Debt ceiling debate drags on, but preferreds head higher; Wells, JPMorgan report earnings

By Stephanie N. Rotondo

Phoenix, Oct. 11 - Trading in the preferred stock market was muted Friday as the federal government's efforts to ink a debt-ceiling deal were ongoing.

"The fear is that we get a six-week extension and that is just going to put a damper on this market because no one is going to do anything," a trader said.

Already Goldman Sachs and Charles Schwab were advising clients to start selling or buy puts, he said.

But if a deal could get done, that could mean more action in the primary, he remarked. It was also possible that investors might simply choose to ignore the debacle in Washington and start getting things done in order to get a return on their money.

He opined that investors should "find a good bank, buy their preferreds and collect your 7% and come back in January."

Speaking of banks, both Wells Fargo & Co. and JPMorgan Chase & Co. released third-quarter earnings early in the session. Wells Fargo reported a 13% gain in profit, though revenues were down, while JPMorgan posted a $380 million loss.

The bank's loss was attributed to $9.2 billion in legal fees.

Still, both Wells Fargo and JPMorgan saw their preferreds inching higher, though liquidity was thin even on the news.

Discover Financial Services Inc.'s 6.5% series B noncumulative preferreds (NYSE: DFSPB) were meantime one of the day's most actively traded issues, with over 832,000 shares changing hands. The paper finished the session up 11 cents at $23.45.

And, the Wells Fargo Hybrid and Preferred Securities index was up 18 basis points on the day.

Wells posts huge profit

Wells Fargo's preferreds were trending mostly higher after the company reported a 13% gain in profit.

The 8% series J noncumulative preferreds (NYSE: WFCPJ) rose 7 cents to $28.31, while the 5.2% series N noncumulative preferreds (NYSE: WFCPN) increased 8 cents to $20.63.

The 5.85% series Q fixed-to-floating rate noncumulative preferreds (NYSE: WFCPQ), however, dropped a penny to $24.37.

For the third quarter, the bank reported net income of $5.6 billion, or 99 cents per share. That compared to the previous year's profit of $4.9 billion, or 88 cents per share.

Analysts polled by Thomson Reuters were expecting earnings of 97 cents per share.

However, revenues fell to $20.5 billion from $21.4 billion the year before. The decline came as mortgage applications dropped to $87 billion from $188 billion for the same quarter of 2012.

Mortgage originations came to $80 billion, down from $139 billion.

JPMorgan posts loss

JPMorgan Chase also released earnings on Friday. But unlike Wells Fargo, the bank headed by Jamie Dimon reported a $380 million net loss.

Still, the bank's preferreds were on the rise.

The 5.45% series P noncumulative preferreds (NYSE: JPMPA) rose a dime to $21.40, as the 5.5% series O noncumulative preferreds (NYSE: JPMPD) increased by 15 cents to $21.33.

The loss - the first since Dimon took the helm - was attributed in large part to hefty legal fees. The fees are due to an ongoing battle with the Justice Department over questionable mortgage practices.

Revenues were also weaker, falling to $23.9 billion from $25.9 billion.

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