Citigroup softens on earnings, settlement; Wells Fargo sells 6% noncumulative preferreds

By Stephanie N. Rotondo

Phoenix, July 14 – Citigroup Inc.’s preferreds were weaker Monday after the company reported a hefty decline in profit due to a $7 billion settlement with the Justice Department.

The 6.875% series L noncumulative preferreds (NYSE: CPL) slipped 7 cents to $25.88, though the shares were managing to tick up slightly in early trading, beating the overall trend of the structure.

The 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) traded down 8 cents to $27.02.

The New York-based bank announced early Monday that it had reached a settlement with the federal government in regards to allegations the firm sold faulty mortgage securities ahead of the financial crisis. In making the settlement, Citigroup booked a $3.8 billion pre-tax charge on its second-quarter results, leaving its quarterly income at $181 million, or 3 cents per share – a 96% decline year over year.

However, excluding the charge, income would have been $1.24 per share, which beat analysts’ estimates of $1.05 per share.

Revenues dropped 5.6% to $19.34 billion. That also beat estimates, which were around $18.93 billion.

Revenues from fixed-income trading were also better than expected. The company had previously estimated that revenues from that unit would be down 20% to 25% year over year. But revenue fell only 12% from the previous year.

Overall, Monday’s session was a light one in terms of liquidity, a market source said.

The Wells Fargo Hybrid and Preferred Securities index closed down 12 basis points, though it had been up 11 bps at mid-morning.

“The market popped on the open, but tended to fade throughout the rest of the day,” the source said.

Wells Fargo comes upsized

Wells Fargo & Co. brought a $700 million issue of 6% series T class A noncumulative perpetual preferred stock on Monday.

The deal was upsized from $250 million and came at the tight end of 6% to 6.125% talk.

One market source said the “deal didn’t go so well, not in the gray market,” deeming the new issue “overpriced and overissued.”

The source pegged the preferreds at $24.77 bid, $24.82 offered.

Another trader quoted the preferreds at $24.75 bid, $24.82 offered.

As for the rest of San Francisco-based bank’s preferred structure, the shares were all down, which tends to be common when a new issue prices.

The 5.2% series N class A noncumulative perpetual preferreds (NYSE: WFCPN) declined 14 cents to $22.95, and the 5.85% series Q fixed-to-floating rate noncumulative preferreds (NYSE: WFCPQ) dipped 9 cents to $26.10.

Wells Fargo Securities LLC led the books. The company intends to use proceeds for general corporate purposes.

Full Circle brings add-on

Full Circle Capital Corp. said it had priced a $12.5 million add-on to its 8.25% $25-par notes due 2020 (Nasdaq: FULLL).

The notes were sold at $25.375, a 2.8% discount to Friday’s closing price of $26.08.

Come Monday, the notes were trading down. The securities finished the day 9 cents softer at $25.99, but at mid-morning, they were off 18 cents to $25.90.

The Rye Brook, N.Y.-based closed-end investment company originally sold $21.1 million of the notes in June 2013.

Proceeds will be used to pay down debt.

Ally outlook improves

Ally Financial Inc.’s 8.125% series 2 fixed-to-floating rate trust preferreds linked to GMAC Capital Trust I (NYSE: ALLYPA) were easily the most actively traded issue in the preferred market on Monday, as Moody’s Investors Service upped the outlook on the company to positive from stable.

“That’s probably overdue by six months, maybe eight months depending on how you look at it,” one source quipped.

Over 2.16 million preferred shares changed hands during the session, but the paper closed down 3 cents to $27.28.

Moody’s affirmed the corporate family rating of Ba3 as well as the preferreds’ rating of B3. The positive outlook reflected an improving operating performance, the agency said in a statement. The company’s $17.8 billion repayment of government aid also helped.

Ally received a $17.2 billion bailout at the height of the financial crisis. In January, the government sold some of the securities it had taken from that bailout and in April, the company launched a $2.6 billion IPO.

Both of those transactions combined helped the government reduce its equity stake in the company to 16%.

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