Fannie, Freddie improve; JPMorgan results better than expected; BofA, Wells Fargo on tap

By Stephanie N. Rotondo

Seattle, April 13 – A preferred stock trader said Fannie Mae and Freddie Mac paper was “moving more” as the GSE-linked preferreds dominated midweek trading.

On Tuesday, the preferreds got a pop as the market digested a slew of new unsealed documents related to a court case stemming from the government’s 2012 decision to commandeer a majority of the GSEs’ profits. The gains continued into Wednesday, and the mortgage giants were dominating overall trading.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) closed up almost 4 cents to $4.288. The preferreds were initially up 18 cents, or 4.24%, at $4.43 at mid-morning.

Over 3.8 million shares were exchanged.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime ended 7 cents, or 1.67%, higher at $4.26. The preferreds had ticked up 16 cents, or 3.82%, to $4.35 in earlier trading.

Total volume for that issue came to about 3.78 million shares.

The documents, which were unsealed by judge Margaret Sweeney of Federal Claims Court, appear to hold up the plaintiffs’ allegations that the government knew the agencies were returning to profitability before it made its decision to sweep profits. The sweep was predicated on the notion that the government needed to protect taxpayers in case of a need for another bailout.

Not everyone, however, is convinced the documents will do much for the shareholders’ case.

“It seems a bit of grasping at straws,” one market source said, “a bit of an overreaction.”

The source also noted that the paper was “up more” in Tuesday trading than on Wednesday.

JPMorgan numbers beat

Away from the GSEs, JPMorgan Chase & Co. kicked off bank earnings season on Wednesday with results that mostly beat expectations.

While the preferreds were reacting positively to the quarterly report, they were doing so on limited volume.

“[The bank’s preferreds] were not excessively active, but [overall] volume was toward the lighter side,” a source pointed out.

The 5.45% series P noncumulative preferreds (NYSE: JPMPA) improved 15 cents to $25.49. The 6.1% series AA noncumulative preferreds (NYSE: JPMPG) gained a nickel, closing at $26.18.

And, the 6.15% series BB noncumulative preferreds (NYSE: JPMPH) rose 22 cents to $26.25.

For the first quarter, JPMorgan reported earnings per share of $1.35 on revenue of $24.08 billion. Analysts polled by Bloomberg had predicted EPS of $1.24 on revenue of $23.80 billion.

Total net income was $5.52 billion, down from $5.91 billion.

Investment banking revenue fell 24% year over year to $1.23 billion. That missed expectations of $1.36 billion.

Trading revenue declined 11% from the previous year, falling to $5.17 billion. Analysts had forecast revenue of $4.58 billion.

In fixed-income trading revenue, the New York-based bank beat estimates yet again, coming in at $3.59 billion, versus the $3.23 billion predicted.

Still, the figure was off 13% from year-ago levels.

And in equity trading, revenue fell 5% to $1.58 billion – better than the $1.35 billion analysts were expecting.

For the quarter, JPMorgan also booked a $1.8 billion provision from credit losses, up from $1.3 billion the year before. Part of that increase was due to volatility in energy and mining, which management had warned of at its most recent Investor Day.

BofA, Wells Fargo up next

Preferred stock market players will likely keep an eye on bank earnings on Thursday as Bank of America Corp. and Wells Fargo & Co. are on tap to release their respective results.

Ahead of the numbers, Bank of America’s 6.2% series CC noncumulative preferreds (NYSE: BACPC) were up a penny at $26.36.

Wells Fargo’s preferreds, however, were a little more mixed for the day.

The 6.625% series R fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPR) dropped 4 cents to $29.10, while the series Q shares (WFCPQ) held steady at $26.23. The 5.7% series W class A noncumulative preferreds (NYSE: WFCPW) inched up 4 cents to $26.20.

“If they do announce better-than-expected [earnings], then I think you will see another uplift in the market,” a source said.

State Street lists

State Street Corp.’s $500 million of 5.35% series G fixed-to-floating rate noncumulative perpetual preferred stock was admitted to the New York Stock Exchange on Wednesday.

The ticker symbol is “STTPG.”

The issue closed at $25.84, up from opening levels of $25.80.

The deal priced April 4. Initial price talk was around 5.625%, according to a market source. The deal came upsized from $250 million.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, UBS Securities LLC and Wells Fargo Securities LLC were the joint bookrunners. Barclays, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. were the co-managers.

When declared, dividends will be fixed and paid on the 15th day of March, June, September and December, beginning June 15. Come March 15, 2026, the dividends will begin to float at Libor plus 370.9 basis points.

The Boston-based financial holding company intends to use the proceeds to fund the cash consideration portion of the bank’s planned acquisition of GE Asset Management. Any remaining funds will be used for general corporate purposes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.