Preferreds continue to drift lower; Associated Banc’s recent issue lists; RBS mostly up

By Stephanie N. Rotondo

Phoenix, June 10 – The preferred stock market remained soft in midweek trading, according to a trader.

“The long bond is getting whacked again,” he noted.

The Wells Fargo Hybrid and Preferred Securities index finished the session down 12 basis points. The index was off 7 bps at mid-morning.

But while the preferred market was still under pressure, the straight equity market was seeing a rebound. The rally came as oil producer BP reported that the U.S. had beaten Russia as the top oil and gas producer and OPEC said the current oversupply of the commodity was easing.

However, OPEC also noted in a report out Wednesday that its members had increased production in May.

Additionally, the Energy Information Administration reported a large drawdown of U.S. crude stockpiles. The news sent oil prices upward, though profit-taking brought them down from the day’s highs.

In the primary preferred space, a trader said he was “pretty sure there is a $25-par deal coming tomorrow.”

As for deals that have recently priced, Associated Banc-Corp’s $65 million of 6.125% series C noncumulative preferreds – a deal priced June 1 – began trading on the New York Stock Exchange on Wednesday.

The ticker symbol is “ASBPC.” Paper was trading at $24.59 early in the session, down from opening levels of $24.70. The shares closed at $24.60.

UBS Securities LLC and Citigroup Global Markets Inc. ran the books on that deal.

Also, JPMorgan Chase & Co.’s $1.425 billion of 6.1% series AA noncumulative perpetual preferreds were quoted at $24.50 bid, $24.60 offered early in the day but ended up 14 cents at $24.64.

That issue came May 29 and has struggled to hit par ever since.

J.P. Morgan Securities LLC was the bookrunner.

U.K. plans RBS stake sale

A market source noted that Royal Bank of Scotland Group plc again had “the big news of the day” as George Osborne, chancellor of the exchequer, said the government would look to start selling off its stake in the bank in the coming months.

The news was “largely anticipated,” the source said, “but obviously this is a good thing ultimately for RBS.”

The Edinburgh, Scotland-based company’s preferreds were mostly higher in the wake of the announcement.

The 6.35% series N noncumulative dollar preference shares (NYSE: RBSPN) ended 12 cents higher at $25.07. However, the 6.08% noncumulative guaranteed trust preferred securities (NYSE: RBSPG) declined 12 cents to $24.68.

The U.K. government’s current plan is to initially sell shares to institutional investors, Osborne told attendees of the annual Mansion House dinner in London. But as the sale will likely take years to complete, a sale to retail investors in the future is not out of the question, he noted.

Fannie, Freddie busy

Fannie Mae and Freddie Mac dominated trading in an otherwise muted volume day, according to a market source.

The GSEs’ preferreds closed softer as new research reports were circulating, indicating that a potential housing downturn could mean the need for another bailout.

However, the source said the reports didn’t hold “a lot of new information.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 2.4 cents to $3.766, while Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) slipped 3 cents to $3.77.

In a report out Wednesday, analysts at SNL Financial warned that a decline in profits, combined with a winding down of their portfolios and capital reserves, could place Fannie and Freddie back where they were at the height of the financial crisis.

But as the source noted, that in and of itself is not new information. In 2012, the Treasury Department made an amendment to its conservatorship agreement with the mortgage giants, effectively taking most of their profits. In doing so, the government took away the agencies’ ability to save for a rainy day, as it were.

Several investors have sought to fight the amendment and lawsuits are currently pending.

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