PNC to bring market's first public bank issue in three years; Public Storage does 'swimmingly'

By Stephanie N. Rotondo

Portland, Ore., July 20 - The preferred stock market continued to have a firmer tone on Wednesday, which might have been helped out in part by a sudden emergence of new issues.

The "huge news" of the day was a new issue announced by PNC Financial Services Group Inc. The public sale of the new preferreds marks the first such offering by a U.S. bank in the last three years, since before Lehman Brothers collapsed. Sources speculated that the deal could pave the way for more bank issues in the future.

In other new issue news, Public Storage priced its $425 million issue of series R preferreds late Tuesday after announcing the deal earlier in the day. A trader said the deal was not only oversubscribed, but it was performing "swimmingly."

The overall strength of the market also helped European banks and insurers gain ground. Royal Bank of Scotland Group plc - probably the European bank that has been hit the hardest recently - continued to dominate trading as the preferreds attempted to recover all the lost ground.

New PNC issue 'huge news'

A preferred stock trader said news of a new issue from PNC Financial Services Group was "huge news to our market."

"It's a big deal insofar as that it is the first public deal done [by a bank] in about three years," said another source. He noted that M&T Bank Corp. did a $500 million private placement of preferreds in May, but public deals have been lacking.

"That's big news," the source continued. The last public preferred sale by a bank occurred shortly before the collapse of Fannie Mae and Freddie Mac and the demise of Lehman Brothers. "Credit events had shut down the new issue market, at least among banks."

The Pittsburgh-based bank said early Wednesday that it will issue series O depositary shares representing 1/100th of a share of fixed-to-floating-rate non-cumulative perpetual preferred stock. Talk is around 6.75%, and about $1 billion of paper is expected to be sold.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, PNC Capital Markets LLC and Citigroup Global Markets Inc. are the joint bookrunners.

A market source said the deal was "doing OK" in the gray market, seeing a par bid, 100¼ offered market. He added that by late in the day, there were more offers than bids for the stock.

Among PNC's existing issues, the 9.875% series L fixed-to-floating-rate non-cumulative preferreds (NYSE: PNCPL) dropped 7 cents to $28.53.

In addition to announcing the new issue, PNC released its second-quarter results.

For the quarter, the bank posted net income of $912 million, or $1.67 per common share, versus $832 million, or $1.57 per share, in the first quarter.

Credit loss provisions decreased to $280 million from $421 million.

Total revenue for the first six months of the year came to $3.6 billion.

Public Storage deal does well

Public Storage priced its new issue late Tuesday, bringing $425 million of depositary shares each representing 1/1,000th of a 6.35% series R cumulative preferred.

"That went swimmingly," a trader said, remarking that the sale of 17 million depositary shares was oversubscribed.

"I was surprised they were able to do it at such a low yield," he said. "It really speaks to the lack of new issue supply out there."

He added that there was "a lot of retail demand" for the paper.

"It's a pretty good-size deal for a REIT," said another market source, though he added that Public Storage is "one of the most frequent REIT issuers in our market."

The first trader saw the depositary shares trading "right around par" at $24.98, which he said was indicative of "pretty strong follow-through." The second source pegged the issue at $24.96.

However, the company's 7.25% series K cumulative preferreds (NYSE: PSAPK) fell 16 cents to $25.10. The Glendale, Calif.-based company said Tuesday that proceeds from the new issue will be used to redeem the Ks at par plus accrued dividends on Aug. 22.

"It was probably people dropping out of one and getting into another," a source said of the decline in the Ks.

RBS boosted again

The firmer tone to the market again helped "European banks pop," a trader said, although the gains were "modest."

Royal Bank of Scotland's series Ts (NYSE: RBSPT) were the day's most active issue with over 3 million preferreds changing hands. They rose 6 cents to $16.81.

The series Gs (NYSE: RBSPG) meantime increased 16 cents to $12.31 on volume of over 1 million preferreds.

The series Qs (NYSE: RBSPQ) were also trading heavily. About 1.2 million preferreds changed hands, and they earned 6 cents, closing at $15.40.

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