Contagion fears hurt European banks; U.S. banks fare slightly better; utilities outperform

By Stephanie N. Rotondo

Portland, Ore., July 12 - The preferred stock market experienced "a little bit of a whipsaw," a market source said Tuesday. "It was very, very choppy."

The source said market indexes showed a loss of about 41 basis points for the $25-par space, which was "not the low for the day, but it was close."

"I thought we'd see a really big move down this morning," said a trader. More concerns about "euro contagion" pressured the broader markets, but "our market is taking it in stride."

Still, Europe concerns - Ireland was downgraded late in the session, and Italy seemed poised to join it - continued to pressure Europe-based banks.

"Europe banks are down more than U.S. banks," a trader noted.

While banks on both continents were getting pummeled, the utility sector was seen faring better.

Contagion fears hurt banks

Concerns surrounding Europe remained the key driver in the preferred market, resulting in a sell-off for European banks like Royal Bank of Scotland Group plc, Barclays plc and ING Groep NV.

"Obviously, the tone is ugly," a market source said, adding that the sentiment was "driven largely by European concerns."

RBS' series G and E preferreds continued to trade busily. The Gs (NYSE: RBSPG) ticked down 3 cents to $13.72, while the Es (NYSE: RBSPE) fell 6 cents to $13.70.

Barclays' series A preferreds (NYSE: BCSPA) dropped 19 cents to $24.77, while the Ds (NYSE: BCSPD) declined by 22 cents to $25.79.

In ING paper, the perpetual hybrids (NYSE: IGK) fell 6 cents to $25.49, and the 7.375% preferreds (NYSE: IDG) knocked off 27 cents, closing at $23.69.

National Bank of Greece SA's 9% series A preferreds (NYSE: NBGPA) lost weight, falling 54 cents - or 6.79% - to $7.41.

By comparison, Bank of America Corp.'s series H preferreds (NYSE: BACPH) slipped 4 cents to $26.15.

"If we get a couple more days like this, it could potentially overcome the market and you will see more selling," a trader speculated.

Utilities outperform banks

A trader said that "the utility market is still holding in there ... because it doesn't have the same risk" as sectors with exposure to Europe.

He added that it made sense for skittish accounts to "buy utilities to shed some of the bank paper."

Another trader said that Gulf Power Co.'s series 2011A preferreds (NYSE: GUA) have "a good level of support around the $26.00 level." The preferreds traded up a nickel to $26.25.

At another desk, a market source said utilities "have held up better, but everything is being dragged down."

He conceded that the "magnitude of the downward drift is less."

For example, he said Alabama Power Co.'s preferreds (Pink Sheets: ALBMP) - one of the busiest issues in the utility space - traded down 3 cents to $26.82.

"That was better than a lot of the banks, but it's still down," he said.

Entergy Arkansas Inc.'s first mortgage bonds (NYSE: EAA) were also barely weaker, losing 2 cents to end at $26.06.

Ally ends mixed

Ally Financial Inc.'s 8.125% series B preferreds (NYSE: ALLYPB) took back the top trading spot for the day. The preferreds gained 7 cents, closing at $24.72 on volume of 1.02 million preferreds.

The 8.5% series As (NYSE: ALLYPA) meantime dipped 2 cents to $25.30, with about 861,000 preferreds changing hands.

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