Syria, holidays could push deal flow back; Fannie, Freddie rise on Berkowitz's praise

By Stephanie N. Rotondo

Phoenix, Sept. 4 - The preferred stock market was seeing a "pretty decent uptick" during Wednesday trading, a trader said.

Still, investors were keeping an eye on a congressional vote regarding military action against Syria.

"That will probably go through and put pressure on the market," the trader commented.

What happens in regards to Syria could also push back the new issue calendar, which was expected to be heavier in September. Upcoming Jewish holidays might also hold the deal flow back.

"Once everybody gets back to work, that is probably when things will start coming out," the trader said.

Another market source said that while volume for the day was not overly active, it was "improved."

"We're slowly seeing some return to volume," he said.

There was a "fair amount of activity" in Fannie Mae and Freddie Mac preferreds during the midweek session. The action - and the subsequent gains - was attributed to an interview Bruce Berkowitz of Fairholme Capital gave on CNBC on Wednesday. In the spot, Berkowitz continued to speak highly of the agencies, calling for the government to give the entities back to private hands.

Berkowitz's fund is participating in a lawsuit against the government, alleging that recent changes made to a bailout agreement unfairly impact shareholders.

Meanwhile, Royal Bank of Scotland Group plc was in the news as well. Britain's Sky News reported that the U.K. government was considering breaking apart the bank into "good" and "bad" parts. The £30 billion "bad" bank would continue to be owned by the nation and would hold toxic assets.

However, one market source said the amount of assets - about one-third originally slated for the "bad" bank - might not be enough to keep the good part on top.

Berkowitz lauds Fannie, Freddie

Fannie and Freddie paper got a boost on Wednesday as Berkowitz went on CNBC stating that the agencies were valuable to the U.S. housing market.

Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 19 cents, or 3.7%, to $5.33, while Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) increased by 20 cents, or 3.91%, to $5.32.

In his interview with CNBC, Berkowitz - the head of Fairholme Capital - said that given Fannie and Freddie's return to profits, they should be returned to private hands instead of being dissolved and replaced by a government-run agency.

"There would be no middle-class housing, no cornerstone of American dream of housing, no 30-year mortgage, without Fannie and Freddie. There is no alternative," he said in the interview.

Berkowitz's Fairholme is participating in a lawsuit against the government, calling a change to the terms of the September 2008 bailout that required most of the agencies' profits to be handed over to taxpayers unfair to shareholders.

A market source noted that Berkowitz was "quite confident" that the lawsuit will turn in the favor of his fund, along with others - although the source remarked that the interviewer was "making fun of him" for holding that stance.

RBS' £30 billion 'bad' bank

RBS' 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) were among the day's most actively traded issues, falling 23 cents, or just over 1%, to $22.64.

However, a source noted that the rest of the structure was not that busy and finished mixed overall.

Still, he said that interest in the name was likely due to an article published by Sky News, in which the news outlet said the UK Treasury was mulling splitting the Edinburgh, Scotland-based bank into a "good" and "bad" bank. While that has been known for some time, what was surprising was the amount of assets the "bad" bank would hold - £30 billion, or about a third of what most had originally expected.

"The reality is that £30 billion is probably not enough to get RBS to where they want to be," the source said, adding that the news was taken as a "slight negative."

RBS is majority owned by the U.K. government.

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