Preferreds dip; First Republic frees to trade; ‘scared’ investors pressure Deutsche Bank

By Stephanie N. Rotondo

Seattle, Feb. 4 – Despite a broader market rebound, preferred stocks remained soft in Thursday trading.

The Wells Fargo Hybrid and Preferred Securities index finished the session off by 20 basis points. The index was down 7 bps at mid-morning.

Among recent deals that have not yet listed, First Republic Bank’s $150 million of 5.5% series G noncumulative perpetual preferreds that priced Wednesday freed from the syndicate on Thursday, a trader reported early in the day.

He quoted the issue at $24.75 bid, $24.85 offered. By the bell, however, it had risen to $24.95, according to a market source.

The deal was upsized from $100 million and came at the tight end of talk.

Meanwhile, Banc of California Inc.’s $125 million of 7% series E noncumulative perpetual preferreds were pegged at $24.80 bid, $24.85 offered.

A source saw the issue ending at the high end of that market.

That deal priced Monday.

From last week’s business, Citigroup Inc.’s 6.3% series S noncumulative preferreds were seen in a $24.90 for $25.02 context, ending at $24.96.

That was a decline of 4 cents on the day.

Those preferreds came Jan. 26, with $900 million shares being sold. On Monday, a market source reported that the greenshoe was exercised, lifting total issuance to $1.35 billion.

Deutsche Bank dives

Away from new issues, a trader said Deutsche Bank AG’s preferreds were getting knocked down.

“People are scared,” the trader said, noting concerns about the German bank’s high leverage. “It looks like people are trying to get out of their positions.”

Not helping matters was the fact that it has been an illiquid market, the trader added. He further remarked that the bonds have been under significant pressure recently, pointing out that the 7.6% trust preferred securities (NYSE: DTK) were trading around $26.00 in January.

On Thursday, that issue was down $2.52 at $21.83. The securities dominated the trading day, with 3.46 million shares being exchanged.

The 8.05% TruPs (NYSE: DKT) were meantime off $2.45, or 9.81%, at $22.52. About 3.12 million of the preferreds traded.

Nearly 1 million of the 6.55% TruPs (NYSE: DXB) also moved, falling $1.99, or 8.36%, to $21.80.

In addition to the bank’s debt burden, the market is likely also a little nervous about the company’s legal costs. On Wednesday, a U.S. federal judge said the bank must face a lawsuit filed domestically in regards to the bank’s role in causing $3.1 billion in investor losses.

The lawsuit – brought by Belgium’s Royal Park Investments – alleges that Deutsche failed to properly oversee 10 trusts that were backed by toxic residential mortgages, thereby breaching its fiduciary duties.

But another market source had other theories as to why the preferreds have been under pressure.

“The Deutsche Bank issues had been outrageously overpriced and had responded negatively” to preliminary earnings estimates that have come out over the past week, the source said. “It should have one of the biggest fundamental shorts in the $25-par market.”

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