Preferreds firm ahead of stress test results; SCE Trust gains; Compass gets a ticker

By Stephanie N. Rotondo

Seattle, June 22 – The preferred stock market was edging upward on Thursday, though overall trading volumes remained limited, market sources reported.

The Wells Fargo Hybrid and Preferred Securities Index improved 8 basis points. The U.S. iShares Preferred Stock ETF firmed 23 bps.

While liquidity was – and has been – constrained, one market source noted that the Federal Reserve’s bank stress tests came out at the end of day. He therefore opined that trading “will jump as soon as it comes out.”

The first part of the results – released on Thursday – showed that all U.S. banks have enough capital to weather a severe economic downturn. Investors will now turn their attention toward the second part of the results, which are expected next week. Those results will determine if the Fed will approve plans to return capital to shareholders.

In particular, Wells Fargo & Co. will be under scrutiny following its sales scandal in September.

As for Thursday’s trading, most of the attention was being directed at Southern California Edison Co.’s SCE Trust VI’s $475 million offering of 5% series L trust preference shares, a deal priced Monday.

The issue was upsized from $200 million and came tighter than the 5.25% price talk.

The 5% preference shares dominated the day’s session, trading nearly 785,5000 times. They added 4 cents, closing at $25.02.

In early dealings, a trader saw the paper quoted at $24.95 bid, $25.02 offered.

Another source deemed the shares up 6 cents at $25.04.

The preference shares have been assigned a temporary ticker, “SCEEP.”

J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, RBC Capital Markets and Wells Fargo Securities LLC ran the books.

Meanwhile, Compass Diversified Holdings LLC’s $100 million of 7.25% series A preferred stock were seen finishing at $24.93, a gain of 8 cents.

The preferreds were pegged at $24.80 bid, $24.87 offered at mid-morning.

At day’s end, over 457,000 shares had traded.

That deal also came Monday, via BofA Merrill Lynch and UBS Securities LLC.

Like SCE Trust, the issue has a temporary trading symbol, “CMMPP.”

As for the secondary, Fannie Mae and Freddie Mac preferreds were under pressure as hopes waned for a stockholder-friendly reform plan.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell 20 cents, or 3.22%, to $6.02. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) slipped 29 cents, or 3.22%, to $5.71.

A source noted that an American Banker article out late Wednesday indicated that senators Corker and Warner were looking to revive their housing finance reform bill, though with a few tweaks to assuage affordable housing advocates.

Last year, the senators introduced their bipartisan bill that would replace Fannie and Freddie with a new system that was mainly dependent on private capital, but would be provided with a government backstop in case of catastrophic losses. The Senate Banking Committee made a few changes to the bill, eventually passing it along for a full vote.

However, the legislation stalled there.

Should Warner and Corker successfully reignite their previous proposal, “it would likely mean the liquidation of the GSEs as we know them,” a source said.

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