Preferreds soft as week starts; City Office bringing new issue; Deutsche Bank weakens

By Stephanie N. Rotondo

Seattle, Sept. 26 – The preferred stock market was under pressure as the new week got underway.

The Wells Fargo Hybrid and Preferred Securities index ended off 31 basis points, after being down 16 bps at mid-morning.

A trader said there was no news to drive the market downward, though the broader markets were also selling off. He noted that the market was “focused on these debates,” referring to the first round of U.S. presidential debates between candidates Hillary Clinton and Donald Trump.

Despite the day’s weak start, new issues were still hitting the tape.

City Office REIT Inc. said it was selling $75 million of series A cumulative redeemable preferred stock, with price talk at 6.5% to 6.75%.

A trader saw the paper at $24.67 bid in the early gray market. That moved up to $24.85 bid by afternoon trading.

However, a market source reported that the deal did not price during the session.

“Nobody had any interest; nobody has heard of these guys before,” the source said.

Raymond James & Associates Inc., Wunderlich Securities Inc., D.A. Davidson, Janney Montgomery Scott LLC and Compass Point are running the deal.

Proceeds will be used in part to finance acquisitions, with the remainder going toward general working capital purposes. That includes possible future acquisitions, creating reserves for capital expenditures, tenant improvements and leasing commissions.

In the secondary, Deutsche Bank AG’s preferreds were sliding as it was being reported that the German government had no intention of giving the bank financial support, should it need it.

The bank’s financial health has come under fire in recent weeks, due in part to a $14 billion proposed settlement from the U.S. Department of Justice over an investigation into the bank’s role in the subprime mortgage crisis.

The bank has said it will not pay $14 billion but will instead negotiate to a lower price.

Deutsche’s drama continues

Deutsche Bank was “the story of the day,” a market source said, as the bank’s TruPS took yet another hit.

The 7.6% trust preferred securities (NYSE: DTK) were off $1.17, or 4.63%, at $24.12. The 8.05% TruPS (NYSE: DKT) were down $1.01, or 3.89%, at $24.93, while the 6.55% TruPS (NYSE: DXB) dropped $1.22, or 4.93%, to $23.51.

All three issues were among the day’s biggest percentage losers. The 7.6% and 8.05% TruPS dominated the trading landscape, with over 1.52 million and 1.14 million of the securities trading, respectively.

A market source noted that the trust preferreds were finally trading below par.

“It’s about time,” he said, noting all of the issues the bank has had.

In particular, he pointed to recent news that the DOJ had proposed a $14 billion settlement to the bank in regards to an investigation tied to the bank’s role in the subprime mortgage crisis. Deutsche has said it will not accept that offer but instead will negotiate to a settlement amount similar to those given to its U.S. peers.

But as capital standards are becoming tighter and tighter, and profits have waned, the additional legal costs are fueling speculation that Deutsche Bank will need to raise capital – especially as it has been reported that the German government has no intention of providing a bailout to the bank.

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