Preferred stocks tank as broad markets drop; funds take a beating; new issues ‘hammered’

By Stephanie N. Rotondo

Phoenix, Aug. 24 – The preferred stock market was taking a beating as the broader markets sold off amid continued global economic concerns and yet another major decline in oil.

“Some stuff is just way out of whack,” a trader said. “As money flows out of these funds” – the iShares U.S. Preferred Stock Index (NYSE: PFF) dropped to as low as a $32 handle, down from its typical levels around $39, in early trading – “people have to figure out what to sell to get cash.”

“This morning was flash crash-esque in PFF and a host of other funds,” a second trader said. “Some [preferred stock funds] were printing down to ridiculous levels.”

The PFF index did manage to pare some losses, ending down 1.67%.

The day’s overall drop came as China experienced yet another equity sell-off, increasing fears of an economic slowdown in the world’s second-largest economy.

The Wells Fargo Hybrid and Preferred Securities index was meantime down 1.28%, or 128 basis points.

“New issues got hammered,” a trader said.

Capital One Financial Corp.’s $500 million of 6.2% fixed-rate series F noncumulative preferreds – a deal priced Aug. 17 – were down 26 cents, or 1.05%, at $24.54. National General Holdings Corp.’s $100 million of 7.625% $25-par subordinated notes due Sept. 15, 2055 (Nasdaq: NGHCZ) were also in decline, falling 95 cents, or 3.98%, to $22.90.

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