Preferreds flat to modestly weaker as month begins; Bank of America pressured by new lawsuit

By Stephanie N. Rotondo

Portland, Ore., Dec. 1 - Preferred stocks began the month of December "off just a touch," a market source reported Thursday.

"Everything's pretty much flat," said another trader, noting that investors continued to wait to see what would happen in Europe before getting too involved in the markets.

Another wrench in the machine was news that Massachusetts' attorney general Martha Coakley filed a lawsuit against five major banks over foreclosure practices. Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and GMAC LLC were the named banks.

A trader added that the market learned that the banks were "nowhere near a settlement" with other states regarding similar issues. "This is just going to drag on," he said. "It will weigh on the banks."

Indeed, Bank of America's complex was under pressure in active trading.

"A lot of [Bank of America] was trading, and it was all trading down," a source said.

In recent new issues, DTE Energy Co.'s 6.5% $25-par junior notes were continuing to climb higher.

"People want to stay away from banks," a trader said, and issues like the DTE notes provide such an opportunity.

Looking forward to the final weeks of 2011, a trader speculated that things would stay relatively quiet, at least until Dec. 15 when many issues will go ex-dividend. He further opined that about 80% of preferreds will pay out at that time and "we may see people jump around trying to buy on that."

Lawsuit dampens BofA

News that another mortgage foreclosure lawsuit was in the works against U.S. banks put pressure on Bank of America Thursday.

A market source said that of the day's top trading issues, four out of five were Bank of America issues.

The 7.25% series J noncumulative preferreds (NYSE: BACPJ) dropped a dime to end at $19.90, while the 8.2% series H depositary shares (NYSE: BACPH) lost 2 cents, closing at $22.03.

The floating-rate series E noncumulative preferreds (NYSE: BACPE) fell 35 cents, or 2.18%, to $15.70.

"That's a pretty big percentage loser," a source said.

The 8.625% series 8 noncumulative preferreds (NYSE: BMLPQ) meantime declined 8 cents to $22.12.

Massachusetts filed a lawsuit against the banks' allegedly deceptive foreclosure practices, such as robo-signing and false documentation.

The banks are already talking with all 50 states regarding a potential settlement. That settlement, however, might not come by the end of the year as previously anticipated.

Financials end mixed

Elsewhere in the financial realm, Goldman Sachs Group, Inc.'s 6.5% notes due 2061 (NYSE: GSJ) were trading actively, falling a dime to $24.60.

Royal Bank of Scotland Group plc's 5.75% series L noncumulative dollar preference shares (NYSE: RBSPL) were one of the biggest percentage gainers of the day, rising 77 cents, or 5.27%, to $15.38.

Banco Santander Central Hispano SA's 6.41% series 1 noncumulative guaranteed preferred securities (NYSE: STDPI), however, made the biggest percentage loser list, albeit on light volume. The issue declined 74 cents, or 3.79%, to $18.76.

DTE climbs again

DTE Energy's new 6.5% $25-par junior subordinated notes due 2061 continued to head into higher territory Thursday.

The deal priced Monday and has been moving upward since.

A trader said the paper was at $24.40 bid, $24.45 offered.

The popularity of the issue has been attributed to investors' appetite for securities linked to sectors other than the financial sector - something hard to come by in the preferred market. Utilities in general typically do well, according to traders.

DTE is a Detroit-based energy provider.

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