Canadian Western Bank Preferred Share CWB.PR.B report updated March 11, 2017

Our report on the Canadian western Bank rate reset preferred shares CB.PR.B is updated with a rating of (lower) Buy at $22.95. These shares have done quite a bit better than I had expected when rating them a Buy on December 7 at $19.00. They rose partly because the Bank of Canada 5 year bond yield rose from % to 1.27%. But in addition to that the market required yield on these type of shares has declined. I am not too excited by these shares at this point (my opinion may be biased because I had already sold out for gains at lower prices) but they could keep rising towards $25. Those who grabbed these at prices under $20 and even lower may want to consider reducing their holdings at this point.

There is also a newer issue of Canadian Western Bank rate reset shares that is trading at $27.45 and yielding 5.7%. I would expect these to be redeemed at $25 on the reset date which is about 4.3 years from now. I don’t like the idea of owning these due to the very high probability of a capital loss between now and the reset date. It seems likely that some of the buyers see the attractive 5.7% yield but fail to understand the right of the Bank to redeem these for $25 on July 31, 2021. I would not have guessed that they would ever trade this high and at this point I see these as having very little room to increase in price but room to fall. It is true that the potential reset yield on these would be very attractive as the Bank of Canada 5 year yield rises. But if the yield is very attractive to investors it will unattractive to the Bank and they will redeem them. These shares can also automatically convert into common stock if the bank gets into a serious lack of equity capital. I don’t see much chance of that happening but it is another slight negative factor.