Preferred stocks recover Monday’s losses; bank earnings do little to move markets

By Stephanie N. Rotondo

Seattle, July 18 – Preferred stocks were trying to recoup Monday’s modest losses in dealings on Tuesday.

And, according to market indicators, the effort proved a success, as both the Wells Fargo Hybrid and Preferred Securities index and the U.S. iShares Preferred Stock ETF added 20 basis points.

The Wells Fargo index dropped 7 bps on Monday, while the ETF declined 3 bps.

However, a market source noted that while there was a firm tone for the day, preferreds lagged Treasuries.

“On a dollar basis, it was good,” he said. “But on a relative basis, it could have been better.”

More bank earnings came out on Tuesday, with both Bank of America Corp. and Goldman Sachs Group Inc. reporting results that beat expectations.

For its part, Goldman topped expectations despite a 40% decline in fixed-income trading revenue. BofA posted a 14% decline in fixed-income trading revenue.

“Bank earnings have been pretty good,” a market source commented. He did point to Goldman as an exception to that rule, given the 40% decline in fixed-income trading.

He added that Goldman preferreds, while not that active, had “more ups than downs” for the session.

Still, the most active of the Goldman complex traded lower.

The 5.5% series J fixed-to-floating rate noncumulative preferreds (NYSE: GSPrJ) fell 2 cents to $28.08, while the floating rate series D noncumulative preferreds (NYSE: GSPrD) dipped a similar amount to $24.00.

But as has been the case recently, the quarterly reports did little to move the preferred market.

“We may see something [in the primary space] next week, but this week is a snoozer,” a trader said.

The trader also noted that political stagnation was also to blame.

“With Trump not getting anything done, the dollar is dropping and Treasuries are moving higher,” the trader remarked.

Two Harbors Investment Corp.’s $250 million of 7.625% series B fixed-to-floating rate cumulative redeemable preferreds came in as the day’s top trader, with nearly 587,000 shares trading.

The preferreds also saw a sizable drop at the end of the day, closing off 45 cents, or 1.77%, to $24.94.

But a market source noted that the low trade was “not even a big trade,” and opined that the volume weighted average price of $24.34 was more accurate.

The deal came July 12 via Morgan Stanley & Co. LLC, UBS Securities LLC, J.P. Morgan Securities LLC and Keefe Bruyette & Woods Inc. The deal was upsized from $75 million and priced tighter than the 7.75% initial price talk.

The issue trades under a temporary symbol, “TWHBP.”

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