Preferred stock trading muted after jobs report, ahead of holiday; Bank of America tumbles

By Stephanie N. Rotondo

Portland, Ore., Sept. 2 - On the back of a declining common stock market and a terrible jobs report, preferred stocks ended the week in the red, traders reported.

"Lots of red today," a market source said. "Things are off a lot."

"Everything has sold off this afternoon," said another trader, adding that overall it was "quiet because of the holiday."

Bank of America Corp. was in the news again as federal regulators began asking the bank what sort of plans it had should the market continue to deteriorate. Additionally, word has it that the Federal Housing Finance Agency was preparing to file lawsuits against several banks - including the Charlotte, N.C.-based bank - for allegedly misrepresenting the quality of mortgages they bundled and sold.

In response, the preferreds lost a fair bit of ground.

Meanwhile, Wells Fargo & Co.'s 8.625% enhanced trust preferreds issued by Wells Fargo Capital XIV took a "huge hit," according to a market source. The bank announced on Thursday that it will redeem the issue along with three others.

Bank of America hit again

U.S. bank regulators have asked Bank of America to provide it with a list of actions the bank might take if conditions surrounding it - most notably its mortgage liabilities - don't improve, according to an article in the Wall Street Journal.

Additionally, the Federal Housing Finance Agency is planning on filing lawsuits against the bank, along with several others, for potentially billions of dollars. The suit alleges that the bank misrepresented the quality of bundled mortgages it sold.

Given the onslaught of negative news, as well as the overall weaker equity markets and a dismal jobs report, Bank of America's preferreds "got hammered," a trader said.

"They were down pretty significantly," said another market source.

The 8.2% series H depositary shares (NYSE: BACPH) were the most actively traded securities of the day, with over 752,000 shares turning over. They fell 63 cents, or 2.53%, to $24.29.

The Merrill Lynch 8.625% series Qs (NYSE: BMLPQ) were also active, declining 43 cents, or 1.71%, to $24.66.

Wells Fargo issue comes down

Wells Fargo's 8.625% enhanced trust preferreds took a "huge hit," a market source said.

He added that the drop was "no surprise" given that the issue was trading "at a pretty significant premium" before the bank called the issue at par.

The trust preferreds (NYSE: WCO) fell $1.45, or 5.35%, to $25.65.

On Thursday, Wells Fargo said that it will redeem the four issues on Oct. 3 because of upcoming changes due to the Dodd-Frank bill. The new rules will trigger a clause allowing the redemption.

"This action constitutes a redemption as a result of a 'Capital Treatment Event' under the securities' governing instruments," San Francisco-based Wells Fargo said in a regulatory filing. "The company has determined that a capital treatment event occurred with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act."

The bank is redeeming Wachovia Capital Trust Z's $837.5 million of 7.85% trust preferreds, Wells Fargo Capital XIII's $2.5 billion of $1,000-par 7.7% fixed-to-floating rate normal PPS preferreds, Wells Fargo Capital XIV's $690 million of 8.625% enhanced trust preferreds and Wells Fargo Capital XV's $1.75 billion of $1,000-par 9.75% fixed-to-floating rate normal PPS shares.

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