New issue pipeline stalls; JPMorgan's $1,000-pars climb higher; Citi earnings disappoint

By Stephanie N. Rotondo

Phoenix, Jan. 16 - Preferred stock traders were surprised more new deals were not launched on Thursday.

"I was surprised there was nothing out of Bank of America Corp.," one trader said. The bank put out earnings late Wednesday.

Still, it is expected that next week's calendar will ramp up, especially once the market gets through this first round of quarterly results.

Goldman Sachs & Co. and Citigroup Inc. were among those that published earnings on Thursday. One market source noted that the results were "kind of mixed," adding that Citigroup's "weren't so good."

Of deals that have come this week, JPMorgan Chase & Co.'s $2 billion of 6.75% $1,000-par series S fixed-to-floating rate perpetual preferreds were "moving up pretty steadily," a trader said.

He pegged the issue at 101.375 at mid-morning.

The deal priced Tuesday.

From Monday business, Costamare Inc.'s $100 million of 8.5% series C cumulative redeemable preferreds were "just sitting there" at $24.65.

As for the secondary space, it was "very quiet," according to a trader. "Nothing is moving up with this Treasury run."

However, overall he remarked that preferreds had been gaining ground in line with Treasuries.

"We've gotten back a lot that was lost in the December tax-loss selling," he said. "I think we still have legs to go," especially given the lack of new issue supply.

The Wells Fargo Hybrid and Preferred Securities index was up 4 basis points at mid-morning. By the end of the day, it had risen 17 bps.

Citi rises despite numbers

Citigroup's preferreds firmed in Thursday trading, even as the New York-based bank reported earnings that "weren't so good," according to a market source.

The 7.125% series J fixed-to-floating rate noncumulative preferreds (NYSE: CPJ) put on 7 cents, ending at $26.07. The 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) gained 2 cents to close at $25.62.

For the fourth quarter, Citigroup posted a profit of $2.69 billion, or 69 cents per share. That was more than double the $1.2 billion profit seen in the fourth quarter of 2012.

However, revenue fell 2.5% on an adjusted basis to $17.94 billion.

Both the profit and the revenue figures missed analyst estimates, however. Analysts polled by Thomson Reuters were forecasting earnings of 95 cents per share on revenue of $18.18 billion.

And despite the company's cost-cutting efforts, operating expenses increased 2.4% from the previous quarter to $11.93 billion. The uptick was attributed to legal costs and expenses tied to the cost-cutting effort.

As for the revenue side of things, Citi's fixed-income trading took a hit as revenue from that space dropped 16% year over year.

Looking forward, General Electric Capital Corp. is slated to release earnings early Friday. Leading up to that, the name was a busy one in the preferred arena.

The 4.875% $25-par notes due 2053 (NYSE: GEH) pushed up 12 cents to $21.48, while the 4.7% $25-par notes due 2053 (NYSE: GEK) held in at $20.35.

More GSE reform

Fannie Mae and Freddie Mac issues dominated trading in the preferred world on Thursday.

According to a market source, the preferreds were again getting bandied about because a group of House members came out and stated that they wanted to put together a new bill on GSE reform.

"I guess the other five weren't good enough," the source quipped.

As the source explained it, the "market took [the outline of the new bill] to be that GSEs would be corporate entities" and that the existing preferreds would either have to get taken out or start paying out dividends again.

"But I don't think that's what [the House members] were thinking," the source opined.

Regardless, the agencies' shares moved higher.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) saw trading of over 14.5 million shares as the preferreds rose 50 cents, or 5%, to $10.50. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) climbed up 55 cents, or 5.56%, to $10.44.

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