Europe, growth fears result in 'jittery' market; foreign issuers falter, hurt U.S. paper

By Stephanie N. Rotondo

Portland, Ore., Aug. 18 - European fears and concerns about growth - both global and domestic - drove preferred stocks lower in Thursday trading, according to market sources.

One market source said the market was down 2.43% - up from an intraday decline of around 3.6% - which amounts to about 60 cents on average for $25-par paper.

"The fear factor is big in the market right now," he said.

He noted that earlier in the day, it was learned that a "no-name bank" had borrowed $500 million from the European Central Bank. Though this is something that is done a lot without any reaction, for whatever reason the source said the rumor mill began churning and the markets began losing ground.

"The market is very jittery," he said.

"All the foreign banks were down because of doubt and a lack of leadership in Europe," said one trader. He said more and more investors doubted that European leaders would come up with a plan to help stem the financial crisis spreading across the continent.

It was a Barclays plc issue, for example, that was one of the day's biggest losers. Also on that list was Santander Finance.

But foreign banks were not the only ones suffering. Anything foreign was taking a hit, such as Allianz SE's unlisted preferreds. The issue was one of the most actively traded of the day.

In addition to the European concerns, new economic figures from the Federal Reserve Bank of Philadelphia came out, showing a massive decline for the month - and hitting the worst level since March 2009.

The general economic index fell to minus 30.7 from a reading of 3.2 in July.

That news combined with the European panic didn't do much to help U.S.-based issuers, either. Ally Financial Inc. and Bank of America Corp. were actively falling during the session.

As far as new issues, one trader was hopeful that action could pick up - assuming the market can find some sort of stability.

"You can't bring any [new issues] until there's some stability," he said. "These 500-point swings are dangerous."

Barclays, Allianz drop

Continued doubts about Europe's ability to stem the financial crisis sweeping the continent weighed heavily on foreign-based issuers such as Barclays and Allianz.

Barclays' 8.125% non-cumulative callable dollar preference shares, series 5, (NYSE: BCSPD) made the top five most active list, with nearly 555,000 shares trading. The preferreds fell $1.22, or 4.82%, to $24.07.

Barclays' 7.1% non-cumulative callable dollar preference shares, series 3, (NYSE: BCSPD) meantime made the day's biggest loser list. The securities fell $1.55, or 6.6%, to $21.93.

Meanwhile, a trader said Allianz's 8.375% $25-par notes "traded off their highs," to a low of $25.25 from $25.80 previously. He noted that there were "lots of $25 bids" that just weren't getting hit, which he opined was a good sign.

At another shop, a market source said the issue lost 59 cents to close at $25.45.

Also a big loser on the day was Santander's floating-rate non-cumulative preferreds (NYSE: STDPB).

A market source noted that the issue has a 4% floor, so "it's not really floating right now," he said. The preferreds dropped $1.36, or 8.35%, to $14.97.

ING loses ground

Among other foreign issuers, ING Groep NV's preferreds were weakening after U.S. representative Barney Frank requested that the Federal Reserve look into Capital One Financial Corp.'s planned acquisition of online bank ING Direct.

"This proposed purchase would create the fifth-largest bank in the United States. For this reason alone, care should be taken to thoroughly examine the impact," Frank wrote in a letter to the Fed on Thursday.

In June, it was announced that Capital One would acquire the bank for $9 billion in cash and stock. The sale was part of an agreement between ING and the ECB after it received a bailout in October 2008.

ING's 7.375% perpetual hybrid capital securities (NYSE: IDG) declined $1.11, or 5.14%, to $20.50. The 8.5% perpetual hybrid capital securities (NYSE: IGK) fell $1.08, or 4.38%, to $23.58.

ING is based in Amsterdam.

Ally, BofA crumble

The combination of fears from Europe and growth concerns hurt U.S.-based issuers such as Ally Financial and Bank of America along with the foreign issuers.

Ally's 8.5% series A preferreds (NYSE: ALLYPA) were the day's biggest trading issue, with more than 1.6 million shares turning over. The paper dropped $1.38, or 6.52%, to $19.80.

The 8.125% series Bs (NYSE: ALLYPB) were also busy, with about 996,000 shares trading. The preferreds slipped 57 cents, or 2.94%, to $18.83.

Bank of America's 8.2% series H depositary shares (NYSE: BACPH) meantime lost 59 cents, or 2.48%, to $23.21. About 965,333 of the preferreds traded.

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