Domestic banks end mixed as market gyrates; buyers seek RBS preferreds; REITs hold their own

By Stephanie N. Rotondo

Portland, Ore., Oct. 4 - Tuesday's session brought a "rollercoaster ride" to the preferred stock market, according to a market source.

"It was a bizarre day," he said. Initially, preferreds were following the downward trend of the equity markets, at one point losing 3.6%. By noon, most losses had been recovered but were in danger of falling off again. Late in the day, the market experienced another rally on what the source called a "pathetic news story."

The story was about a meeting of the European Union's finance committee in Luxembourg. "That's it," he said. "That's the whole story: that they were meeting and that they now realize that they needed to shore up the banks."

Despite the lack of real substance, he said, it showed how the market was "desperate for news."

"We're not getting any type of direction from management of banks and the government," another trader added.

For their part, banks ended mixed on the day. Citigroup Inc., for example, closed lower, while Bank of America Corp. closed modestly higher.

Meanwhile, a trader said that buyers were coming in for Royal Bank of Scotland Group plc paper.

In the real estate investment trust space, Inland Real Estate Corp.'s recent new issue was "doing well," while Public Storage's latest issue was moving upward.

Last week, rumors were circulating about a potential bond "repack" from Goldman Sachs Group, Inc. On Tuesday, the rumors proved to be true as the firm priced a $25 million issue of trust certificates.

"It's good to see they did the deal," a trader said. "They can do more of this stuff."

Banks end mixed

Domestic banks ended Tuesday trading in a mixed fashion.

Citigroup's 7.875% fixed-to-floating trust preferreds (NYSE: CPN), for example, traded down 66 cents, or 2.55%, to $25.25. The 8.5% fixed-to-floating trust preferreds (NYSE: CPJ) were also weaker, losing 35 cents, or 1.41%, to end at $24.45.

Some Bank of America issues, however, were gaining ground.

The 8.2% series H depositary shares (NYSE: BACPH) moved up 14 cents to $21.04, while the 8.625% series 8 noncumulative depositary shares (NYSE: BMLPQ) earned a penny to close at $20.94.

Buyers seek RBS paper

A trader said that buyers were coming in for RBS preferreds and most of the Edinburgh-based bank's securities were trading higher.

The 6.08% series G noncumulative guaranteed trust preferreds (RBSPG) traded up 65 cents, or 8.67%, to $8.15. The 5.9% series E noncumulative guaranteed trust preferreds (NYSE: RBSPE) were also better, increasing by 43 cents, or 5.61%, to $8.10.

REIT space does well

Inland Real Estate's recent 8.125% series A cumulative redeemable preferreds - a $50 million issue that priced last week - was "doing well," according to a trader.

He said the paper was receiving "supporting bids" around $24.65.

The issue has not yet listed on the New York Stock Exchange.

Elsewhere in the REIT space, Pubic Storage's 6.35% series R cumulative preferreds (NYSE: PSAPR) were "trading higher," the trader said. The paper moved up 16 cents to $25.56.

"It's a really good piece of paper," he said.

Goldman repack surfaces

Last week, rumors were swirling around about a bond "repack," an instrument that had been popular prior to the financial crisis. The products took bonds and repacked them into $25-par preferreds. The securities were typically used to fill in retail demand.

Talk was that the repack was going to be a Goldman Sachs issue done via RBC Capital Markets LLC. But details were sketchy at best, and no one was sure if the rumors would prove true or not.

On Tuesday, the rumors did in fact prove true as Goldman Sachs priced a $25 million issue of callable class A trust certificates via a newly formed trust, Fixed Income Trust for Goldman Sachs Subordinated Notes, Series 2011-1.

The assets underlying the trust are 6.75% subordinated notes due Oct. 1, 2037 issued by Goldman Sachs.

U.S. Bancorp Investments Inc. and RBC were the underwriters.

"It will be interesting to see how they trade," one optimistic trader said. "It's nice to see U.S. Bancorp. You don't usually see them get involved in many deals like this."

Another trader, however, was not convinced.

"It's not that attractive because the other issues that were outstanding were much cheaper," he said. With a 6.75% coupon, the deal just wasn't grabbing his attention.

"There are similar products trading at 7.3% and at a discount," he said. "They may have a tough time moving that."

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