CHS deal viewed as ‘attractive’; JPMorgan up as profit narrows; Wells Fargo mixed

By Stephanie N. Rotondo

Phoenix, Jan. 14 – The preferred stock market was soft as the midweek trading session began, following the common equity markets lower.

The common stock space was weaker in response to lower-than-expected retail sales figures for December, which were seen declining 0.9% overall.

Expectations were that the key data point would dip just 0.1%.

The Wells Fargo Hybrid and Preferred Securities index ended the day down 1 basis point. The index was down 8 bps at mid-morning.

In the primary preferred arena, CHS Inc.’s newly priced $450 million issue of 7.5% class B series 4 cumulative redeemable preferreds freed to trade by the end of business, according to a market source.

The source quoted the issue at $24.92 bid, $24.98 offered.

Prior to the new issue freeing from the syndicate, a trader said the deal was “sloshing around” $24.85.

However, he speculated that once the issue had been “cleaned up,” it could easily move up to trade in line with other CHS issues.

“It was priced to move,” he said. “It looks fantastic.”

“If this was a public company and got a rating, it probably could have gotten a 6 and change instead of a 7.5,” he said. “It’s very attractively priced for everybody that knows the name.”

The deal came Tuesday – the first new preferred issue of the year – via BofA Merrill Lynch and Wells Fargo Securities LLC. It was upsized from $250 million.

Among the company’s other issues, the 7.875% series 1 class B cumulative redeemable preferreds (Nasdaq: CHSCO) were off 48 cents, or 1.72%, at $27.50. The 6.75% class B series 3 reset rate cumulative redeemable preferreds (Nasdaq: CHSCM) closed 50 cents, or 2%, lower at $24.48.

Meanwhile, in the secondary market, JPMorgan Chase & Co. and Wells Fargo & Co. put out fourth-quarter results, kicking off the latest round of bank earnings.

JPMorgan posted a 6.6% decline in its quarterly profit, citing legal costs of more than $1 billion. That news initially took most of the bank’s preferred issues lower, though they recovered to finish the day up.

Wells Fargo meantime saw a 1.8% gain in profit, attributed to stronger loan growth.

But Wells Fargo’s preferreds were mixed in trading.

JPMorgan rises

Due to legal costs that exceeded $1 billion and a 14% decline in fixed-income trading revenue, JPMorgan reported a 6.6% lower profit for the fourth quarter.

At first, investors pushed the New York-based bank’s preferred stock down, but by the end of the day, the whole structure had rebounded, ending with a firm tone.

The 5.5% series O noncumulative preferreds (NYSE: JPMPD) closed 6 cents higher at $24.32, while the 6.7% series T noncumulative preferreds (NYSE: JPMPB) put on 4 cents to close at $26.55.

For the quarter, net income was $4.93 billion, or $1.19 per share. That compared to a profit of $5.28 billion, or $1.30 per share, the year before.

Revenue declined 2.3% to $23.55 billion.

Analysts polled by Thomson Reuters had predicted earnings of $1.31 per share on revenue of $23.64 billion.

Investment banking fee revenue improved 8% to $1.8 billion, due in large part to record debt underwriting fees of $1.1 billion. Home loan revenues fell to $1.9 billion.

As for the legal costs incurred during the quarter, JPMorgan paid out $1.1 billion, up from $847 million the previous year. However, legal costs for 2014 came to $2.9 billion, well under the $11.1 billion paid in 2013.

Wells mixed as profit grows

Wells Fargo also came out with fourth-quarter results on Wednesday, reporting a 1.8% increase in quarterly profit.

Despite the improved bottom line, Wells Fargo’s preferred shares were about evenly mixed in trading.

The 5.85% series Q fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPQ) were off 2 cents at $25.68, as the 6% series T class A noncumulative preferreds (NYSE: WFCPT) were up 14 cents at $25.58.

For the quarter, the San Francisco-based bank saw a profit of $5.71 billion, or $1.02 per share, versus $5.61 billion, or $1.00 per share, for the same quarter of 2013.

Revenue was boosted by 3.8%, coming in at $21.44 billion.

Analysts polled by Thomson Reuters had forecast earnings of $1.02 per share on revenue of $21.23 billion.

Net interest income improved 3.5% to $11.18 billion. Income from fees gained 4.1% to $10.26 billion, due to an increase in credit card fees.

The bank’s lending units were also seeing growth. Total loans increased 4.9% to $862.55 million. In auto loans alone, the company lent $55.74 million, up 9.7% from the previous year.

Considering that Wells Fargo is the country’s biggest mortgage lender, how that segment fared was being closely watched by investors.

Home loan originations fell to $44 billion from $50 billion. Mortgage banking revenue decreased 3.5% to $1.52 billion.

The bank was also dealing with an increase in expenses, despite efforts to cut costs.

Noninterest expense was $12.65 billion, up 4.7% year over year.

Credit-loss provisions were $485 million, up from $363 million.

RBS mostly higher

Royal Bank of Scotland Group plc’s preferreds were mostly firm on the day, as the United Kingdom’s George Osborne, chancellor of the exchequer, said the government planned to come up with a timeline on selling its 80% stake in the bank after the elections in May.

The 6.08% noncumulative guaranteed trust preferred securities (NYSE: RBSPG) gained 4 cents on the day, finishing at $24.46. However, the 6.4% series M noncumulative dollar preference shares (NYSE: RBSPM) ended down 3 cents at $24.70.

RBS is an Edinburgh, Scotland-based bank.

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