Preferreds begin with firm tone; Wells Fargo’s new issue upsized; Fannie, Freddie improve

By Stephanie N. Rotondo

Phoenix, Sept. 8 – Preferred stocks were modestly higher in Tuesday trading as market players returned to their desks after the long Labor Day weekend.

The Wells Fargo Hybrid and Preferred Securities index ended 6 basis points higher.

“It was not exactly inspiring today,” a market source said of the day’s movements, though he did note that the index’s finishing level was toward the day’s highs.

The source also remarked that volume was not overly impressive, opining that most of the session’s activity was centered on a new deal from Wells Fargo & Co.

The San Francisco-based bank brought $900 million of 6% series V class A noncumulative perpetual preferreds on Tuesday. The company initially said it was selling at least $250 million of the shares, talked in a 6% to 6.125% range.

“It’s probably closer to 6%,” a trader said ahead of pricing, seeing a $24.75 bid, $24.95 offered gray market quote.

The trader pegged the issue at $24.80 later in the day, while a second source quoted the preferreds at $24.80 bid, $24.84 offered.

Wells Fargo Securities LLC is the bookrunner. Joint lead managers include BofA Merrill Lynch, Citigroup Global Markets Inc., Goldman Sachs & Co., UBS Securities LLC, RBC Capital Markets, Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC.

Proceeds will be used for general corporate purposes.

As for the company’s existing preferreds – most of which trade at a premium – they were drifting in “because of the new issue supply,” a source said.

The 6% series T class A noncumulative perpetual preferreds (NYSE: WFCPT) traded down 27 cents, or 1.06%, to $25.17. The 6.625% series R fixed-to-floating rate noncumulative preferreds (NYSE: WFCPR) fell a nickel to $27.50.

GSE decision looms

A preferred stock trader said that Fannie Mae and Freddie Mac paper might pick up ground this week, as the discovery process in a lawsuit against the federal government is slated to conclude at the end of the week.

“The judge could decide on the sweep in October,” he said, referring to the 2012 conscription of the GSEs’ profits while under conservatorship. Shareholders have argued that the move was illegal.

In Tuesday trading, the preferreds were in fact inching upward.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose a dime, or 1.98%, to $5.14, while Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved 12 cents, or 2.4%, to $5.12.

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