Preferreds contract in wake of Fed announcement; Deutsche Bank declines; Magnum, Goodrich down

By Stephanie N. Rotondo

Seattle, Oct. 29 – The preferred stock market was contracting Thursday, just one day after the Federal Reserve indicated a December interest rate increase might occur, a trader said.

The Wells Fargo Hybrid and Preferred Securities index was off 9 basis points at mid-morning.

At the conclusion of its two-day policy meeting on Wednesday, the central bank held rates steady for the time being but hinted that a hike could come in December, assuming unemployment stays low and a 2% inflation target is hit.

Still, a trader said the news resulted in only a “slight sell-off.”

Of the day’s dealings, Deutsche Bank AG preferreds were under pressure as the German bank announced that it would cut over 30,000 jobs in the next two years and would also exit operations in 10 countries.

That news came along with the company’s earnings release, which showed a slightly narrower-than-expected loss of €6 billion.

Additionally, the bank said it was cutting its common stock dividends through 2016. A trader remarked that only the common stock would be impacted, though the contingent convertible issues – or the Cocos, as they are called – “could come in because they are the next line of defense.”

As for the preferreds, the trader said paper was coming in but noted that most of the issues were trading at a premium.

“I’m not seeing any fear trading yet,” he said.

The 7.6% trust preferred securities (NYSE: DTK) traded down 39 cents, or 1.43%, to $26.97. The 8.05% TruPs (NYSE: DKT) were off 60 cents, or 2.12%, at $27.74.

The third-quarter loss was due in large part to charges totaling about €7.6 billion. The bank had previously warned that its loss could be as much as €6.2 billion.

Deutsche Bank also pointed to ongoing litigation as a factor in the weak results. The firm said it had increased its litigation reserves by €1 billion to €4.8 billion.

Revenue fell 7% to €7.3 billion. A €649 million impairment charge tied to the company’s nearly 20% stake in Hua Xia bank was factored into that decline.

However, revenues at the corporate banking and securities unit increased 2% year over year, while debt sales and trading got a 20% boost.

Magnum, Goodrich fall with oil

Domestic crude oil prices stemmed a recent rally on Thursday as investors worried about a potential interest rate increase come December.

A rate hike would result in a stronger dollar, making it more difficult for some countries to purchase U.S. oil.

West Texas Intermediate crude for November delivery fell 14 cents to $45.80. On Wednesday, the price had popped 6.3% after the U.S. Energy Information Administration’s latest weekly inventory report showed a smaller-than-expected increase in stockpiles.

Still, as crude declined, so did preferreds linked to that commodity.

Magnum Hunter Resources Corp.’s 8% series D cumulative preferreds (NYSE: MHRPD), for instance, weakened 22 cents, or 14.67%, to $1.28. The 10.25% series C cumulative perpetual preferreds (NYSE: MHRPC) declined 37 cents, or 13.81%, to $2.31.

Goodrich Petroleum Corp.’s 10% series C cumulative preferreds (NYSE: GDPPC) meantime fell 11 cents, or 4.78%, to $2.19.

© 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.