Preferred shares from European banks, new issues weaken on Europe news, recession fears

By Andrea Heisinger

New York, May 17 - The preferred stock market weakened on Thursday on negative news out of the euro zone, a source said early in the day.

"Europe's kind of falling apart - or in its early stages," the source said. "It's a very down day."

The market had "one of the biggest intra-day drops in a while." It dropped about 74 basis points between Wednesday's close and late morning Thursday. That was a drop of about 18 cents since Wednesday's close.

Higher-risk names were hit the hardest across the board because of the debt woes in Europe, the source said.

Spanish banks such as Banco Santander SA and other names such as Deutsche Bank AG, Royal Bank of Scotland Group plc and ING Groep NV saw their outstanding preferreds take a dip downward.

Protective Life Corp.'s 6.25% subordinated debentures due 2042 were quoted at $24.60 in the early afternoon. They had been trading at par of $25.00 at the close on Wednesday.

By early afternoon, the new 5.625% series F trust preferreds from SCE Trust I, a unit of Southern California Edison Co., were "hit pretty hard" and quoted at $24.375. They were trading at $24.70 on Wednesday, a trader said.

"The Philly Fed number came out and I think shocked people that we're going into a double-dip recession," the trader said, referring to the Federal Reserve Bank of Philadelphia releasing numbers that showed the business index had fallen in the past month.

"This is all going to put a damper on the new issue market."

Spanish, euro names trade down

A trader noted early in the day that although new issues were still atop the most actives list, they were mixed with shares from RBS and other European names.

Santander's series B preferreds were down 4.7% with about 29,000 shares trading in the first two hours of the day.

National Bank of Greece SA was seen down 3.3% as of midday, and RBS' series H preferreds were down 2.7% with about 29,000 shares trading.

The new Protective Life debentures due 2042 had 537,000 trade in the first part of the day, making it the most active, but they were off 43 cents, the trader said.

"The focus has shifted a little [from new issues]," he added.

A series Q preferred from Bank of America Corp. was the third most active issue, and one from RBS was second.

"There are only a couple of issues at all up on liquidity," the trader said. "Green really stands out on the screen."

The recent Annaly Capital Management, Inc. 7.625% preferred was up 2 cents in the first part of the day while BB&T Corp. and Citigroup Inc. also had shares making gains.

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