Citigroup hit with more allegations of fraud, preferreds weaken; broad market heads downward

By Stephanie N. Rotondo

Portland, Ore., Feb. 22 - The preferred stock market was "pretty flat," a market source reported Wednesday.

He noted that common equities were on the weaker side, especially U.S.-based banks.

"So that certainly doesn't help us," he said.

The previously active primary market was silent yet again. A trader said he had heard rumors that a new deal was supposed to come during the midweek session. But as the day came and went with no new issue, he opined that there was "probably no deal this week."

If there is no new issue this week, it will be the first week of the year without anything hitting the market.

Citigroup weakens

In secondary market action, Citigroup Inc. preferreds were reasonably busy and generally weaker. The losses came as a so-called whistleblower's complaint alleging fraud was unsealed. The complaint was originally filed in August.

The 7.25% enhanced trust preferreds (NYSE: CPF) were the most active of the day and one of the complex's only gainers. The issue moved up 2 cents to $25.54.

The 7.875% fixed-to-floating trust preferreds (NYSE: CPN) were about a nickel weaker at $26.95, and the 8.5% fixed-to-floating trust preferreds (NYSE: CPJ) dropped 3 cents to $25.54.

Last week, Citigroup admitted it had broken certain Federal Housing Administration rules and subsequently paid a $158.3 million fine. On Tuesday, documents were unsealed that allege further fraud at the banking institution.

Back in August, Sherry Hunt, a quality assurance vice president, filed a False Claims Act complaint in which she stated that the bank "defrauded, falsified information or misled federal government entities" - specifically Freddie Mac and Fannie Mae - by providing mortgage insurance for deficient mortgages.

If Citigroup is found guilty of these charges, it could be forced to buy back some mortgages.

Broad market softens

Elsewhere in the preferred stock realm, Seaspan Corp.'s 9.5% series C cumulative redeemable perpetual preferreds (NYSE: SSWPC) were active but softer, losing 4 cents to close at $27.36.

Ally Financial Inc.'s 8.125% fixed-to-floating preferreds (NYSE: ALLYPB) lost 6 cents, ending at $22.01.

Royal Bank of Scotland Group plc's 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) were also down, finishing 3 cents lower at $18.15.

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