Preferreds decline as Europe woes mount; foreign banks hit hardest; Bank of America weakens

By Stephanie N. Rotondo

Portland, Ore., Sept. 12 - The preferred stock market was hit with an "eight-hour brutal attack," a trader said Monday, as European fears drove U.S. equities lower, bleeding into PreferredLand.

"Everybody is concerned about Europe right now," another trader said. "Wall Street knows there is a blowup about to happen, but Main Street doesn't."

"It was pretty ugly today," said another market source, noting that the weakness began even before the U.S. markets opened for trading. He said the declines were "largely Europe-driven" but also remarked that the preferred market "started ticking up towards the close, but not very much."

Yet another market source said volume was light, particularly in the hybrid securities space.

Foreign issuers, banks in particular, were taking the biggest hits during the session, which a source said was "not surprising. We're seeing European stuff underperforming [compared to] the U.S."

Barclays plc, Deutsche Bank AG and HSBC Holdings plc were among the most actively traded securities of the day. The preferreds were all down between 2.6% and nearly 7%, significantly more than the average loss of 2.1%, or 50 cents per $25-par share.

In the United States, Bank of America Corp. preferreds continued to get whacked. The bank's Countrywide Financial Corp. preferreds fell more than the rest of the complex as chatter of a potential Chapter 11 filing for the unit grew.

Among new issues, Digital Realty Trust Inc.'s recent new issue - which priced last week - continued to perform rather well, considering the softness in the broader market. Associated Banc-Corp's recent new preferreds were also faring relatively well.

A trader said there was a rumor circulating about a potential new issue that could come as early as Tuesday if the market holds up. While he did not have a specific name, he had heard that "it could be a big household name."

Foreign banks get knocked down

European concerns hit the markets hard on Monday as investors worried that a Greek default was imminent - the likelihood of a bankruptcy within five years has reportedly jumped to 98% - and that if Greece fell, it could take France's biggest banks with it.

Given the turmoil, European-based bank preferreds were taking the lion's share of the losses in Monday trading.

Barclays' 8.125% series 5 non-cumulative callable dollar preference shares (NYSE: BCSPD) dropped $1.52, or 6.31%, to $22.58. Deutsche Bank's 8.05% trust preferreds (NYSE: DKT) fell $1.03, or 4.13%, to $23.89, while its 7.6% trust preferreds (NYSE: DTK) declined by $1.23, or 5.14%, to $22.70.

HSBC's 8% exchangeable perpetual subordinated capital securities (NYSE: HCSPB) fared the best of the day's busier issues. The preferreds lost only 69 cents, or 2.61%, to close at $25.79.

National Bank of Greece SA's 9% series A preferreds (NYSE: NBGPA) were not nearly as active - there were less than 200,000 preferreds that turned over - but they dropped 80 cents, or 15.09%, to $4.50.

Bank of America hammered

As the market declined, so did Bank of America preferreds. The preferreds were not helped by rumors of a potential bankruptcy at the company's Countrywide unit.

A trader said that during an investor conference on Monday, Brian Moynihan, chief executive officer of the Charlotte, N.C.-based bank, was asked if he was considering a Chapter 11 filing for Countrywide. Moynihan did not give an answer, the trader said, which put added pressure on the Countrywide preferreds.

The 8.2% series H depositary shares (NYSE: BACPH) were the most active of the Bank of America structure. The shares fell 45 cents, or 1.93%, to $22.90.

In the Countrywide paper, the 6.75% trust preferreds (NYSE: CFCPA) closed $1.17 lower, or 5.63%, at $19.63. The 7% capital securities (NYSE: CFCPB) lost $1.16, or 5.48%, to end at $20.00.

Moynihan unveiled his latest plan to downsize the company and position it for better recovery at the investor conference in New York on Monday. "Project New BAC" is expected to eliminate thousands of jobs and will likely result in the loss of the bank's No. 1 status. For his part, Moynihan has said that being the best does not mean being the biggest.

New issues performing well

A trader said Digital Realty Trust's recent issue of 7% series E cumulative redeemable perpetual preferred stock "freed up" on Monday and was "trading well, surprisingly."

He quoted the issue at $24.95 bid, par offered.

Another trader said there was support at $24.95.

The San Francisco-based real estate investment trust priced the $250 million issue on Thursday.

In other new issues, Associated Banc-Corp's 8% series B perpetual preferreds were trading at $24.83 bid, $24.85 offered, according to a trader.

However, he noted that dealings were "very illiquid."

The $65 million issue priced Wednesday.

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