Fifth Third, UAL gain despite third-quarter losses; Ford follows stock lower; Nabors slips on oil prices

By Kenneth Lim

Boston, Oct. 21 - The convertible market remained soft on Tuesday as investors remained partial to selling despite improving credit spreads.

Fifth Third Bancorp gained outright even though the company reported a third-quarter loss due to loan losses.

Ford Motor Co. fell outright on news that billionaire investor Kirk Kerkorian sold a chunk of shares at a loss.

UAL Corp. was quoted better as it beat estimates in its third quarter and the common stock got a boost from weak oil prices.

Oil and gas names were lower again as the price of crude slid again Tuesday.

Nabors Industries Ltd.'s 0.94% convertible due 2011 declined by about ½ point outright to trade at 77.5 against a stock price of $15.75. Nabors common stock (NYSE: NBR) closed at $15.82, lower by 3.86% or $0.64.

Nabors is a Hamilton, Bermuda-based land drilling contractor.

The market in general had a lackluster session.

"In general, things are better for sale, and that's in spite of some positive things," a sellside convertible trader said.

The credit markets are strengthening with the tightening of three-month Libor spreads, but convertibles continue to be under pressure, the trader said.

"It's still the two axes of evil," the trader said. "Deleveraging and forced selling, as well as a lack of funding from prime brokers."

Fifth Third moves up

Fifth Third Bancorp saw its 8.5% series G perpetual convertible preferreds gain ½ point outright after the company reported a third-quarter net loss.

The convertible traded at 110 against a stock price of $12 on Tuesday. Fifth Third common stock (Nasdaq: FITB) closed at $12.25, lower by 0.16% or $0.02.

Fifth Third is a Cincinnati-based bank.

The company on Tuesday reported a third-quarter net loss of $81 million, or 14 cents per share, compared to earnings of $325 million, or 61 cents per share, in the year-ago period. Analysts were expecting earnings of 18 cents per share.

The bulk of the losses came on a $941 million provision to cover loans and lease losses, a sharp year-on-year increase.

Fifth Third said it plans to apply for federal funds through the recently passes $750 billion bailout plan.

"They missed estimates, so the stock was down," a convertible desk analyst said. "Ultimately none of the financials are doing very well, I think it remains to be seen whether some of the rescue plans that have been announced will be enough. If they can get capital from the government, that's better for credit in general, but that's still uncertain."

Ford falls on Kerkorian sale

Ford's 4.25% convertible due 2036 fell about 3 points outright on Tuesday as the underlying stock took a hit in the wake of a sale by Kerkorian.

The convertible was seen at 28.5 against a stock price of $2.25, while Ford common stock (NYSE: F) fell 6.87% or $0.16 to close at $2.17.

Ford is a Dearborn, Mich.-based automaker.

"I think it's probably because Kerkorian is selling his position or a big chunk of it," a sellside convertible trader said. "I haven't seen anything in them for some time."

Kerkorian's investment company, Tracinda Corp., said Tuesday that it sold about $18 million worth of Ford stock at about $2.43 apiece. The company had bought the shares near $7.10 earlier in the year. Tracinda has also hired an investment bank to explore the sale of its remaining stake in the car maker.

In a statement, Tracinda said that "in light of current economic and market conditions, it sees unique value in the gaming and hospitality and oil and gas industries, and has, therefore, decided to reallocate its resources to focus on those industries."

Ford also issued a statement: "We remain confident in and focused on our plan to transform Ford into a lean global enterprise delivering profitable growth for all."

UAL gains despite loss

UAL's convertibles were seen up about 10 points outright on Tuesday following the airline's third-quarter results.

The UAL 4.5% convertible due 2021 was quoted at 55, while its 5% convertible due 2021 was quoted at 52, all against a stock price of $13.50. UAL common stock (Nasdaq: UAUA) rose 8.92% or $1.13 to close at $13.80.

UAL is a Chicago, Ill.-based holding company of United Airlines.

"Yesterday it was big at 44.5 for a couple of million," a convertible trader said. "My guess is they're probably doing better with oil coming in."

UAL on Tuesday reported a $779 million net loss for its third quarter, or $6.13 per share. Excluding accounting charges that included hedge losses as oil prices fell near the end of the quarter, UAL would have lost $252 million, or $1.99 per share, beating Street estimates of a loss of about $2.48 per share.

Oil prices are largely driving the prices of airline securities at the moment, a convertible analyst said.

"Operationally I think most of them are running with pretty tight belts," the analyst said. "The single biggest factor in terms of how much they'll make is usually going to be their fuel costs, which is why you'll see airlines move in the opposite direction of wherever oil is moving."

Mentioned in this article:

Fifth Third Bancorp. Nasdaq: FITB

Ford Motor Co. NYSE: F

UAL Corp. Nasdaq: UAUA

Nabors Industries Ltd. NYSE: NBR

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