Aviva new issue 'taking some lumps'; negative news from Europe pressures worldwide banks

By Stephanie N. Rotondo

Portland, Ore., Nov. 23 - Preferred stocks ended with a weaker tone on Wednesday as market players geared up for a long holiday weekend.

"There was lots of red out there today," a market source said. "You'd think it was Christmas."

"Brutal would be a good word for it," said another source.

As reported Tuesday, Aviva plc postponed listing its recent new issue until Friday. Following the trend of the market, the 8.25% 30-year capital securities were trading downward, leaving one market source to opine that there were issues with the underwriting.

"I don't think anybody will be giving thanks for the new Aviva issue," he said.

Meanwhile, news that Germany sovereign debt auction flopped put pressure on banks, both foreign and domestic.

"There's a wall of worry in Europe," a trader said. "Nobody wants any euro-denominated bond. There's a lack of demand for [European sovereign] debt. Until we get any resolution, there's no reason to throw a lot of money around."

Bank of America Corp. was "taking it on the chin more than any other bank domestically," the trader continued. Also pressuring the bank are rumors that it could soon face more government regulations.

Aviva sinks with market

Aviva's 8.25% capital securities due 2041 - a $400 million issue that priced on Friday - were "definitely softer," a trader said.

He saw the issue trading in a $24.30 to $24.50 range. "So that's taken some lumps already," he said.

He attributed the weakness to the fact that the company was a European insurer with European and sovereign debt exposure. But away from that, the deal "looks decent."

Another trader said the issue was "trading comfortably" at $24.30.

A third source, however, speculated that there might have been underwriting issues.

""It's done poorly," he said. Typically, the dollar price limit on underwriting was around $24.50, he said. On Wednesday, the notes were offered as low as $24.32, and the volume-weighted average price was $24.41.

"That's pretty low," he said. "It's a shame."

The notes are expected to list on the New York Stock Exchange on Friday under the ticker symbol "AVV."

Among other recent deals, KKR Financial Holdings LLC's $225 million of 8.375% 30-year $25-par notes were "holding in," a trader said.

"I'm pretty surprised," he added. "I thought they would be softer just in sympathy with the rest of the market."

He pegged the notes at $24.90.

Winthrop Realty Trust's 9.25% series D cumulative redeemable preferreds meantime were seen at $24.10 bid, according to a trader.

"There's not much trading there," he said of the $40 million issue.

Financials falter on Europe

More bad news out of Europe regarding Germany's failed debt auction and economic data that "wasn't friendly either" put pressure on foreign and domestic financials, a market source said.

"The German bonds auction went horrible," a trader said. "It's a continuation of everything else."

The trader said that everything from Bank of America to Barclays Banking plc was on the decline as a result.

For its part, Bank of America preferreds were further pressured by rumors the bank could soon face more stringent governmental regulations.

The 8.2% series H depositary shares (NYSE: BACPH) fell 80 cents, or 3.49%, to $22.15, while the 8.625% series 8 noncumulative preferreds (NYSE: BMLPQ) declined 60 cents, or 2.64%, to $22.11.

In other domestic issues, Ally Financial Inc.'s 8.125% series A preferreds (NYSE: ALLYPA) dominated trading, but still ended weaker in line with the market. The paper lost 20 cents, or 1.04%, to $19.05.

Among foreign issuers, Barclays' 8.125% series 5 noncumulative callable dollar preference shares (NYSE: BCSPD) were actively traded, falling 30 cents, or 1.29%, to $23.10 each.

Also busy were Deutsche Bank's 7.6% trust preferreds (NYSE: DTK). The issue lost 68 cents, or 3.04%, to $21.67 apiece.

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