Preferreds rebound after release of Fed minutes; Ashford Hospitality sells upsized deal

By Stephanie N. Rotondo

Seattle, July 6 – The preferred stock market managed to pare its early losses on Wednesday after the release of the Federal Reserve’s minutes from its latest policy meeting.

The Wells Fargo Hybrid and Preferred Securities index closed up 4 basis points. The index was off 17 bps at mid-morning.

According to the minutes from the June 14-15 policy meeting, Fed officials felt the next interest rate hike should be put off until consequences of a potential Brexit were fully understood. The next week, the United Kingdom did in fact vote to leave the European Union, stunning the markets and resulting in a hefty sell-off.

The minutes also showed that slowing job growth in the United States was also a factor in putting of any rate increases.

The market did see one new issue coming to market, as Ashford Hospitality Trust Inc. announced plans to sell at least $75 million of series F cumulative preferred stock.

A trader said there was no selling group on the deal.

“They may try to grow that,” he said, seeing a $24.75 bid for paper in the early gray market.

A market source later said the company sold $120 million of the new preferreds at par to yield 7.375%.

Price talk was in a 7.5% area.

The source saw the paper bid for at par.

Morgan Stanley & Co. LLC and UBS Securities LLC are running the books.

Proceeds will be used to redeem the 9% series E cumulative preferreds (NYSE: AHTPE). That issue was trading down 22 cents to $25.77.

No love for Deutsche Bank

In the secondary, Deutsche Bank AG’s preferreds continued to be under pressure, despite the market turning higher.

However, the preferreds did manage to mostly recover from the day’s lows.

The 8.05% trust preferreds (NYSE: DKT) were down 20 cents at $25.08 at mid-morning, but closed at $25.26, off just 2 cents. The 7.6% TruPs (NYSE: DTK) were initially off by 14 cents but ended down 15 cents at $24.85.

The 6.55% trust preferreds (NYSE: DXB) initially declined 33 cents, or 1.35%, to $24.12. The preferreds finished at $24.16, down 29 cents, or 1.19%.

Last week, the Federal Reserve released the CCAR results of 33 banks, Deutsche Bank being one of the firms. Of the 33, only Deutsche Bank and Santander saw their capital plans fully rejected.

Come Thursday, the IMF issued its own report on the stability of the German financial space. In that report, the agency said that Deutsche Bank – due to its highly interconnected nature of doing business – presented “the most important net contributor to systemic risks, followed by HSBC and Credit Suisse.”

Those reports, combined with Brexit concerns, have sent the preferreds reeling.

In the first quarter of 2016, Deutsche Bank reported a nearly 58% decline in profits due to lower revenues and higher loan provisions.

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