Preferreds initially weak, recover by the bell; Goldman holds steady; Wells Fargo ETF up

By Stephanie N. Rotondo

Seattle, Feb. 19 – The preferred stock market was in retreat early Friday but recovered by day’s end.

The initial softness came as the broader markets also lost momentum, driven by renewed declines in oil and a larger-than-expected rise in consumer prices that have some pondering an interest rate hike this year.

The Wells Fargo Hybrid and Preferred Securities index closed up 38 basis points. The index was off 27 bps at mid-morning.

“The hybrid market is stuck in the mud,” one trader said, adding that things overall were “super quiet.”

Goldman Sachs Group Inc.’s $675 million of 6.3% series N noncumulative preferreds continued to be on the busier side. In fact, the new issue dominated trading with nearly 1.95 million preferreds trading.

The preferreds ended unchanged at $25.12. Earlier in the day, a trader said the recently priced issue was “still right where it was yesterday,” trading around $25.05.

Another market source placed the issue at that level but deemed it down 7 cents.

The deal came Monday via Goldman Sachs & Co. and is trading under the temporary ticker “GSHSP.”

Meanwhile, activity in the SPDR Wells Fargo Preferred Stock ETF (NYSE: PSK) picked up considerably, trading over 1 million times.

“That’s the one that usually barely trades,” a markets source said.

However, the ETF has “actually benefitted year to date in terms of their shares growing,” the source noted.

“It’s been a pretty slow, steady march up for them pretty much since January.”

The index ended up 43 bps.

The source further commented that the trend seen in the ETF is “comparable to what you see in other ETFs,” with one notable exception: the iShares U.S. Preferred Stock ETF, the largest of the preferred funds.

“That one has been losing market share while the others are picking it up,” he said.

He was not sure what was behind the moves, though he noted that some have speculated it has to do with marketing efforts.

Fannie profit grows

Fannie Mae reported its fourth-quarter and full-year results on Friday. While quarterly profit grew year over year, yearly profit declined.

In response, Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) also declined, falling 2 cents to $3.03. The issue traded about 705,000 times.

By comparison, Freddie Mac’s 8.375% fixed-to-floating rate noncumulative perpetual preferred stock (OTCBB: FMCKJ) barely traded, being exchanged just 37,000 times.

That issue was also down by 4 cents, or 1.3%, at $3.03.

For the quarter, Fannie posted net income of $2.5 billion, up from $2 billion the year before. For the year, income came to $11 billion, down from $14.2 billion in 2014.

Fannie intends to make a $2.9 billion dividend payment to the Treasury Department, bringing its total returned to taxpayers to $147.6 billion.

The GSE received $116.1 billion in bailout funds in 2008.

Fannie’s earnings came on the heels of Freddie’s own quarterly results, which came out Thursday.

For the fourth quarter, Freddie reported a profit of $2.16 billion, which compared to a profit of $227 million the year before.

The mortgage giant attributed the surge in profit to higher credit performance and better derivative bets.

Freddie plans to pay $1.7 billion of said profits to the Treasury, bringing the total given back to taxpayers to more than $98 billion. The agency received more than $71 billion in bailout funding in 2008.

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