Preferred stocks see heavy losses; European banks again in retreat; First Republic lists

By Stephanie N. Rotondo

Seattle, Feb. 11 – Preferred stocks resumed their downward trajectory on Thursday after rebounding slightly in the previous session.

A midweek rally came as Federal Reserve chairman Janet Yellen told a House committee that the U.S. was showing signs of growth, providing support for the central bank’s plan to gradually increase interest rates. However, Yellen noted that global economic risks remain and that the Fed intended to keep an eye on those developments and how they impacted domestic economic strength.

But any inspiration Yellen hoped to give the markets appeared short-lived, as “everything is getting smoked” in Thursday trading, a trader said.

The trader noted that a key driver of the losses was “fears on China again.”

The trader also commented that “if Yellen is telling the truth and our banks are as strong as they say they are,” it is actually a good time for investors to step into play.

“But it’s tough to convince people to get their feet back in the water,” he said.

“Obviously it was an ugly day,” another market source said, noting that a lot of the pain was due to “all the chaos in the banks.”

On an index basis, European bank stocks dropped 6%, the source said. U.S. banks, by comparison, were off only 4.2%.

“Ouch if you are long European bank equities,” the source remarked.

Overall, U.S.-listed preferreds were down 265 basis points, according to the Wells Fargo Hybrid and Preferred Securities index. Liquidity in the space was “better than I would have expected,” a source said, adding that there were “a lot of sellers.”

“Most people think things are oversold,” the source noted. “But nobody wants to stand in front of an oncoming train.

“It’s kind of questionable out there.”

Barclays, Deutsche dive

European banks fell in line with the broader market trend, erasing the gains incurred on Wednesday.

Barclays Bank plc paper was among the most actively traded and also among the largest percentage losers for the day.

The 8.125% series 5 noncumulative callable dollar preference shares (NYSE: BCSPD) dropped $1.30, or 5.13%, to $24.05. The 7.1% series 3 dollar-denominated noncumulative preference shares (NYSE: BCSPA) declined $1.40, or 5.79%, to $22.80, as the 7.75% series 4 noncumulative callable dollar preference shares (NYSE: BCSPC) lost $1.42, or 5.66%, to $23.74.

Also in freefall yet again were Deutsche Bank AG’s preferreds.

The 7.6% trust preferred securities (NYSE: DTK) fell 66 cents, or 2.93%, to $21.89. The 8.05% TruPs (NYSE: DKT) ended off 48 cents, or 2.08%, at $22.57.

“Deutsche Bank is a big worry overhanging the market,” a source said. The German bank’s weak earnings release earlier in the month, as well as “horrible” earnings from peers ING Groep NV and Societe Generale weren’t helping investors overcome their concerns either.

“But the market is just overreacting to everything on the downside right now,” the source said. He also noted that there was a “certain panic about whether or not they suspend their dividends.”

First Republic lists

Among recently priced deals, a trader said First Republic Bank’s $150 million of 5.5% series G noncumulative perpetual preferreds listed on the New York Stock Exchange.

The ticker is “FRCPG.” The deal priced Feb. 3.

The issue ended the day at $24.11, which compared to opening levels of $24.50.

A trader quoted the issue at $24.25 bid, $24.50 offered early in the day.

BofA Merrill Lynch, Morgan Stanley & Co. LLC, UBS Securities LLC and Wells Fargo Securities LLC ran the books. Keefe Bruyette & Woods was a co-manager.

The issue is non-callable for five years.

Proceeds will be used for general corporate purposes, which may include funding loans or purchasing investment securities for its portfolio.

First Republic is a San Francisco-based bank.

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