American Express Bank, Korea Southern Power price; tone sours on GE earnings news amid issuance lull

By Andrea Heisinger and Paul Deckelman

Omaha, April 11 - A large issue from American Express Bank FSB surprised some traders who were only expecting an issue from Korea Southern Power Co. to price Friday.

In the investment-grade secondary market Friday, advancing issues led decliners by a nearly seven-to-five ratio, while overall market activity, reflected in dollar volumes, fell nearly 29% from Thursday's pace.

Spreads in general widened out as Treasury yields tightened, with the yield on the benchmark 10-year issue, for instance, moving out by 6 basis points to 3.54%.

General Electric Co.'s bonds, and those of its General Electric Capital Corp. unit fell sharply after the giant industrial, media and financial conglomerate reported weaker-than-expected quarterly earnings, missing analysts' forecasts.

GE's results threw a pall over the stock and bonds markets; among the financial names, Goldman Sachs was lower, though Lehman Brothers Holdings were firmer.

Credit-default swap spreads for major banks and brokerage houses were seen wider, reflecting waning investor confidence in the sector, particularly Washington Mutual Inc., after Goldman Sachs put a "sell" on the Seattle-based thrift's shares.

AmEx surprises

American Express Bank FSB, a unit of American Express Co., priced $1.75 billion of 5.5% five-year bank notes at 99.767 to yield 5.554% with a spread of Treasuries plus 300 basis points.

Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. were bookrunners.

"That was kind of surprising," a market source said of the issue. "It was one of the larger deals we've seen on a Friday in a while."

Kospo tighter than talk

Korea Southern ended its road show Thursday and announced price guidance.

The $300 million issue of 5.375% five-year senior notes priced at 99.61 to yield 5.465% with a spread of Treasuries plus 289.6 basis points.

On a mid-swaps basis, the deal priced at 208 bps, which was tighter than talk in the mid-swaps plus 220 bps area.

The issue priced via Rule 144A/Regulation S.

ABN Amro Securities, Citigroup and Deutsche Bank Securities Inc. were bookrunners.

The issue went well and was broad based, a source said. It was several times oversubscribed with books at $1.7 billion, with a third from the United States, a quarter from Europe and the rest from Asia.

GE hurts mood

The general tone of the investment-grade market took a downward turn Friday on the news of a profit shortfall from General Electric Co.

"That definitely didn't help," a source said of the negative headlines. "The underlying tone in credit was still OK."

The week ended with around $22 billion in new issues. This was boosted by several large issues.

Those that were more than $1 billion came from MetLife Global Funding, Barclays Bank plc, Wal-Mart Stores Inc., Westfield Group, European Investment Bank and Citigroup Funding Inc.

Other smaller deals were brought by Citigroup Inc., Spectra Energy Capital LLC, Pacific Life Global Funding, Duke Energy Carolinas LLC, Monsanto Co., Public Service Electric & Gas Co. and Toyota Motor Credit Corp.

A split-rated issue from Kazakhstan's Halyk Bank also priced.

Quiet week expected

The coming week should again be fairly quiet, sources said.

A small issue of up to $50 million in subordinated debt is expected from Provident Bankshares Corp.

One market source said he was working on a few things for next week, but that he wouldn't expect to see a flood of new issues.

"Bank earnings will be coming out, and I wouldn't expect to see a whole lot," he said.

Another source said that was an accurate estimate for the coming week.

"We'll see some industrial issuers deciding whether to come in," he said.

Monday should be slow as people digest things, regroup and decide whether to come into the market Tuesday, he said.

"I think we're in the middle of a lull," he said. "The money is still there but it's just a matter of if a company really needs to issue debt."

There was a slight correction on spreads going wider Friday, likely due in part to the negative headlines, he said.

"The tone for issuance is just wider," he said. "That will be weighing in on whether to issue or not."

GE takes its lumps

Traders said that outside of watching the Masters televised golf tournament and watching General Electric's equity take its lumps following weaker-than-expected numbers, not much was going on.

A trader saw GE's 5.25% notes due in December 2017 trade down to 99.75 from closing levels about 100.47 on Thursday, and pegged the bonds' spread as having widened out to 181 basis points over comparable Treasuries from 164 bps at the close Thursday.

"Wow, was this ever active," he said of the bonds, which saw over $180 million changing hands by Friday afternoon. He also noted that the company's common stock "is going nuts," plunging $4.70, or 12.79%, to end at $32.05; volume was 366 million shares, nearly seven times the norm.

He noted that besides GE's own problems, the Treasury market had rallied sharply, further widening Friday's corporate spreads over Thursday's levels.

He also saw GE Capital's 5.25% notes due October 2012 widening out about 10 bps to 168 bps.

Another market source saw GE Capital's 5.875% bonds due January 2038 gapping out by around 13 bps to the 180 bps mark.

Parent GE's 5% notes due 2013 were out by around the same amount to 161 bps bid.

Financials seen mixed

Apart from GE-related bonds, Lehman Brothers' 6.875% bonds due 2037 were seen having tightened around 10 bps to the 320 bps over mark. But Goldman Sachs' 6.875% notes due 2011were 10 bps wider, out to the 201 bps bid level.

Among the non-financials, drugstore giant CVS Caremark's 6.302% notes due 2012 tightened by 10 bps to 530 bps over. But retailer JC Penney's 7.95% notes due 2017 retreated by a dozen basis points to around 400 bps over.

Financial CDS spreads widen out

Debt-protection costs for major bank and brokerage names continued to widen out, reflecting market angst over the possibility of further billions of dollars of writedowns and charge-offs relating to subprime mortgage exposure and the resulting global credit crunch.

A trader saw the cost of protecting bank and brokerage debt "a little wider" versus Thursday's levels.

WaMu's CDS cost gapped out by 25 bps to 395 bps bid, 415 bps offered, especially after Goldman Sachs said the Seattle-based Number-One U.S. thrift operation faces further big problems, cut its earnings estimate for WaMu and advised shareholders to sell that stock.

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