Preferred stocks fall, then rise; Ally gyrates, closes stronger on heavy volume; KeyCorp gains

By Stephanie N. Rotondo

Portland, Ore., Aug. 3 - Preferred stocks, like common equities, began Wednesday's session in the red but managed to end "slightly positive," a trader said.

"I think people are just nervous," he said of the up-and-down day.

"It was kind of a crazy day," said another trader. "A lot more pain, a lot more pressure."

A third market source said that weak economic data, high interest rates on Spanish debt, problems with Italian debt and other U.S. and European economic concerns were causing "very negative sentiment" among investors.

Overall, volume was light in the preferred marketplace, aside from Ally Financial Inc. Just one day after the company reported earnings, more than 1 million of each of its two series of preferreds traded. Like the rest of the market, the preferreds gyrated throughout the day, eventually ending well up from their intraday lows.

KeyCorp preferreds were also on the active side - though nowhere near as busy as Ally - as investors reacted to news of a redemption. The bank announced the call after the bell on Tuesday.

A trader said Allianz SE's unlisted preferreds traded down early on European concerns. However, by the end of the day, the stock had come back to end essentially flat.

After the market closed, Vornado Realty Trust priced an add-on to its 6.875% series J cumulative redeemable perpetual preferreds. The company sold $25 million of the preferreds to a single investor.

Ally trading heavy, higher

Ally Financial's preferreds gyrated with the market but ended the day well up from intraday lows.

Volume in the preferreds was particularly heavy as well.

The 8.5% series A preferreds (NYSE: ALLPA) closed 28 cents higher at $25.25, up from a low of $24.60 early on in the day. Volume was about 3.35 million preferreds.

"Everything has been so volatile," a market source said. "[The Ally preferreds] didn't really turn around until the afternoon."

The 8.125% series Bs (NYSE: ALLPB) meantime gained 20 cents on the day, ending at $24.00. The low was $23.20, and volume was about 1.86 million preferreds.

The Detroit-based financial services firm reported earnings on Monday. For the quarter, Ally posted net income of $113 million. That compared to $146 million in the first quarter of 2011 and $565 million in the second quarter of 2010.

However, Ally said it raised $12.2 billion of new funding during the quarter, bringing its tier 1 capital ratio to 14.6%.

Cash and cash equivalents were $14.9 billion as of June 30, compared with $12.9 billion at March 31.

KeyCorp mixed on call

KeyCorp's preferreds were trading busily as investors responded to news out late Tuesday that the company will redeem $361.11 million of four series of trust preferreds including 5.875% series A trust preferreds, 6.125% series B trust preferreds, 7% series D enhanced trust preferreds and 9.58% capital securities.

But overall, the preferreds ended mixed as each issue moved closer to the call price of par plus accrued dividends.

The As (NYSE: KEYPA) gained $1.21 to finish at $25.15. The Bs (NYSE: KEYPB) moved up 88 cents to $25.28, while the Ds (NYSE: KEYPD) fell 2 cents to $25.33.

"[The series As] traded up because they were at a discount," a market source said.

The bank said that the 9.58% capital securities, which were issued by Union State Capital Trust I, will be redeemed at 102.874% of par.

The redemptions will be funded with existing available cash.

"The action we are announcing today to redeem certain trust preferred securities is part of our overall capital and liability management strategy," Beth Mooney, chairman and chief executive officer, said in Tuesday's news release. "Key's strong tier 1 common capital and the changing treatment of trust preferred securities as qualifying tier 1 capital under Dodd-Frank and the Basel III proposals make this decision appropriate at this time."

KeyCorp is based in Cleveland.

Allianz pressured by Europe

As Europe's economic woes mount, traders are seeing particular pressure among foreign names. On Wednesday, one trader was focused on Allianz's 8.375% preferreds.

"They traded off on concerns about Europe," the trader said, seeing a daily low of $25.96.

However, by the end of business, the preferreds had rallied some, following the trend of the broader market. A market source said they were 'basically flat" at $26.00.

Allianz is a Munich, Germany-based insurance company.

Vornado prices add-on

Vornado Realty Trust sold $25 million of its 6.875% series J cumulative redeemable perpetual preferred shares to Cohen & Steers Capital Management, Inc., the company said in a filing with the Securities and Exchange Commission.

The real estate investment trust issued 1 million preferreds at $25.00 each plus accrued dividends from July 1 of $0.16232639. The total price per share was at a 1.5% discount to Wednesday's closing price of $25.55 (NYSE: VNOPJ).

The proceeds totaled $25.16 million.

The company originally issued $201.25 million of the series J preferreds on April 14.

Proceeds will be contributed to the company's operating partnership, which will use the funds for general business purposes, including the redemption or repurchase of preferred stock and units.

Settlement is expected Friday.

Vornado is based in New York.

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