Fannie, Freddie give back early gains post-earnings; AmTrust numbers ‘great’; Vornado busy

By Stephanie N. Rotondo

Phoenix, Aug. 7 – The preferred stock market was on the rise Thursday as new jobs data showed improvement.

The Wells Fargo Hybrid and Preferred Securities index increased 50 basis points by the end of business. It was up 24 bps at mid-morning as jobless claims dropped to 289,000 and the four-week average hit an eight-year low.

However, one market source said the gain in the index was not necessarily indicative of the market, given there was “really, really, really light volume.”

Fresh earnings were driving Fannie Mae and Freddie Mac paper higher early in the day, but those gains were given up by the market’s close.

A trader said that both mortgage giants reported profits that were below those seen in 2013, but the figures still beat expectations. Additionally, the two government-sponsored entities plan to pay a combined $5.6 billion to the government.

Accounting for the agencies’ eventual weakness, a source said that might have been due to news that Bruce Berkowitz’s Fairholme fund had decreased its common stock holdings in both firms.

AmTrust Financial Services Inc. was also getting boosted by “great earnings,” a trader said. He remarked that the insurance company’s preferreds “jumped this morning, but they have kind of settled back down.”

Fannie, Freddie slip

Fannie Mae and Freddie Mac reported earnings on Thursday, with both agencies showing smaller profits than the previous year.

However, a trader noted that the numbers came in above expectations.

That wasn’t the only news out on the agencies during the session. It was also reported that Fairholme had decreased its common equity stake in the companies, though the fund maintained its preferred stock holdings.

Fairholme is fighting in court against the government’s takeover of most of the profits stemming from the GSEs.

With the Fairholme news, early gains in both names were erased by day’s end.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) had inched up a penny to $11.51 in early trading but came back to end the day down just as much at $11.49. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) had meantime increased a nickel to $12.00 at mid-morning but closed off a nickel at $11.90.

For the quarter, Fannie reported net income of $3.71 billion, down from $10.25 billion the year before.

However, the previous year’s earnings were helped by large one-time items, which were not present in the most recent quarter.

Revenue declined 14% to $5.29 billion, while net interest income dropped the same percentage to $4.9 billion.

Fannie said it planned to make a $3.7 billion dividend payment to the government in September, bringing its total payback to $130.5 billion – well over the $116.1 billion it took in bailout funds at the height of the financial crisis.

Freddie then posted net income of $1.4 billion, versus the $5 billion profit reported last year.

Like Fannie, Freddie’s earnings were inflated by certain one-time items.

Freddie is also planning a large dividend payment of $1.9 billion, bringing its total payments to $88.2 billion.

Freddie took $71.3 billion in bailout funds.

AmTrust earnings ‘great’

AmTrust Financial also reported quarterly results on Thursday which one trader labeled as “great.”

The preferreds were moving up post-numbers.

The 7.25% series B noncumulative preferreds (NYSE: AFSIPB) ended up 25 cents, or 1.04%, at $24.18.

For the second quarter, AmTrust posted “strong profit growth,” the company said in a press release.

Operating earnings came to $107.1 million, or $1.34 per share, an 86.6% increase year over year. Net income increased nearly 50% to $106.3 million, or $1.33 per share.

Total revenue meantime jumped 55.7% to $1.01 billion.

Vornado busy

Vornado Realty Trust’s 7.875% public income notes due 2039 (NYSE: VNOD) were the busiest of paying securities, a market source reported on Thursday.

The notes fell 2 cents to $25.46, with nearly 3 million bonds changing hands.

On Tuesday, the Paramus, N.J.-based real estate investment trust called the issue for Oct. 1. The redemption price is par plus accrued and unpaid interest.

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