Morning Commentary: Ally Financial softens despite larger profit; Deutsche Bank remains weak

By Stephanie N. Rotondo

Phoenix, April 28 – The preferred stock market was looking to improve in early Tuesday trading, as the Federal Reserve began a two-day policy meeting that could give clues as to when interest rates will increase.

The Wells Fargo Hybrid and Preferred Securities index was up 2 basis points at mid-morning.

“I think the idea is that they are going to hold [rates steady], but let’s see what kind of signals they give,” a trader said. The trader noted that as the market waited for signals, liquidity was subdued.

He also remarked that the lack of liquidity could be tied to fresh jobs numbers that are expected next week.

Despite the slightly firm tone of the space, however, several topical names were getting hit.

Ally Financial Inc. released its first-quarter results before the market opened on Tuesday, posting a profit that more than doubled from year-ago figures.

The rise in income was attributed to a one-time gain of $400 million related to the company’s sale of its stake in a Chinese joint venture.

Still, the Detroit-based bank’s preferreds were softening.

The 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPA) were off 3 cents in early trades at $26.26.

Meanwhile, investors continued to pressure Deutsche Bank AG’s preferreds. The preferreds began to weaken on Monday as the Frankfurt-based bank announced plans to restructure itself. The plans included cutting €200 billion in assets from its investment banking portfolio.

The 8.05% trust preferreds (NYSE: DKT) were down a nickel at $28.58, while the 7.6% trust preferreds (NYSE: DTK) were off a like amount at $28.21.

And in Morgan Stanley & Co. Inc. paper, the 6.6% capital trust VI securities (NYSE: MSJ) and all of its 6.6% capital trust VII securities (NYSE: MSZ) were coming in as investors digested news of a redemption.

The redemption was announced after the market closed on Monday.

The capital VI shares were down 56 cents, or 2.18%, at $25.10. The capital VII paper was off 59 cents, or 2.29%, to $25.13.

“I wouldn’t be surprised if we see more of that,” a trader said of the redemption. With several names having older trust preferreds outstanding that are now callable – for instance, the Countrywide Financial 7% capital securities (NYSE: CFCPB) – such actions should start to pick up, he said.

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