Preferred Stocks Get Crushed

Preferred stock owners, especially financial preferreds, have seen share values evaporate over the last couple of weeks.  Below we highlight the S&P Preferred Stock index going back to late 2003, along with a chart of its 50-day moving average spread.  These shares are thought to be less volatile and less risky than common stocks, but with the index currently trading nearly 20% below its 50-day moving average, they have been anything but that.

click to enlarge

Comments

[Positive:]

Financial Preferred stocks are at bankruptcy levels, almost without exceptions, offering rates higher than 12% at these levels
surely they will recover soon, when panic dissapear

2008 Jul 14 04:06 PM

[JCCIII:]

Authors. You stated the obvious. Any analysis of why and what the future may hold? Thanks.

2008 Jul 14 04:30 PM

[Paulo:]

There was a Morningstar alert today on RBS.PR.S, a Royal Bank of Scotland preferred, selling at double the normal volume today and down from a 52 week high of 26 to a low of 14 with a dividend rate of 6.6% on the issue price of 25.
The bank has been in business for almost 300 years and nothing thus far to indicate that capital is below regulatory requirements or distributable profits will not cover obligations.
Leaving the issue of common equity aside, there may be some solid acquisitions to be made in preferred shares of financials.
Not saying that RBS is one of them, but I did trade my common stocks for their preferreds today (both heavily down).

2008 Jul 14 06:45 PM

[fatcat:]

I take it as an ominous sign for the financials...invest at your peril.

2008 Jul 14 08:29 PM

[Rubens Morse:]

Very typical of most posts by Bespoke. They will tell you that the house is on fire but have no clue who will put it out or when.

2008 Jul 14 08:39 PM

[Paulo:]

By the time we all know when the fire will be put out and by whom, the price of the property will have changed considerably.
As for the entire financial sector being a total write-off in all parts of the world, that is just rubbish (act on that misperception at your own financial peril).
The topic at hand is whether there are some preferred shares in the financial sector (in the U.S. and more globally) which really are undervalued at this time, and might be the result of irrational dysphoria.
Let's not close down the conversation -- does anyone see some specific opportunities worth following up?

2008 Jul 14 09:20 PM

[simjos04:]

look at anything from insurance giants PUK & AEG. I thought preferreds were somewhat immune with the 5 year call option and better than any instrument in terms of yield and have been burned the last month. Every time i think it should stop. losses accelerate. I mean its ridiculous with 10-15 prices on these stocks???? I love the analysts who compared financials to pets.com (henry blodgett, a real tool) so we will all just leave money in our desks. And why losses on AEG?PUK, what risk do they have but to pay for ever high rates. I love how the media uses words like CAN or COULD or rumor. These guys are using this as a reason for all of us to read. Remember Bill Gross of PIMPCO says they havent stopped trading with LEHMAN yet every media outlet claims rumor of large institutions not trading with them. Why feed the fire.

2008 Jul 14 10:48 PM

[Fugi Joe:]

Merrill's Series 8 preferred should be bought up to 20. The first dividend is scheduled for the end of August. They should declare the preferred dividends within the next couple weeks. The preferred has declined more than the common recently. It is a temporary aberration that will be corrected soon. The yield is now close to 12% and it qualifies for the 15% tax rate. The fear mongers are inducing a panic. Earnings Thursday!

2008 Jul 14 11:31 PM

[Jason Rines...:]

I'll invest in financials when the Fed stops telling me they may keep the discount window open into 2009.

2008 Jul 15 12:47 AM

[tom@NC:]

It is amazing how they and bank loan funds have had a melt down. I was unlucky enough to invest in several back in August of 2007. I thought I was being conservative. At the time, their yields were nine percent. They gave cut their distributions.

2008 Jul 15 10:57 AM

[alfie:]

I agree, all this is IRRATIONAL. The financial journalists - especially those on TV whose only talent is to be able to read and speak fast like bullets -are either incompetent or purposely wish to mudd the water so that in a climate of fear more people watch their programs and they make more advertising money. An honest and balanced journalist would report, for instance, some good news, too. Like the fact that FRCCO, recently dropping like a rock,which I own, is a mortgage holding trust with ZERO , I mean ZERO, ZIP delinquencies in their mortgage portfolio (see their SEC filings,March 2008).

2008 Jul 15 07:20 PM

[Paulo:]

Yesterday, RBSPRS (NYSE) hit an intraday low of some $10 and is now back up over $14.
No visible reason why it should have traded at $10 on an issue price of $25 and redeemable only in 2012 (though it is non-cumulative).
Just to continue the conversation based on the first comment that at least some financial preferreds are trading at bankruptcy levels.

2008 Jul 16 11:55 AM