RBS selling eases, preferreds rally; Sunstone trades weaker; report pressures Fannie, Freddie

By Stephanie N. Rotondo

Portland, Ore., July 7 - Preferred stocks began strong Thursday, but traders said most names settled in, leaving the overall market generally flat.

"It was almost a non-event today," a trader said. "It was so flat and mixed. We were up most of the day, but then it started easing off towards the end of the day."

Still, he noted that most preferreds did not go negative but instead closed about unchanged.

Royal Bank of Scotland Group plc got a bit of a reprieve after Wednesday's sell-off. The Edinburgh-based bank's preferreds were mostly in the green, albeit barely.

In the real estate investment trust realm, Sunstone Hotel Investors Inc.'s series A preferreds had "a couple of large trades," a trader said. As a result, the preferreds made the day's most active list.

A trader said that Freddie Mac and Fannie Mae were having an adverse reaction to a CreditSights report released Wednesday in which the firm opined that there was little, if any, value in the preferreds. The preferreds were busy and lower by the end of the day.

After several days of taking a backseat to other issuers, Ally Financial Inc.'s series B paper retook its spot near the top of the most active list. The series A securities, however, continued to lag a bit.

Pressure abates for RBS

There was "no more sell pressure" in Royal Bank of Scotland preferreds, a trader said.

He noted that there were bids circulating for those issues that will have their dividend reinstated in April 2012. That includes the series M, N, P, Q, R, S and T preferreds, all of which last paid a dividend on March 31, 2010.

Another trader, however, said it was the "no-pay" securities - the series G and E preferreds, which halted dividends on April 1 for two years - that were the busiest issues.

"There was a fair amount of RBS [trading]," he said. "They were all up just because they were so hammered the day before."

The Gs (NYSE: RBSPG) ended a nickel higher at $14.09, and about 687,000 preferreds changed hands. The Es (NYSE: RBSPE) were also a nickel better at $14.09. Just over 486,000 of them traded.

Sunstone As active, weaker

Sunstone Hotel Investors' series A preferreds were "active," according to a trader, with a "couple large trades" pushing the Aliso Viejo, Calif.-based REIT onto the day's most active list.

The preferreds (NYSE: SHOPA) finished 6 cents weaker at $24.29. Volume was about 890,400 preferreds.

"That's a lot of trading, especially for such a small deal," the trader said.

The issue includes about 7 million preferreds, he said.

On the other hand, Sunstone's 8% series D preferreds - which priced in April - were subdued and higher, gaining 23 cents to close at $24.23. Volume was about 23,600.

Fannie, Freddie fall

Fannie Mae and Freddie Mac preferreds took a hit as investors reacted to a new CreditSights report published Wednesday in which the stock was deemed essentially worthless.

"People are still responding to that," a trader said.

Fannie's preferreds (OTCBB: FNMFN) dropped 9 cents, closing at $3.71, with about 1.65 million preferreds trading. Freddie's series Z preferred (OTCBB: FMCKJ) were also 9 cents weaker at $2.96 on volume of about 950,200 preferreds.

"Basically, there's been a lot of speculation of late," the trader said, referring to Washington's debates about what to do with the government-sponsored entities. As the debate rages on, there continues to be speculation about how much value there might be in the preferred and common equity.

"CreditSights put out a very negative report on them," the trader continued. The report's title included the phrase "Not much value, if that," which was "obviously not a positive endorsement," the trader said.

The trader added that the report dealt with the agencies' high dividend costs on its Treasury-owned preferreds and how that not only weighs on profitability but impairs the privately held preferreds' value.

On Thursday, news outlets reported that lawmakers plan to introduce a bill that would eventually wind down Fannie and Freddie and add a government-run replacement for the two companies.

Ally Bs recapture top spot

Ally Financial's 8.125% series B preferreds (NYSE: ALLYPB) retook their spot in the most active list. About 1.46 million preferreds changed hands, and they gained 17 cents to close at $25.31.

The 8.5% series As (NYSE: ALLYPA), however, continued to lag behind usual trading levels. About 407,625 of the As traded. They moved up 12 cents to $25.77.

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