Preferreds modestly firm as Fed holds rates steady; AmTrust’s new $25-par notes list

By Stephanie N. Rotondo

Phoenix, Sept. 17 – The preferred stock market improved Thursday as the Fed voted to keep interest rates steady.

The Wells Fargo Hybrid and Preferred Securities index closed up 3 basis points, though it was as much as 14 bps higher at one point.

The Fed’s policy was announced at 2 p.m. ET. Citing global economic concerns and domestic financial market volatility, the central bank chose to keep interest rates steady.

The vote was nearly unanimous at 9-1. However, the Fed did note that an increase could still occur before the end of the year.

“[It’s] good news for corporations bringing new issues,” a trader said. “Traders were hoping for a hike to see some volatility return.

“We will see a sideways market to the end of the year barring any geopolitical events,” the trader further opined.

Nigel Green, chief executive officer of deVere Group, an independent financial advisory firm, said in a prepared statement that the lack of action was in itself fueling global market uncertainty and speculated that the markets would be volatile either way.

“A rate raise hasn’t happened this time, but it is on its way, it will happen eventually and probably as Janet Yellen, the Fed’s chairman, hinted before the end of the year,” Green said. “Therefore, the countdown clock has simply been reset. Of course, this is a trigger for short-term volatility.”

Green also noted that as the U.S. economy has strengthened, the decision to keep rates at historic lows was due more to concerns about China.

“This concern over global developments is bound to prompt uncertainty too,” he said.

As for the day’s preferred dealings, AmTrust Financial Services Inc.’s $125 million of 7.5% $25-par notes due 2055 were admitted to the New York Stock Exchange on Thursday.

The ticker symbol is “AFST.” The deal came Sept. 9.

The notes ended at $24.84, which compared to opening levels of $24.65.

A trader quoted the notes at $24.68 bid, $24.70 offered at mid-morning.

Among other recent deals, Wells Fargo & Co.’s $900 million of 6% series V class A noncumulative preferreds (NYSE: WFCPV) remained active, trading up 8 cents to $25.03.

The issue priced Sept. 8.

Meanwhile, Goodrich Petroleum Corp.’s 9.75% series D cumulative preferreds (NYSE: GDPPD) were initially firm following Wednesday’s crude oil rally, but retreated by the end of the day.

The preferreds finished off a dime, or 5.85%, at $1.69. The shares were up 5 cents, or 2.51%, at $1.84 at mid-morning.

The issue was among the day’s most actively traded securities.

Also active were Fannie Mae and Freddie Mac preferreds. Those issues were busy on Wednesday as the “Jumpstart GSE Reform Act” was reintroduced in the Senate. The bill prohibits raising mortgage guarantee fees and using those increases for government spending. The bill also requires the U.S. Treasury to hold onto its preferred stock holdings in the mortgage giants.

Though the preferreds started out strong, they ended the session mixed.

Fannie, Freddie mixed

Fannie and Freddie paper continued to be active Thursday, though the GSE preferreds ended mixed.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were unchanged at $4.78, while Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose 6 cents, or 1.27%, to $4.79.

On Wednesday, senators Bob Corker, Mark Warner, Elizabeth Warren and David Vitter reintroduced the “Jumpstart GSE Reform Act.”

The bill – which “got yanked last year,” according to a source – would prohibit any increase in mortgage guarantee fees to be used for government spending and would also require the U.S. Treasury to hold onto its preferred stock stake in Fannie Mae and Freddie Mac. The Treasury could only sell off its holdings with congressional approval.

The legislation is aimed at proving an incentive for Congress to make housing finance reform a priority.

Earlier in the week, Warren reportedly pulled her support for a similar bill, as revised language would have allowed guarantee fees to be used to cover government spending in other areas. According to reports, Warren was concerned that any potential increase in fees would then be passed on to low-income borrowers.

And while trading in Fannie and Freddie preferreds was on the busier side, according to a source, there wasn’t much movement. The source speculated that the news had already been priced in.

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