Preferreds head for higher ground; Aegon fluctuates post-earnings; Bank of America rallies

By Stephanie N. Rotondo

Portland, Ore., Aug. 11 - Preferred stocks continued to climb back up Thursday after a sell-off earlier in the week.

Long Treasuries sold off 5 points, "so that's been helping," a trader said, adding that it seemed that some sense of "normalcy" had returned to the market.

"The market was green mostly," another market source said. He said the Wells Fargo preferred index was up 2.2%, or 54 cents on average for $25-par paper. "Volume was high in everything."

"Everybody started buying today," said a third source. He opined that the markets could be "out of the woods," at least until the "next major blowup." It is expected that the next blowup will come from Europe, probably France or Italy.

However, despite the stabilizing efforts, issuers "will have a hard time bringing new issues in this market."

Aegon NV released its second-quarter results Thursday. Initially, the figures spooked investors and caused trading in the preferreds to be "pretty volatile," a market source said. But once the results were fully digested and investors saw they were better than originally thought, the preferred shares embarked on a "pretty slow and steady march upward."

Bank of America Corp. preferreds were also trending higher after several days of losses. The Countrywide issues, however, were not gaining as much as other issues, largely because of lingering doubts about whether or not the unit's debt is fully guaranteed.

Among other U.S.-based and -listed financials, Ally Financial Inc. had a "whirlwind day," a market source said, eventually ending the day stronger. Citigroup Inc. was also active. It was mixed by the end of business.

Aegon gyrates on numbers

Dutch insurer Aegon - also the owner of U.S.-based Transamerica Corp. - reported its second-quarter earnings, showing a 2.4% decline in net profit due in part to a weaker dollar.

Increased provisions to cover a higher life expectancy in the Netherlands and for administrative errors in the United Kingdom were also blamed for the decreased profit.

Still, a trader said the results were "decent."

"You would have thought it was a lot more negative than it was," another market source said, as the preferreds initially traded downward. The source said the company missed analyst expectations, but barely. Once investors wrapped their heads around the numbers, the preferreds reversed direction and ended up "big by the end of the day."

The perpetual capital securities (NYSE: AEF) rose $1.47, or 7.31%, to $21.57, while another issue of perpetual capital securities (NYSE: AED) moved up $1.46, or 8.22%, to $19.23.

At one point, the AEF paper hit a low of $19.47.

"That's quite a swing," a market source said.

Aegon's gains might have also helped ING Groep NV move upward. The perpetual hybrids (NYSE: IGK) increased 67 cents, or 2.95%, to $23.37, and the 7.375% preferreds (NYSE: IDG) earned 59 cents, or 3.02%, to finish at $20.12.

For the quarter, Aegon posted net income of €403 million, down from €413 million the year before. Pretax profit was €401 million.

Analysts polled by Bloomberg were expecting €422 million.

Also in the second quarter, Aegon said it repaid €3 billion of aid received from the Netherlands, thereby eliminating obstacles to dividend payments and acquisitions.

"Clearly, the current economic environment poses considerable challenges," Alex Wynaendts, chief executive officer, said in the earnings statement. "However, over the past years we have implemented measures to strengthen and protect Aegon's balance sheet by reducing our exposure to equity and credit markets, as well as interest rate risks. At the same time, we are restructuring our businesses in our key markets. These actions, along with our very limited exposure to peripheral European countries, support our confidence in Aegon's growth prospects going forward."

Bank of America rebounds

A trader said that recent volatility in Bank of America's Countrywide preferreds is due to doubts about whether or not the subsidiary's debt is fully guaranteed.

The trader said that during the bank's investor call Wednesday, CEO Brian Moynihan was asked if he had considered restructuring Countrywide in Chapter 11. Moynihan reportedly said that is not a consideration, though there are other avenues the company is thinking of. Soon after, television news started erroneously reporting that bankruptcy was an option and Countrywide preferreds soon lost ground.

"But all of this debt has been assumed by Bank of America," the trader said, citing a Nov. 7, 2008 8-K that explained the assumption of the debt, including Countrywide's trust preferreds.

"When they merged, they assumed their debt," said another market source. "Moynihan was very clear that he considers that a core asset.

"Some people are bizarre in terms of what they will say," he added. "Fear is fear."

The bank's series H preferreds (NYSE: BACPH) rose 18 cents, or 0.8%, to $22.75, down from the intraday high of $23.18. The Merrill Lynch series Qs (NYSE: BMLPQ) increased 36 cents, or 1.55%, to $23.52.

Countrywide's 7% preferreds (NYSE: CFCPB) meantime improved by 41 cents, or 2.10%, to $19.91.

Ally firms, Citi mixed

Ally Financial's two series of preferreds gyrated throughout the day, managing to end firmer.

The price difference between the two issues also continued to narrow. The 8.5% series A preferreds (NYSE: ALLYPA) gained 12 cents to close at $19.55, with about 2.77 million preferreds turning over. The 8.125% series Bs (NYSE: ALLYPB) increased 83 cents to finish at $19.00, with over 2 million preferreds trading.

Citigroup was also a volatile name.

"They are higher-coupon issues. That always helps," a source said.

The series J preferreds (NYSE: CPJ) closed down 13 cents at $25.30, while the series Ns (NYSE: CPN) moved up 29 cents to $25.59.

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