RBS creates 'internal bad bank,' releases earnings; RBS, HSBC preferreds actively traded

By Christine Van Dusen

Atlanta, Nov. 1 - Preferred stock from Royal Bank of Scotland dominated trading among preferreds on Friday as the company announced plans for addressing its bad assets and reported its third-quarter earnings, a trader said.

RBS is creating an "internal bad bank" to manage down about £38 billion of its riskiest assets, which consume about 20% of the company's capital, according to an announcement from the company.

With this plan RBS avoids splitting into two distinct companies - one a "good bank," the other a "bad bank" - and keeps the funding burden on the company instead of putting it on taxpayers.

RBS also will move more quickly to complete its initial public offering of Citizens, beginning in the second half of 2014 with completion slated for the end of 2016, the bank said.

For the third quarter of 2013, the company's pre-tax loss was £634 million, after a £496 million accounting charge.

Early Friday, the company's 6.4% non-cumulative dollar preference shares (NYSE: RBS-PM) traded at $21.72 on Friday morning, up 37 cents on volume of 315,415.

RBS Capital Funding Trust VII's 6.08% non-cumulative guarantee trust preferred securities (NYSE: RBS-PG) moved up 37 cents to $22.27 on volume of 267,170.

And the company's 7¼% non-cumulative dollar preference shares (NYSE: RBS-PT) were quoted at $24.21 on Friday morning, up 14 cents on volume of 169,308. At the end of the day the issue was spotted at $24.33, up 26 cents on volume totaling 856,357.

"RBS was very active today and up, in general, between 20 cents and 50 cents, depending on the issue," a market source said.

HSBC gains lead

On Friday afternoon, activity among the RBS issues remained steady, but HSBC USA's floating-rate deposit shares of non-cumulative preferred stock, series G, emerged as the busiest. The securities were quoted at the end of the session at $20.97, up 20 cents on volume of 2.58 million.

HSBC's floating-rate non-cumulative preferred stock, series F, was quoted at $19.47, down 7 cents on volume of 1.8 million.

Zions off radar screen

One issue that didn't seem to attract much attention on Friday was Salt Lake City-based Zions Bancorporation's newly auctioned $162 million of 5.65% $1,000-par fixed-to-floating-rate subordinated notes due Nov. 15, 2023.

"They're always very rich," a market source said. "Nobody's talking about it."

The online auction was facilitated by Zions Direct Inc. and ended on Thursday.

Deutsche Bank Securities Inc., Goldman Sachs & Co., BofA Merrill Lynch, Macquarie Capital (USA) Inc. and Zions Direct are the joint bookrunning managers.

The interest rate will be fixed and payable semiannually through Nov. 15, 2018, at which time the rate will reset to Libor plus 419 basis points. Interest payments will then be paid on the 15th day of February, May, August and November.

The notes will become redeemable on Nov. 15, 2018.

New issues trade 'sparingly'

Meanwhile, other recent new issues in the space changed hands "sparingly" with mostly flat prices, a trader said.

City National Corp.'s new 6¾% series D fixed-to-floating rate noncumulative preferred stock moved to between $25 and $25.25 after trading in the gray market on Thursday at $24.88.

A total of $100 million shares were 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 "pretty much an issue bid," the trader said.

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