Preferreds give up early gains; Citigroup new deal nearly doubled; Qwest notes free up

By Stephanie N. Rotondo

Seattle, Jan. 26 – Preferred stocks were rallying early Tuesday as the market shook off concerns about China. However, the preferred space eventually gave back nearly all of the gains by the bell.

“People aren’t scared,” a trader said early in the day, adding that a bounce in oil prices was also likely fueling the rebound.

The Wells Fargo Hybrid and Preferred Securities index closed up 2 basis points. The index was up 22 bps at mid-morning.

A market source said he saw no reason for the sell-off.

The primary market continued to see deals added to the calendar as Citigroup Inc. announced a $500 million offering of series S noncumulative perpetual preferreds.

The deal was then upsized to $900 million and came at 6.3%, tighter than the 6.375% price talk.

A trader saw the issue at $24.77 in the gray market.

“It will probably free tomorrow morning,” a market source noted.

Citigroup Global Markets Inc. is the bookrunning manager. Joint lead managers include BofA Merrill Lynch, Morgan Stanley & Co. LLC, Goldman Sachs & Co., RBC Capital Markets LLC, Wells Fargo Securities LLC, J.P. Morgan Securities LLC and UBS Securities LLC.

Proceeds will be used for general corporate purposes.

Among other recent deals, Qwest Corp.’s $235 million of 7% $25-par notes due 2056 – a deal from Monday’s business – freed to trade early in the session, a trader said.

He pegged the notes at $24.82 bid, $24.85 offered.

At the close, a source saw the notes at $24.88.

From last week’s deals, Bank of America Corp.’s $1 billion of 6.2% series CC noncumulative preferreds finished at $25.03, up 4 cents. The preferreds were quoted at $24.90 bid, par offered earlier in the session.

Meanwhile, Wells Fargo & Co.’s $875 million of 5.7% class A series W noncumulative perpetual preferreds ended off 12 cents at $24.95. The paper was seen at $24.95 bid, par offered at mid-morning.

Both issues were again well traded, with more than 3 million of the BofA preferreds being exchanged and over 1.25 million of the Wells Fargo securities trading.

BofA brought its deal on Thursday and is trading with a temporary ticker of “BKRRP.” The Wells Fargo deal came Jan. 19 and is trading under “WLGGP” for the time being.

Deutsche up despite troubles

A market source said Deutsche Bank AG’s 7.6% trust preferred securities (NYSE: DTK) were up on the day, “even though there’s been some bad announcements out of Deutsche Bank this week.”

Reuters reported Monday that the German bank planned to cut employee bonuses due to an expected record loss for the year. Though said bonuses won’t be paid out until March, employees have been warned that budgets for bonuses have been slashed by 25% to 30%.

Last week, Deutsche said it was expecting to see a loss of about €6.7 billion due to a combination of write-downs, litigation fees, restructuring costs and a generally tough trading market.

The bank cut 9,000 jobs in October.

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