Fifth Third drops on negative report; Nabors gains as forecast meets views; NII, Webster Financial active

By Kenneth Lim

Boston, Feb. 13 - Fifth Third Bancorp slipped on Friday on the back of a negative research report, while convertibles in general slumped through another quiet session.

Fifth Third's convertible preferreds were lower after an equity analyst said the company would probably have to raise more capital.

Nabors Industries Ltd. gained slightly after the company guided for a fourth quarter profit that was in line with Street estimates.

Convertibles overall had a lackluster session on Friday as bond traders went home early ahead of the President's Day long weekend.

"It seems like the markets just shut down when the bond guys went home a couple of hours ago," a sellside desk analyst said.

Convertibles in general ended the week on a calmer footing than when it began.

"I think they were bad early on when the new Treasury secretary talked a lot and didn't say anything," the analyst said. "I think people didn't appreciate that. But it came back Tuesday and Wednesday, and it's just been trading sideways, which we're used to seeing now. Yesterday [Thursday] it opened weaker, strengthened over the day, carrying into today."

A New York-based convertible trader noted that NII Holdings, Inc. was active Friday.

"Seems like a few buyers with one or two sellers," the trader said.

The NII 3.125% convertible due 2012 was seen at trading between 70.625 and 70.75, up slightly, while the 2.75% convertible due 2025 was in line at 89.875 versus a $19.90 stock price.

NII common stock rose 0.41% or $0.08 to close at $19.77 on Friday.

NII is a Reston, Va.-based provider of digital wireless communication services.

Webster Financial Corp.'s 8.5% perpetual convertible preferred also saw movement, trading around 300 to 350 over the week. The preferred closed at 320 on Friday, down by 1.99% or 6.25.

Webster is a Waterbury, Conn.-based bank holding company.

Fifth Third slides on report

Fifth Third Bancorp's convertible preferreds fell about 2 points outright on Friday after a Bernstein Research equity analyst cautioned against investing in the bank.

The Fifth Third 8.5% perpetual convertible preferred traded at 31.5 against a stock price of $2.25. Fifth Third common stock fell 9.09% or $0.20 to close at $2.

"Fifth Third was pretty active, people are worried about their stability," a convertible trader said.

Fifth Third is a Cincinnati, Ohio-based financial services company.

Bernstein analyst Kevin St. Pierre wrote in a research note that Fifth Third will need more capital. But the bank is "un-investable" until more information is available about whether the U.S. Treasury Department thinks the bank meets minimum capital requirements, the analyst wrote.

The Treasury has proposed a stress test on large banks like Fifth Third to determine whether they need more capital.

"Upon release of the details of the test and the minimum capital levels desired by the government, we will be better equipped to evaluate the viability of Fifth Third and the potential dilution involved with further injection of capital by the government," the analyst wrote.

The convertible trader said the preferreds probably held up better than the common stock.

"If there's a liquidation the preferreds are still going to do a little better than the common, so there's still a bit of support there," the trader said. "I think holders of the common are also worried about dilution, which isn't as big of a problem for the preferreds."

Nabors gains with oil

Nabors's 0.94% convertible due 2011 was up by about a point outright on Friday after the company forecast a fourth-quarter profit that was in line with analysts' expectations.

The convertible was seen trading outright at 87. Nabors common stock closed at $11.14, up by 1.18% or $0.13.

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

The company said Friday that it expects fourth-quarter profit of 80 cents to 82 cents per share, excluding non-cash charges of about $400 million from bad hedges. Analysts were expecting about 82 cents per share.

"I don't think it made much of a difference," a convertible trader said. "If they exceeded or missed estimates by a lot, then I think you'd see something. But if they're going to meet expectations, that's going to be priced in."

The trader said a late rally in oil prices, which rose to about $37.51 per barrel on Friday, probably had more to do with Nabors' gains.

"How's oil doing?" a convertible trader remarked. "That's how Nabors and RIG [Transocean Inc.] and Schlumberger and all the other oil and gas guys doing. Same old story."

Mentioned in this article:

Fifth Third Bancorp Nasdaq: FITB

Nabors Industries Ltd NYSE: NBR

NII Holdings, Inc. Nasdaq: NIHD

Webster Financial Corp. NYSE: WBS

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