Associated Banc-Corp (ASB-PE)

ASB-PE is a perpetual preferred stock issued by Associated Banc-Corp. It sits in the capital structure between senior debt and common equity—subordinated to bonds and bank deposits, senior to common shares. Holders receive a fixed dividend stream in perpetuity (or until the issuer calls the shares, which they can do after a certain date). The preferred trades on secondary markets just as common stock does, but its economics and tax treatment differ sharply from common shares.

Perpetual preferreds exist in a peculiar middle ground. They have no maturity date—the issuer could theoretically pay the dividend forever—yet they typically include a “call” feature allowing the issuer to retire them after a set date, usually five years from issuance. Banks and utilities issue these regularly because they count as regulatory capital (the bank can include them in the equity capital it must hold against assets) yet cost less to service than equity because the dividend is fixed and the issuer can deduct it from taxable income. From an investor’s standpoint, a perpetual preferred yields more than a bond but less than common stock, and it sits in the tax hierarchy differently: the dividend is taxable as ordinary income, not capital gains.

The mechanics and positioning

ASB-PE behaves more like a bond than a stock in daily trading. Its price moves inversely with interest rates—when rates rise, perpetual preferreds fall in value because the fixed dividend becomes less attractive relative to what new issuances yield. Conversely, when rates fall, the share price tends to appreciate. This makes perpetual preferreds duration-sensitive in a way common stock is not. They also have less upside if the company’s fundamentals improve; the dividend is fixed, so the holder does not participate in earnings growth the way a common-stock owner does.

The issuer has optionality. Associated can call ASB-PE after the stated date—usually at par value—if it chooses. This creates “negative convexity”: if rates fall sharply and the preferred appreciates, the issuer is incentivised to call it, capping the holder’s gain. Conversely, if rates rise and the preferred falls, the issuer will not call, leaving the holder with a loss. This asymmetry is why perpetual preferreds yield more than bonds of equivalent credit quality.

Who owns them and why

Perpetual preferreds appeal to specific investor types. Insurance companies hold them because preferred dividends receive favorable tax treatment under tax code provisions. Individual investors seeking income with some credit cushion (being senior to common stock) often own them. Some pension funds and endowments hold perpetual preferreds as a fixed-income alternative. Banks themselves sometimes hold perpetual preferreds issued by other banks—it counts as capital for regulatory purposes and beats holding the common stock if the investor does not expect rapid equity appreciation.

Associated’s preferred shares are exposed to the same underlying risks as the bank’s common stock: loan losses if the economy weakens, deposit flight if the bank loses competitive standing, regulatory changes, or industry consolidation. The difference is that preferred holders are shielded from the deepest losses—if the bank fails, preferreds are paid before common shareholders, though still behind depositors and senior creditors. During the 2008 financial crisis, many bank preferred shares were crushed in value or suspended their dividends; the safety they offered proved less robust in severe stress than the theoretically senior ranking suggested.

The shifting context

Bank capital rules have evolved significantly since the financial crisis. Regulators now distinguish between different tiers of capital, and not all perpetual preferreds count equally—some count as Tier 2 capital, others count less favorably. Changes to these rules can alter the value of outstanding preferreds, as issuers may choose to refinance or retire them based on regulatory treatment. Additionally, the current environment of elevated interest rates has made perpetual preferreds attractive to issuers (they can raise capital cheaply because the fixed rate appeals to investors), but less attractive to secondary-market buyers, since anyone buying at current prices locks in a lower yield than new issuances offer.

For investors, the key trade-off is straightforward: perpetual preferreds offer a higher yield than corporate bonds of equivalent credit quality, but less upside than common stock and limited downside protection when the issuer faces genuine distress. Understanding the call features, the regulatory capital treatment, and the issuer’s financial health is essential. ASB-PE, like any bank preferred, is best viewed as a fixed-income instrument that happens to be issued as equity, not as an equity investment.