Preferreds recover; PennyMac frees to trade; banks mostly better as capital plans approved

By Stephanie N. Rotondo

Seattle, June 28 – The preferred stock market regained ground lost in the previous session on Wednesday.

The Wells Fargo Hybrid and Preferred Securities Index rose 10 basis points and the U.S. iShares Preferred Stock ETF was up 20 bps.

The Wells Fargo index closed off 3 bps on Tuesday, while the ETF declined 23 bps.

PennyMac Mortgage Investment Trust’s $175 million of 8% series B fixed-to-floating rate cumulative redeemable preferreds – a deal priced Tuesday – freed to trade at 12:30 p.m. ET, according to one trader.

Another market source placed the preferreds in a $24.79 to $24.86 context.

“Could be better, could be worse,” the source said. “But it has been fairly active on a day with not alot of volume.”

Earlier in the day, a trader saw the paper quoted at $24.70 bid, $24.80 offered in the gray market.

The deal came at the tight end of the 8% to 8.125% price talk and was upsized from $75 million.

Morgan Stanley & Co. LLC, Keefe, Bruyette & Woods Inc. and RBC Capital Markets ran the books.

The dividend rate will begin to float on June 15, 2024 at Libor plus 599 basis points. The paper also becomes redeemable on that date.

Away from the new issue, Fannie Mae and Freddie Mac preferreds continued to wane despite the overall positive tone of the day.

The preferreds were also lower in Tuesday trading after it was reported that senators Corker and Warner were once again teaming up on a GSE reform bill. This time the duo is said to be seriously considering a plan that would break the agencies into pieces.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 11 cents, or 1.92%, to $5.63. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) declined 14 cents, or 2.59%, to $5.26.

Meanwhile, U.S.-based banks were mostly better on the day as the Federal Reserve announced that it had approved the capital plans of each one.

However, Capital One Financial Corp. was given conditional approval and must resubmit its plan by Dec. 28.

Bank plans get greenlight

The Fed gave all 34 banks the go-ahead on their capital plans.

Citigroup Inc.’s 7.875% fixed-to-floating rate trust preferred securities (NYSE: CPrN), for instance, rose a dime to $26.29. Morgan Stanley & Co. Inc.’s 6.375% series I fixed-to-floating rate noncumulative preferreds (MSPrI) improved 20 cents to $28.47.

However, Wells Fargo & Co.’s 5.625% series Y class A noncumulative preferreds (NYSE: WFCPrY) declined 26 cents, or nearly 1%, to $26.05, even though its plan was OK’d without any objections.

For its part, Citigroup’s plan allows the company to repurchase up to $15.6 billion of its common stock, while also allowing for the quarterly dividend on the common stock to double to 32 cents.

Morgan Stanley meantime intends to repurchase up to $5 billion in stock. The bank is also upping its dividend, to 25 cents from 20 cents.

As for Wells Fargo, it is aiming to repurchase $11.5 billion in stock, while it increases its equity dividend to 39 cents from 38 cents.

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