National Australia Bank sells floaters, Goldman strong on SEC settlement; GE Capital weaker

By Andrea Heisinger and Cristal Cody

New York, July 16 - National Australia Bank was the only issuer in the high-grade bond market on Friday following a full week of new deals.

The financial services company priced $150 million of floating-rate notes due 2012. They were priced under Rule 144A.

Two more large banks reported second-quarter earnings on Friday, although neither of them followed the example set by JPMorgan Chase & Co. earlier in the week by pricing bonds after the announcement.

Bank of America Corp. and Citigroup Inc. each reported results, with B of A outperforming Citi.

If the good mood of the market holds over the weekend, there could be another steady week of issuance ahead. The focus could be on overseas issuers as more domestic companies go into earnings blackouts. Eyes will also be on the remaining large banks reporting earnings, and to see if they will issue bonds afterward.

Goldman Sachs Group Inc.'s notes firmed in trading on Friday a day after reaching an agreement to end a federal lawsuit, according to sources.

Also in the secondary, General Electric Capital Corp.'s notes were weaker in trading, a source said.

The CDX Series 14 North American investment-grade index eased on Friday to 113 bps from a spread of 108 bps the previous day, according to a source.

Overall investment-grade Trace volume fell on a slow Friday by 34% versus Thursday to under $8 billion, a source said.

Treasuries rallied as investors sought safer havens in response to data that showed inflation falling along with consumer sentiment.

The yield on the benchmark 10-year note firmed 7 bps to 2.92%.

"Treasuries are up pretty good today," a trader said. "Up about a point."

The yield on the 30-year government bond also tightened to 3.94% from 3.99%.

National Australia prices floaters

National Australia Bank priced $150 million of floating-rate notes due 2012 on Friday at par to yield three-month Libor plus 20 basis points, a syndicate source away from the sale said.

The notes (Aa1/AA) are non-callable and were sold via Rule 144A.

The bookrunner was Deutsche Bank Securities.

The financial services company is based in Melbourne.

Earnings cloud issuance outlook

Two sources said they were not sure what the coming week would bring in terms of issuance, but if rates stay low, there should be some on tap.

"It will be interesting to see if B of A or Citi come out with anything," a source said at the end of the day. "I would put my bets on Citi [issuing]."

Bank of America reported Q2 net income of $3.1 billion, which was a decrease from the previous quarter.

Citigroup also saw its net income go down to $2.7 billion, but that was still a profit.

Both banks said their results weakened from the first quarter due to a slowdown in the investment banking segment.

One syndicate source remarked that the coming week should be "interesting with the financial reform bill" likely getting a signature from president Barack Obama on Wednesday.

Some of the largest banks, like Bank of America, are widely expected to take a hit in their consumer banking profits if the bill becomes law.

That also fuels the thought that more financials may issue bonds while rates are low to raise more capital, the second source said.

GE Capital weaker

General Electric Capital's bonds were wider in end-of-week trading, according to sources. Parent company General Electric Co. released its second quarter earnings on Friday morning.

"GE's benchmark 10-years were at a 145 spread, now the best offering is about a 151 spread. It's a little bit wider, but the general trend had been narrowing," a trader said.

"A week ago, it was 151, 152 so it's narrowed quite a bit from where it was trading last week. It's performed well."

The Fairfield, Conn., company is the funding arm of General Electric.

Goldman active

Bonds from Goldman were active in trading on Friday, according to a source.

New York-based Goldman Sachs said Thursday it had agreed to pay $550 million to settle fraud claims made by the Securities and Exchange Commission.

Goldman's 6% notes due 2020 were seeing trading at 209 bps, while the 5.375% notes due 2020 were quoted at 212 bps over Treasuries.

Goldman's 7.5% notes due 2019 ended the day 11 bps tighter at 222 bps versus 233 bps earlier in the day, sources said.

Bank, brokerage CDS cost more

A trader who follows the credit-default swaps market said that the cost of protecting holders of bonds issued by major banks like Bank of America, Citigroup and JP Morgan Chase against a possible event of default rose 10-17 bps.

He also saw the CDS costs for paper of major investment banking companies like Goldman Sachs and Morgan Stanley up by 15 bps to 23 bps on the session.

Paul Deckelman contributed to this report

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