Preferred stocks slide as CBO predicts slightly higher deficit; RBS fined, shares firm

By Stephanie N. Rotondo

Phoenix, Aug. 27 – Preferred stocks were “pretty much flat right now,” a trader said early Wednesday.

However, the Wells Fargo Hybrid and Preferred Securities index ended the day down 10 basis points after being down as much as 20 bps earlier in the session.

“[The index] has had a huge run up; it could just be taking a breather,” a trader said.

The index could also be reacting to a new deficit report put out by the Congressional Budget Office, which showed that while the deficit fell for the fiscal year ending in September, the latest projections are slightly higher than before due to lower-than-expected corporate tax revenues.

As for volume, it continued to be lackluster leading up to the Labor Day holiday. Aside from “a bunch of things going ex-dividend,” a trader said that “it’s going to be dead the rest of this week.”

Still, he was optimistic that a new deal could come early next week.

That could prove true, as Red Mountain Resources Inc.’s proposed offering of 10% series A cumulative redeemable preferred stock is expected to price “in the next couple of days,” according to a source familiar with the deal.

In a conference call held last week, the company said that it had originally intended to sell $10 million shares and that pricing was expected by Aug. 20. However, it was also noted during the call that demand had exceeded that amount and, as such, the company was considering if it could grow the deal and by how much.

Northland Capital Markets and Euro Pacific Capital are leading the offering.

RBS gets fined

Royal Bank of Scotland Group plc got slapped with a hefty fine from the Financial Conduct Authority in regards to poor advice given to mortgage customers, as was expected.

The £14.5 million penalty was below the £15 million expected, but either way, the fine is not expected to have much impact on the bank’s bottom line.

On the news, the preferreds were mostly up, though the most liquidly traded issues were down on the day.

The 6.35% series N noncumulative dollar preference shares (NYSE: RBSPN) fell 2 cents to $24.85, on nearly 700,000 shares traded. The 5.9% noncumulative guaranteed trust preferred securities (NYSE: RBSPE) dipped 7 cents to $23.97, with almost 215,000 shares being exchanged.

But the 6.125% series R noncumulative dollar preference shares (NYSE: RBSPR) put on 4 cents to close at $24.23. Just over 135,000 shares traded.

Goldman gains

The Goldman Sachs Group Inc. preferreds were bucking the day’s trend, ending with a firmer tone.

The 5.95% series I noncumulative preferreds (NYSE: GSPI) ended up 2 cents at $24.23, while the 6.375% series K fixed-to-floating rate noncumulative preferreds (NYSE: GSPK) gained 14 cents to finish at $26.00.

Earlier in the week, the New York-based investment bank settled a lawsuit with the Federal Housing Finance Agency for $1.2 billion. The lawsuit was in regards to mortgage securities sold to Fannie Mae and Freddie mac ahead of the financial crisis.

The settlement amount is equal to the total value of the bonds minus the current market value.

Additionally, Goldman has to buy back the faulty securities for $3.15 billion.

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