First Republic prices noncumulatives; RBS declines amid 'good/bad' bank speculation

By Stephanie N. Rotondo

Phoenix, Oct. 21 - The preferred stock primary market was showing signs of life on Monday.

First Republic Bank announced a sale of series E noncumulative perpetual preferreds early in the session. A trader said price talk was adjusted to 7.125% to 7.25%, down from 7.25% to 7.375% originally.

"It's still bid for at [$24.92]," he said. "So people still want it. It's a good company, a pretty solid regional bank. And it's investment grade, too."

Shortly before the close, the company priced $200 million of the preferreds at par to yield 7%.

A market source said he was expecting "more banks to come in the next few weeks once they get earnings behind them."

The secondary market was meantime on the softer side.

The Wells Fargo Hybrid and Preferred Securities index was down 17 basis points as of midday but then recovered a bit to end down only 8 bps, according to a market source.

Royal Bank of Scotland Group plc's paper was also weaker, due to an article put out by London's The Daily Telegraph late Friday. The article - deemed "inflammatory" by one source - intimated that a "good-and-bad" bank split was imminent. The source, however, pointed out that that was not what was said.

First Republic prices deal

San Francisco-based bank First Republic brought $200 million of 7% series E noncumulative perpetual preferred shares on Monday.

Pricing was downwardly revised from 7.25% to 7.375% originally.

Early in the session, a trader was seeing gray markets around $24.92. Post-pricing, a trader quoted the issue at $24.90 bid, $24.96 offered.

Another source said the new deal was in a $24.90 to $24.95 range all day.

As for the bank's other preferred issues, the 6.2% series B noncumulative perpetual preferreds (NYSE: FRCPB) rose 60 cents, or 2.74%, to $22.52.

BofA Merrill Lynch, Morgan Stanley & Co. LLC, Wells Fargo Securities LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC led the deal.

Proceeds will be used for general corporate purposes, which may include funding loans or purchasing investment securities for its portfolio.

RBS runs red

RBS' preferreds took a hit Monday as investors reacted to a news article out late Friday that seemed to hint a "good-and-bad" bank split was in the offing.

The article published by The Daily Telegraph "implied that they are clearly moving forward to a good/bad bank split," a source said. "But that's not really what was said."

The U.K. government, which holds an 81% stake in the bank, has been looking at ways to get RBS back on its feet, hiring Rothschild to conduct a review of the company's assets. One such way that has been discussed is moving all of the firm's bad assets into one bank, thereby allowing the good bank to prosper.

But in an interview with The Telegraph, George Osborne, British chancellor, said that it was just one of the options being considered.

"We are looking at the case for a bad bank and if not a bad bank what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be, which is a bank supporting the British economy," Osborne told the paper.

Though Osborne clearly stated that alternatives were still on the table, RBS' preferreds sank anyway.

The 6.08% noncumulative guaranteed trust preferreds (NYSE: RBSPG) were off 25 cents, or 1.15%, trading at $21.45. The 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) dropped 48 cents, or 2.02%, to $23.47.

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