Qwest issue frees from syndicate; bankruptcy worries pressure Countrywide Financial preferreds

By Stephanie N. Rotondo

Portland, Ore., Sept. 16 - Preferred stocks didn't necessarily follow the path set by their common equity counterparts Friday, as the preferred market ended squarely mixed.

Traders lamented a lack of volume, with one trader describing it as "slow-drip torture."

Qwest Corp.'s new issue - which priced Wednesday - freed from the syndicate Friday and, according to traders, was still performing quite well.

Meanwhile, Countrywide Financial Corp.'s preferreds were the most active of the day and were also taking a beating. The preferreds were sliding as investors were "concerned about Bank of America spinning off Countrywide and what that means to preferred people," a trader said.

Qwest frees to trade

A trader said Qwest's new $250 million issue of $25-par 40-year senior notes was "in good shape" as it freed to trade on Friday.

He placed the paper at $24.90.

At midday, a trader had seen the issue at $24.85.

In other recent deals, Digital Realty Trust Inc.'s 7% cumulative redeemable preferreds (NYSE: DLRPE) moved up 6 cents to 424.95.

The preferreds officially listed on Thursday.

Countrywide declines

Countrywide Capital's two series of preferreds - the 6.75% trust preferreds (NYSE: CFCPA) and the 7% capital securities (NYSE: CFCPB) - were on the decline after moving up in the previous session, traders reported.

The TRUPs dropped 19 cents to $20.41 on volume of nearly 639,000 shares. The 7% securities meantime fell 76 cents to $20.38, with over 1.87 million shares turning over.

A trader said investors had gotten spooked by a Bloomberg report that indicated Bank of America was considering bankruptcy as an option for dealing with its Countrywide subsidiary.

The article cited "four people with knowledge of the firm's strategy." The sources also said that a filing was not considered to be imminent.

Bank of America is currently dealing with a mortgage lawsuit that could result in the payout of billions upon billions of dollars, all because of shady mortgage writing practices at Countrywide. Because the losses have stacked up considerably, many in the market have pondered a Countrywide bankruptcy - an option that is allowable only because the Charlotte, N.C.-based bank kept the mortgage company as a separate entity.

But preferred investors have also wondered how the bank intends to manage its liabilities, including its preferreds. Those concerns remain despite the bank's assertions that it will fully back Countrywide debt.

Countrywide currently has about $6.53 billion in debt, including $2.2 billion in preferreds.

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