding more than bonds but the dividends paid aren't tax deductible.

So if ATT can borrow at 4%, and pays 25% tax, then it effectively pays only 3% to borrow money. The preferred probably cost at LEAST 5% which is 2/3s more expensive after taxes than borrowing money.

YES: BUT THE COST OF PREFERRED STOCK IS LESS THEN COMMON STOCK. FOR T THE COST OF COMMON STOCK SOLD WOULD BE 8.1%. BOTH COUNT AS EQUITY FOR RATIO AND CREDIT RATINGS.

THE MORE DEBT YOU HAV4E THE MORE IT COST IN INTEREST.
Just a thought,
BiMetalAuPt
PS: For corporate Taxes preferred do get a 85% deduction of income for taxes.

[IPAfan]

Totally true bruce. That's why a lot of insurance companies carry preferred stock because it keeps the debt:equity ratio healthy without diluting the common stock.

[bimetalaupt]

Mar 11, 2012 16:02:25 GMT -5 IPAfan said:

Totally true bruce. That's why a lot of insurance companies carry preferred stock because it keeps the debt:equity ratio healthy without diluting the common stock.

beerfan...ipa!!! like the bitters,
Also in the old days with AT&T (T).. the common stock holder had pre-emptive rights. They had to issue warrants to all common holders rather then going to the market with the stock. I remember getting AT&T for about a 20% discount to market in the 1960's???

Most tightly held insurance firms also fight within the family for control so they do not want to lose the voting power.. IE income for BOD fees and key jobs like CEO/COO. The old days in West Texas local Banks; the President was the man with the most stock and the EVP ran the show.

It is a game of power. I used to make all the Stockholder meetings for three banks in West Texas I owned stock in. It was the Amway thing to buy the bank it gave you introduction to the money power of the area.

Bruce