Preferreds falter as plane goes down; Morgan Stanley beats estimates; Fannie, Freddie gain

By Stephanie N. Rotondo

Phoenix, July 17 – Preferred stocks were essentially flat as Thursday trading got underway. Fresh “economic news didn’t do much,” a trader said.

However, after news outlets reported that a Malaysian Airlines plane carrying 295 people went down in the Ukraine, the preferred market tanked along with the broader markets.

How the plane crashed was unclear, as it was reportedly flying in unrestricted airspace, but allegations were flying that it was shot down by pro-Russian separatists.

The Wells Fargo Hybrid and Preferred Securities index closed down 30 basis points. It was up 1 bp as of mid-morning.

Continuing the sequence of bank earnings, Morgan Stanley put out its second-quarter results on Thursday. The firm reported a profit nearly double that of the year before, helped out by improved revenue from its wealth management unit.

On the number, Morgan Stanley’s preferreds were mostly better in early trading, but they ended up mixed after the Malaysian Airlines news.

Fannie Mae and Freddie Mac paper were meantime beating the market trend as a new Democrat-sponsored bill outlining what to do with the mortgage guarantors was put on the table.

In new issues, Independent Bank Group Inc. sold $65 million of 5.875% subordinated notes due 2024 via bookrunners Sandler O’Neill + Partners LP and U.S. Bancorp.

Among recent deals, Wells Fargo & Co.’s $700 million issue of 6% series T class A noncumulative perpetual preferreds got lifted to $800 million. The deal’s greenshoe was exercised, a market source reported.

Morgan Stanley profit improves

Morgan Stanley released its second-quarter results on Thursday, showing a hefty increase in profit.

Though the bank’s preferred structure was mixed at day’s end, the most liquid issues traded higher.

The 6.875% series F fixed-to-floating-rate noncumulative preferreds (NYSE: MSPF) rose 6 cents to $26.81, on nearly 1 million shares trading. The 6.625% series G noncumulative preferreds (NYSE: MSPG) inched up a penny to $25.74.

For the quarter, Morgan Stanley posted net profit of $1.3 billion, or 60 cents per share, excluding certain debt-related charges and a tax benefit. That was a 46% gain year over year and better than the 55-cents-per-share profit expected by analysts polled by Thomson Reuters.

Including the charges and tax benefit, profit was almost double that seen in the same quarter of 2013 at $1.9 billion.

Revenue was $8.5 billion, versus the $8.1 billion expected by analysts.

The company attributed the improved figures to growth in its wealth management unit as well as strong showings in its investment banking and equity sales units.

Equity underwriting grew to $489 million from $327 million and advisory fees came to $418 million, compared with $333 million the previous year.

Fannie, Freddie gain ground

Fannie Mae and Freddie Mac paper was boosted Thursday as a trio of House Democrats proposed a bill to deal with the two government-sponsored entities, both of which are currently under government conservatorship.

Fannie’s 8.25% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) rose 33 cents, or 3.07%, to $11.08. Freddie’s 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved by 33 cents, or 2.91%, to $11.68.

Under the proposal, deemed the Delaney-Carney-Himes bill, an insurance program would be established in which private capital would be required to absorb 5% of any losses from the companies. The idea behind that function is that it would help ensure responsible lending practices.

Also, the bill would wind down the two companies. However, the wind-down would apply only to current activities, and the companies’ government charter would be revoked. The bill would then allow for the firms to be sold as new entities, thereby maintaining access to the 30-year mortgage market as well as providing affordable housing options.

Preferred holders could benefit if the bill is adopted because while the government would require the companies pay back funds taken during the financial crisis – with interest – it would not wipe out stakeholders entirely.

However, because both Fannie and Freddie have paid back every cent they took during the mortgage meltdown – and then some – it is not clear how much more the government would receive.

Wells Fargo greenshoe exercised

A market source reported that Wells Fargo’s $100 million greenshoe on its recently issued 6% series T class A noncumulative perpetual preferreds was exercised on Thursday, lifting total issuance to $800 million.

The deal came Monday via Wells Fargo Securities LLC, upsized from $250 million.

Early in the session, a trader said the new preferreds were “slowly moving up to par,” seeing the issue offered at $24.97.

But the new deal seemed to move in line with the broader market’s trend, slipping to $24.90 bid, $24.92 offered after the greenshoe exercise was announced.

Another source placed the issue at $24.90 at the bell, up 3 cents from the day before. But the shares gyrated wildly, the source noted, trading in a range of $23.83 to par throughout the day.

Over 2.17 million shares were exchanged.

Hercules lists on NYSE

Hercules Technology Growth Capital Inc.’s $100 million of 6.25% $25-par notes due 2024 began trading on the New York Stock Exchange on Thursday.

The ticker symbol is “HTGX.” The deal priced July 9.

At the end of the day, the new issue was at $24.89. The notes were trading at $24.90 at mid-morning, up from opening levels of $24.75.

The paper hit a low of $24.70 and a high of $24.95 during the trading session.

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