Brexit woes pressure preferred stocks; European banks remain weak; Wells Fargo rebounds

By Stephanie N. Rotondo

Seattle, June 27 – The preferred stock market continued to feel pressure on Monday following Friday’s sell-off on the United Kingdom’s surprise vote to leave the European Union.

The Wells Fargo Hybrid and Preferred Securities index closed off 53 basis points. The index was down 67 bpd at mid-morning. It closed down 53 bps on Friday, though that was much better than the lows of the day.

Trading in European banks also remained in vogue, as investors pushed the paper lower.

Barclays Bank plc’s 8.125% series 5 noncumulative callable dollar preference shares (NYSE: BCSPD) were down 58 cents, or 2.26%, at $25.03. The 7.1% series 3 dollar-denominated noncumulative callable preference shares (NYSE: BCSPA) had slid 40 cents, or 1.57%, to $25.03.

Deutsche Bank AG’s 7.6% trust preferred securities (NYSE: DTK) were meantime off 35 cents, or 1.38%, at $24.94, while the 8.05% TruPs (NYSE: DKT) dropped 23.7 cents to $25.27.

Royal Bank of Scotland Group plc’s 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) were meantime down 56 cents, or 2.22%, at $24.63. The 6.6% series S noncumulative dollar preference shares (NYSE: RBSPS) drifted off 57 cents, or 2.29%, to $24.35.

In HSBC Holdings plc paper, the 8% exchangeable perpetual subordinated capital securities (NYSE: HSEB) declined 16 cents to $26.03.

Domestic banks were also on the losing side, at least initially. But that paper appeared to gain ground by the bell.

Last week, the Federal Reserve released stress test results that showed all 33 banks tested would be able to handle a severe downturn. A market source said the outcome “came out as expected,” though he added that it was “noteworthy” that for the first time, all the banks came through without a hitch.

The source also noted that the market is waiting to see the results of the CCARs, which come out on Wednesday.

“Everybody will be watching,” he said.

Wells Fargo & Co.’s 5.5% series X class A noncumulative perpetual preferreds (NYSE: WFCPX) ended up 2 cents at $25.44. The preferreds were slightly weaker at $25.405 at mid-morning.

The 5.7% series W class A noncumulative preferreds (NYSE: WFCPW) closed 5 cents higher at $26.33.

“There are many uncertainties ahead, but the stress test results suggest that major U.S. banks are positioned to weather a period of volatility (which could even result in opportunity, if volatility leads to market activity),” wrote Gimme Credit LLC analyst Kathleen Shanley in a comment published Monday morning.

KKR lists on NYSE

KKR & Co. LP’s $155 million of 6.5% series B perpetual preferred units began trading on the New York Stock Exchange on Monday.

The ticker is “KKRPB.” The deal came June 13.

The issue was one of the day’s few gainers, as the units moved up to $25.24 from opening levels of $25.09.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, UBS Securities LLC and Wells Fargo Securities LLC were the joint bookrunning managers. Joint lead managers were Barclays, Citigroup Global Markets Inc., Goldman Sachs & Co. HSBC Securities (USA) Inc. and Mizuho Securities.

Distributions will be payable on the 15th day of March, June, September and December, beginning Sept. 15. The preferred units become redeemable on or after Sept. 15, 2021 at par plus accrued distributions. The units can also be redeemed upon a change of control at $25.25 per unit, plus accrued distributions.

If the units are not redeemed in the event of a change of control, the distribution rate will increase by 5%.

Proceeds will be used for general corporate purposes, which may include funding acquisitions and investments.

KKR is a New York City-based private equity firm.

© 2015 Prospect News.
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