Preferreds soft going into new quarter; State Street taps market; S&P rebalancing eyed

By Stephanie N. Rotondo

Seattle, April 4 – The preferred stock market was trading lower on Monday.

One preferred stock trader said profit-taking was the cause, though another market source said there was “no particular reason.”

“There’s not a lot of news out there,” he said. “It’s been kind of lackluster.”

The source also noted that volume was on the thinner side. He blamed the lack of liquidity of it being a Monday.

“Monday volumes have been unusually light of late,” he said.

The Wells Fargo Hybrid and Preferred Securities index closed down 32 basis points. The index was off 35 bps at mid-morning.

A trader also noted that the Standard & Poor’s U.S. Preferred Stock index announced its rebalancing plans for the quarter. Effective April 15, the index will add 17 new preferred issues and drop four others.

“I thought we’d see some things bump up” on the news, which was first announced late Friday. However, the trader said there was not much reaction.

In the primary, State Street Corp. announced and priced an offering of series G fixed-to-floating rate noncumulative preferreds.

The company initially planned to sell at least $250 million of the preferreds, but the deal was upsized to $500 million.

The issue came at par to yield 5.35%. The dividend is fixed until March 15, 2026, at which point it will float at Libor plus 370.9 bps.

Price talk was around 5.625%, according to a market source.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, UBS Securities LLC and Wells Fargo Securities LLC ran the books.

A source said the new issue “did very well in the gray,” seeing the paper trade up to $25.30 by the close.

Earlier in the day, a trader said he was seeing quotes in a $24.95 to par context for the paper in the early gray market.

“It’s all institutional,” he said. “There’s not much happening on the retail side.”

In the wake of the new deal, the 5.9% series D fixed-to-floating rate noncumulative preferreds (NYSE: STTPD) were fizzling, falling 40.5 cents, or 1.5%, to $26.595.

The Boston-based bank plans to use the funds for the cash consideration portion of its acquisition of GE Asset Management, which was first announced on Wednesday.

Rebalancing moves

Though overall liquidity for the day was muted, some of the more actively traded securities during the session were issues that are slated to hit the S&P Preferred Stock index on April 15.

Charles Schwab Corp.’s $750 million of 5.95% series D noncumulative preferred stock (NYSE: SCHWPD) made that list, ending the day off 4 cents at $25.97.

The issue priced Feb. 29.

BB&T Corp.’s $425 million of 5.625% series H noncumulative perpetual preferred stock (NYSE: BBTPH) – a deal from March 2 – was also part of that group. The preferreds closed off 6 cents at $25.14.

Another active-trader that will be added to the S&P index was Bank of America Corp.’s $1 billion issue of 6.2% series CC non-cumulative perpetual preferred stock (NYSE: BACPC).

Those preferreds – which came Jan. 21 – slipped 2 cents to $26.03.

Bucking the downward trend was Wells Fargo & Co.’s $875 million of 5.7% series W class A noncumulative perpetual preferred stock, which priced Jan. 19.

The preferreds rose 6 cents to $25.92.

All told, S&P is adding 17 issues to its index and dropping four.

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