Preferreds drift downward; BofA, Citigroup report weak earnings; Wells Fargo taps market

By Stephanie N. Rotondo

Phoenix, Jan. 15 – Preferred stocks were slipping Thursday following the Swiss central bank’s decision to drop its cap on the Swiss franc to the euro.

It was not helping that both Bank of America Corp. and Citigroup Inc. reported fourth-quarter results that “sucked,” according to a trader.

The Wells Fargo Hybrid and Preferred Securities index closed down 5 basis points. The index was down 18 bps at mid-morning.

A market source noted that “volume was improved.”

BofA’s profit declined 9% during the quarter, missing analysts’ estimates. The weaker earnings were attributed in part to a decline in mortgage banking and trading revenues.

Citigroup meantime saw its profit drop to $350 million from $2.5 billion the year before, spurred by hefty legal fees and a decline in trading revenue.

On the heels of the earnings, BofA’s preferreds were fairly mixed early in the day but finished mostly weaker. In Citigroup’s preferreds, all of the structure was under pressure.

Back in the primary, Wells Fargo & Co. announced and priced a $2 billion offering of $1,000-par series U class A noncumulative preferreds.

A trader said the deal – coming via Wells Fargo Securities LLC – was being talked around 6.125%, though it was later launched at 5.875%.

“It’s putting a little pressure on the other preferreds,” a trader said.

Anworth Mortgage Asset Corp. also announced a deal, an offering of 7.625% series C cumulative redeemable preferreds.

A trader saw the issue at $24.50 in the gray market.

“It’s not doing so well,” he said.

That issue had not priced as of Thursday’s close.

MLV & Co. LLC and JMP Securities Inc. are the joint bookrunning managers. Co-managers are Ladenburg Thalmann & Co. Inc. and Maxim Group LLC.

The company said proceeds could be used to redeem its 8.625% series A cumulative preferreds (NYSE: ANHPA), which were down 21 cents at $25.39.

As for CHS Inc.’s recently priced $450 million issue of 7.5% class B series 4 cumulative redeemable preferreds, that issue was hitting par by mid-morning, according to a trader.

The trader pegged the preferreds at par bid, $25.07 offered.

The trader later saw the issue pushing up as high as $25.30 bid, $25.35 offered.

The deal came Tuesday upsized from $250 million. It freed to trade Wednesday afternoon.

BofA disappoints

Bank of America’s earnings missed expectations, driving its preferred shares mostly lower.

However, the most active of the Charlotte, N.C.-based bank’s structure – the 6.625% series W noncumulative preferreds (NYSE: BACPW) – managed to end flat at $25.96.

That issue was initially up a penny in early trading at $25.97.

Net profit for the fourth quarter was $3.1 billion, or 25 cents per share. That compared to a profit of $3.4 billion, or 29 cents per share, the year before.

On an adjusted basis, earnings per share was 18 cents.

Revenue dropped to $19 billion from $21.7 billion.

Analysts polled by FactSet had forecasted earnings per share of 31 cents on revenue of $21.08 billion.

Citigroup dips post-earnings

Citigroup’s earnings also took a hefty hit amid increased legal costs and weaker trading revenues.

The New York-based bank’s preferreds took a downturn on the news.

The 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) declined 9 cents to $26.52.

Citigroup reported net income of $350 million, or 6 cents per share, versus income of $2.5 billion, or 77 cents per share, the year before.

Revenue was about in line with the previous year’s figure at $17.8 billion.

Analysts polled by Thomson Reuters were expecting earnings per share of 9 cents on revenue of $18.5 billion.

The bank blamed its much lower returns on increased legal costs, somewhere in the neighborhood of $3.5 billion. A 16% decline in fixed-income trading revenue did not help either.

Wells sells $1,000-pars

Wells Fargo brought $2 billion of 5.825% $1,000-par series U class A fixed-to-floating rate noncumulative perpetual preferreds on Thursday, just one day after the San Francisco-based bank reported a 1.8% increase in its fourth-quarter profit.

A trader quoted the issue at 100.625 bid, 100.875 offered prior to pricing.

Dividends will be paid on a semiannual and fixed basis through June 15, 2025. From then, the dividend will be paid quarterly at a rate of Libor plus 399 bps.

The preferreds become redeemable at par plus accrued dividends on or after June 15, 2025. The company can redeem the preferreds prior to that date upon a regulatory capital treatment event.

The new securities will not be listed.

Proceeds will be used for general corporate purposes.

As is typical when a new issue prices, Wells Fargo’s other preferred issues were seen slipping in Thursday trading.

The 5.85% series Q fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPQ) fell 24 cents to $25.44.

That issue was very actively traded, with about 2.76 million shares being exchanged.

The 6% series T class A noncumulative preferreds (NYSE: WFCPT) were meantime down 4 cents at $25.54.

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