Morning Commentary: Preferreds begin week with hefty declines; European banks lead the way down

By Stephanie N. Rotondo

Seattle, Feb. 8 – The preferred stock market was getting “hammered” in early Monday trading, a trader said, led by European bank issues.

“There are plenty of fund outflows,” the trader said. “European banks are getting hit the hardest.”

The Wells Fargo Hybrid and Preferred Securities index was down 138 basis points at mid-morning.

Driving the decline was “fear,” the trader said, particularly about Deutsche Bank AG.

“Their CDS is going through the roof,” he said. “Everybody is worried about leveraged loan exposure to oil and gas.”

Concerns about depressed oil prices – and its effect on global growth, particularly in China – have also increased fears about “counter-party risk and interconnectedness,” the trader noted. Or, to put it simply, as one falls, others will follow.

For instance: Deutsche Bank’s trust preferred securities were down at least 5% in early trades. Barclays Bank plc was meantime off about 2%.

Deutsche’s 7.6% TruPs (NYSE: DTK) were down $1.15, or 5.03%, at $21.71 at mid-morning. The 8.05% TruPs (NYSE: DKT) were off $1.24, or 5.29%, at $22.20.

In Barclays paper, the 7.75% series 4 noncumulative callable dollar preference shares (NYSE: BCSPC) were down 57 cents, or 2.23%, at $24.91.

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