Greek, European worries pressure preferred market; Greek bank suffers; RBS paper takes a dive

By Stephanie N. Rotondo

Portland, Ore., June 15 - European financial concerns - specifically those related to Greece - wrecked havoc on the equity markets, including the preferred stock market, traders reported Wednesday.

"Things were getting beaten up pretty well," a trader said.

"It was a rough day all around," said another trader.

At another shop, a trader said, "It was a sea of red today." Remarked his colleague: "You would think it was Christmas. Bank sentiment is very bad right now. That's largely what is driving it. It's uglier for Europe than for the U.S."

Greece made headlines yet again Wednesday as violence erupted over the proposed austerity plans and European Central Bank officials worried about spillover into other European areas. The country's troubles were also blamed for Moody's Investors Service placing three French banks on review for downgrade. The agency cited the banks' exposure to Greece's debt and banking system.

National Bank of Greece SA's preferreds were obviously pressured by the round of news, especially as some are proclaiming that a sovereign default is imminent.

"That is clearly going to test the [European Central Bank]," a source said. "Politically to financially to banking."

In other European banking news, reports that Britain's head of finance favored so-called "ring-fencing" of retail units resulted in more-than-average losses for Royal Bank of Scotland Group plc preferreds.

Among U.S.-based banks, Ally Financial Inc. suffered as a result of the overall weaker marketplace. Still, a trader maintained that the preferreds are "a good buy."

In the new issue space, recent issues "stayed intact," a trader said. The forward-looking calendar, however, remained bereft of deals.

Greek bank suffers more losses

National Bank of Greece's 9% series A preferreds (NYSE: NBGPA) dropped 23 cents to $8.87.

The preferreds have been losing ground for weeks as Greece attempts to avoid a default on its sovereign debt.

That goal seemed out of reach on Wednesday as the European Central Bank failed to break a deadlock on how to bail out the country without sparking a credit event. Greece's prime minister, George Papandreou, later announced that he would form a new government in response to violent protests and party defections.

The ECB meanwhile warned that Greece's troubles are beginning to spill over, with France as the latest casualty. Three of the country's largest banks - Credit Agricole SA, BNP Paribas SA and Societe Generale SA - were put on review by Moody's due to their exposure to Greece and its banking system.

"Greece could have a contagion effect," Vitor Constancio, ECB vice president, said at a briefing in Frankfurt. "That's the reason why we are against any sort of default with haircuts and any form of private-sector event that could lead to a credit event or a rating event."

RBS paper dives

Royal Bank of Scotland preferreds traded down 60-plus cents during the mid-week session following reports that British finance minister George Osborne is in favor of "ring-fencing" retail divisions.

The 6.08% series G preferreds (NYSE: RBSPG) fell 64 cents to $14.89, and the 7.25% series T preferreds (NYSE: RBSPT) dropped 63 cents to $18.81.

Osborne reportedly planned to use his annual Mansion House speech to throw the United Kingdom's support behind ring-fencing, which would require banks to separate their retails units from investment banking divisions.

Britain's Independent Commission on Banking first suggested the idea in April.

Ally preferreds fall

The market volatility caused Ally Financial's two series of preferreds to plummet in Wednesday trading, leading a trader to remark that the current trading levels are "mind-boggling."

"It really spooked the market," he said. Still, he said he considers the securities to be "a good buy."

Ally's 8.5% series A preferreds (NYSE: ALLYPA) dove down 41 cents to $24.84 on volume of about 1.93 million shares.

The issue was the day's most actively traded $25-par issue.

The 8.125% series B preferreds (NYSE: ALLYPB) meantime lost 39 cents to finish at $24.82.

The trader also noted that there are a lot of "unknowns" surrounding the Detroit-based bank in regards to the looming Basel III regulations and how they will impact the company.

"They have a lot of debt with equity rules attached," he said of the company's capital structure.

Not much for new issues

PartnerRe Ltd.'s 7.25% series E cumulative redeemable preferreds traded down to $24.87 bid, $24.90 offered in the gray market, a trader said.

However, he remarked that the new issue space "stayed intact" as the rest of the market collapsed around it.

Meanwhile, Gastar Exploration USA Inc.'s expected $15 million sale of 8.625% series A preferreds - which will be sold at a discount - did not come Wednesday, and traders did not see any markets in the underwritten deal.

"It's very surprising to see a penny stock coming with a preferred deal," a trader said.

Overall, new issuance is expected to remain light for the month.

"I think they will postpone issuance until July," a trader said. "Until things sort of clear up."

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