Preferred stocks see negative tone; Fannie, Freddie improve; Wells Fargo loses early gains

By Stephanie N. Rotondo

Seattle, July 24 – The preferred stock market started the new week off with a weaker tone on Monday.

“We did better than Treasuries, that’s for sure,” one market source noted, as long Treasuries waned about half a point.

“So the curve steepened,” he said.

The Wells Fargo Hybrid and Preferred Securities index was off 18 basis points. The U.S. iShares Preferred Stock ETF declined 5 bps.

Liquidity continued to be subdued, aside from Fannie Mae and Freddie Mac’s preferreds, both of which saw trading of over 1 million shares.

A source said the activity – and the upward trajectory – was “rather curious.”

He noted that there was a New York Times article over the weekend, which came with the headline “U.S. foresaw better return in seizing Fannie and Freddie profits.”

“You could read anything you want to out of that article,” the source said. The piece, he explained talked about how much money the government spent bailing out the GSEs, versus how much it has gotten back via the so-called “net worth sweep.”

The source added that there was nothing new in the article that hasn’t been said before – thus his confusion as to why the paper was doing so well.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 59 cents, or 9.42%, to $6.85, with about 1.34 million shares trading. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) gained 47 cents, or 7.99%, to close at $6.35.

About 1.87 million of the Freddie preferreds were exchanged.

“It’s bizarre that the market would respond to it [so positive],” the source said of the article. “I think people were responding more to the headline than the substance.”

Elsewhere in the secondary, Wells Fargo & Co.’s 5.625% class A series Y noncumulative preferreds (NYSE: WFCPrY) were initially up, but closed off 3 cents at $25.74.

There was no fresh news out on the San Francisco-based bank, though it was reported on Friday that it had potentially gotten itself in hot water yet again by releasing sensitive client information to a former employee.

The employee, through his legal counsel, was seeking documents from Wells Fargo related to a defamation lawsuit. The client data was included in what was sent to the attorney.

The bank said the release was an accident and that it was investigating to see how such a breach occurred.

Meanwhile, Two Harbors Investment Corp.’s 7.625% series B fixed-to-floating rate cumulative redeemable preferreds (NYSE: TWOPrB) continued to trade well, adding 2 cents to finish at $25.35.

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