Preferred Stock Investors To Benefit From Goldman Case

Preferred stock buyers should pay attention to the market prices of bank-issued preferred stocks over the next couple of weeks.

The simultaneous announcements last week that the SEC had filed a fraud suit against Goldman Sachs and that the Senate was starting debate on new legislation to increase bank regulation pushed the market prices of all things related to our Big Banks down for several days.

When, on the following day, the SEC further announced that Goldman was just the beginning and that there were more such suits on the way, prices went down again (despite spectacular quarterly earnings reports).

After the last couple of years, many individual investors are understandably nervous about putting their money into the common stocks of these Big Banks. For those looking to ease back in, preferred stocks from these companies, especially their highest quality issues, may be a good fit, especially right now.

While others debate the merits of these legal cases and/or the motivations of the SEC’s timing, preferred stock buyers who are looking for good prices for bank-issued, investment grade, cumulative preferred stocks should pay close attention.

Two of the five SEC panel executives voted against pursuing this fraud case against Goldman presumably because they did not feel that the SEC had a strong enough case. So what happens when Goldman’s lawyer puts these two on the stand in front of a judge and asks them to explain their dissenting votes? The SEC will be testifying against itself at that point.

The SEC is likely to need as much public acceptance of their actions as they can muster so it would not be surprising for a few more inflammatory announcements to be made over the next couple of weeks and perhaps beyond.

When the initial announcements were made last week prices dropped for several days pushing many yields being offered by such bank-issued preferred stocks above 7.5%.

Regardless of the case’s merits, preferred stock buyers looking for an opportunity to ease back into banks should pay extra close attention to the market prices of the highest quality bank-issued preferred stocks over the next couple of weeks.

The teeth-grinding and sword-rattling being done by others has created a short-term opportunity for preferred stock investors.

Many Happy Returns.