Preferred stock market nixes rebound, ends with weaker tone; Fannie, Freddie firm

By Stephanie N. Rotondo

Phoenix, May 1 – Preferred stocks were initially looking to regain some ground Friday but ultimately followed the trend of the week and ended softer.

The Wells Fargo Hybrid and Preferred Securities index closed down 14 basis points. The index was up 5 bps at mid-morning.

The week overall has been a bit muted, a trader noted, even as the long bond declined and Morgan Stanley & Co. Inc. surprised the market by announcing a redemption of its trust preferreds.

The primary space has especially been quiet. However, a trader said that he has heard of at least one deal that is planned for early next week.

In secondary dealings, Fannie Mae and Freddie Mac preferreds continued to see some action following the release of disappointing stress test results on Thursday.

Early Thursday, the preferreds had begun to move up after a supposed memo from the Treasury Department was leaked. The memo indicated that the government acted in bad faith when it placed the GSEs under its care in 2008.

Later in the session, the stress test results came out, showing that the agencies could require up to about $160 billion in the event of a severe economic downturn. The preferreds started to come in on that news, though they still ended firm.

In early Friday trading, the preferreds were mixed. By the bell, the paper was trending higher.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 6 cents, or 1.2%, to $5.06. The 6.75% series Q noncumulative preferreds (OTCBB: FNMAI) were up 46 cents, or 10.5%, at $4.84.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were meantime 3 cents higher at $5.03.

Focus on TruPs

Though the overall market was down on Friday, the most actively traded paying securities were largely higher.

Since Morgan Stanley & Co. Inc. called $1.1 billion of its trust preferreds late Monday, investors have been reevaluating other banks’ TruPs. As such, that has resulted in more focus on things like Bank of America Corp.’s Countrywide Financial issues.

Both the Countrywide 6.75% TruPs and the 7% capital securities were trading actively during the session, and both issues saw sizable gains. The 6.75% securities (NYSE: CFCPA) rose 17 cents to $25.67, while the 7% issue (NYSE: CFCPB) improved a quarter to $25.88.

BofA’s Merrill Lynch-linked 7% trust originated preferred securities (NYSE: MERPD) were also busy, ending off 32 cents, or 1.24%, at $25.45.

Meanwhile, MetLife Inc.’s 6.5% series B noncumulative preferreds (NYSE: METPB) were also among the day’s most actively traded issues. That paper was up 52 cents, or 2.02%, at $26.20.

A market source said there was no news to push up the preferreds but noted that the insurance company is slated to bring earnings next week.

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