Preferred stocks subdued as banks start to report quarterly results; Medley sells $25-pars

By Stephanie N. Rotondo

Seattle, Jan. 13 – Bank earnings season kicked off on Friday, with Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. all reporting fourth-quarter results.

However, the news was doing little to spur activity in the preferred stock space.

“People were expecting good earnings,” a trader said. “BofA is the only one that kind of disappointed. Wells and JPMorgan did well.”

BofA posted earnings per share of 40 cents on revenue of $20.22 billion. EPS was better than analysts’ projections of 38 cents, though revenue was lower than the $20.76 billion forecast.

Though the trader said Wells Fargo outperformed BofA in its earnings report, analysts polled by Thomson Reuters disagreed. The San Francisco-based bank posted EPS of 96 cents, versus estimates of $1.00. Revenue came in at $21.58 billion, compared to expectations of $22.45 billion.

As for JPMorgan, adjusted EPS was $1.58. Analysts polled by Thomson Reuters had predicted EPS of $1.44.

Total revenue was up 2.5% at $24.33 billion, versus forecasts of $23.95 billion.

But while the market had been looking forward to the earnings, there was little reaction in the banks’ preferreds. BofA, for its part, began the day with a mostly weaker tone but managed to end mostly positive.

The 6% series EE noncumulative preferreds (NYSE: BACPrA) declined 7 cents to $25.60, while the 6.625% series W noncumulative preferreds (NYSE: BACPrW) improved 9 cents, closing at $26.30.

Wells Fargo’s preferred issues, however, went the opposite of BofA. They started the day generally higher but eventually closed lower.

The 5.5% series X class A noncumulative preferreds (NYSE: WFCPrX) declined 15 cents to $23.95, as the 5.85% series Q fixed-to-floating rate noncumulative preferreds (NYSE: WFCPrQ) improved 7 cents to $25.80.

In JPMorgan preferreds, the tone was weaker.

The 6.3% series W noncumulative preferreds (NYSE: JPMPrE) fell 13 cents to $26.24. The 6.1% series AA noncumulative preferreds (NYSE: JPMPrG) dipped 4 cents to $26.01.

Medley comes upsized

The primary had a deal enter the market, as Medley LLC priced a $30 million offering of 7.25% $25-par notes due Jan. 30, 2024.

The deal came upsized from $25 million.

A trader saw the paper at $24.75 in early dealings, adding that the paper had already freed to trade.

“FBR did a nice job with that,” he said, referring to the lead bookrunner of the deal.

Along with FBR, Incapital, BB&T Capital Markets, Compass Point, Ladenburg Thalmann & Co. Inc., William Blair and JonesTrading participated in the deal.

There is a $4.5 million over-allotment option, increased from $3.75 million.

Interest is payable on a quarterly basis. The notes become redeemable on or after Jan. 30, 2020 at par plus accrued interest.

Proceeds will be used to repay a portion of outstanding amounts under a senior secured term loan facility with Credit Suisse AG, Cayman Islands Branch.

Medley is a New York-based externally managed, non-diversified closed-end management investment company.

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