Preferreds open soft, strengthen; City National prices new issue; Fannie, Freddie active

By Stephanie N. Rotondo

Phoenix, Oct. 31 - The preferred stock market remained under pressure in early Thursday trading, but managed to regain some ground by the end of the day.

The Wells Fargo Hybrid and Preferred Securities index initially traded off 4 basis points but closed 9 bps firmer.

Despite the morning's weakness, City National Corp. said it was bringing a new issue of series D fixed-to-floating rate noncumulative preferred stock.

Price talk was 6.75% to 6.875%, according to a trader.

"So basically, it's the exact same [structure] that's been coming that's been popular," he said. He added that there was no selling group.

"It seems pretty restricted," he said. "I think they'll stick to a pretty small size."

He saw the issue at $24.88 bid in the gray market.

Before the close, the issue priced at 6.75%, with $100 million shares being sold. The dividend will be fixed until Nov. 7, 2023, when the preferreds will reset to Libor plus 405.2 bps.

Among other recent deals, F.N.B. Corp.'s $100 million of 7.25% series E fixed-to-floating rate noncumulative perpetual preferreds - a deal that came Tuesday - were seen at par bid, "so that's good," a market source said.

Also from Tuesday business, Gastar Exploration USA Ltd.'s $50 million of 10.75% series B cumulative perpetual preferreds fell 6 cents to par, according to a source.

And, Citigroup Inc.'s $1.3 billion issue of 6.875% series K fixed-to-floating rate noncumulative preferreds were again dominating overall trading, with over 2.87 million shares being exchanged. The preferreds ended the day up 8 cents at $24.95.

The deal came Oct. 24.

A trader also noted that "there was talk of a good-sized deal coming this week, and I don't know what happened to it."

The deal was thought to be coming from a big bank, but it "never materialized," he said. "It could have just been conjecture."

Secondary dealings were meantime deemed "pretty quiet," although the trader said that Fannie Mae and Freddie Mac issues continued to move around.

"They've been on the move for awhile," he said, adding that the securities were generally firm on Thursday. He said the recent movements were due to "speculation that [the government] is not going to be able to just dismantle them."

He remarked that there are "a large contingency of hedge funds that own a large chunk of [Fannie and Freddie] preferreds." As preferred holders have been suing to have their dividends turned back on - the government has currently placed a ban on paying out dividends except to itself due to the agencies' bailouts in 2008 - he opined that "maybe they have enough pull to get something done so they can finally get paid."

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) closed up 9 cents, or 1.29%, at $7.09, while Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) improved by a nickel to $7.10.

Big day coming for RBS

Friday "should be a big day" for Royal Bank of Scotland Group plc, a market source said Thursday, referring to the company's planned earnings release.

Also expected to come Friday is a decision from the U.K. government about how to handle the Edinburgh, Scotland-based bank's bad assets.

Overall, RBS' preferreds were firming ahead of the expected news.

The 5.9% noncumulative guaranteed trust preferred securities (NYSE: RBSPE) finished the session up 18 cents to $21.61.

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