Preferreds off day's lows; Digital Realty rises, then falls as issue frees to trade

By Stephanie N. Rotondo

Phoenix, March 20 - Preferred stocks bounced back from earlier weakness in trading Thursday, ending up essentially flat on the day.

They had started the session soft, continuing a slight sell-off Wednesday after Janet Yellen held her first press conference as chairman of the Federal Reserve. However, a market source said that the market recovered some as the day progressed.

In her comments, Yellen said the Fed was no longer going to base its decision to alter interest rates solely on unemployment data.

"The Fed will probably keep an eye on housing instead of jobs now," one trader speculated, giving a nod to new housing figures which showed that existing home sales had fallen to their lowest level in 19 months.

The Wells Fargo Hybrid and Preferred Securities Index closed off 3 basis points after having been down 21 bps at mid-morning.

Digital Realty Trust Inc. priced a $300 million issue of 7.375% series H cumulative redeemable preferreds late Wednesday and on Thursday morning a trader was seeing the paper in a $24.80 to $24.83 context.

That was improved from gray market levels on Wednesday when the preferreds were in a $24.75 to $24.80 ZIP code.

The issue freed to trade just after lunchtime. Shortly before freeing, a trader saw the issue easing, quoting it at $24.65 bid, $24.75 offered.

After the bell, another market source pegged the paper slightly lower again at $24.62 bid, $24.72 offered.

BofA Merrill Lynch, Morgan Stanley & Co. Inc. and Wells Fargo Securities LLC were the joint bookrunners.

The San Francisco-based company intends to contribute proceeds to its operating partnership which will use the funds to repay borrowings under a global revolving credit facility, to acquire additional properties, for development opportunities and/or for general corporate purposes, including the potential repurchase or redemption of outstanding debt or preferred securities.

Stress test results revealed

A new round of bank stress test results came out late Thursday, showing that 29 out of 30 U.S. banks had met or exceeded new capital targets.

Financial preferreds had little time to react to the news, however, given how late it was announced in the session.

Citigroup Inc.'s 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) were busy but weaker, falling 2 cents to $25.86. Morgan Stanley & Co. Inc.'s 6.875% series F fixed-to-floating rate noncumulative preferred stock (NYSE: MSPF) fell 4 cents to $25.96, while the 7.125% series E fixed-to-floating rate noncumulative preferreds (NYSE: MSPE) dipped a dime to $26.62.

JPMorgan Chase & Co.'s 6.7% series T noncumulative preferreds (NYSE: JPMPB) finished the day up 3 cents at $25.08.

Of the nation's 30 largest banks, Zions Bancorporation was the only one to fail the stress test. However, in one tested scenario that took into account the potential of rising interest rates, all the banks passed muster.

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