Preferreds end week slightly softer; RBS preferreds in focus in wake of improved results

By Stephanie N. Rotondo

Seattle, Aug. 4 – The preferred stock market was slightly weak on Friday, even as the broader markets firmed on the back of a strong U.S. jobs report.

The Wells Fargo Hybrid and Preferred Securities index dipped 1 basis point. The U.S. iShares Preferred Stock ETF declined 10 bps.

According to the latest jobs report, 209,000 jobs were added in July, versus the 180,000-add that was expected.

Additionally, June’s figures were revised to show that 231,000 jobs were added, compared to the 222,000 jobs initially reported.

Of the day’s dealings, Royal Bank of Scotland plc was notable following the company’s improved second-quarter results.

The 6.6% series A noncumulative dollar preference shares (NYSE: RBSPrS) rose 6 cents to $25.67, while the 5.75% series L noncumulative dollar preference shares (NYSE: RBSPrL) ticked up 4 cents to $25.25.

However, the 7.65% series F noncumulative dollar preference shares (NYSE: RBSPrF) fell $1.14, or 4.24%, to $25.85.

For the second quarter, the Edinburgh, Scotland-based bank posted net income of £838 million. That compared to a loss of £955 million the year before.

The improved results were due in large part to expense reduction the company had been undergoing.

For the first six months of the year, RBS reported profits of £939 million. That not only beat expectations, but was a significant improvement over the company’s £2 billion loss for the first half of 2016.

There were other interesting announcements from the bank as well, such as that it was considering moving its investment banking staff to Amsterdam following the Brexit.

Still, the company was cautious looking ahead, saying that it did not expect to see a full-year profit for several years.

“From the credit perspective, it is fair to consider this as possibly one of the best quarters since the financial crisis,” wrote Kevin Conery, a desk analyst at Piper Jaffray & Co., in a note released on Friday afternoon. “Over the past few years we have been very constructive on the RBS preferred and overall credit worthiness. We have typically described RBS’s quarterly performance as ‘two steps forward, one step back.’

“However, regarding the 2Q results, we’d say they there was no step backward in the quarter.”

Conery did note that “legacy issues remain.”

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