Preferred stocks mixed again; Medley gains after add-on prices; GSEs quiet post-earnings

By Stephanie N. Rotondo

Seattle, Feb. 17 – Following in Thursday’s footsteps, preferred stocks were mixed in Friday trading.

The Wells Fargo Hybrid and Preferred Securities index declined 12 basis points, while the U.S. iShares Preferred Stock index ticked up 3 bps.

At Thursday’s close, the Wells Fargo index was the positive one, with iShares trading off.

Medley LLC priced its $30 million add-on to its 7.25% $25-par notes due 2024 (NYSE: MDLQ) late Thursday. The company sold the notes at $25.25 per note, which was in line with revised price talk.

Initial price talk was $25.20 per note.

Come Friday, the paper was seen ticking up 2 cents to $25.18.

“It should pop up here,” a trader opined. “It looks relatively cheap.”

FBR Capital Markets & Co., Incapital LLC, BB&T Capital Markets, William Blair & Co., Compass Point Research & Trading LLC, Ladenburg Thalman & Co. Inc. and JonesTrading ran the books.

As for the coming week, a trader said he was hearing there could be two new deals, down from original chatter of three.

However, the trader noted that those deals could be put on hold, given that president Donald Trump said he was not yet ready to release his much-hyped tax plan during a press conference on Thursday.

“That could put a hold on new issues,” the trader said, as companies, particularly financials, need that information to decide when and how they should raise new capital.

Once the plan is released, though, “there should be a flood of new deals.”

Meanwhile, Capital One Financial Services Inc.’s 5.2% series G noncumulative perpetual preferreds (NYSE: COFPrG) dominated overall trading, ending 8 cents better at $22.54.

With over 1.6 million of the preferreds trading, a market source noted that most of the volume was one big trade.

“It appeared to be a dealer crossing the preferreds between accounts,” the source said. “There is nothing unusual about that: one account wants to lessen his exposure and another is willing to take it on.”

Oddly enough, there was much less trading in GSE-linked preferreds than there has been in the last few months. Fannie Mae and Freddie Mac paper finished the session lower in the wake of Fannie’s latest earnings report.

“When a company announces earnings and they are mostly as expected, it is not uncommon for most of the trading activity to happen in the day or two before the announcement,” a market source said.

Fannie, Freddie soften

Fannie and Freddie preferreds quieted down in Friday trading, even as Fannie came out with its fourth-quarter results.

Though Fannie reported a profit, it warned that a corporate tax rate cut could weigh on its deferred tax asset value, which could lead to a loss that would require more taxpayer funding.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dipped 2 cents to $10.74. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) lost 8 cents, closing at $10.42.

For the quarter, Fannie reported net income of $5.04 billion. The mortgage guarantor also said it planned to send a $5.5 billion payment to the Treasury Department in March.

On Thursday, Freddie posted a $4.8 billion profit – $4.5 billion of which will be sent to the Treasury.

Once those payments are made, Fannie will have made nearly $160 billion in payments to the Treasury, versus the $116.1 billion taken in its 2008 bailout. Freddie will have returned $105.9 billion, over $30 billion more than the $71.3 billion received from taxpayers.

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