Morning Commentary: Fannie, Freddie rise as Bove sees settlement; Goodrich cancels dividends, drops

By Stephanie N. Rotondo

Phoenix, Aug. 31 – Preferred stocks were following the equity markets lower early Monday, though a trader noted that it was amid limited liquidity.

“It is dead,” he said.

The Wells Fargo Hybrid and Preferred Securities index was off 11 basis points at mid-morning.

Fannie Mae and Freddie Mac paper, however, was moving up as investors reacted to news out Friday regarding a potential settlement between shareholders and the federal government.

“They are all up 20 to 30 cents,” a trader said of the GSE preferreds.

On Friday, Dick Bove, an influential analyst at Rafferty Capital, said he believed the government was preparing to settle various shareholder lawsuits that had been brought in relation to the government’s sweep of the mortgage giants’ profits.

The belief stems from documents released in early August that showed the GSEs’ “CEOs were encouraged to overstate their instability,” the trader said. That in turn allowed the government to begin taking a majority of the GSEs’ quarterly earnings – which has already returned well over what the agencies’ took in the 2008 bailout.

Meanwhile, Goodrich Petroleum Corp.’s 10% series C cumulative redeemable preferreds (NYSE: GDPPC) and 9.75% series D cumulative redeemable preferreds (NYSE: GDPPD) were taking a beating after the company cut its dividend payments.

The Cs were off $1.28, or 48.21%, at $1.38 at mid-morning. The Ds were down $1.01, or 41.91%, at $1.40.

The cancellation of the dividend – which will also impact the 5.375% series B cumulative convertible preferreds – was announced late Friday. If dividends are not paid on the Cs and Ds for six periods – consecutive or otherwise – holders of the preferreds can elect two additional directors to the company’s board. As for the Bs, the nixed payment means a 1% increase in the dividend rate until all accumulated payments are made in full.

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