Financial convertibles weaken as pessimism persists, but Prudential Financial stable; Kodak extends slide

By Rebecca Melvin

New York, March 4 - Financial convertibles were weaker Wednesday but other convertibles were mostly in line as equities rebounded from 12-year lows. Eastman Kodak Co. lost another 1.5 to 2 points, extending a slide that started at the beginning of last week, convertibles players said.

Citigroup Inc. got knocked down another 1.5 points as volatility in the financial sector persisted.

Bank of America Corp. ended down from Tuesday, but higher than it was trading early last week.

"I haven't seen this level of jitteriness since the beginning of December," a New York-based sellside trader said.

"The market today is nowhere near what it was back in October and November. But it sure feels like there is that potential for premiums to come in more," the sellsider said.

Wednesday's jitters were heightened by heavy selling in General Electric Co., and the fears reduced convert trading activity overall, the trader said.

"Jitteriness about the financials is keeping people from doing stuff; GE is preventing people from doing stuff. I guess the market is taking a break today," the sellsider said.

But Prudential Financial Inc., one of the more actively traded names of the day, was steady despite a wide swing in its underlying shares.

Financials get beaten up

Most of the bigger banks were weak all day, with one source citing problems with GE as casting a pall on the whole market.

Another sellsider agreed: "There isn't a lot of optimism out there. I'm not very optimistic," a New York-based sellsider said.

He described the convertibles market as "going along" early in the session, but "nobody believed" the early rally, and in fact the Dow Jones Industrial Average did drop about 100 points in the last part of the day, he pointed out.

Citigroup's 6.5% convertible preferred shares ended the day at 13.625, down from 15 on Tuesday. The New York-based bank's common stock ended down 9 cents, or 7.4%, at $1.13.

The bank convertible preferred names have been volatile. The Citi preferreds sank to 8 early last week, but jumped up to 20 before settling near 15 on Friday after the bank and the U.S. Treasury unveiled an exchange offer for some of its preferred shares as part of an effort to realign the ailing bank's capital structure

Bank of America's 7.25% convertible preferred shares ended the day at 318, according to a New York-based sellsider, who said negative comments in Wednesday's American Banker publication also put pressure on the sector.

That was down from Friday, but up from Feb. 24 when the Bank of America preferreds were at 302.3, and Feb. 19 when they sunk to 233.

Bank of America common shares were down 5 cents on the day, or 1.4%, at $3.59.

Wells Fargo & Co. saw its convertibles end at 385 versus a share price of $9.66 for the San Francisco-based bank. The stock was down 9.5% on the day.

Prudential steady

Prudential Financial's floating-rate convertible notes due 2037 were active at 96.125 bid, 96.375 offered. About 36 million traded in that range, a sellsider said mid-afternoon Wednesday.

They were steady at that level even early in the session when its underlying shares were down near $11.50, the trader said. Shares of the Newark, N.J.-based insurance and financial services company closed up 92 cents, or 7%, at $13.82 in very active trade.

Selling in Kodak persists

Elsewhere, Kodak was another top volume name of the day. Sources said they didn't know specifically what was causing continuing selling pressure in the name, but concerns about the company's ability to sustain itself through the currently tough economic times may be part of the reason.

The Kodak 3.375% convertible senior unsecured notes due 2033 ended down at 66 bid, 67 offered, trading at 66.5 late in the session.

"It's been really active and really beat up. It traded down another two points. It seems to be going down two points a day," the sellsider said, citing speculation that "it can't last too much longer."

Mentioned in this article

Bank of America Corp. NYSE: BAC

Citigroup, Inc. NYSE: C

Eastman Kodak Co. NYSE: EK

Wells Fargo & Co. NYSE: WFC

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