Citigroup Tests Waters in Preferred Securities Sale

Wednesday, 10 Mar 2010 03:07 PM


  Comment  |
   Contact Us  |
|  A   A  
  Copy Shortlink
Citigroup's launch of preferred securities on Wednesday is a potentially major test of market sentiment, one year after prices of bank bonds and stocks plunged to multi-year lows, analysts said.

Since those lows, major financial institutions have repaid much of the U.S. government bailout funds used to shore them up during the financial crisis, investors' risk appetite has recovered and banks have cast aside the safety net of government-backed bond issuance to sell debt in their own right.

The shares and bonds of companies bailed out by the government climbed on Tuesday and Wednesday, fueled by speculation about money-making asset sales, cheap valuations and a recovery.

Citigroup Capital XII on Wednesday launched $2 billion of 30-year fixed-rate/floating-rate trust preferred securities, said IFR, a Thomson Reuters service. The securities were expected to price at about 8.50 percent, according to IFR.

Indications were that Citi's issue would be "way oversubscribed," wrote Andrew Brenner, managing director of broker dealer and money management firm Guggenheim Securities in New York in an email note earlier on Wednesday.

The price of an existing Citi 30-year bond maturing in 2037 rose to 97.5 cents on the dollar on Wednesday, up from about 95 cents early on Tuesday, according to MarketAxess.

Because preferred securities sit between bonds and equity, they are among the riskiest instruments that bondholders can buy and are low down the capital structure. If an issuer defaults, preferred holders are among those least likely to get paid.

And because analysts view Citigroup as among the weakest of the behemoth U.S. banking groups, its plan to sell preferreds is a litmus test that could reinvigorate that sector of the market if demand proves to be solid.

"If this does happen and it is successful, it would be a huge positive for the credit markets," said William Larkin, portfolio manager with Cabot Money Management in Salem, Massachusetts.

"We haven't seen a lot of activity in the preferred marketplace, and I look at Citi and that is a weaker credit," he said. "If there is success, there could be some more issuance" of preferred securities from other financial institutions.

Larkin said he probably would not buy the Citi preferreds, although he had bought an index of preferred shares heavily laden with bank securities in mid-February as a bet the sector would gain from growing confidence in the banking system and economy.

"I am a little bit nervous about Citi," because the impact of political developments and proposed regulations on the bank are still unclear, he said.

Citigroup stock rose as much as 8.4 percent on Tuesday after a prominent fund manager said the bank's shares were underpriced. On Wednesday, its shares rose nearly 5 percent in midmorning trade.

© 2014 Thomson/Reuters. All rights reserved.

  Comment  |
   Contact Us  |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Paul Ryan on Presidency: If Romney Runs in 2016, I Won't

Tuesday, 30 Sep 2014 20:52 PM

Rep. Paul Ryan says he won't join the 2016 presidential race if Mitt Romney decides to run. The Wisconsin Republican rev . . .

Kassebaum Baker: Voters Have Lost Confidence in Sen. Pat Roberts

Tuesday, 30 Sep 2014 19:50 PM

Former veteran Kansas Republican Sen. Nancy Kassebaum Baker refused to film a campaign television ad for GOP incumbent S . . .

Mike Pence to Visit NH as Presidential Speculation Swirls

Tuesday, 30 Sep 2014 19:35 PM

Indiana Gov. Mike Pence will visit New Hampshire next month ahead of a potential run for president in 2016. . . .

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved