Debt concerns pressure preferreds; European bank names sell off ahead of stress test results

By Stephanie N. Rotondo

Portland, Ore., July 11 - European debt concerns weighed on the market as trading began Monday, leaving preferred stocks to languish.

Domestic debt concerns and the looming deadline on the U.S. debt ceiling talks also helped to pressure the marketplace.

"I don't know what is going to spark this market except getting this debt ceiling thing passed," said one preferred trader.

"It seemed like people were on the sidelines waiting to get some clarity from the European bank stress test results [later this week]," said another trader.

"It was an ugly day," the second trader added. "There wasn't a lot of volume, and things were just going lower and lower."

On average, he said, preferred stocks were down 25 cents to 30 cents "in the Yankee space."

Given the European worries, investors again pushed Europe bank preferreds down, resulting in losses for Royal Bank of Scotland Group plc, Barclays plc and ING Groep NV.

The market continued to wait for new issues, but there were none in sight.

Europe banks sell off

The European Banking Authority will release the results of its second round of stress tests on Friday. Concerns about that, coupled with fresh news out of Greece - the country's finance minister said the nation's budget gap widened by about a third during the first half of the year - caused a "sell-off" in European bank preferreds, a trader said.

In RBS paper, the series E and series G preferreds continued to dominate. The Gs (NYSE: RBSPG) lost 27 cents to close at $13.75 on volume of nearly 345,000 preferreds. The Es meantime dropped a quarter to $13.76. Almost 430,000 of the Es turned over.

Barclays' series D American Depositary Shares (NYSE: BCSPD) fell 24 cents in trading, closing at $26.01. About 263,000 ADSs changed hands.

In ING securities, the 7.375% preferreds (NYSE: IDG) declined 43 cents to $23.96. About 355,000 preferreds traded.

No new issues to sell

There remained an absence of new issues in the preferred market, and some market players are speculating that the trend could continue through the end of summer.

"There is no new issue chatter," a trader said. "We heard a rumor there could be one, but nobody knows any details. So that's probably pure rumor."

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