More pain in preferreds as investors shed risky paper; RBS hit ahead of earnings; ING declines

By Stephanie N. Rotondo

Portland, Ore., Aug. 4 - The sell-off in preferred stocks continued on Thursday, and total volumes in the secondary space were about double what they were at the beginning of the week.

"Everything is just getting trashed," a trader said. "There's no rhyme or reason. People are scared of Europe.

"This sell-off is probably going to prevent any IPOs from coming," he added. Additionally, with 85% of listed preferreds falling under the financial category, "everybody is running for the hills.

"It's like getting beat with a Nerf bat," he said. "It'll take two days to kill you. It's pretty bloody out there."

Volume in the secondary space hit about $689 million, according to a market source. He said that compared to $498 million on Wednesday, $378 million on Tuesday and about $302 million on Monday.

Royal Bank of Scotland Group plc preferreds were among the day's most active and the most weak. The day's biggest percentage loser was the bank's series M preferreds, which lost over 10% of their value in Thursday trading. RBS is expected to report second-quarter earnings Friday, and it is anticipated that the bank will post a £840 million charge due to its exposure to Greek sovereign debt.

Meanwhile, ING Groep NV released its second-quarter results, which were "good overall," a market source said. Still, the preferreds lost ground, and the trader opined that it was because "there are problems in Belgium."

In U.S.-based financials, Ally Financial Inc. remained active but soft, as did Citigroup Inc.

Investors shed RBS paper

RBS preferreds got hammered as risk-averse investors shed the paper ahead of the bank's earnings on Friday.

The RBS series G preferreds (NYSE: RBSPG) were the day's most actively traded security, with some 2.2 million turning over. The paper lost 99 cents, or 7.76%, to close at $11.77.

It was the series M preferreds (NYSE: RBSPM), however, that won the day's biggest percentage loser award. The stock dropped $1.58, or 10.16%, to $13.97. The series Ns (NYSE: RBSPN) were the second-biggest percentage loser, falling $1.50, or 9.73%, to $13.91.

RBS will post earnings Friday, and it is expected the numbers will take a hit due to a £840 million charge from exposure to Greek sovereign debt. In July, the bank said that it had £1.01 billion of net direct exposure to the struggling country.

"Them and everybody else," a market source said of the charge. He said the amount is large but is "certainly less spectacular than the French [exposure to Greece]."

RBS is 83% owned by the U.K. government.

ING falls despite numbers

ING Groep's preferreds were not immune to the broad market sell-off despite reporting "good overall" earnings, a market source said.

"It was just an ugly day," he said, noting that problems in Belgium might also be playing a role in the decline.

He said that during Lloyds Banking group Plc's recent conference call, they said that the European banking regulator had required the bank to disclose all of its exposure to Belgium, indicating there could be problems on the horizon.

ING perpetual hybrids preferreds (NYSE: IGK) fell 60 cents to $24.82. Nearly 650,000 of them changed hands. The perpetual debt securities (NYSE: INZ) were the second most active ING issue, with about 303,690 trading. They fell 94 cents to $22.41.

For the quarter, ING reported a 24% increase in profits at $2.16 billion. The increased earnings also included an impairment charge of about $437.4 million due to its Greek exposure.

The bulk of the gain came from ING's insurance unit.

But ING wasn't the only insurer to lose weight during the session. Aegon NV also fell, though on no name-specific news.

The perpetual capital securities (NYSE: AEF) were the most active of the Aegon issues, with volume of nearly 285,500 securities. They dropped $1.48 to $23.08.

Ally, Citi weaken

Ally Financial, which reported relatively strong numbers earlier in the week, was still declining with the rest of the market.

The 8.5% series A preferreds (NYSE: ALLYPA) slipped 80 cents to $24.45 on volume of 2.04 million preferreds. The 8.125% series Bs (NYSE: ALLYPB) meantime dropped $1.47 to $22.53 on volume of 2.14 million preferreds.

The series A preferreds will go ex-dividend on Wednesday. The Bs went ex-dividend last week.

Meanwhile, Citigroup preferreds were also faltering.

The Citi Ns (NYSE: CPN) lost 40 cents to end at $26.64. Volume was about 1.4 million preferreds.

It is believed that Citi has a deeper exposure to the so-called "Euro-contagion," thus the declines.

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