Morning Commentary: Preferreds drift down; BofA, Citigroup report weak earnings; new deals on tap

By Stephanie N. Rotondo

Phoenix, Jan. 15 – Preferred stocks were sinking Thursday as the market digested the Swiss central bank’s decision to drop its cap on the Swiss franc to the euro.

It was not helping that both Bank of America Corp. and Citigroup Inc. reported fourth-quarter results that “sucked,” according to a trader.

The Wells Fargo Hybrid and Preferred Securities index was down 18 basis points at mid-morning.

BofA’s profit declined 9% during the quarter, missing analysts’ estimates. The weaker earnings were attributed in part to a decline in mortgage banking and trading revenues.

Citigroup meantime saw its profit drop to $350 million from $2.5 billion the year before, spurred by hefty legal fees and a decline in trading revenue.

On the heels of the earnings, BofA’s preferreds were fairly mixed.

The 6.625% series W noncumulative preferreds (NYSE: BACPW) were up a penny in early trading at $25.97. The 6.625% series I noncumulative preferreds (NYSE: BACPI) were down 7 cents at $26.55.

In Citigroup’s preferreds, all of the structure was under pressure.

The 5.8% series C noncumulative preferreds (NYSE: CPC) dipped 6 cents to $24.19, while the 7.125% series J fixed-to-floating rate noncumulative preferreds (NYSE: CPJ) lost 17 cents to trade at $26.97.

Back in the primary, Wells Fargo & Co. said it was selling $1,000-par series U class A noncumulative preferreds.

A trader said the deal – coming via Wells Fargo Securities LLC – was being talked around 6.125%.

“It’s putting a little pressure on the other preferreds,” a trader said.

The 5.85% series Q fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPQ) were off 35.6 cents, or 1.39%, at $25.324 early in the session.

Anworth Mortgage Asset Corp. also announced a deal, an offering of 7.625% series C cumulative redeemable preferreds.

A trader saw the issue at $24.50 in the gray market.

“It’s not doing so well,” he said.

MLV & Co. LLC and JMP Securities Inc. are the joint bookrunning managers. Co-managers are Ladenburg Thalmann & Co. Inc. and Maxim Group LLC.

The company said proceeds could be used to redeem its 8.625% series A cumulative preferreds (NYSE: ANHPA), which were down 14 cents at $25.46 early in the day.

As for CHS Inc.’s recently priced $450 million issue of 7.5% class B series 4 cumulative redeemable preferreds, that issue was hitting par, according to a trader.

The trader pegged the preferreds at par bid, $25.07 offered.

The deal came Tuesday upsized from $250 million. It freed to trade Wednesday afternoon.

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