JPMorgan earnings weigh on market; RBS, Deutsche Bank get hammered on Credit Suisse report

By Stephanie N. Rotondo

Portland, Ore., Oct. 13 - The preferred stock market was subdued Thursday, and red was the dominant color on market players' screens.

One market source said the market was down an average of 70 basis points, or about 18 cents per $25-par preferred share.

"Most of that occurred in the first half-hour," he said.

Additionally, "liquidity was really poor."

Earnings from JPMorgan Chase & Co. were given partial credit for the market's general weakness, as well as a "lack of resolution from Europe."

For the most recent quarter, JPMorgan reported "earnings that were OK," the source said. "On the surface, they were really good. But they were really just OK."

"The earnings were slightly lackluster," said another trader, pointing to that fact that the investment bank unit's revenues were down.

The somewhat-disappointing report resulted in losses for the bank's preferreds.

Meanwhile, Credit Suisse issued a report on European banks that indicated 66 banks would fail if they were given another round of stress tests. Among the highest at risk were Royal Bank of Scotland Group plc and Deutsche Bank AG. It came as no surprise, then, that RBS and Deutsche Bank issues were among the day's biggest percentage losers.

JPMorgan's earnings miss

JPMorgan reported a weaker profit for the third quarter, due in part to a 13% decline in investment banking revenue.

"JPMorgan's investment banking revenue was way, way down," a trader said. The miss then resulted in concerns about upcoming earnings from Morgan Stanley and Goldman Sachs Group, Inc., to name a few.

"Morgan Stanley will have at least bad guidance if not bad earnings," the trader said. "Same with Goldman."

On the back of the earnings report, JPMorgan's preferreds were trading lower.

"The whole JPMorgan complex was down on average 40 to 50 bps," a market source said. While lower, it was better than expected "considering where the [broader] market was."

The 5.875% series K capital securities (NYSE: JPMPK) were the most actively traded of the JPMorgan structure, with over 171,000 securities changing hands.

Average volume for the last three months was 71,830 securities per day, according to Yahoo! Finance.

The securities closed down 13 cents at $24.79.

In the third quarter, JPMorgan made $4.3 billion, or $1.02 per common share, with to $4.4 billion, or $1.01 per share, the year before.

Revenues fell 11% to $24.4 billion, $1 billion better than what market analysts had forecast.

RBS, Deutsche in trouble

In a new report out on Thursday, Credit Suisse said at least 66 E.U. banks would fail a revised stress test and would need to raise at least $302.3 billion of new capital.

Among the banks needing the most help were RBS and Deutsche Bank. According to a market source, both of those names made the day's biggest loser list.

RBS' 6.125% series R noncumulative dollar preference shares (NYSE: RBSPR) fell 51 cents, or 4.47%, to $10.90. The 6.6% series S noncumulative dollar preference shares (NYSE: RBSPS) were also down, falling 51 cents, or 4.31%, to $11.33.

Deutsche Bank's 6.625% noncumulative trust preferreds (NYSE: DTT) meantime dropped 67 cents, or 3.1%, to $20.93.

Credit Suisse based its analysis on the July stress test given by the European Union and was updated to include the banks' results for the first half of the year.

Also on Thursday, Fitch Ratings downgraded RBS, saying that it would likely need continued government support.

Bits of strength seen

Though most preferreds were in the red Thursday, some managed to inch up slightly.

HSBC Holdings plc's 8% exchangeable perpetual subordinated capital securities (NYSE: HCSPB) gained a penny, closing at $25.67.

A market source also noted that Allianz SE's 8.375% $25-par bonds gained 40 cents, ending at $25.90.

Bank of America Corp.'s 8.2% series H depositary shares (NYSE: BACPH), however, were down 11 cents at $22.43.

© 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.