Preferred stocks firm after holiday weekend, but off of highs; Fannie, Freddie clobbered

By Stephanie N. Rotondo

Seattle, Feb. 21 – After a long holiday weekend, the preferred stock market came back with a positive tone on Tuesday, though it declined from the day’s highs.

The Wells Fargo Hybrid and Preferred Securities index closed 3 basis points higher, versus the 12 bps gain seen in earlier dealings. The U.S. iShares Preferred Stock index was meantime unchanged, though it was up 16 bps at mid-morning.

Fannie Mae and Freddie Mac preferreds easily dominated the day, trading down in the wake of a court ruling that was not in favor of shareholders.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dropped $3.01, or 28.03%, to $7.73, on over 8.57 million preferreds traded. Another 7.56 million of Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were exchanged, declining $2.94, or 28.21%, to $7.48.

Among other Fannie issues, the variable rate series O noncumulative preferreds (OTCBB: FNMFN) dove $5.62, or 29.01%, to $13.75. That issue traded 2.36 million times.

And, variable rate series O noncumulative preferreds (OTCBB: FNMAH) lost $2.61, or 28.84%, to $6.44 – though only about 293,000 shares moved. Still, that was well above the typical daily average of just under 6,000 shares.

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit ruled against plaintiffs in Perry Capital LLC v Mnuchin, opining that the Recovery Act bars the investors from bringing such a suit.

Some parts of the lawsuit were remanded to the lower court, however, including contract-based claims.

The three-judge panel ruled 2-1.

The market obviously did not take the ruling well, given that shareholders have been trying to find a way to recoup their losses.

Broad market tidbits

Meanwhile, a trader said there was “a lot of takeovers in the [business development company/real estate investment trust] area” announced early in the session.

Ashford Hospitality Trust Inc., for instance, said it was buying FelCor Lodging Trust Inc. for about $1.27 billion. Gladstone Investment Corp. then said it had purchased J.R. Hobbs, while B. Riley Financial Inc. said it was acquiring FBR & Co. in a $160.1 million all-stock deal.

Ashford’s preferreds were not heavily traded but ended the day mixed. The same was true of Gladstone’s issues.

As for B. Riley, its 7.5% $25-par senior notes due 2021 (Nasdaq: RILYL) slipped 3 cents to $26.17.

Though there was nothing out of the primary space on Tuesday, a trader commented that he was “hearing a deal” for Wednesday. However, he did not have any details as to where that deal would come from.

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