Preferreds end firmer; budget deal ‘good’ for Freddie, Fannie; Deutsche Bank issues decline

By Stephanie N. Rotondo

Seattle, Oct. 30 – Preferred stocks were trading lower early Friday but came back to finish the month-end session with a positive tone.

The Wells Fargo Hybrid and Preferred Securities index closed up 8 basis points, though the index was down 4 bps at mid-morning.

A trader noted that the federal government had passed a budget deal that will avoid any government defaults for the next two years. Had Congress failed to reach a deal, a government shutdown would have gone into effect on Tuesday.

The trader further noted that Sen. Bob Corker had tried to include a provision in the bill “to prevent the Treasury from selling Freddie and Fannie preferreds without Congressional approval.” However, the provision was not included, “which is good” for the GSE paper.

Though the trader deemed the news positive, Fannie Mae and Freddie Mac were weaker on the day.

Fannie’s 8.25% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) drifted down 2.4 cents to $4.726, while Freddie’s 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dipped a penny to $4.70.

The latter preferreds were up 4 cents at $4.75 in early trading.

Deutsche Bank remains weak

Deutsche Bank AG preferreds continued to lose ground Friday, a day after the company announced earnings and massive job cuts.

“There was nothing preferred specific” to drive the name down, a market source said. However, it could be that the weakness was tied to the bank’s “general creditworthiness, which people are questioning,” he added.

“Although at least they have a plan,” the source said. “That’s more than they had before.”

The 7.6% trust preferred securities (NYSE: DTK) traded down 25 cents to $26.74. The 8.05% TruPs (NYSE: DKT) lost 40 cents, or 1.44%, to end at $27.34.

The German bank said Thursday that it will cut over 30,000 jobs over the next two years and that it is exiting operations in 10 countries. Additionally, the bank is suspending its common stock dividend.

Deutsche Bank reported a slightly narrower-than-expected loss of €6 billion for the third quarter. The 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.

PPL rises

PPL Corp.’s 5.9% $25-par 2013 series B junior subordinated notes due 2073 (NYSE: PPX) traded up 6 cents to $25.34 on Friday in above-average trading volume.

The power generation company reported earnings early Thursday, showing a net profit of $393 million, or 58 cents per share. That compared with a profit of $497 million, or 74 cents per share, the year before.

On an adjusted basis, earnings per share were 51 cents versus 44 cents previously.

Revenue was steady at $1.88 billion.

Analysts polled by Thomson Reuters had predicted earnings per share of 50 cents on revenue of $2.17 billion.

The company said its lower profit was due to a $915 million loss from discontinued operations, which were related to the spinoff of its supply unit last year.

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