Washington Mutual pummeled on federal inquiry; Itron gets the gift of upgrade; ADC moves up on second day

By Evan Weinberger

New York, Dec. 21 - The bottom dropped out on Washington Mutual Inc. preferreds on word of a Securities and Exchange Commission investigation into its mortgage appraisal practices Friday.

Itron, Inc. convertibles jumped on an analyst's upgrade.

Schering-Plough Corp. preferreds leaped after the drug company extended two distribution agreements.

ADC Telecommunications Inc. convertibles moved higher on their second day of trading.

WCI Communities Inc. and Red Hat Inc. both moved higher on the day.

No new deals priced and trading was slow as the market prepared for the winter solstice - and the Christmas holiday.

Stock markets got into the spirit Friday. Reports of another cash infusion from a sovereign wealth fund into an investment bank - a rumored $5 billion from the sovereign investment arm of the Singapore government in Merrill Lynch - and strong earnings from Research in Motion Ltd. drove stocks higher.

The Dow Jones Industrial Average leaped 205.01 points, or 1.55%, to a close at 13,450.65.

The Nasdaq stretched 51.13 points, or 1.94%, to 2,691.99.

And the S&P 500 closed at 1,484.46, a gain of 24.34 points, or 1.67%.

WaMu hammered by federal inquiry

Seattle-based savings and loan Washington Mutual was hammered Friday on a report that the SEC was investigating its home appraisal process.

The Wall Street Journal reported late Thursday that the Securities and Exchange Commission has opened an investigation into several aspects of Washington Mutual's home lending practices. Among the issues regulators are looking into are whether WaMu was selling mortgages based on inflated appraisals to investors and then improperly accounting for those loans on financial statements.

The Office of Thrift Supervision is also looking into the appraisals practices, a statement from Washington Mutual said.

"We are voluntarily and fully cooperating with the SEC's inquiry as well as the OTS's and look forward to bringing the facts to both the regulators and public," according to the company statement made to the Journal.

The federal probe follows on the heels of an investigation launched by New York state attorney general Andrew Cuomo two months ago.

"After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals," the company statement said. "We take these allegations very seriously."

Washington Mutual has hit several major bumps since the subprime mortgage crisis hit. Earlier in the month, the company eliminated more than 3,100 jobs and closed several branches. It also shut down its subprime lending arm.

Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred stock closed Friday at $889.87 versus a closing stock price of $14.10. They closed Thursday at $927.903 versus a stock price of $14.67.

Washington Mutual stock (NYSE: WM), which has lost 68% on the year, lost a further 57 cents, or 3.89%, Friday.

Itron gets gift from RBC Capital

RBC Capital Markets analyst Stuart Bush upgraded Liberty Lake, Wash.-based Itron Friday.

Bush said a recently completed agreement between the utility meter producer and Southern California Edison should lead to growth.

As a result, Bush upgraded the company to "Outperform" from "Sector Perform."

Itron's 2.5% convertible senior subordinated notes due Aug. 1, 2026 closed Friday at 155.28 versus a closing stock price of $93.36. They closed Thursday at 144.83 versus a stock price of $85.15.

Itron stock (Nasdaq: ITRI) stretched $8.21, or 9.64%, on the day.

Schering-Plough convertibles rise

Kenilworth, N.J.-based drug maker Schering-Plough saw solid gains on its stock and convertible preferreds Friday.

The company announced that it had extended its agreements with Centocor, a unit of Johnson & Johnson, to distribute anti-inflammatory drug Remicade and late-stage arthritis treatment golimumab. The arthritis drug is currently in phase 3 trials.

Schering-Plough's 6% mandatory convertible preferred stock due Aug. 13, 2010 closed Friday at $245.207 versus a closing stock price of $27.26. They closed Thursday at $238 versus a stock price of $26.20.

Schering-Plough stock (NYSE: SGP) gained $1.06, or 4.05%, on the day.

ADC convertibles up on second day

Minneapolis-based telecommunications firm ADC saw both tranches of its newly priced convertibles move higher on their second day of trading.

ADC's 3.5% convertible subordinated notes due July 15, 2015 closed Friday at 104.15 versus a closing stock price of $15.91.

ADC's 3.5% convertible subordinated notes due July 15, 2017 closed Friday at 103.77 versus a stock price of $15.91.

Both convertibles closed just above par versus a stock price of $15.22 on Thursday.

ADC stock (Nasdaq: ADCT) gained 69 cents, or 4.53%, on Friday.

WCI ends week up

Bonita Springs, Fla.-based homebuilder WCI Communities watched its 4% convertible senior subordinated unsecured notes due Aug. 5, 2023 close Friday at 71.83 versus a closing stock price of $4.50. They closed Thursday at 69.86 versus a stock price of $3.67.

WCI stock (NYSE: WCI) jumped 83 cents, or 22.62%.

Red Hat does, too

Raleigh, N.C.-based open source software maker Red Hat announced an increase in third-quarter earnings and named a new chief executive officer Thursday.

And the stock took off Friday.

Red Hat's 0.5% convertible senior unsecured notes due Jan. 15, 2024 moved up as well, closing Friday at 100.707 versus a closing stock price of $20.71. They closed Thursday at 98.321 versus a stock price of $18.79.

Red Hat stock (NYSE: RHT) gained $1.92, or 10.22%, on Friday.

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