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Preferreds firm going into Christmas holiday; Deutsche Bank boosted by DOJ settlement
By Stephanie N. Rotondo
Seattle, Dec. 23 – Volume was rather light in Christmas Eve eve trading, but preferred stocks continued to gain strength.
The Wells Fargo Hybrid and Preferred Securities index closed up 2 basis points. The index was up 10 bps at mid-morning.
The news of the day – at least in early dealings – was that Deutsche Bank AG had agreed to a $7.2 billion settlement with the U.S. Department of Justice over its sales of toxic mortgage debt ahead of the financial crisis.
The bank will also take a $1.2 billion pretax charge for the quarter because of the agreement.
Investors have been waiting for the agreement since September, when the DOJ said the German bank could face a penalty of up to $14 billion.
“It’s one unknown taken off the table for them,” a trader said. “So it’s good for them.”
As such, the bank’s trust preferreds were trading up at mid-morning.
The 7.6% TruPs (NYSE: DTK) – the most active of the Deutsche Bank issues – were up 30 cents, or 1.22%, at $25.29, while the 8.05% TruPs (NYSE: DKT) were up 22 cents at $26.21.
The 6.55% TruPs (NYSE: DXB) were 41 cents better, or 1.73%, at $24.17.
In addition to the Deutsche Bank settlement, it was also reported that Credit Suisse AG was slapped with a $5.3 billion penalty. Barclays Bank plc failed to reach an agreement and is thus being sued for fraud by the DOJ.
Barclays is the first bank not to reach a settlement over its subprime mortgage transactions.
One market source deemed the settlement a “slight positive” for Deutsche Bank. For Credit Suisse, he said the news was kind of neutral.
“Barclays isn’t a surprise, so kind of neutral there too,” he said.
“They bought Lehman [Brothers’] U.S. business,” the source explained. “[Lehman] was a major player [in the subprime market]. What were the chances that [Lehman] would escape the DOJ hassle?”
“I’d say pretty low,” he said.
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