Preferred stocks firm to end quarter; Deutsche Bank gains on possible settlement chatter

By Stephanie N. Rotondo

Seattle, Sept. 30 – The final trading day of the month – and the quarter – had a firmer tone, pushing the preferred stock market into higher territory.

The Wells Fargo Hybrid and Preferred Securities index closed up 21 basis points after being up 13 bps at mid-morning. The index had traded off 91 bps on Thursday amid a broader market sell-off. That sell-off was spurred by concerns that OPEC’s plan to cut production would fail, as well as concerns about the financial health of Deutsche Bank AG.

However, investors appeared to be showing signs of confidence in the German bank on Friday, as both the company’s preferreds and common stock were on the rise. Confidence was further stoked by reports that Deutsche Bank was nearing a settlement agreement with the U.S. Department of Justice that was well below the original $14 billion proposed.

The 7.6% trust preferred securities (NYSE: DTK) firmed up 93 cents, or 4.07%, to $23.78. Yet again, the issue made the day’s most active list, with over 3.39 million shares trading.

The 8.05% TruPS (NYSE: DKT) were meantime 97 cents better, or 4.15%, at $24.34. Over 2.57 million of the securities changed hands.

And, the 6.55% TruPS (NYSE: DXB) added $1.04, or 4.68%, to close at $23.27, on over 1.38 million preferreds traded.

As for the equity (NYSE: DB), it was up $1.61, or 14.02%, at $13.09.

The bank has been in damage control mode of late, with the latest effort focusing on the firm’s employees. John Cryan, chief executive officer, reportedly sent out an internal memo to staff assuring them that the bank’s fundamentals were solid and that the recent rout was due to the media causing “unjustified concerns.”

Cryan’s letter was given credit for the early gains in the name, but reports that a settlement agreement with the DOJ was close pushed up the paper in afternoon trading.

Agence France-Presse was the first to report the news, saying that a $5.4 billion settlement amount was on the table. That compared to the initial proposal of $14 billion.

When the original amount was reported, Deutsche Bank said it would not pay that amount but was willing to negotiate to an amount closer to that given to its U.S. peers.

But ever since the settlement was first announced, Deutsche Bank paper has taken a ride. Every new headline resulted in moves in both the preferred and straight equity. Those moves have been mostly toward the down side, though in the last week alone, there has been some upside seen in trading.

After regaining some ground in midweek trading, the paper continued its downward descent on Thursday as Bloomberg reported that some hedge funds were cutting exposure to the German bank.

At least 10 hedge funds have taken their derivatives holdings elsewhere, Bloomberg reported, including Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management. But Barry Bausano, chairman of Deutsche Bank’s hedge fund business, attempted to assure investors that all was well in an interview with CNBC.

In the interview, Bausano said the brokerage was “still very profitable” and put the bank’s current weakness down to a “perception issue.”

He also noted that the fund outflows were fractional compared to the overall amount of clients.

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