Preferred stocks reverse course following two days of heavy losses; Gabelli deal prices

By Stephanie N. Rotondo

Seattle, June 28 – The preferred stock market was rebounding Tuesday, following the trend of the broader markets.

The Wells Fargo Hybrid and Preferred Securities index closed 93 basis points better. The index was up 62 bps at mid-morning, after closing down 53 bps on Monday and as many points on Friday after it was learned that the United Kingdom had voted to leave the European Union.

As uncertainties abound about what the Brexit means, chatter is that Tuesday’s gains were due to the previous losses being overdone.

As for trading, both European and domestic banks were regaining ground.

Among European financials, Barclays Bank plc’s 8.125% series 5 noncumulative callable dollar preference shares (NYSE: BCSPD) improved by 59 cents, or 2.36%, to $25.62. Royal Bank of Scotland Group plc’s 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) rose 51 cents, or 2.07%, to $25.67.

In Deutsche Bank AG paper, the 7.6% trust preferred securities (NYSE: DTK) were 73 cents higher, or 2.93%%, at $25.39.

In domestic banks, Wells Fargo & Co.’s 5.5% series X class A noncumulative perpetual preferred stock (NYSE: WFCPX) continued to head higher after rallying late Monday.

The preferreds ended up 31 cents, or 1.22%, at $25.75.

JPMorgan Chase & Co.’s 6.15% series BB noncumulative preferreds (NYSE: JPMPH) were also better, adding 2 cents to close at $26.68.

In a note to clients on Monday, Goldman Sachs & Co. Inc. said the U.K.’s decision to exit the European Union could seriously dampen European bank profits in the coming years, estimating that earnings will decline by a total of $35 billion through 2018.

“We forecast a weaker outlook owing to lower volumes, margins and fees,” as well as higher credit risks, wrote the group of analysts led by Jernej Omahen in the note. “We also expect lower activity levels for capital markets and wholesale businesses, as well as lower asset values and flows in the asset-gathering business.”

Gabelli prices tight

The primary market saw one deal hitting the tape on Tuesday, as Gabelli Dividend & Income Trust brought $100 million of 5.25% series G cumulative preferreds.

Price talk was 5.25% to 5.375%, according to a market source.

After the deal was first announced, a trader saw the paper bid for at $24.80 in the gray market, but no offers.

The trader noted that the deal did not have a selling group.

Just prior to pricing, another market source saw the preferreds offered at $24.97.

Morgan Stanley & Co. LLC and Wells Fargo Securities LLC were the joint bookrunners. G. research LLC was the co-manager.

Proceeds will be used to purchase portfolio securities in accordance with the fund’s investment objective and policies.

Gabelli is a Rye, N.Y.-based investment firm.

© 2015 Prospect News.
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