Washington Mutual, Countrywide, Fannie Mae down; General Motors drives to loss; Omnicare probes depths

By Evan Weinberger

New York, Nov. 7 - Washington Mutual Inc., Countrywide Financial Corp. and Fannie Mae convertibles were all down as financials led the plunge Wednesday.

General Motors Corp. convertibles were also down in the wake of a $39 billion third-quarter loss driven by an accounting shift.

Omnicare Inc. convertibles were down in the face of another government investigation. Fluor Corp. and Admirals International Inc. were down on earnings. And EMC Corp. convertibles were just down.

That was the trend for the day Wednesday. Stock markets were trashed Wednesday. GM's $39 billion third-quarter loss and record oil prices contributed to the second 350-plus point drop in a week.

The two big factors, however, were two big men, traders and analysts said. Those big men are New York attorney general Andrew Cuomo and Federal Reserve chairman Ben Bernanke.

"You know what happened? Andrew Cuomo is going to try to out-Spitzer Spitzer," one trader said, referring to New York's previous crusading attorney general, and current governor, Eliot Spitzer. Cuomo launched a civil lawsuit last week against eAppraisalIT, a subsidiary of First American Corp., claiming that the home appraiser and Washington Mutual colluded to inflate the value of homes and mortgages that were then securitized and sold off.

Cuomo announced Wednesday that Fannie Mae and Freddie Mac were subpoenaed in the case because they bought mortgages from Washington Mutual.

The trader said the investigation and the lawsuit would result in a massive payout from banks and mortgage lenders to homeowners hurt in the subprime mess. "There's no justification for that," he said, because loan applicants knew what they were getting into.

An analyst said that the Cuomo investigation may have played a role in the market tumble Wednesday. "It's probably got something to do with it," he said. "More meddlesome politicians going out of their realm of expertise to ruin everybody's day."

The weak dollar also played a role. The weakening dollar raises oil prices, which hurts profits. It also makes people think about investing in other countries and currencies. On Wednesday, several media outlets said Chinese officials were considering moving away from further dollar investments and into stronger currencies, like the euro. Even supermodel Gisele Bundchen dissed the dollar and the rapper Jay-Z drove around with a stack of €500 notes, rather than dollars, in his latest video.

The dollar's troubles are a by-product of the two recent rate cuts, the trader said, adding "Bernanke blinked."

The market dive Wednesday was driven by financials. "Out of a couple hundred names, I got maybe 12 or 13 up on the day," said another convertibles analyst who specializes in financials among other sectors. "I do think there's something going on."

The Dow Jones Industrial Average plummeted 360.92 points, or 2.64%, for a 13,300.02 close.

The Nasdaq purged 76.42 points, or 2.70%, for a close of 2,748.76.

The Standard & Poor's 500 took the hardest hit, losing 44.65 points, or 2.94%, for a 1,475.62 close.

No new issues priced on the American market Wednesday, and the recent market volatility may keep companies from bringing new issues to the street. "When you're dropping like this every day, no one wants to announce anything because your pricing is going to be off," one analyst said, adding that if a stock drops after a new deal announcement, conversion premiums will get distorted.

WaMu leads financials lower

Seattle-based Washington Mutual, America's largest savings and loan institution, had a day it would rather forget Wednesday.

Actually, it started Tuesday when Fitch Ratings lowered its outlook for Washington Mutual and the rest of the banking sector. Then a group of investors announced a class action lawsuit claiming that WaMu executives made false and misleading statements.

On Wednesday morning, the Mortgage Bankers Association announced a 1.6% fall in new mortgage applications for the week ended Nov. 2.

Washington Mutual then told investors that it was expecting losses on home loans to continue in 2008 at the same pace that smacked the bank at the end of 2007. "The soft landing we were anticipating previously quickly transitioned to a severe downturn," Washington Mutual chief executive officer Kerry Killinger told investors, according to the Associated Press.

To top it off, Andrew Cuomo was doing his thing.

Washington Mutual stock and its convertibles took a beating Wednesday.

WaMu's 5.375% PIES due 2041 closed Wednesday at 37 versus a closing stock price of $20.04. They closed Tuesday at 40 versus a stock price of $24.23.

Providian Financial Corp., now a subsidiary of Washington Mutual under the name New American Financial Capital, Inc., saw its 4% convertible senior notes due May 15, 2008 close at 76.6229 versus WaMu's closing stock price of $20.04. They closed Tuesday at 88.7204 versus a stock price of $24.23.

Providian's 2.75% convertible senior notes due March 15, 2016 closed at 78.1662 versus a stock price of $20.04 after finishing Tuesday at 87.563 versus a stock price of $24.23.

Washington Mutual stock (NYSE: WM) crumpled to a loss of $4.19, or 17.29%.

Other financials hurt

With Fannie Mae facing Cuomo's subpoena, the Washington-based government-backed mortgage lender saw its 5.375% series 2004-1 convertible perpetual preferred stock (NYSE: FNM-PI) slip $1.10, or 2.55%, to $42.

Fannie Mae's common stock (NYSE: FNM) fell $5.60, or 10.11%, to $49.79.

Calabasas, Calif.-based Countrywide, America's largest home lender, saw its Libor minus 350 bps series A convertible senior debentures due April 15, 2037 close Wednesday at 83.78 versus a closing stock price of $13.63. They closed Tuesday at 86.92 versus a stock price of $15.02.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Wednesday at 81.41 versus a stock price of $13.63. They closed Tuesday at 84.2 versus a stock price of $15.02.

Countrywide stock (NYSE: CFC) cannonballed $1.39, or 9.25%, on Wednesday.

GM loses on losses

GM posted a $39 billion third-quarter loss Wednesday morning. A large portion of the loss was a $39 billion one-time charge linked to establishing a valuation allowance against accumulated deferred tax credits in the United States, Canada and Germany.

Including the one-time $39 billion charge, GM lost $68.85 per share in the third quarter of 2007 compared to a $147 million, or 26 cent per share, loss in 2006's third quarter.

The ugly third quarter was only augmented by the $39 billion charge. GM lost $757 million from its 49% stake in GMAC, its former finance arm. Even an uptick in sales couldn't stave off losses that were far greater than Wall Street expected. Without the one-time items, GM lost $1.6 billion in the quarter, or $2.80 per diluted share. Wall Street estimates ranged from losses ranging from 25 cents per share to 39 cents per share.

While GM's stock and convertibles were hurt, "folks seem sanguine about 39 bil!" a trader said in an e-mail. Other market watchers said the sanguine reaction came from the $39 billion loss being mostly the result of one-time payments.

That doesn't mean the Detroit-based automaker did well on the day. GM's 4.5% series A convertible notes due March 11, 2032 (NYSE: GXM) closed at $20.64, a loss of 37 cents, or 1.76%.

GM's 5.25% series B convertible notes due March 11, 2032 (NYSE: GBM) lost 48 cents, or 2.26%, for a $20.77 close.

GM's 6.25% convertible senior debentures due July 15, 2033 (NYSE: GPM) screeched to a $23.39 close, a drop of $1.03, or 4.21%.

GM's 1.5% convertible senior debentures due May 31, 2009 (NYSE: GRM) fell to $27.11, a drop of 77 cents, or 2.76%.

GM common stock faced the steepest decline, closing at $33.95, a fall of $2.21, or 6.11%.

Investigation pummels Omnicare

Stock in Covington, Ky.-based Omnicare was pummeled when reports that the Justice Department was seeking further Medicare records from the nursing home pharmaceuticals provider as part of an ongoing investigation.

Omnicare said the requests and the investigation were nothing new. "These guys are serial offenders. They're constantly being investigated," a trader said. "The FBI probably has their logo up on the wall."

Omnicare's convertibles didn't fare well either. The company's 3.25% convertible senior debentures due Dec. 15, 2035 closed Wednesday at 76.579 versus a closing stock price of $25.32. They closed Tuesday at 79.0457 versus a stock price of $27.01.

Omnicare stock (NYSE: OCR) tumbled $1.69, or 6.26%, on Wednesday.

EMC down

Hopkinton, Mass.-based computer data storage maker EMC saw its 1.75% convertible senior notes due Dec. 1, 2011 close Wednesday at 153.9 versus a stock price of $22.24. They closed Tuesday at 158.626 versus a stock price of $23.40.

EMC's 1.75% convertible senior notes due Dec. 1, 2013 closed Wednesday at 155.9 versus a stock price of $22.24 after closing Tuesday at 160.872 versus a stock price of $23.40.

EMC stock (NYSE: EMC) fell $1.16, or 4.96%, on the day.

"It looks like maybe even in tech, you're seeing a pullback," an analyst said.

Fluor, Admirals down

Irving, Texas-based engineering firm Fluor's 1.5% convertible senior notes due Feb. 15, 2024 closed Wednesday at 265.755 versus a closing stock price of $145.09. They closed Tuesday at 275 versus a stock price of $153.82.

Fluor stock (NYSE: FLR) fell $8.73, or 5.68%, on the day.

Newport Beach, Calif.-based tour operator Admirals International's 3.75% convertible senior notes due April 15, 2027 closed Wednesday at 71.1 versus a closing stock price of $15.04 after closing Tuesday at 75.3 versus a stock price of $18.45.

Admirals stock (Nasdaq: AMIE) sank $3.41, or 18.48%, on the day.

Both companies presented lower-than-hoped-for earnings before the markets opened Wednesday.

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