Goldman, JPMorgan earnings beat expectations, preferreds mixed; Wells Fargo frees to trade

By Stephanie N. Rotondo

Phoenix, July 15 – Preferred stocks were soft Tuesday ahead of and following Federal Reserve chairman Janet Yellen’s testimony before Congress on Tuesday.

The Wells Fargo Hybrid and Preferred Securities index finished down 13 basis points. At mid-morning, it had been down 6 bps.

In her testimony before congressional leaders, Yellen said that the central bank intends to keep interest rates low at present time, citing continued unemployment concerns and low inflation.

Aside from Yellen’s remarks, the market was also keeping an eye on earnings from the Goldman Sachs Group Inc. and JPMorgan Chase & Co. Both banks had better-than-expected fixed-income revenues, which helped them report profits that beat estimates.

Still, both preferred structures were mixed overall, and in the case of JPMorgan, liquidity was lacking.

In the primary market, no deals of size were announced, though Independent Bank Group Inc. of McKinney, Texas, did launch a $60 million offering of $25-par subordinated notes due 2024.

One trader remarked that he had not heard of any other new deals coming to market, though he noted that Citigroup Inc. said in its earnings announcement on Monday that the bank intended to continue issuing preferred stock.

Goldman mixed post-numbers

Goldman Sachs reported its second-quarter results on Tuesday, showing net income of $2.04 billion, or $4.10 per share.

That compared to the previous year’s profit of $1.93 billion, or $3.70 per share.

Analysts polled by Bloomberg were expecting a profit of $3.09 per share.

Though the results were generally better than expected, Goldman’s preferreds ended the day mixed.

Goldman’s 5.5% series J fixed-to-floating rate noncumulative preferreds (NYSE: GSPJ) closed up 3 cents at $24.50, but the 6.375% series K fixed-to-floating rate noncumulative preferreds (NYSE: GSPK) ended down 2 cents at $26.33.

Total revenue gained 6% to $9.13 billion. Fixed-income, currency and commodity trading revenue came to $2.22 billion, which surpassed analyst estimates as well. The numbers came in 9% lower than the previous year, but analysts were forecasting as much as a 24% decline from that unit alone.

As for compensation, it swelled to $3.92 billion, or 43% of total revenue. As a percentage, it was unchanged year over year.

JPMorgan beats estimates

JPMorgan also came out with earnings on Tuesday.

But like Goldman, the numbers beat expectations.

Also like Goldman, the New York-based bank’s preferreds were mixed following the quarterly release, though perhaps tilting more toward the positive.

The 5.5% series O noncumulative preferreds (NYSE: JPMPD) held steady at $23.13, while the 6.3% series W noncumulative preferreds (NYSE: JPMPE) gained 2 cents to $25.02.

For the second quarter, net income was $5.99 billion, or $1.46 per share, a 7.9% decline year over year.

Excluding certain items, income was $1.59 per share, beating the $1.31 per share analysts polled by Bloomberg were expecting.

Total revenue at the country’s biggest bank was $25.4 billion, compared to the average analyst estimate of $23.9 billion. Fixed income trading revenues dropped 15% to $3.5 billion but still came out above estimates of $3.14 billion.

Wells Fargo frees

Wells Fargo & Co.’s new $700 million issue of 6% series T class A noncumulative perpetual preferreds – a deal that priced Monday – freed at mid-morning, according to a trader.

“It should start drifting up once it frees,” he said just prior to the shares being released from the syndicate, already seeing paper climbing up to around $24.85.

At midday, another trader pegged the preferreds at $24.80 bid, $24.85 offered.

The trader noted that the securities had been assigned a temporary trading symbol of “WLRGP,” effective Wednesday.

After the close, yet another market source quoted the new issue at $24.83 bid, $24.88 offered.

Wells Fargo Securities LLC led the deal.

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