Citigroup opens flat; Ambac pulls back; AMD, Xilinx, Skyworks, WaMu up on earnings; Schlumberger down

By Evan Weinberger

New York, Jan. 18 - Citigroup's new perpetual preferred stock opened big, rich and flat Friday.

Ambac Financial Group Inc. postponed a talked about offering of equity and equity-linked securities due to a crumbling stock price and negative reactions from shareholders.

Three semiconductor companies' convertibles - Advanced Micro Devices Inc., Xilinx Inc. and Skyworks Solutions Inc. - were up on better-than-expected earnings, increasing margins and decent guidance.

Washington Mutual Inc. was up after its losses weren't as large as some on Wall Street feared.

Schlumberger Ltd. failed to meet expectations with its fourth-quarter earnings and gave a downbeat guidance for the coming months.

Stock markets rallied to start the day but couldn't hold the gains. Investors appeared worried that president George W. Bush's proposed $145 billion economic stimulus plan will not be enough to stave off a recession.

The Dow Jones Industrial Average fell 59.91 points, or 0.49%, on the day to close at 12,099.30.

The Nasdaq slipped 6.88 points, or 0.29%, for a 2,340.02 close.

And the Standard & Poor's 500 closed at 1,325.19, a drop of 8.06 points, or 0.60%.

Citi upsizes, comes in rich

Citigroup saw enough demand for its perpetual non-cumulative convertible preferred stock that it upsized the deal by nearly $1 billion and priced it aggressively - maybe too aggressively.

"I don't see the terms being attractive at all," a trader said.

Originally announced at $2 billion, the preferreds came in at $2.9 billion. The dividend was set at 6.5%, at the outer reaches of talk, which was 6% to 6.5%. And the initial conversion premium came in well past talk. When the preferreds were announced Tuesday as part of a capital raising plan following a nearly $10 billion fourth-quarter loss, the conversion premium was set at 24%.

When the deal price Thursday, the conversion premium was set at 35% of Citi's closing stock price that day and at 28% of a three-day volume weighted average of Citi's common stock.

Pre-market trading went through the roof, with price quotes ranging from 103 to 108.

Is it possible that Citigroup overplayed its hand?

"Repricing and upsizing hurt the valuation," a fund manager said. "Not to mention all the dopey pre-market trading. Alleged $26 billion in demand on a $3 billion deal and then it trades around par."

The fund manager said there may have been a larger number of "flippers" on the deal than normal. "I hear they gave preferreds mostly to equity holders and not usual convert people," he said.

The trader said he saw the preferreds starting out at a bid of 52 - the preferreds are issued in $50 slices - but the bid level slipped as Citigroup's stock slid throughout the day.

In the end, Citigroup's 6.5% series T convertible preferred stock closed Friday at around par versus a closing stock price of $24.45.

Citigroup stock (NYSE: C) fell 51 cents, or 2.04%, on the day.

Ambac pulls back

Few were surprised when New York-based bond insurer Ambac announced that it will postpone an offering of more than $1 billion in equity and equity-linked units Friday morning.

Ambac cited unfavorable market conditions as the reason for postponing the deal.

Massive losses in Ambac's credit derivative portfolio due mainly to write-downs in subprime mortgage-related securities spurred the move for more capital. Ambac also slashed its dividend to 7 cents from 21 cents and sent its chief executive out to pasture.

On Thursday, Moody's Investors Service said that it was reviewing Ambac's vital Aaa rating with an eye toward a downgrade. Fitch Ratings threatened to downgrade Ambac and Armonk, N.Y.-based MBIA Inc. in December. On Friday, it did, lowering Ambac to single A.

All of this led to the unfavorable market conditions Ambac cited. Its stock lost more than 70% of its value in two days Wednesday and Thursday.

The plan to raise more than $1 billion in capital through equity or equity-linked securities drew immediate fire from Ambac's investors. Evercore Asset Management, LLC, the company's largest shareholder, sent a letter to Ambac executives Thursday urging the bond insurer to stop its capital raising plan.

"It is time for Ambac to recognize that, in entering the structured finance business, the company gambled its triple-A rating and has now lost that bet," Evercore chief investment officer Andrew Moloff said in the letter.

Market watchers told Prospect News Thursday they doubted Ambac would be able to raise money through equity or equity-linked securities because of the stock's condition.

A trader said Friday that Ambac's stock price was too low. "They will probably resort to getting reinsurance or some other non-convertible preferred," the trader said.

Ambac said in its statement Friday that it was continuing to review its options.

Ambac's slide continued Friday as its stock (NYSE: ABK) lost 4 cents, or 0.64%, to close at $6.20.

AMD moves up

Sunnyvale, Calif.-based microprocessor maker Advanced Micro Devices saw its stock and convertibles move higher Friday after its losses came in lower than expected.

AMD lost $1.77 billion, or $3.06 per share, in the last three months of 2007, but $1.6 billion of that came in one-time charges.

Without the charges, AMD lost 17 cents per share. A poll of analysts by Thomson Financial expected a 36 cent per share quarterly loss.

AMD's 5.75% convertible senior notes due Aug. 15, 2012 closed Friday at 77.806 versus a closing stock price of $7.07. The convertibles closed Thursday at 74.92 versus a stock price of $6.34.

AMD's 6% convertible senior notes due May 1, 2015 closed Friday at 68.96 versus a stock price of $7.07 after finishing Thursday at 66.504 versus a stock price of $6.34.

AMD stock (NYSE: AMD) jumped 73 cents, or 11.51%, on the day.

Xilinx leaps on earnings

Xilinx, a San Jose, Calif.-based maker of programmable semiconductors, jumped Friday after it reported better-than-expected earnings for its fiscal first quarter.

Xilinx posted an 18% profit increase and a net income of 35 cents per share, or $103.6 million. A Thomson Financial poll of analysts expected income of 32 cents per share.

Xilinx's 3.125% convertible junior subordinated debentures due March 15, 2037 closed Friday at 86.03 versus a closing stock price of $21.53. The debentures closed Thursday at 80.135 versus a stock price of $19.14.

Xilinx stock (Nasdaq: XLNX) leaped $2.39, or 12.49%, on the day.

Skyworks sees fireworks

Skyworks Solutions posted a 59% profit increase in its fiscal first quarter, the company announced Thursday after the close.

Skyworks brought in $19.1 million, or 12 cents per share, in the last three months of 2007. In the same period of 2006, the Woburn, Mass.-based semiconductor maker saw a 7 cent per share profit rise.

Skyworks' 2008 fiscal year first quarter beat Thomson Financial estimates by a penny.

Skyworks' 1.25% convertible subordinated notes due March 1, 2010 closed Friday at 108.581 versus a closing stock price of $8.22. They closed Thursday at 101.253 versus a stock price of $7.06.

Skyworks' 1.5% convertible subordinated notes due March 1, 2010 closed Friday at 107.207 versus a stock price of $8.22 after finishing Thursday at 98.6757 versus a stock price of $7.06.

Skyworks stock (Nasdaq: SWKS) moved up $1.16, or 16.43%, Friday.

Washington Mutual inches higher

Washington Mutual, the largest savings and loan in the United States, had a revival in its stock and preferreds after its bad fourth quarter wasn't as bad as feared.

Seattle-based Washington Mutual lost $1.87 billion in the fourth quarter, with $1.6 billion coming from a write-down in its mortgage portfolio.

Investors feared something worse was in store.

WaMu's 7.75% series R non-cumulative perpetual convertible preferred stock closed Friday at 874.63 versus a closing stock price of $13.55. They closed Thursday at 843.75 versus a stock price of $12.46.

Washington Mutual stock (NYSE: WM) gained $1.09, or 8.75%, Friday.

Schlumberger slumps

Schlumberger, an oil services firm with headquarters in Houston, narrowly missed Wall Street estimates for the fourth quarter, the company announced Friday morning.

Schlumberger announced a 22% rise in profits for the fourth quarter in 2007. In the last three months of the year, Schlumberger had $1.38 billion, or $1.12 per share, in profits. The company had $1.13 billion, or 92 cents per share, in profits in the fourth quarter of 2006.

Wall Street was expecting $1.13 per share, according to Reuters, however, and Schlumberger paid a price for the disappointment.

Schlumberger's 1.5% convertible senior debentures, tranche A, due June 1, 2023 closed Friday at 221.042 versus a closing stock price of $79.52. They closed Thursday at 226.627 versus a stock price of $82.51.

Schlumberger's 2.125% convertible senior debentures, tranche B, due June 1, 2023 closed Friday at 199.85 versus a stock price of $79.52 after finishing Thursday at 204.9 versus a stock price of $82.51.

Schlumberger stock (NYSE: SLB) fell $2.99, or 3.62%, Friday.

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