Preferreds see little fallout from Knight debacle; RBS weakens pre-earnings; Morgan Stanley up

By Stephanie N. Rotondo

Phoenix, Aug. 2 - A preferred stock trader said Thursday that there was "not a lot of fallout" from Knight Capital Group's computer glitch on Wednesday, which caused erroneous trades in as many as 150 New York Stock Exchange-listed securities on Wednesday.

The market maker said it had fixed the problem as of Thursday, though not before it lost $440 million.

Knight said that the resulting loss of market cap has forced it to search for either a capital infusion or a prospective buyer.

"It will be interesting to see if anyone takes them over," a trader said, noting that Knight handles quite a lot of business.

Another market source said the preferred market was "largely flat" on the day.

"There was no significant downturn once [European Central Bank president Mario] Draghi started speaking like there was in the equity market," he said.

Royal Bank of Scotland Group plc, however, was experiencing a downturn ahead of the company's earnings release on Friday. The Edinburgh-based bank has already said that it will be faced with charges totaling at least £300 million in its quarterly report.

On the other hand, Morgan Stanley was moving upward even as it was reported that the company was charged with violating securities laws in Greece.

In the primary space, Affiliated Managers Group Inc.'s new $200 million of 6.375% $25-par senior notes due Aug. 15, 2042 were performing well - much to the surprise of at least one market watcher.

RBS weak ahead of earnings

Royal Bank of Scotland preferreds were losing ground Thursday ahead of the company's earnings release on Friday.

The 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) dropped 22 cents, or 1.02%, to $21.36, while the 6.75% series Q noncumulative dollar preference shares (NYSE: RBSPQ) lost 15 cents, closing at $19.49.

RBS reportedly plans to set aside £130 million to compensate customers that were wrongly sold insurance, another £125 million for problems related to a computer failure that caused ATMs to go down and £50 million to settle claims from small shops that were erroneously sold interest rate hedging products.

On top of the quarterly report, there was also scuttlebutt regarding whether or not the United Kingdom intends to nationalize RBS, in which the government holds an 82% stake.

The buzz started back up late Wednesday when the Financial Times wrote that it is in fact the government's intention to nationalize the bank. However, Reuters then reported on Thursday that sources told it that the government has no such intentions.

Morgan Stanley shifts higher

Morgan Stanley's floating-rate series A noncumulative preferreds (NYSE: MSPA) rose 23 cents, or 1.18%, to $18.03.

A market source attributed the gain to "some shifting around of portfolios," further remarking that news regarding a securities law violation would not have much effect on the company's securities.

Greek officials have filed charges against Morgan Stanley alleging that the investment firm used insider information in violation of securities laws.

The charges state that Morgan Stanley, while acting as an adviser to National Bank in regards to a potential merger with Alpha Bank, increased its holdings in the smaller rival.

However, the charges are categorized as a misdemeanor.

Affiliated does well

Affiliated Managers Group's $200 million offering of 6.375% $25-par senior notes due 2042 was doing well just one day after pricing, according to market sources.

The issue inched up to $25.30 bid, a trader said at midday. After the bell, a market source said the notes were "going gangbusters," trading "all over the place."

The issue closed at $25.40, he said, with a volume-weighted average price of $25.20.

"I didn't think it would perform as well as it did, so it is a bit of a surprise," the source said. He speculated that the name's investment-grade status and that the issue is a "baby bond" might have been the allure.

The joint bookrunning managers are Bank of America Merrill Lynch, Wells Fargo Securities LLC and Deutsche Bank Securities Inc. The co-managers are RBC Capital Markets LLC, Mitsubishi UFJ Securities (USA) Inc., RBS Securities, Scotiabank and U.S. Bancorp.

Proceeds will be used in part to pay down a revolving credit facility. Any remaining funds will be used for general corporate purposes.

Affiliated Managers is a Prides Crossing, Mass.-based asset management company.

Primary roundup

Taubman Centers Inc. announced plans to sell at least $75 million of series J cumulative redeemable perpetual preferred shares on Thursday.

Price talk is 6.5% to 6.625%, according to a trader. He saw the issue trading at $24.90 in the gray market.

Morgan Stanley & Co. LLC and Wells Fargo Securities are the joint bookrunners. PNC Financial Group Inc. is the co-manager.

Proceeds will be used to redeem all or a portion of $187 million series G and H preferreds. If there are any remaining funds, the company will use the money to reduce outstanding borrowings under a $715 million revolving line of credit and/or for general corporate purposes.

The soon-to-be-redeemed issues traded downward.

The 7.625% series H preferreds (NYSE: TCOPH) fell 41 cents, or 1.59%, to $25.42. The 8% series Gs (NYSE: TCOPG) declined 45 cents, or 1.74%, to $25.45.

In recently priced deals, Glimcher Realty Trust's $90 million of 7.5% series H cumulative redeemable perpetual preferred shares of beneficial interest moved up to $24.95 bid, $25.05 offered, according to a trader.

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