Preferreds Get Burned in Historic Rout Spreading From Banks
Investors are bailing on preferred shares at a historic clip because of the growing concern about the health of US regional banks.
A $12.2 billion iShares exchange-traded fund tracking the wider preferred market sank 5.1% last week, marking one of the biggest selloffs since the global financial crisis.
Preferreds, a kind of hybrid security, are popular with banks because they help meet capital requirements without diluting shareholders. But now, the market is being upended in a selloff fueled by regional bank failures.
Issuance by banks is running at its slowest pace since 2018, and money managers say trading in the secondary market is a challenge.
“Without issuance and with money on sidelines, it’s just ‘what do you do?’,” said Allen Hassan, head of preferred stock trading at Ziegler Capital Markets, who has been trading the securities for more than 20 years. “It doesn’t feel like there’s a lot of confidence out there.”