Preferred stock market remains under pressure after U.S. election; big banks get beaten

By Stephanie N. Rotondo

Seattle, Nov. 10 – The preferred stock market once again was experiencing “quite a decent sell-off in secondary issues,” a trader said Thursday.

Preferreds got slammed on Wednesday in the wake of the election results that gave Donald Trump, the Republican nominee, the presidency. That trend continued into Thursday.

However, in addition to the election upset, a trader commented that “a lot of stuff went ex-dividend, so that is throwing off prices as well.”

The Wells Fargo Hybrid and Preferred Securities index closed down 168 basis points, after being off 58 bps at mid-morning.

The index lost 87 bps on Wednesday.

While bank equities have rallied on Trump’s election – due to the belief that bank regulations would get watered down under his leadership – bank preferreds have not fared as well.

For instance, Wells Fargo & Co.’s 5.5% series X class A noncumulative preferreds (NYSE: WFCPX) declined 62 cents, or 2.49%, to $24.30.

In JPMorgan Chase & Co. paper, the 5.5% series O noncumulative preferreds (NYSE: JPMPD) waned 39 cents, or 1.56%, to $24.68. The 6.1% series AA noncumulative preferreds (NYSE: JPMPG) declined 80 cents, or 3.06%, to $25.36.

And, the 6.15% series BB noncumulative preferreds (NYSE: JPMPH) slid 82 cents, or 3.13%, to $25.39.

As for Citigroup Inc., its 6.3% series S noncumulative preferreds (NYSE: CPS) dropped 82 cents, or 3.15%, to $25.18.

Fannie Mae and Freddie Mac preferreds meantime continued to buck the downward trend, as the market speculates that Trump – and a Republican-controlled Congress – might allow the GSEs to recapitalize, thereby reducing taxpayer risk.

The government-elect could also be more aggressive when it comes to housing finance reform, though it might not be at the top of the priority list.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were up 40 cents, or 8.89%, at $4.90. Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 31 cents, or 6.61%, to $5.00.

Both issues traded over 7 million times during the session.

In addition to hopes that Trump and his Congress would change GSE-linked policy, there has also been some chatter out of the courts. The buzz is that perhaps lawsuits might be able to be brought against the agencies at the state level.

Currently, all lawsuits against Fannie and Freddie – and there are several – have been brought in federal courts. But there has been some question as to whether or not federal jurisdiction is necessary.

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