Goldman prices $650 million 5.3% preferreds; Morgan Stanley comes in on redemption news

By Stephanie N. Rotondo

Seattle, July 20 – The preferred stock primary market popped out a new deal from the Goldman Sachs Group Inc. on Wednesday.

The New York-based investment bank sold $650 million of 5.3% $1,000-par series O fixed-to-floating rate noncumulative preferreds. Initial price talk was in the 5.75% area but was later revised to 5.35%.

A trader saw the new issue trading around par in the early gray market. Post-pricing, a market source quoted the issue at 101.625 bid, 101.75 offered.

“That’s a success,” the source commented.

Goldman Sachs & Co. was the bookrunner.

In its prospectus, the bank said it would use the proceeds to fund operations and for general corporate purposes. But the bank also announced on Wednesday that it was tendering for up to $650 million of its Apex capital securities.

“We’ve been expecting that one, so we were quite happy to see that,” a source said of the offer.

Goldman Sachs reported its second-quarter results on Tuesday. Following in line with the recent bank earnings trend, the figures came in above expectations.

Morgan Stanley’s redemption

In secondary trading, investors were reacting to word of a redemption at Morgan Stanley & Co. Inc. The firm said on Tuesday that it was redeeming $2.83 billion of four series of capital securities.

Come Wednesday, those issues were trading down toward their redemption prices of par plus accrued dividends. The most active of the issues, the 6.45% capital securities (NYSE: MSK), was off 64 cents, or 2.48%, at $25.12 early in the session. The 6.25% capital securities (NYSE: MWR) traded down 43 cents, or 1.67%, to $25.36.

Also trading weaker were the 6.875% series F fixed-to-floating rate noncumulative preferreds (NYSE: MSPF), which fell a dime to $29.76.

A market source said the news was “not a surprise.”

“[Bank of America Corp.] and Morgan Stanley were the last two with large amounts of [trust preferreds] outstanding,” the source said. For its part, BofA announced it was redeeming $1.67 billion of three series of TruPs on July 13.

The source noted that BofA kept its TruPs outstanding for as long as they did for accounting reasons. But Morgan Stanley never gave a clear reason as to why they didn’t pull the plug earlier.

“So it was probably expected and overdue,” he said of the news.

The source also remarked that the redemption would “help provide a reasonably strong technical factor” once it’s completed.

“There will be a lot of cash flowing back into the market,” he said.

Morgan Stanley also released its second-quarter results early Wednesday. Like its peers, the results beat the market’s expectations.

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