Oils gains on crude prices; Merrill bucks higher trend in financials

By Ronda Fears

Nashville, Tenn., April 8 - In yet another slow session, convertibles were described as flat with little impetus to move the market. Contracting volatility has caused cheapening but few choice buying opportunities, dealers say. And, with no new-issue pipeline to speak of, trading has gotten very slow.

"Some of the hedge guys are adjusting their positions in relation to the stocks, but there is just not a lot of volume on the convertible desks right now," said the head trader at a major investment bank.

Syndicate sources were not talking about any imminent new deals, either, although some said there could be a deal or two pop up around mid-week.

Several financial issues were higher on a nod to that group from Credit Suisse First Boston, but Merrill Lynch & Co. bucked that trend on a New York Attorney General's order and getting added to the Enron Corp. stockholder suit.

"CSFB shifted their U.S. investment strategy to overweight financial services and some of those names were gaining on stock movements, but we haven't seen a big movement that direction in convertibles," said a buyside trader, saying that CSFB thinks the yield curve flattening could be similar to 1993, which led to substantial outperformance for banks and brokers.

CSFB added Merrill Lynch to its group of financial names, but Merrill was held back on a couple of fronts.

The Merrill Lynch convertible floater due 2032 was down 0.25 to 102.125 bid, 102.375 offered and the 0% convertible note due 2031 was flat at 51.25 bid, 51.375 offered as the underlying stock lost 45c to $53.45.

New York State on Monday ordered Merrill Lynch & Co. Inc. to disclose conflicts of interest between analysts and investment bankers, alleging the Wall Street powerhouse gave misleading stock picks.

Merrill responded, saying there was no basis for the allegations.

"His (the New York Attorney General) conclusions are just plain wrong," said a Merrill Lynch statement.

"We are outraged that we were not given the opportunity to contest these allegations in court."

Given a "fair review of the facts," Merrill Lynch said it was confident the firm's research is conducted with independence and integrity.

Also impacting Merrill was the addition of the company to the suit filed by Enron Corp. shareholders on Monday.

Enron stockholders allege some of the biggest investment banks, including JPMorgan Chase, Lehman Brothers and Merrill Lynch, colluded with Enron executives to bilk investors out of at least $25 billion.

"Some of the Merrill paper traded, but it looked like profit taking," said a convertible trader at a hedge fund in New York.

"The charges in the lawsuit are pretty far-fetched. It would be a stretch for me to believe that Merrill and these guys actually did this. One of the allegations is that they set up fraudulent deals to dupe investors into thinking Enron was a good investment. That's quite a stretch, if you ask me."

JPMorgan-linked convertibles and Lehman's floater gained ground, albeit slightly, along with several other financial issues.

Lehman's convertible floater due 2022 added 0.125 point to 101.375 bid, 101.625 offered with the stock up 4c to $62.92. The Jardine Matheson 4.75% convertible due 2007, which converts into JPMorgan shares, was slightly higher at 95.125 bid, 96.125 offered as the underlying stock added 12c to $34.98.

Other financials were marked up nicely.

Financial Federal's 4.5% convertible note due 2005 added 2 points to 115 bid, 115.5 offered as the stock rose 93c to $32.95. E*Trade's 6.75% convert due 2008 was up 3 to 110.5 bid, 111 offered and the 6% due 2007 up 1.25 to 81.5 bid, 82.5 offered with the stock up 38c to $9.29.

AmerUs' 2% convertible OCEANs due 2032 added 1.75 point to 111.625 bid, 112. 375 offered while the stock gained 70c to $38.60.

"It was a select group of financials that got a lift," a dealer pointed out.

"Some of the names in that group that have run into hard times, like Providian, didn't participate in any uptick. Providian has been coming back, but it's not a top pick."

Providian Financial's 0% convertible due 2021 was quoted flat at 30.125 bid, 32.125 offered and the 3.25% convertible due 2005 also quoted flat at 61.5 bid, 63.5 offered. The stock closed down 11c to $7.29.

Oil producers were also higher as oil prices gained on Iraq's supply halt in support of Palestine in the West Bank war with Israel. Iraqi leader Saddam Hussein made good on a warning to use oil as a weapon, announcing the halt of oil exports for a month as of Monday and saying Iraq will resume exports if Israel leaves Palestinian areas.

The May contract for crude oil closed up 33c to $26.54 on Monday but was even higher intraday as a result of goings on in the Middle East, and that pushed oil names higher.

"We saw a little bit of buying because there are some people saying that oil could get to $30 a barrel just because of the Iraq embargo, and there's also talk that Iran may join them in that," said a dealer.

"There's a war premium added to oil right now, and that probably won't last very long. But there are other positive points for oil, too, right now. If nothing else, oil is good bet right now because of summer and higher gasoline prices. That's the case, for sure, when you see small domestic names rising in tandem with Big Oil."

St. Mary Land & Exploration's new 5.75% convert due 2022 added 1.5 points to 110.75 bid, 111.75 offered with the stock up 50c to $22. Evergreen Resources' 4.75% convert due 2021 gained 2 points to 106.5 bid, 107.5 offered as the stock gained $1.20 to $41.90.

Kerr-McGee's 5.25% convertible due 2010 rose 1.5 points to 117.25 bid, 117.75 offered while the stock added $1.37 to $61.25.

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