Preferred stocks rebound; Costamare new issue seen as lackluster; Morgan Stanley weakens

By Stephanie N. Rotondo

Phoenix, May 7 – The preferred stock market rebounded on Thursday after experiencing a major sell-off on Wednesday.

One trader said the previous day’s drop – the Wells Fargo Hybrid and Preferred Securities index ended down 1.16% – was due to comments made by Federal Reserve chairman Janet Yellen regarding certain stock issues that she deemed “overvalued.”

Though Yellen wasn’t specific, the remarks spooked investors, “so people sold everything,” the trader said. “It wasn’t organized selling; it was across the board.”

But come Thursday, a decent jobs number gave a boost to Treasuries, which in turn was helping preferreds.

Another market source said the day was “bizarre.”

“It was very volatile,” the source said.

The source also noted that volume was “really high.”

“The question is, what was causing it?” he said.

One theory he heard was that there was a forced liquidation in the iShares U.S. Preferred Stock ETF.

“But if that were the case, the price action tells something different.”

Another theory had to do with the launch of the Pimco Capital Securities and Financial Fund. Yet a third theory was that investors were hunting for bargains.

“[Preferred] indices were crushed way more than other fixed-income markets,” the source said. “People could think they are bottom-fishing.”

The source also pointed to the gain in Treasuries.

The Wells Fargo index closed up 27 bps, though it was up 16 bps at mid-morning.

“It was up even more, probably 40 bps or so,” the source said.

Among new deals, Costamare Inc.’s $100 million of 8.75% series D cumulative redeemable preferreds were pegged at $24.60 bid at the end of the day, according to a source.

“So not much improvement from yesterday,” he said.

The Costamare issue was seen at $24.65 offered in early trades.

The issue had not yet freed to trade, according to a trader.

“Once it frees, it’s probably going to get slapped around a little bit,” he said.

The deal came Wednesday, in line with price talk.

Morgan Stanley & Co. LLC, UBS Securities LLC, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Stifel Nicolaus & Co. Inc. ran the books.

In the company’s older outstanding issues, the 8.5% series C cumulative redeemable preferreds (NYSE: CMREPC) fell 34 cents, or 1.38%, to $24.36, while the 7.625% series B cumulative redeemable preferreds (NYSE: CMREPB) closed off 98 cents, or 4.11%, to $22.77.

Morgan Stanley busy

A source said Morgan Stanley & Co. Inc. was dominating trading on Thursday, remarking that the activity was centered on recently called issues.

He noted that the issues – the 6.6% capital VII and VI securities – haven’t traded as actively as he expected after the redemption announcement.

“Perhaps this is catch-up,” he said.

Well over 1.1 million shares of the capital VII (NYSE: MSZ) shares traded, slipping a penny to $25.10. About 727,000 of the capital VI (NYSE: MSJ) shares moved, ending flat at $25.10.

The 6.375% series I fixed-to-floating rate noncumulative preferreds (NYSE: MSPI) were also busy, with over 632,000 shares being exchanged. That issue finished off 2 cents at $25.76.

New York-based Morgan Stanley announced the redemption on April 27. The capital VII preferreds will be taken out Tuesday and the capital VI’s on May 27.

The redemption price is par plus accrued dividends.

Goldman rises

The Goldman Sachs Group Inc.’s preferreds were mostly higher in Thursday trading.

The 6.375% series K fixed-to-floating rate noncumulative preferreds (NYSE: GSPK) rose 4 cents to $25.78. The 5.5% series J fixed-to-floating rate noncumulative preferreds (NYSE: GSPJ) were up the same amount at $24.19.

However, the 5.95% series I noncumulative preferreds (NYSE: GSPI) dropped 6 cents to $24.80.

New York-based Goldman Sachs was in the news Thursday as the New York State Court of Appeals said that ACA Financial Guaranty Corp.’s $120 million lawsuit against the investment bank should be heard.

The lawsuit alleged that Goldman lied in regards to a pool of mortgage-backed securities sold ahead of the financial crisis. ACA claims that Goldman led the bond insurer to believe that Paulson & Co. was a long investor, though it knew that the hedge fund was betting that the underlying securities would fail.

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