Recession fears result in big losses for domestic, foreign banks; Qwest notes fall with market

By Stephanie N. Rotondo

Portland, Ore., Sept. 22 - Preferred stocks took a hefty beating Thursday as the equity markets dove on renewed fears of a global recession.

The issues dragging down the market included a lack of jobs, the renewed threat of a U.S. government shutdown and concerns that Greece's austerity moves might not be enough to contain its crisis.

A trader said that given the current environment, many were left wondering whether a sovereign default has already been priced in to the market or not.

But the sell-off did have one bright side.

"There was better liquidity," said a market source. That same source, however, noted that preferreds overall were down about 2.47%, or 62 cents on average for a $25-par piece of paper.

"It was ugly from the get-go," he said.

It came as no surprise that banks were taking the majority of the hurt.

"Banks were getting beat up," a trader said. Domestically, Bank of America Corp. bore the brunt while overseas, it was Royal Bank of Scotland Group plc.

The weaker tone of the market was even pressuring recent new issues. A trader said Qwest Corp.'s 7.5% $25-par notes lost some ground, though he still deemed the paper "a very, very, very good buy."

U.S. banks drift down

Following Wednesday's downgrade by Moody's Investors Service - and combined with Thursday's overall doom-and-gloom sentiment - Bank of America preferreds were not faring well, according to market sources.

The 8.2% series H depositary shares (NYSE: BACPH) and the Merrill Lynch 8.625% series 8 noncumulative preferreds (NYSE: BMLPQ) were "pretty big percentage losers," a source said. The former fell 34 cents, or 1.52%, to $21.99. The latter dropped 71 cents, or 3.11%, to close at $22.14.

Countrywide Financial Corp.'s 7% capital securities (NYSE: CFCPB) were also down, but "very much in line with the market," according to the source. The securities declined by 52 cents, or 2.62%, to end at $19.30.

Also weaker were Ally Financial Inc.'s 8.5% series A preferreds (NYSE: ALLYPA). The preferreds fell 45 cents, or 2.28%, to $19.25.

Meanwhile, Citigroup Inc.'s 7.875% fixed-to-floating trust preferreds (NYSE: CPN) were softer but fared "better than a lot," a source said. He noted that while some parts of Citi's capital structure were downgraded by Moody's on Wednesday, the trust preferreds were actually upgraded.

"The downgrade depended on where you were in the capital structure," he said.

The trust preferreds fell 29 cents, or 1.1%, to $26.02.

RBS a big loser

Royal Bank of Scotland was not performing too well either. In fact, RBS issues made up the majority of the day's biggest percentage losers.

The 6.4% noncumulative series M dollar preference shares (NYSE: RBSPM) dropped $1.04, or 9.15%, to $10.32, while the 6.6% series S noncumulative dollar preference shares (NYSE: RBSPS) slipped $1.24, or 10.74%, to $10.31.

The 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) closed $1.32 weaker, or 10.3%, at $11.50.

Also among the day's biggest losers were HSBC USA Inc.'s floating-rate series G noncumulative preferreds (NYSE: HBAPG). They ended down $1.19, or 6.73%, at $16.50.

Qwest down with market

Qwest's recent $575 million issue of 7.5% senior $25-par notes due 2051 (NYSE: CTW) was softening with the rest of the market, a trader said.

The notes lost 24 cents to close at $24.63, a 0.97% decline.

The issue priced Sept. 15 at par. The issue officially listed on the New York Stock Exchange on Wednesday.

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