GSEs down on view that overhaul ‘highly unlikely’ to happen this year; AmTrust plunges

By Colin Hanner

Chicago, March 22 – Volume was quite light but tended higher in the preferred stock market on Wednesday, a market source said, though government-sponsored enterprises Fannie Mae and Freddie Mac traded off on a report that an overhaul and privatization of the mortgage lenders will occur this year.

The Wells Fargo Hybrid and Preferred Securities index was up 21 basis points after being up 3 bps mid-morning. The U.S. iShares Preferred Stock ETF was up 8 bps after being down the same margin in the morning.

The prospects of a Fannie Mae and Freddie Mac overhaul to occur this legislative year is “highly unlikely,” a Reuters story reported on Tuesday, citing Congressional staffers. This comes at a time when much speculation has surrounded the future of Fannie and Freddie, which came to topic when Treasury secretary Steve Mnuchin announced last year the two should be privatized.

“It shows, in my mind, that the market hasn’t been dealing with reality on this whole situation,” a market source said. “People have their views right now, and I wouldn’t say that they’re all rational.”

The market source said that, on the day, Fannie and Freddie issues were down 1½% to 3%, withholding outliers, but the most active were Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS), which were down 12 cents, or 1.72%, to $6.74.

Fannie’s series O variable rate noncumulative preferreds (OTCBB: FNMFN) were down 35 cents, or 2.90%, to $11.70.

And Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were down 7 cents, or 1.04%, to $6.67.

Joining the most-active list were Global Indemnity Ltd.’s $120 million of 7.875% $25-par subordinated notes due 2047 – a deal priced Thursday and freed Monday – which were off 40 cents at $24.70, a market source said.

He added that 143,000 notes traded on the session.

In the secondary market, Deutsche Bank Contingent Capital Trust II’s 6.55% trust preferreds (NYSE: DXB) were up 1 cent, or 0.04%, to $24.98.

And AmTrust Financial Services’ 7.75% series E noncumulative depository preferreds (NYSE: AFSIPrE) were down $1.40, or 6.01%, to $21.90.

On Tuesday, RM LAW, PC announced a class action lawsuit against AmTrust on behalf of all persons or entities that purchased the company’s securities between March 2, 2015 and March 16, 2017.

The class action complaint states that “AmTrust and certain of its executive officers made a series of materially false and misleading statements and/or failed to disclose material adverse facts about the company's business, operations, and prospects to investors,” according to a news release.

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