Preferreds down again as week ends; Oil names sink; Resource Capital weakens

By Stephanie N. Rotondo

Seattle, Jan. 15 – The preferred stock market declined again on Friday as a slew of fresh economic data dragged down the broader markets.

“The stock market is getting crushed and oil is down,” a trader noted. “We’ve got a sell-off in a lot of issues.”

Still, the trader added that liquidity was on the lighter side – at least, it was earlier in the session, though it did pick up by day’s end – leading him to opine that “it could be a lot worse I guess.” He also speculated that market players were possibly hesitant to jump in given the weak tone and the upcoming long weekend in honor of Martin Luther King Jr. Day.

The Wells Fargo Hybrid and Preferred Securities index closed down 24 basis points. That was a bit of an intraday recovery, as the index was down at least 50 bps shortly before the market closed.

Oil’s downward spiral was meantime pushing energy-linked paper further into the red.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) were down $1.31, or 22.55%, at $4.50. Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) weakened $1.61, or 36.67%, at $2.78.

Legacy Reserves LP’s series B fixed-to-floating rate cumulative redeemable perpetual preferred units (Nasdaq: LGCYO) dropped 99 cents, or 30.46%, to $2.26.

For its part, domestic oil prices were off nearly 5% on Friday, trading sub-$30 a barrel. Along with concerns about China’s growth – China is the second-largest consumer of the commodity – increased worries about a supply glut were also playing a role in the decline, especially as it seemed Iran would start exporting its products sooner than later.

Even somewhat better-than-expected earnings from banks did little to stem the downward tide. Wells Fargo & Co. and Citigroup Inc. both reported Friday, with the former seeing a stable profit and Citi coming in just ahead of expectations.

Wells’ preferreds finished the day lower, while Citi ended mixed.

Wells, Citi report earnings

Wells Fargo reported a gain in revenue on Friday as profits held steady.

Still, the overall weaker tone of the day dragged the bank’s preferreds lower.

The 5.85% series Q fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPQ) declined a dime to $25.80, as the 5.2% class A series N noncumulative preferreds (NYSE: WFCPN) lost 13 cents, closing at $25.35.

For the fourth quarter, San Francisco-based Wells Fargo posted a profit of $5.71 billion, or $1.03 per share.

That was in line with year-ago figures and just slightly above analysts’ expectations of EPS of $1.02 a share.

Revenue meantime improved to $21.6 billion from $21.4 billion, due in part to the bank’s larger asset base.

Analysts had forecast revenues of $21.8 billion.

Despite the revenue gains, the bank did note that it lost $118 million during the quarter due to defaults on loans made to the oil and gas sector. That was up $90 million from the third quarter and management warned that more losses could be on the horizon.

Citigroup also came out with earnings on Friday.

Its preferreds, however, ended mixed on the day.

The 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) drifted down 7 cents to $27.47, while the 7.875% fixed-to-floating rate trust preferred securities (NYSE: CPN) rose 18 cents to $26.18.

For the quarter, Citi reported adjusted earnings per share of $1.06 on revenue of $18.64 billion. Analysts polled by Thomson Reuters were expecting EPS of $1.05 on revenue of $17.87 billion.

Mortgage-linked names dip

As the market drifted down, a trader said “BDCs and mortgage REITs are getting smoked today,” due to the fact that banks have been warning that mortgage units have not fared so well. As such, names like Resource Capital Corp. have been pressured.

Resource Capital’s 8.625% fixed-to-floating rate series C cumulative redeemable preferreds (NYSE: RSOPC) were off 71 cents, or 4.41%, at $15.40.

Elsewhere in the mortgage realm, Fannie Mae and Freddie Mac preferreds continued to sink.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) lost 2 cents, ending at $2.95. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dropped a nickel, or 1.67%, to $2.94.

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