Preferreds gain ground as Fed increases rates; Fannie, Freddie resume slide; RBS paper firms

By Stephanie N. Rotondo

Seattle, Dec. 16 – The preferred stock market ended the midweek session with a positive tone after the Federal Reserve opted to increase interest rates by 25 basis points.

The Wells Fargo Hybrid and Preferred Securities index ended up 69 bps. The index, which opened higher and held in a narrow range until 2 p.m. ET when the Fed made its announcement, was up 27 bps at mid-morning.

A trader said the market was largely expecting the central bank to raise rates by 25 bps upon the conclusion of its two-day policy meeting. But what the market was really looking to was the “follow-on language,” he said – that is, how and when will future rate hikes be handled?

In its statement, the Fed said future hikes would be gradual and would depend on how well the economy was doing.

As for the day’s dealings, Fannie Mae and Freddie Mac paper resumed their sell-off on Wednesday after holding steady on Tuesday. A trader said that the recent weakness in the preferreds could be due to market concerns over the strength of shareholder lawsuits currently pending against the government but that the declines were likely more due to tax-loss selling.

Although the securities bucked the day’s upward trend, they did manage to pare their losses by the bell.

Fannie’s 8.25% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) finished off 6 cents, or 1.71%, at $3.44. The preferreds were off 38 cents, or 10.86%, at $3.12 in early trading.

As for Freddie’s 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ), they declined 8 cents, or 2.29%, to $3.42. That issue was off 40 cents, or 11.43%, at $3.10 at mid-morning.

RBS gains strength

Royal Bank of Scotland Group plc preferreds headed into higher territory as it was reported that the Edinburgh-based bank had received takeover offers for its Williams & Glyn banking unit.

The 5.9% noncumulative guaranteed trust preferred securities (NYSE: RBSPE) gained 14 cents to end at $24.57. The 6.08% noncumulative guaranteed trust preferred securities (NYSE: RBSPG) closed at par, up a dime on the day.

RBS said Wednesday that it was considering a sale of the bank after several informal takeover offers were made. Though RBS declined to name who made the offers, speculation is that Santander and Virgin Money were among the potential suitors.

When RBS was bailed out in 2008, one of the conditions was to divest itself of the asset by 2017. In September, the company hired BofA Merrill Lynch to prepare the bank for a spinoff, which was valued at £1.5 billion.

RBS said it would consider selling the asset but that it was moving forward with the spinoff plans in the meantime.

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