Financial preferreds hit once again; PNC steady after quarterly loss; Ford, SanDisk also stable

By Rebecca Melvin

New York, Feb. 3 - Convertible financial preferred shares were hit again on Tuesday as speculation about dividends and the national bailout plan took a toll in the absence of hard news, sources said.

Bank of America Corp. preferreds came in about 5 points, which is on top of losses last week, for a total fall of about 15 points for those shares.

"They are all getting smoked," a Connecticut-based sellside trader said of the financial preferreds.

PNC Financial Services Group Inc. traded actively but within its typical price range after the Pittsburgh-based banking giant posted a fourth-quarter loss and announced job cuts. PNC, however, said it would keep its dividend.

PNC's underlying shares plunged as much as 18% intraday, but its 4% convertible senior notes, which it inherited from National City, stayed right around 92, which has been a consistent midlevel for that paper.

Otherwise, convertibles were quiet and little changed, sources said.

General Motors Corp.'s convertible bonds traded in choppy fashion in thin volume after the Detroit-based car maker said January light-vehicle sales plummeted a bigger-than-anticipated 49% to 128,198 vehicles.

The company also said it will offer buyouts to all of its hourly, union employees, not only its 20,000 retirement-eligible hourly employees.

Ford Motor Co.'s 4.25% convertible bonds were pretty lightly traded at steady levels as well after the Dearborn, Mich.-based auto maker reported vehicle sales were down 39% for January compared to the year-earlier period.

SanDisk Corp. convertibles hung in despite a more than 20% tumble in their underlying shares, which were downgraded by Caris & Co. to "below average" from "average."

B of A hammered

B of A's 7.25% convertible preferreds traded down to 400 in pretty heavy volume Tuesday, from 460 on Monday.

Shares of the Charlotte, N.C.-based banking giant settled near their lows for the day, down 70 cents, or 11.7%, at $5.30, after trading in heavy volume.

Sources said there was speculation that shareholders, including preferred shareholders, would get diluted as part of any potential national bailout plan for the banks.

"I presume people are speculating that they are not going to pay out the dividend at some point," a sellsider said.

The problem was that there was no hard news on the subject. "The speculation is about potential nationalization and how that is going to work, but nobody knows. The problem is that people just don't know," an East Coast-based buyside trader said.

Sen. Charles Schumer (D-NY), a senior member of the banking committee, came out Tuesday saying that he backs a government guarantee program for toxic assets rather than buying such assets under a "bad bank" scenario.

PNC's short-dated notes hold in

PNC's 4% convertibles due 2011 traded at about 92 during the session and was seen trading between 91 and 94.25.

But shares of the financial services company fell $2.33, or 7.3%, to $29.85.

The fact that the paper is in the form of senior notes and that it's relatively short dated is why it holds its strength, a sellsider said.

Before the markets opened, PNC reported a $248 million loss for the fourth quarter, citing the costs of absorbing the National City Corp. acquisition on Dec. 31 and due to higher rates of uncollectable commercial real estate loans.

The bank also announced plans to cut 5,800 jobs. But it intends to keep paying out its quarterly dividend despite the quarterly loss.

According to a Reuters report, layoffs in the financial services sector worldwide stand at 312,500 since the financial crisis began in 2007. Among the largest layoffs have been Citigroup Inc.'s 75,000, Bank of America's 45,500 and J.P. Morgan's 16,900 people laid off.

PNC's estimated tangible common equity ratio was 2.8% at Dec. 31, and excluding accumulated other comprehensive loss would have been 4.1% at year-end, according to its release.

PNC's tangible common equity ratio is expected to be less sensitive to the impact of widening credit spreads on accumulated other comprehensive loss primarily due to the composition of the securities-available-for-sale portfolio acquired from National City and a substantially higher level of common equity in the combined company.

Credit quality migration reflected a rapidly weakening economy but remained manageable as PNC was able to maintain a strong capital position and generate positive operating leverage.

The allowance for loan and lease losses increased to $3.9 billion at Dec. 31 from $1.1 billion at Sept. 30, primarily due to the National City acquisition. The year-end ratio of allowance for loan and lease losses to total loans was strengthened to 2.23% compared with 1.40% at Sept. 30.

Average loans for the fourth quarter of 2008 increased 12% over fourth-quarter 2007 and 3% compared with the third quarter of 2008.

Ford, GM flattish to higher

Ford's 4.25% convertibles due 2036 were seen trading plus 2.5 to 3 points, or 23 to 24, which was little changed from where they had been trading, sources said.

Shares retraced losses after the sales news, to end up 8 cents, or 4% to $1.96. Ford reported its January U.S. sales dropped a worse-than-expected 39%, to 90,596 total vehicles sold, compared to 148,355 sold in the same month last year.

General Motors' 5.25% convertible due 2032, or the GBM paper, closed up 2% at 3.60 versus a stock price of $2.85.

The GM 6.25% convertible due 2033, or the GPM paper, closed at 3.0999, which was up 3.3% on the day versus a stock price of $2.85. But General Motors common stock shed 4 cents, or 1.4% to $2.85.

SanDisk flat to slightly lower

SanDisk's 1% convertibles due 2013 were seen at 51 bid, 52 offered near the close, which was slightly off Monday's 52 level and down from last week's 56 price.

But compared to the plummet in their underlying shares, the paper held in due to the fact that the credit is still considered sound.

Shares of the Milpitas, Calif.-based firm closed down $2.62, or 23%, to $8.66.

"The stock got hit pretty hard on a poor outlook, but I feel that the credit is OK," a West Coast-based sellsider said. "Given the cash that the company has, the credit is solid enough."

The company reported a loss of $1.86 billion for the fourth quarter on revenue that declined 31% on a year-over-year basis.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

PNC Financial Services Group Inc. NYSE: PNC

SanDisk Corp. Nasdaq: SNDK

© 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.