Activity low in preferred stock market; Fannie, Freddie ‘very active’; Deutsche Bank down

By Colin Hanner

Chicago, Jan. 17 – Activity was muted in the preferred stock sphere on Tuesday, with a market source saying “not much” was occurring, though the preferred market mirrored the up-then-down fluctuation of the equity market in the early afternoon.

“[Preferred stocks] declined by 1 o’clock in the afternoon, which happened broadly with stocks,” the market source said.

The Wells Fargo Hybrid and Preferred Securities index up 2 basis points, down from its 11-bps gain recorded mid-morning, and the iShares U.S. Preferred index was down 31 bps, a nearly 40 bps downward swing from the plus 7 bps level seen earlier in the day.

Government-sponsored enterprises Fannie Mae and Freddie Mac were “very active,” a market source said.

“There were six issues of Fannie and Freddie that were very active today,” the market source said. “It is what it is – there’s a lot of speculation around them with incoming administration, but there’s been nothing of substance out.”

Of those, Freddie Mac’s 8.375% fixed-to-floating rate noncumulative perpetual preferred stock (NYSE: FMCKJ) was up 1 cent to $7.61.

The speculation surrounding the GSE’s comes as president-elect Donald Trump’s presidency nears its start this Friday, particularly the comments of Trump’s Treasury Department nominee, Steven Mnuchin, who said earlier last month that both Freddie Mac and Fannie Mae should come out from government ownership.

Other secondary market movers included Aegon NV’s 6.375% perpetual capital securities (NYSE: AEH) the most active issue of the day with 295,000-plus volume, a market source said. It remained unchanged at $25.26.

HSBC Holdings plc’s 8% exchangeable perpetual subordinated capital securities (NYSE: HSEB) were up 8 cents to $26.02, unchanged from its mid-morning level.

And Legg Mason, Inc.’s 5.45% junior subordinated notes (NYSE: LMHB) were up 18 cents to $23.06.

Deutsche Bank down

On Tuesday, the U.S. Department of Justice announced that it had reached a settlement in which Deutsche Bank will pay $7.2 billion related to federal civil claims that the bank misled investors leading up to the most recent financial collapse through mortgage-backed securities, the department reported.

“This resolution holds Deutsche Bank accountable for its illegal conduct and irresponsible lending practices, which caused serious and lasting damage to investors and the American public,” said Attorney general Loretta E. Lynch in a press release. “Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis.”

Deutsche Bank Contingent Capital Trust III’s 7.6% trust preferred securities (NYSE: DTK) were off 16 cents to $25.29.

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