Preferred stocks end strong after volatile week; Morgan Stanley, GE profits top forecast

By Stephanie N. Rotondo

Phoenix, Oct. 17 – Preferred stocks continued to recover in Friday trading, helped out by a round of decent earnings.

A trader said that investors were coming to realize that the week’s selloff was “a little overdone.” As such, “People are looking to get their feet back into the high-yield market.”

Morgan Stanley & Co. Inc. and General Electric Co. put out earnings on Friday, with both showing a profit that beat expectations. In Morgan Stanley’s preferreds issues, most of the paper was heading higher.

There were also gains in GE Capital’s notes.

Morgan Stanley rises

Morgan Stanley saw an 83% increase in its third-quarter profit, which helped push its preferred shares into higher territory.

The most actively traded issue – the 6.375% series I fixed-to-floating rate noncumulative preferreds (NYSE: MSPI) – improved a dime to $25.29. The 7.125% series E fixed-to-floating rate noncumulative preferreds (NYSE: MSPE) – the second most actively traded issue of the structure – were 7 cents better at $27.12.

The 6.625% series G noncumulative preferreds (NYSE: MSPG) gained the most, rising 22 cents to $25.51, while the 6.875% series F fixed-to-floating rate noncumulative preferreds (NYSE: MSPF) improved 11 cents to $26.50.

The 6.6% capital securities (NYSE: MSZ) put on 3 cents to $25.27.

For the quarter, the New York-based investment bank posted a $1.71 billion profit, or 84 cents per share, up from $906 million the year before.

The earnings per share included a tax benefit of 12 cents per share. On an adjusted basis, earnings were 65 cents per share, better than the 54-cents per share estimate given by analysts polled by Thomson Reuters.

Revenue increased 12% to $8.91 billion. Excluding accounting adjustments, revenue was 7% better at $8.69 billion.

Analysts had predicted adjusted revenues of $8.17 billion.

Equity trading revenue gained 4.3% and investment banking revenue improved 13%.

Like most of its banking peers, Morgan Stanley saw its expenses gain 6.3% and noninterest expense rise 1.1%.

GE’s profit beats

GE also released quarterly results on Friday that beat expectations.

In response, GE Capital’s so-called “baby bonds” were on the rise.

The 4.875% $25-par notes due 2052 (NYSE: GEB) closed up 6 cents at $24.38, while the 4.7% $25-par notes due 2053 (NYSE: GEK) earned 12 cents to $23.47.

In the third quarter, GE reported a 1% gain in revenue, which came to $36.2 billion. Though that number came in below analysts’ estimates, the company saw adjusted profit of 38 cents per share, above expectations of 37 cents per share by analysts polled by Bloomberg.

Over the course of the year, GE has cut costs by $674 million, putting it on its way to reduce expenses by $1 billion for the full year.

Ally declares dividend

Away from earnings news, Ally Financial Inc. declared a dividend on its 8.5% series A fixed-to-floating rate perpetual preferreds (NYSE: ALLYPB) on Friday.

The preferreds were quite active following the announcement, rising 12 cents to $26.79.

The 53-cents-per-share dividend will be paid on Nov. 17.

The 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPA) were also busy in Friday trading, moving up 32 cents, or 1.21%, to $26.16.

Meanwhile, the U.S. Treasury said it had further reduced its common stock stake in the Detroit-based financial company.

The government agency said it sold 11.2 million of the common shares, raising $245.5 million. The sale cut the Treasury’s holdings to 54.9 million shares, or an 11.4% stake.

Fannie, Freddie gain

Fannie Mae and Freddie Mac preferreds were moving up as it was reported that the Federal Housing Finance Agency plans to release a plan to ease lending standards for those with less-than-perfect credit scores.

Lenders have been hesitant to open those doors because they did not have a clear indication of when they might have to repurchase mortgages that go bad.

The announcement is expected to come at the annual Mortgage Bankers Association’s meeting in Las Vegas on Monday.

Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose a dime, or 2.74%, to $3.75. Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) ended up 5 cents, or 1.36%, to $3.73.

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