Financials end mixed after bouncing off lows; Eastman Kodak gets beaten up; LifePoint trades at 79

By Rebecca Melvin

New York, Feb. 20 - Financials ended mixed after bouncing off their lows Friday following White House comments that a privately held banking system was still believed to be the best way forward compared to nationalization of the banks.

Earlier in the day, financial convertible bonds and preferred shares had extended losses amid no let up in fear and uncertainty that had pressured them lower all week.

That changed after White House press secretary Robert Gibbs said the Obama administration continues to "strongly believe that a privately held banking system is the correct way to go."

Bank of America Corp.'s 7.25% convertible preferreds bounced back to 290 after hitting a low of 162 early in the session, according to a New York-based sellside trader.

Citigroup Inc.'s 6.5% convertible preferreds came back to 8.8 from 8.

Wells Fargo & Co.'s 7.5% perpetual convertible preferreds recovered to 390 from 365.

Prudential Financial Service Group Inc. also moved back up to about 95.125 after slipping lower to 94.75 bid, 95 offered in active trade.

An exception to the early death-knell-like declines was trading in KeyCorp, which saw its convertible preferred shares and bonds move up from the start of the day.

Potential loan losses versus capital of the Cleveland-based bank don't look too bad, a New York-based buyside analyst said.

Elsewhere, "things got beat up a bit today," a New York-based sellsider said.

Eastman Kodak Co. lost about 3 points even as its shares closed slightly north of the flat line.

Some activity was also spurred by earnings news. LifePoint Hospitals Inc. saw its bonds trade at 79, which was up compared to Wednesday's 77, despite steeply lower shares.

The Brentwood, Tenn.-based rural hospital owner and operator posted higher quarterly profit that just missed estimates.

Bradford & Bingley eyed

Other than speculation about potential nationalization of U.S. banks, the market may have been troubled early Friday by news that the U.K. government allowed nationalized lender Bradford & Bingley to defer interest on £850 million of subordinated bonds, a New York-based buyside analyst said.

The idea that financial institutions that received government bailout funds could be told to defer bond interest payments to protect taxpayers is very troubling to debt markets, the analyst said.

The reason behind such a move may have been to avoid triggering credit-default swaps, the analyst said.

Not much of the U.K. banking story has translated to the U.S. story so far, the analyst said, "But we are watching with interest what's going on with the Royal Bank of Scotland."

Banks end mixed on the day

B of A's 7.25% convertible preferreds traded down to 162 on Friday but bounced back to 290, compared to 233 Thursday. Shares of the Charlotte, N.C.-based banking giant shed 14 cents, or 3.6%, to $3.79.

Citigroup's 6.5% convertible preferreds fell to 8 before bouncing back to 8.8, compared to 8.45 on Thursday.

Shares of the New York-based financial services giant lost 56 cents, or 22%, to close at $1.95.

Wells Fargo's 7.5% perpetual convertible preferreds slumped to 365 before recovering to 390 Friday, compared to 400 on Thursday and 510 on Tuesday. Shares of the San Francisco-based bank dropped $1.10, or 9%, to $10.91.

Meanwhile the convertible preferreds of Fifth Third Bancorp dropped down to 15 compared to 18.25 on Thursday, while shares of Cincinnati-based regional bank sank 15% to $1.03.

But KeyCorp convertible preferred stock was trading up 7% on the day at 52 cents on the dollar, the buyside analyst said. And its stock settled up even more at $6.07, which was up 71 cents, or 13.25%, on the day.

"Not everything has the magnitude of problems of the mega-cap banks," the buyside analyst said.

If one looks at the ultimate loan loss content and how much capital is left, KeyCorp has double the amount of capital to risk weighted assets in the 4%-5% range, compared to Bank of America, which is in the 2% range, the analyst said.

Bank-by-bank basis

The analyst wondered how the so-called government stress tests on these banks would be carried out, and the source thought it made sense to consider the banks on a case-by-case basis, rather than using a blanket policy that may include something akin to nationalization.

"All of us on the buyside have taken some pretty sharp pencils to loan losses and it's not pretty, and what the government is going to do to guarantee the debt. There is no way to handicap an outcome. It would make sense for them to go on a bank-by-bank basis," the buysider said.

Prudential Financial's floating-rate convertibles due 2037 were at 95.125 on Friday, which was little changed compared to Thursday. Shares of the Pittsburgh-based bank ended down 51 cents, or 3%, at $18.51.

LifePoint trades at 79

LifePoint's 3.25% convertibles due 2025 traded at 79 versus a share price of $22.00, according to one sellsider.

Its fourth-quarter profit rose by less than 1%, slightly missing analysts' expectations.

The hospital owner earned $30.8 million in the quarter ended Dec. 31, compared to profit of $30.6 million a year earlier.

Excluding one-time items, LifePoint earned 63 cents per share, falling a penny short of consensus estimates.

Revenue rose 5% to $674.9 million from $643.4 million. Analysts expected $671 million.

Chief executive William Carpenter said in a news release that LifePoint has a strong balance sheet, dependable cash flow and access to adequate capital. In 2009 its per-share profit should be in the range of $2.25 to $2.55, which assumes growth of 5% to 19%. The company expects revenue to be in a range of $2.9 billion to $3 billion.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Citigroup Inc. NYSE: C

Eastman Kodak Co. NYSE: EK

Fifth Third Bancorp NYSE: FITB

LifePoint Hospitals Inc. NYSE: LPNT

PNC Financial Services Group Inc. NYSE: PNC

Wells Fargo & Co. NYSE: WFC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.