Preferred market continues to bounce back; Goldman Sachs’ new 6.3% preferreds strengthen

By Rebecca Melvin

New York, Feb. 17 – The preferred stock market continued to recover Wednesday with common stocks and oil prices in rally mode and the Treasury market off significantly, market sources said.

“[Preferreds] are slowly moving back to levels seen before the huge sell-off early last week. They have found a bottom,” a New York-based sellside source said.

The Wells Fargo Hybrid and Preferred Securities index was up 96 basis points on the day, which was a moderate gain.

There is still negative sentiment and concern, but the market needs to readjust from being down last week, and on Wednesday there was support in the broader markets from European bank stocks and U.S. stocks, one source noted.

The Dow Jones industrial average and S&P 500 stock index notched a third straight day of gains, and they are both up 5% from their close last Thursday.

Goldman Sachs Group Inc.’s newly priced 6.3%, $25-par noncumulative perpetual preferred stock (NYSE: GSHSP) closed the day at $25.05 after trading in the $25.02 bid, $25.06 range in the early going and also at $25.10, which was up from $24.88 bid, $24.90 offered immediately post pricing.

About $3 million Goldman preferreds traded and it was slightly above par most of the day, a sellside source said.

Comparing the new Goldman Sachs security to other Goldman issues, a source said, “It should move up nicely.”

The issue’s upsizing means the bank will tender more of the two series of its $1,000-par automatic preferred enhanced capital securities (Apex) – the 5.793% fixed-to-floating rate Apex and the floating-rate Apex.

European bank shares traded up as a bloc, but the ones that were more active were mostly mixed.

Deutsche Bank AG’s 7.6% trust preferred securities (NYSE: DKT) traded up 34 cents to close at $24.64, but the Deutsche Bank DTK preferred, of which $800,000 shares traded, was off a penny at $23.83.

“They are getting some bounce back. People are still digesting the news over the weekend that Deutsche Bank won’t fail,” a source said.

“There were more ups than downs,” a sellside source said. Also among the most actively traded preferred names were JPMorgan Chase & Co. and HSBC Holdings plc, which were mixed.

The market did not react discernibly to the release of the minutes of the Federal Open Market Committee on Wednesday afternoon.

Part of the drag is uncertainty in the rate outlook. But Wednesday’s Fed minutes did not reveal anything new to the market, a source said. “It didn’t change any thoughts, rather if confirmed what people were thinking.”

The Fed minutes of the Jan. 26-27 policy meeting indicated that the outlook for the domestic economy was unclear. Declining stock and oil prices, doubts about China and indications of declining inflation expectations left the Fed officials split in two camps: those who believed risks to the economy were materializing and those who wanted to wait and see.

Meanwhile preferred market players noticed that Bank of America came out with the view that the Federal Reserve will implement two rate hikes this year, which is down from the bank’s earlier view that there would be three Fed rate hikes this year.

“No one else has come out with that view, a source said.

The Fed confirmed that there is doubt about the economy.

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