More pain expected for preferreds after S&P bank downgrade; Bank of America takes a tumble

By Stephanie N. Rotondo

Portland, Ore., Nov. 29 - It was "a sea of red" for preferred stocks on Tuesday, a market source reported.

"It was a downward slow, steady decline throughout the day," he said.

That trend was expected to continue into Wednesday's session after Standard & Poor's announced after the bell that it downgraded 37 global banks, including Goldman Sachs Group, Inc., Citigroup Inc. and Bank of America Corp.

The downgrades were based on S&P's new ratings criteria, which just went into effect. The new criteria were announced Nov. 9.

All in all, it was a bad day for Bank of America. The Charlotte, N.C.-based bank's common stock hit a new low, and its preferreds were equally battered. One source noted that of the day's most actively traded issues, Bank of America paper took the top four spots.

"If you took out [Bank of America], there would have been no issues trading over 300,000 [preferreds]," he said.

A couple of Bank of America issues were also among the day's biggest percentage losers.

In new issues, DTE Energy Co.'s 6.5% $25-par junior notes were the "real rock star," a trader said.

"There's a lot of demand," he said, seeing the as-yet-to-be-listed issue already trading above par.

DTE also announced that it will redeem all of its trust preferreds. One issue, the 7.8% trust originated preferred securities due 2032, made the day's most active list.

Bank of America loses ground

Bank of America's preferreds were taking a beating Tuesday.

Its common stock (NYSE: BAC) dropped 17 cents, or 3.24%, to $5.08 - a new 52-week low. At one point, the stock drifted down as low as $5.03.

In the preferreds, the 8.625% series 8 noncumulative preferreds (NYSE: BMLPQ) lost 58 cents, or 2.63%, to end at $21.51. The 8.2% series H depositary shares (NYSE: BACPH) declined by 70 cents, or 3.14%, to $21.61.

The floating-rate series 2 noncumulative preferreds (NYSE: BMLPH) meantime slipped 16 cents, or 1%, to $15.89, while the 7.25% series J noncumulative preferreds (NYSE: BACPJ) dipped 79 cents, or 3.89%, to $19.54.

"On a percentage basis, that's a huge decline," a market source said of the latter issue.

But that wasn't even the biggest percentage loser of the day. Among paying issues, the floating-rate series 5 noncumulative preferreds (NYSE: BMLPL) and floating-rate series 4 noncumulative preferreds (NYSE: BMLPJ) won that award. The former - a convertible issue of which the source said there was "not much value left in the convert option" - fell $1.03, or 5.91%, to $16.40, and the latter lost 99 cents, or 5.62%, to close at $16.62.

DTE new issue above par

DTE Energy's new $280 million issue of 6.5% 2011 series junior subordinated notes due 2061 was doing quite well, according to traders. The deal priced Monday.

Shortly before the market closed, one trader quoted the issue at par bid, $25.20 offered. After the close, a trader said the paper "settled in" at $25.20.

"It's a really good deal," the second trader said. He speculated that the new deal could go up to $25.25 to $25.50.

"There's very strong demand for utilities right now," he said.

"It's a defensive play," the first trader said. "People like utilities over financials." With 85% of the preferred market dominated by financials, a good utility deal can really take off, he explained.

Also on Tuesday, the Detroit-based energy provider said it will redeem its $180 million of 7.8% trust preferreds due 2032 (NYSE: DTEPA) and its $100 million of 7.5% trust preferreds due 2044 (NYSE: DTEPC) on Dec. 29.

The redemption price is par plus accrued dividends.

The 7.8% trust preferreds made the day's most active list but fell 3 cents to $25.26. The 7.5% trust preferreds meantime gained 3 cents, closing at $25.13.

The redemption is being funded with proceeds from the new issue.

Players mixed on Aviva

Among other recent deals, Aviva plc's 8.25% subordinated capital securities moved up 3 cents to $24.09.

"Shocker," quipped one market source, noting that the issue was down "almost 4% since the underwriting. That's not cool."

The London-based insurer priced the $400 million deal on Nov. 18. Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities, LLC were the joint bookrunners for the offering.

But another trader speculated that the deal "will do well eventually, once it picks up some dividends." He attributed that belief to the fact that the deal is similar to Allianz SE's 8.375% undated subordinated callable bonds, which have done reasonably well.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.