Ally Financial declines despite 'decent' earnings; KeyCorp, Fifth Third call preferreds

By Stephanie N. Rotondo

Portland, Ore., Aug. 2 - Preferred stocks were not at all buoyed by news that Congress and President Obama agreed on a deal that will lift the debt ceiling while also cutting spending, traders reported Tuesday.

"The debt deal didn't affect the market much," a trader said.

"It was a down day, definitely a lot of red out there," another trader said. "It felt worse as the day went on."

Even "decent earnings," as one trader put it, did little to help Ally Financial Inc.'s two series of preferreds. Both issues made the day's most active list, and they lost as much as 80 cents on the day.

Late in the day, KeyCorp announced the redemption of some preferreds, as did Fifth Third Bancorp. KeyCorp's preferreds moved into higher territory in after-market trading, though on thin volume.

"None of these are extraordinary calls," a trader said, adding that the calls also had nothing to do with Dodd-Frank. "They are all currently callable."

Also, a trader said he heard chatter of a possible new REIT deal that could come as early as Wednesday. However, he said he didn't know which REIT it was nor any details.

Ally drops

A trader said Ally Financial's preliminary second-quarter results were "decent" and that the Detroit-based financial services firm had reported "strong tier 1 capital."

Still, he said Ally's two series of preferreds had sold off about 50 cents by midday.

"It doesn't make much sense unless people are just really worried about banks," he said.

By the end of business, the 8.5% series A preferreds (NYSE: ALLYPA) had dropped 64 cents to $24.97, with nearly 1.4 million preferreds turning over. The 8.125% series Bs (NYSE: ALLYPB) meantime lost 80 cents to close at $23.80. Volume in the Bs was about 1.67 million preferreds.

"In a down market, they tend to get hit," one trader said of the 2.5% and 3.25% respective declines in the preferreds.

For the quarter, Ally posted net income of $113 million. That compared to $146 million in the first quarter of 2011 and $565 million in the second quarter of 2010.

However, Ally said it raised $12.2 billion of new funding during the quarter, bringing its tier 1 capital ratio to 14.6%.

Cash and cash equivalents were $14.9 billion as of June 30, compared with $12.9 billion at March 31.

KeyCorp calls four issues

After the bell Tuesday, Cleveland-based KeyCorp said it sent redemption notices to the property trustees for four trusts, which will result in the redemption of their 5.875% series A trust preferreds, 6.125% series B trust preferreds, 7% series D enhanced trust preferreds and 9.58% capital securities.

Though the call wasn't announced until after the market closed, KeyCorp's preferreds bucked the general market trend and traded into higher territory.

The As (NYSE: KEYPA) increased 23 cents to $23.94. The Bs (NYSE: KEYPB) moved up 13 cents to $24.40, while the Ds (NYSE: KEYPD) moved up 12 cents to $25.35.

The bank said the holders of the 9.58% capital securities issued by Union State Capital Trust I will receive 102.874% of the principal amount.

All redemptions will be funded with existing available cash.

"The action we are announcing today to redeem certain trust preferred securities is part of our overall capital and liability management strategy," Beth Mooney, chairman and chief executive officer, said in a statement. "Key's strong tier 1 common capital and the changing treatment of trust preferred securities as qualifying tier 1 capital under Dodd-Frank and the Basel III proposals make this decision appropriate at this time."

Fifth Third calls floaters

In other redemption news, Cincinnati-based Fifth Third said it called $25 million of floating-rate trust preferreds issued by First National Bankshares Statutory Trust II and $15 million of floating-rate trust preferreds issued by R&G Capital Trust IV, LLT.

The redemptions will be funded with excess cash on hand, the company said in a statement.

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