Preferred stocks see volatile trading ahead of elections; Fannie, Freddie flat to better

By Stephanie N. Rotondo

Seattle, Nov. 7 – Preferred stocks ended only slightly higher on Monday after being up more significantly in earlier trading.

Early in the day, preferreds were trending better after losing ground for most of the previous week.

“Everything is picking back up,” a trader said.

The Wells Fargo Hybrid and Preferred Securities index was up 39 basis points at mid-morning. However, it was up as much as 50 bps earlier in the session.

But after reaching its peak shortly before 10 a.m. ET, the index began a slow retreat. Just after 2 p.m. ET, the index experienced a sharp sell-off, pushing the market into the red.

In the final minutes of trading, the index regained some ground, finishing up just 3 bps.

Despite the somewhat firmer tone, overall liquidity continued to be muted ahead of Tuesday’s presidential election.

“Everything is going to be quiet until Wednesday, assuming we have a clear winner,” a trader remarked. And while that trader opined that a clear winner would arise, he noted that there was “some worry about risk-off scenarios if Trump is elected.”

As for the day’s dealings, Fannie Mae and Freddie Mac were on the active side in the wake of the agencies’ earnings last week.

Both mortgage giants reported higher quarterly profits.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 4 cents at mid-morning, at $4.13. But the issue gyrated with the broader market, ultimately ending unchanged at $4.09.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were meantime up for the day, adding a dime, or 2.47%, to close at $4.15.

Fannie reported its third-quarter results on Thursday, showing net income of $3.2 billion.

That compared to a profit of $2 billion the year before.

Of that amount, the agency plans to send $3 billion to the Treasury Department via a dividend payment. That will bring the total amount paid to the government to $154.4 billion – well above the $116 billion received during the financial crisis of 2008.

On Nov. 1, Freddie reported a quarterly profit of $2.3 billion, which compared to the agency’s $475 million loss the year before.

The improved results were attributed to fewer delinquent mortgages, as well as stabilizing mortgage interest rates.

Freddie Mac also said that fees from lenders rose to $133 million from $9 million in the second quarter.

Of the profits, Freddie Mac will pay all of that amount to the Treasury Department via a dividend payment. Once paid, Freddie will have made $101.4 billion in dividends to the government – above the $71 billion received in the 2008 bailout.

Away from the GSE preferreds, Wells Fargo & Co.’s 6% series V class A noncumulative preferreds (NYSE: WFCPV) were among the day’s most actively traded securities, ending up 4 cents to $25.99. Ally Financial Inc.’s 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPA) were also busy, ending a penny weaker at $25.51.

The Ally issue had traded higher earlier in the day.

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