Bank of America, Wells Fargo report quarterly results; Breitburn Energy cuts distribution

By Stephanie N. Rotondo

Seattle, April 14 – The preferred stock market was slightly higher in Thursday trading as Bank of America Corp. and Wells Fargo & Co. released their latest quarterly results.

The Wells Fargo Hybrid and Preferred Securities index firmed by 8 basis points. The index was up 2 bps at mid-morning.

“Activity improved over yesterday,” a market source said, “but not by a lot.”

Both BofA and Wells Fargo narrowly beat expectations, though overall, results were down year over year. Both banks also saw an increase in credit loss provisions, due mainly to exposure to the energy space.

Away from earnings, Breitburn Energy Partners LP was deemed an “interesting story” by a source after the company announced that it was suspending distributions on its 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP), as well as on its 8% series B perpetual convertible units. The oil and gas MLP also noted that it would defer interest payments on its 7 7/8% notes due 2022 and 8 5/8% notes due 2020.

The news sent the series A units into a nosedive, making it the day’s biggest percentage loser.

Fannie Mae and Freddie Mac preferreds continued to be on the active side ahead of oral arguments at the U.S. Court of Appeals on Friday. The GSE-linked securities have been busy and mostly better since Tuesday, when a judge unsealed documents that indicated the government might have been in the wrong when it elected to sweep the agencies’ profits in 2012.

Come Thursday, however, a source said the preferreds were “looking a little more mixed.”

BofA beats

BofA reported net income of $2.22 billion, or 21 cents per share, on revenue of $20.9 billion for the first quarter. Analysts polled by Thomson Reuters had expected EPS of 20 cents on revenue of $20.3 billion.

On the heels of the results, the 6.2% series CC noncumulative preferreds (NYSE: BACPC) were initially up 6 cents at $26.42. However, the preferreds ended the day off 2 cents at $26.34.

Credit loss provision rose to $997 million, a gain of 30% year over year. The gain was attributed mostly to issues in the energy arena.

Adjusted fixed-income, currency and commodities trading revenue declined 17.5% to $2.26 billion. Total trading revenue dropped 6.6% to $19.73 billion.

Wells Fargo ends mixed

Wells Fargo meantime reported net income of $5.46 billion, or 99 cents per share, on revenue of $22.2 billion. Analysts polled by S&P Global Market Intelligence had predicted EPS of 98 cents on revenue of $21.5 billion.

Though Wells Fargo beat expectations, its 5.7% series W class A noncumulative preferreds (NYSE: WFCPW) were trading off a nickel to $26.15. But the 6% series V class A noncumulative preferreds (NYSE: WFCPV) ticked up 9 cents to $26.43.

Credit loss provisions jumped to $1.09 billion from $608 million, also because of stress in the energy sector.

Still, the San Francisco-based bank saw a 5% increase in consumer checking customers, while debit card purchases were up 9% year over year at $72 billion.

In the bank’s lending business, home loans fell to $44 billion, a decline of $3 billion from the previous quarter. Auto loans, however, increased 2% to $7.7 billion.

Credit card purchases were also better, rising 13% from the previous year to $17.5 billion.

PNC off after numbers

PNC Financial Services Group Inc. also came out with earnings on Thursday, which a source deemed as “not so great.”

In response, the 6.125% series P fixed-to-floating rate noncumulative preferreds (NYSE: PNCPP) declined 2 cents to $28.94.

For the first quarter, the Pittsburgh-based bank posted a profit of $943 million, or $1.68 per share. That was just 2 cents shy of expectations.

Like BofA and Wells Fargo, PNC also saw its credit loss provisions increase due to its exposure to the energy space. Though energy-linked accounts make up only 2% of PNC’s loan portfolio – about $2.7 billion in oil and gas and $500 million in coal – provisions nearly doubled to $152 million from $78 million in the previous quarter.

There were some bright spots to the results, however.

Expenses dropped 5% to $2.3 billion. Total loans swelled to $207.5 billion, a gain of $800 million since the end of 2015. Deposits of $250.4 billion equaled a 1% increase from year’s end.

Breitburn tanks

Breitburn Energy Partners’ 8.25% series A preferred units took a massive hit on Thursday after the company said it was suspending distributions.

The paper dropped $2.20, or 41.51%, to $3.10. The decline made the issue the biggest percentage loser of the day.

Additionally, the Los Angeles-based MLP said it was deferring about $47 million in interest payments on its outstanding debt. That sent the 7 7/8% notes due 2022 and the 8 5/8% notes due 2020 down to levels around 5.

The bonds had traded as high as a 7 to 7¼ context during the session before settling back in.

The company now enters a 30-day grace period before a default occurs.

Fannie, Freddie in motion

Fannie Mae and Freddie Mac preferreds remained on the radar on Thursday as investors wait to hear what happens during oral arguments in court on Friday.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) – which had been trending higher for most of the week – drifted down 4 cents to $4.25. But the 6.75% series Q noncumulative preferreds (OTCBB: FNMAI) were one of the day’s biggest percentage gainer’s, rising 59 cents, or 18.73%, to $3.74.

In Freddie paper, the 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) meantime ended off 7 cents, or 1.64%, at $4.19.

On Tuesday, the preferreds got a pop as the market digested a slew of new unsealed documents related to a court case stemming from the government’s 2012 decision to commandeer a majority of the GSEs profits. The gains continued into Wednesday, and the mortgage giants were dominating overall trading.

The documents, which were unsealed by judge Margaret Sweeney, appear to hold up the plaintiffs’ allegations that the government knew the agencies were returning to profitability before it made its decision to sweep profits. The sweep was predicated on the notion that the government needed to protect taxpayers in case of a need for another bailout.

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