Consumer confidence gain boosts preferreds; Fannie, Freddie preferreds slip on Corker Bill

By Stephanie N. Rotondo

Phoenix, June 25 - Preferred stocks experienced a bit of a "bounce back," a trader said Tuesday, as investors reacted to "better-than-expected" consumer confidence numbers.

The trader said the market was initially weak, but once the numbers came out, most issues began to turn around.

"That's a good indication that things were oversold," he said.

He added that he was "hearing from funds" that many agreed things had become cheap. However, not many were buying anything due to a lack of cash following recent outflows.

"But they don't want to sell anything," the trader noted, as they believe their positions are good.

Another market source said it was "another bumpy ride day." The market gyrated throughout the session; however, the space closed with a firmer tone.

With no new issues, it was yet another day to focus on the secondary. Fannie Mae and Freddie Mac were dominating trading as the so-called "Corker Bill" - a bipartisan bill aimed at ending the two mortgage giants and replacing them with a new combined entity - was introduced into the Senate.

But the plan put forth by Senators Bob Corker (R-Tenn.) and Mark Warner (D-Va.) would leave little, if anything, for preferred holders, a source explained. As a result, both Fannie and Freddie were weak, "but not by a lot."

Fannie, Freddie falter

Freddie's 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) lost a nickel, closing at $5.10. Fannie's 8.25% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) dropped a penny to $4.94.

Though the preferred shares were not all that weaker, a market source noted that "some of these issues have lost about 30% since April."

The Corker Bill would effectively bring about the end of Fannie and Freddie within five years. In its place would be the Federal Mortgage Insurance Corp., which would function similarly to the Federal Deposit Insurance Corp.

Under the bill, "all net worth would transfer to the Treasury," a source said, making Fannie and Freddie "completely debt-financed companies" by their end. The source opined that the way the bill would liquidate the two companies would "bode very, very poorly for preferreds," as there would be little to nothing left for them to recover.

Financials firm up

Away from Fannie and Freddie, financials again traded busily as they attempted to regain ground lost in the recent sell-off.

For instance, Ally Financial Inc.'s 8.125% series 2 fixed-to-floating-rate trust preferreds (NYSE: ALLYPA) moved up 28 cents, or 1.11%, to $25.43.

U.S. Bancorp's floating-rate series B noncumulative perpetual preferreds (NYSE: USBPH) meantime rose 14 cents to $21.30.

Among foreign financials, Royal Bank of Scotland Group plc's 6.08% noncumulative guaranteed trust preferreds (NYSE: RBSPG) earned 84 cents, or 4.17%, to close at $20.98.

"We think those were way oversold," a source said, calling the issue "too cheap."

HSBC Holdings plc's 8% exchangeable perpetual subordinated capital securities (NYSE: HCSPB) put on 7 cents, ending at $26.59.

Of the day's most actively traded issues, Goldman Sachs Group, Inc.'s 5.5% series J noncumulative preferreds (NYSE: GSPJ) were the only one other than Fannie and Freddie paper to finish on the downside.

The securities fell 22 cents to $23.33.

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