Preferreds initially trend lower in sympathy with equities, then recover; Morgan Stanley trades off

By Stephanie N. Rotondo

Seattle, Jan. 30 – The preferred stock market ended slightly positive on Monday, though it did open the session with a weaker tone – though not as weak as its common stock counterpart.

“Nothing is moving a ton except for equities,” one trader said.

Another market source said the swing from negative to positive “wasn’t really a lot.”

“Most of the swing was within an eighth of a point,” he said. “Not really a lot in the big picture of volatility.”

The source also commented that it was “hard to say that there was anything driving” the moves. He pointed out that there was some fresh economic data out early in the day that might have played a small role.

The Wells Fargo Hybrid and Preferred Securities index closed up 6 basis points, though it was down 13 bps earlier. The Dow Jones industrial average declined over 122 points, falling under the historic 20,000-mark that it reached last week.

Even Morgan Stanley & Co. Inc.’s $1 billion of 5.85% series K fixed-to-floating rate noncumulative preferreds – a benchmark deal that priced on Tuesday – was “not doing too much,” according to a trader.

He said the paper was being quoted wide at $25.05 bid, $25.30 offered.

Another source pegged the paper at $25.22, which he said was off 3 cents on the day.

The issue is trading under a temporary symbol, “MSDDP.”

Meanwhile, Pennsylvania Real Estate Investment Trust’s 7.2% series C cumulative redeemable perpetual preferred stock closed at $25.05, up a nickel on the day.

Earlier in the day, a trader said the preferreds were “holding” at $24.93 bid.

On Friday, the company said its $22.5 million over-allotment option had been fully exercised, bringing the total amount outstanding to $172.5 million. The REIT initially sold $150 million of the preferreds on Jan. 18.

The issue is trading under a temporary ticker, “PNYLP.”

Ruling on Fannie, Freddie

GSE preferreds remained in play on Monday. The paper was also bucking the day’s initial downward trend.

Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 60 cents, or 7.19%, at $8.875, as Freddie Mac’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) improved 55 cents, or 6.21%, to $9.40.

A source said it was “somewhat noteworthy” that a new ruling in a case brought by Fairholme Funds against the Treasury Department came out.

The ruling has to do with documents Fairholme was seeking from the Treasury, which the Treasury had refused to turn over. Last year, a lower court ordered the Treasury to turn over certain documents.

That ruling was then taken to the Court of Appeals, with eight documents at the core of the fight. The latest ruling said that the Treasury had to turn over four of the eight documents.

The source said he wasn’t sure what was in those documents.

As for whether the ruling was ultimately positive or negative for the GSEs, that was unclear, according to the source.

“Both sides will probably appeal,” he remarked.

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