European fears weigh on preferred market; ING, RBS end mixed after Merkel-Sarkozy meeting

By Stephanie N. Rotondo

Portland, Ore., Aug. 16 - Preferred stocks were driven lower as investor fears about Europe were not assuaged by a Tuesday meeting between French president Nicolas Sarkozy and German chancellor Angela Merkel.

The leaders met to discuss Europe's various troubled economies and what might be done to save them. Some market watchers had pondered a eurozone bond to help purchase debt from particularly bad-off countries such as France, Italy and Spain. But Merkel and Sarkozy opted not to go the bond route and instead called for a more collaborative eurozone government.

Still, losses in the preferred market were modest.

"It was an up-and-down day," one market source said, noting that preferreds were lower at the open, then better, then worse after Merkel and Sarkozy made a public statement and then just slightly better before the close.

"Volume was definitely lighter than it has been for about the last week or so," he added.

"It was pretty quiet," said another trader. "There weren't really any big movers."

The meeting and subsequent statement of the European heads did result in a bit of pullback in foreign issuers such as ING Groep NV and Royal Bank of Scotland Group plc. A trader said that investors were "calmed" some by the statements from Merkel and Sarkozy, though he remarked that some felt that the moves might not come quickly enough.

Meanwhile, Bank of America Corp. was in the news again, selling off yet another asset. The bank is reportedly in talks to sell real estate investments held by its Merrill Lynch unit. While one trader opined that the sale - combined with news out Monday about the sale of some of the company's credit card units - "could help" the bank, the preferreds were weaker across the board.

ING, RBS mixed

After meeting in France Tuesday, Sarkozy and Merkel called for more collaboration on economic policies within the eurozone in an effort to protect a flailing euro.

However, they both denounced the idea of issuing the first eurozone bond in order to buy up debt from particularly depressed countries like Italy.

"I think it calmed the euro fears," a trader said. Still, he noted that it was felt that the "moves might not be fast enough for the market's comfort."

Another market source deemed the statement "kind of weak."

As investors' fears were not totally allayed, foreign issuers like ING and RBS faltered.

ING's 8.5% perpetual hybrid capital securities (NYSE: IGK) dropped a dime to $24.66. The 7.375% perpetual hybrids (NYSE: IDG) lost 15 cents to close at $21.53.

In the RBS complex, the 6.6% noncumulative series S preferreds (NYSE: RBSPS) were the most active. The issue also managed to gain a bit of ground, earning 3 cents to end at $14.25.

Bank of America tumbles

News outlets, citing people familiar with the matter, reported that Bank of America is in talks to sell Merrill Lynch's real estate investments for up to $1 billion.

Blackstone Group LP is the potential buyer, the reports indicated.

Traders said they thought the news was largely positive, but the bank's preferreds fell anyway.

"They were broadly down," a market source said. "Some real preferreds - as opposed to trust preferreds - were down more [than others]." He estimated that the preferreds were down "on average" 10 to 12 cents.

"I was kind of surprised," the source said. "I would have thought they ended up positive. I would have viewed [the news] as being a positive."

However, he noted that the proposed deal thus far lacked clarity, "which might have scared people away."

The bank's 8.2% series H noncumulative depositary shares (NYSE: BACPH) closed 10 cents weaker at $23.60. The Merrill Lynch 8.625% series Qs (NYSE: BMLPQ) lost 11 cents, finishing at $24.18.

News of the sale came just one day after the bank said it was selling its Canadian credit card business to TD Bank Group and that it also intended to leave the card business in the United Kingdom and Ireland.

Earlier this month, Bank of America had said that it was selling its credit card unit in Spain to Apollo Capital Management.

During a conference call last week, chief executive officer Brian Moynihan said the company was looking at its options in regards to selling off non-core assets in order to raise money.

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