Deutsche Bank preferreds fall after earnings, layoffs warning; Comcast to redeem 7% notes

By Stephanie N. Rotondo

Portland, Ore., Oct. 25 - The preferred stock market fell Tuesday as hopes of a bank recapitalization plan out of Europe began to recede, traders said.

Deutsche Bank AG preferreds were weakening after the company reported its earnings. Despite posting a profit, comments made by top executives regarding the potential for job cuts hurt the preferreds.

Meanwhile, Comcast Corp.'s preferreds declined after the cable provider called its 7% senior notes due May 2055. One market source said the slip was expected, as the notes were trading at a "significant premium."

In the new issue realm, Summit Hotel Properties Inc. brought a $50 million offering of 9.25% series A cumulative redeemable preferreds. The issue was trading below par in the grey market.

Deutsche Bank falls

Frankfurt-based Deutsche Bank posted a pretax profit of $1.3 billion, beating analyst expectations.

However, the bank then cut its full-year guidance and warned that it may continue to lay off workers. It announced 500 job cuts earlier this month.

As a result, the bank's preferreds were trading downward.

"The market doesn't respond well to the 'L' word," a market source said.

The 6.375% noncumulative trust preferreds (NYSE: DUA) dropped 42 cents, or 2.04%, to $20.15.

Pretax profit from Deutsche Bank's corporate and investment banking units were weaker, and debt market sales and trading dropped 34%. Equity market sales and trading revenue were 41% lower than the year before.

"We view the investment banking result as worse than expected and worse than the recent U.S. peer results," Espirito Santo Investment Bank said in a note to clients.

Comcast calls notes

Comcast said Tuesday it will redeem its $345 million of 7% senior notes due May 2055 (NYSE: CCT) on Nov. 25.

"It's a good sign," a trader said. "They should be refinancing those levels," referring to the 7% interest rate. He noted that the call could mean a new issue might come from the Philadelphia-based cable provider to pay for the redemption.

On the news, the $25-par notes fell, "as you would expect," a market source said, "because they were trading at a significant premium."

He called the notes down 38 cents at $25.44.

Comcast also has 7% $25-par series B note due 2055 (NYSE: CCW). They too dropped, the source said. The notes fell 19 cents to $25.35.

The source expressed confusion as to why the company didn't call that issue as well.

AEP calls 16 issues

In other redemption news, American Electric Power Co., Inc. said after the bell that seven of its subsidiaries will redeem all of their outstanding preferreds on Dec. 1.

All told, about $64 million preferreds in 16 series will be redeemed.

A market source noted that the dividends on all the issues range from 4% to 5%, leaving him to wonder what the justification for the call was.

"Usually, they [call paper] because they can get a better rate in the market," he said. Because the rates are already quite low, he could not explain why the company is redeeming the preferreds now.

AEP is one of the largest electric utilities in the country, with subsidiaries providing power in 11 states. It is based in Columbus, Ohio.

Summit brings new issue

Summit Hotel Properties priced a $50 million issue of 9.25% series A cumulative redeemable preferreds at par on Tuesday.

However, the small deal from the Sioux Falls, S.D.-based real estate investment trust did not seem to be garnering much interest, and market sources said they saw little in the way of markets.

One trader placed the issue at $24.65 in the grey market, while another quoted the issue at $24.65 bid, $24.70 offered.

Among other recent new issues, Goldman Sachs Group, Inc.'s recent 6.5% "baby bonds" due 2061 were trading up at $24.80, according to a trader.

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