Financials rise on Wells Fargo earnings projection; Wells Fargo up 6 points; Micron adds on debut

By Rebecca Melvin

New York, April 9 - Wells Fargo & Co. convertible preferreds jumped 6 points Thursday after the San Francisco-based financial services company said it expects to report record net income of about $3 billion when it posts first-quarter results later this month.

Other financial names were also pulled into trade at higher levels, including Bank of America Corp. and Citigroup Inc.

Micron Technology Inc.'s convertibles gained on their debut in the secondary market, trading up early to 107.5 bid, 108 offered before slipping back to 106.5 bid, 107 offered, sources said.

The semiconductor concern priced $200 million of 4.25% convertibles and $250 million of common stock late Wednesday.

Micron's existing 1.875% convertibles jumped several points in trade.

General Motors Corp. convertible bonds were mixed amid a Wall Street Journal report that the Detroit automaker is planning a tougher debt-for-equity exchange offer for its unsecured bondholders. The plan being considered would be only equity, but no cash or new debt in GM, according to the Journal report.

Overall volume was light on this final session of a holiday-shortened week Markets are closed Good Friday. Indeed the market has been pretty quiet all week due to schools being shut for spring break and players taking vacation, traders said.

Wells Fargo jumps

Wells Fargo's 7.5% convertible preferreds traded at 560, which was up 6 points from previous levels, according to a New York-based sellsider.

Wells Fargo common stock surged $4.72, or 32%, to $19.61.

A month ago on March 9, the Wells Fargo convertible traded at 355 versus a share price of $8.61.

Wells Fargo said it expects net income of about $3 billion, including $372 million in dividends paid to U.S. taxpayers on the U.S. Treasury's Capital Purchase Program investment.

Revenue is expected to total $20 billion, including another quarter of double-digit revenue growth at legacy Wells Fargo, up an estimated 16%, and strong operating results at legacy Wachovia. The company reports financial results on April 22.

Consolidated net interest margin is expected to be about 4.1% and efficiency ratio is expected to be about 56%.

"Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group," chief executive John Stumpf stated in the release.

Last month, Wells Fargo cut its dividend saying it would save $5 billion a year that the bank would use to reinvest in the company and increase capital.

At that time, the bank also made positive comments about its business, saying its integration of Wachovia, whose loan portfolio was full of the riskiest kinds of mortgages, was on track.

Other financials gain

Financial convertibles roared back into focus on Thursday after a hiatus as market players were diverted by new issuance.

Charlotte, N.C-based Bank of America's 7.25% convertible preferred rose 498, which was up 3.6 points. While its common stock rose 35%, or $2.49, to close at $9.55.

New York-based Citigroup's 6.5% convertible preferreds traded at about 21.7. Meanwhile Citigroup common stock rose 34 cents, or 13%, to $3.04.

KeyCorp 7.75% convertible preferreds traded at 70, or plus 17.75 points over parity. Shares of the Cleveland-based regional bank jumped $1.67, or 26%, to $8.25.

Micron gains

The newly priced Micron 4.25% convertibles due 2013 traded at 106.5 bid, 107 offered around midday versus a share price of $4.40, according to a New York-based sellsider.

Shares closed a little higher than that level, up 17 cents, or 4%, to $4.45.

The existing Micron 1.875% convertibles due 2014 gained several points in trade from Wednesday to 54.875 bid, 55.375 offered versus the $4.40 share price, up from about 52.

Micron priced $200 million of 4.5-year convertible senior notes late Wednesday to yield 4.25% with a 22.5% initial conversion premium.

The deal priced at the rich end of revised talk for the coupon, which was 4.25% to 4.5%, and at revised talk for the premium. Initially the premium was talked between 17.5% and 22.5%, and the coupon was talked at 5% to 5.5%.

Concurrently, Micron priced about $250 million of common stock, or 60.24 million shares, at $4.15 a share.

The registered convertible offering was sold via joint bookrunners Morgan Stanley & Co. Inc. and Goldman Sachs & Co., with Deutsche Bank Securities Inc. acting as co-manager. There is a $30 million greenshoe.

The notes are non-callable until April 20, 2012 and then provisionally callable for 1.5 years, subject to a price hurdle of 135%.

Micron is a Boise, Idaho-based maker of semiconductor devices.

General Motors mixed

The GM B paper, or the 5.25% convertibles due 2032, traded down 6% to 2.23 versus a share price of $2.04.

The GM R paper was up, however, by 9% to settle at 6.80 after earlier trading at 7, according to a sellsider.

And the GM P paper, or the 6.25% convertibles due 2033, was unchanged at 2.30.

GM stock added 11 cents, or 6%, to $2.04.

Citing people familiar with the matter, the Journal report published late Thursday stated that the new exchange offer being considered represents a significant reduction for bondholders compared to the offer made two weeks ago.

At that point, GM planned to launch the debt-for-equity offer by April 17, with the goal of having about $29 billion in unsecured bonds restructured before a $1 billion payment due on June 1.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Citigroup Inc. NYSE: C

General Motors Corp. NYSE: GM

Micron Technology Inc. NYSE: MU

Wells Fargo & Co. NYSE: WFC

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