Analyst's reversal on Goldman helps bank names, in quiet market; Meccanica bonds hold gains

By Paul Deckelman and Sheri Kasprzak

New York , July 13 - With the corporate bond market agog on Monday over the ongoing drama surrounding fallen angel CIT Group Inc., high-grade secondary dealings were seen as quiet and primary market activity was muted.

The unexpected reversal by heretofore bearish banking analyst Meredith Whitney, who upgraded her recommendation on Goldman Sachs Group Inc. stock to a "buy" from a "hold' previously, gave a shot in the arm to the banking sector, although activity even there was mostly quiet.

The recent new issue from Meccanica Holdings USA Inc. was seen holding on to the gains which that dual-tranche deal had notched on Friday.

A market source said the CDX Series 12 North American high-grade index narrowed by 3 basis points to a mid bid-asked spread level of 142 bps.

Advancing issues - which on Friday had led decliners for an 11th consecutive session - remained in the lead on Monday, though only by a relatively small margin.

Overall market activity, reflected in dollar-volume totals, rose 26% from Friday's pace.

Spreads in general were seen a little tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year issue widened out by 5 bps on Monday to 3.35%.

The week got a slow start for the primary side of the market. Insiders said they saw little activity, and didn't see that much coming up later in the week.

"It's been quiet recently, and I don't see a lot coming up," said one source reached in the afternoon.

Meccanica bonds hang onto gains

Meccanica Holdings USA's two tranches of bonds were seen holding the gains they notched after that deal priced on Wednesday.

Its 6.25% notes due 2019, $500 million of which had priced at a spread of 305 bps over Treasuries, were quoted by a trader at 275 bps bid, 255 bps offered.

Meanwhile, he saw the $300 million of 7.375% bonds due 2039 at 295 bps bid, 275 bps offered. The Washington, D.C.-based unit of Italy's industrial group Finmeccanica priced those bonds at 330 bps over on Wednesday.

The bonds had firmed to their current levels in dealings on Thursday and Friday.

CIT monopolizes markets

Apart from Meccanica's continued firmness, the trader, queried about whether anything else interesting was going on, said it was "all CIT," referring to the New York-based commercial lender whose troubles in getting FDIC backing for the debt it hopes to issue to refinance its looming maturities has caused the company's bonds to mostly slide, and badly, on heavy volume.

However, another trader noted that he had not traded any CIT for many weeks, having abandoned trading in it when it was downgraded to junk by the major ratings agencies earlier this year (its bonds currently hold a Ba2 rating from Moody's Investors Service and a BB- from Standard & Poor's. Fitch rates most of its several hundred issues of bonds at B+, although some of its issues still carry an A rating - the last vestige of investment grade grace).

Financial sector firmer, but quiet

With most CIT activity taking place among junk accounts, the trader called Monday's high-grade financial market "kind of quiet -- we're in the summer and it's a Monday."

He said that prominent banking analyst Meredith Whitney's bullish assessment about Goldman Sachs's prospect - and even her not-unfavorable comments about the more financially shaky Bank of America Corp. - was seen as a positive but mostly greeted mostly matter-of-factly by the high-grade secondary market.

He said "we're seeing a little bit of separation between everything now - where people feel more comfortable and where they don't."

He said that "nothing ran tremendously - there was no huge move one way or the other."

He said that Goldman "was OK, and had a good bid to it. J.P. Morgan had a good bid to it," but there was no huge move.

Whitney - a noted bear on the banks, both when she was with Oppenheimer & Co. and now that she heads her own research firm, the Meredith Whitney Advisory Group - raised her rating on Goldman Sachs, which reports earnings on Tuesday. Analysts expect Goldman to report more than $2 billion in second-quarter profits on over $10 billion in revenue.

Whitney also said on CNBC that hard-hit Bank of America looks inexpensive, given the assets on its books - in fact, the cheapest money-center bank, relative to its tangible book value.

A market source saw Goldman's 3.25% FDIC-guaranteed notes due 2012 having firmed to 22 bps - although at another desk, Goldman's 4.75% non-FDIC notes due 2013 were seen having widened to about 210 bps, as much as 20 bps weaker.

J.P. Morgan's 5.90% notes due 2011 firmed by more than 30 bps to the 250 bps level.

Bank, brokerage CDS tighten up

A trader who watches the credit-default swaps market said that the cost of protecting a holder of big-bank bonds against a possible event of default, was unchanged to 5 bps tighter, while brokerage company CDS costs were 5bps to 10 bps tighter.

He saw Goldman's CDS costs decrease to 145 bps bid, 150 bps offered, which he called 5 bps tighter on the day.

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