Countrywide stable despite slashed jobs; New AMD chip sparks small rise; Intel up; Trinity down

By Evan Weinberger

New York, Sept. 10 - Countrywide Financial Corp. convertibles were surprisingly inactive despite the expected other shoe dropping. Countrywide slashed up to 12,000 jobs late Friday afternoon.

A new but long-discussed chip from Advanced Micro Devices Inc. failed to excite investors, although the stocks and convertibles did nudge up. AMD's archrival, Intel Corp., was also only up slightly despite raising its outlook for the third quarter.

Trinity Industries Inc. saw its convertibles trade lower.

Volume remained relatively low as investors and companies await news to help them figure out which way is up as conflicting economic news and wildly gyrating equity markets provide little guidance. "I think we've got people waiting to hear what the Fed does, for the report on Iraq," one analyst said. "Everybody's waiting for something to break."

Another analyst added that investors were looking to make some deals, but any big moves are likely to wait until at least next week's Federal Reserve meeting. "I think today was slower, but I don't think that's atypical of Monday trading," he said. "As much as people might not be making big credit bets until there's further clarification, there's always opportunistic trading."

As of press time, no new issues were launched, and there are only a few scheduled for the horizon, further bolstering the case that the market is firmly holding on to its holding pattern.

Equity markets didn't fall back significantly, nor did they push forward strongly, ending the day decidedly mixed but relatively stable.

Despite a late rally, the Dow Jones Industrial Average gave back most of its end-of-day gains, closing at 13,127.85, a gain of 14.47 points, or 0.11%.

The Nasdaq and Standard & Poor's 500 didn't fare as well. The Nasdaq slipped 6.59 points, or 0.26%, for a close of 2,559.11. The S&P 500 slunk 1.85 points, or 0.13%, to close at 1,451.70.

No surprise from Countrywide

It appears that investors were waiting for the other shoe to drop from Calabasas, Calif.-based Countrywide. And when that shoe did drop Friday after market close - in the form of up to a 20% cut in America's largest home lender, or up to 12,000 jobs, within three months - convertibles analysts and traders said they saw little reaction from investors Monday.

The only question remaining is if there are any more shoes left hanging above the company's head. "I didn't hear any specific comments from people. I don't think it surprised anybody," one analyst said.

In a letter to employees, Countrywide chairman and chief executive officer Angelo Mozilo and president and chief operating officer Dave Sambol estimated that mortgage origination would be down 25% in 2008 compared to 2007 levels. The job cuts represent as much as 20% of Countrywide's 61,000 work force.

"It's as bad, if not worse, than everyone thinks," according to one equity trader.

A convertibles trader had a more positive outlook. He said that even with the current trouble facing Countrywide, the company continues to make money. In fact, the company hired 1,000 sales people in its consumer markets division. Lending practices have also tightened up, with 75% of new originations now in the prime lending category.

Countrywide, the trader mused, would rise again and would become a good corporate target. "Earnings will be lower then stock will rise - but [Countrywide will] probably get taken over," the trader said.

It appeared that more people were taking the negative view of America's largest home lender, as the stock tumbled to $17.21, a drop of $1, or 5.49%.

Even with that stock fall, traders and analysts at several firms said they saw little, if any, in Countrywide's convertibles Monday. Countrywide's Libor minus 350 basis points series A convertible senior debentures due April 15, 2037 were last seen Wednesday at 91 versus a closing stock price of $18.81. The company's Libor minus 225 bps series B convertible senior debentures due April 15, 2037 closed the same day at 88.5 versus a stock price of $18.81.

Collateral damage from Countrywide's stock fall is being felt at Bank of America, which bought a 15% share of the mortgage lender in a $2 billion convertible preferred stock deal. The conversion price on the deal was set at $18. Countrywide stock (NYSE: CFC) closed $21.82 on Aug. 22 and at $22.02 Aug. 23.

The deal was in the money from the start. "Well, that's disappeared and then some now," one analyst said.

AMD's new chip nudges its convertibles

Advanced Micro Devices, a Sunnyvale, Calif.-based semiconductor producer, officially released its entry into the "quad-core" chip arena Monday. The announcement didn't make much of a splash, since it had been talked about for a while. "It's a positive, but it's an expected positive," one analyst said.

The new chip, which is meant primarily for high-performance computer servers, has four core chips on a single sliver of silicon. Intel's four-core entry has two cores each on two silicon chips. It's unclear whether either design makes a difference to performance.

AMD convertibles and common stock traded higher Monday, but not all that much higher. The company's 6% convertible senior notes due May 1, 2015, closed the day at 86.25 versus a stock price of $12.94. They had closed Friday at 85.375 versus a stock price of $12.61.

AMD's 5.75% convertible senior notes due Aug. 15, 2012 also moved up ever so slightly. They closed Monday at 88.12 versus a stock price of $12.94. They finished trading Friday at 88 versus a stock price of $12.61.

AMD stock (NYSE: AMD) gained 33 cents, or 2.62%, in trading Monday.

Intel steals some of AMD's thunder

AMD's new chip was meant to stare down the 800 pound gorilla of the semiconductor world, Santa Clara, Calif.-based Intel.

But even on a day when AMD announces a new product, the gorilla pounded its chest just enough to draw some attention. Intel announced Monday that it was expecting between $9.4 billion to $9.8 billion in sales for the third quarter, upping its initial outlook by $200 million. Stronger-than-expected demand helped spur sales.

Initial investor reaction was strong as Intel stock spiked. But those gains slipped and turned into a loss.

Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 managed to retain their gains, closing at 103.63 versus a closing stock price of $25.35 Monday. They finished trading Friday at 103.325 versus a stock price of $25.47.

Intel stock (Nasdaq: INTC) dipped 12 cents, or 0.47%, on Monday.

Trinity Industries changes hands

Every once in awhile, Trinity Industries convertibles trade, and no one really knows why. One analyst said Monday was one such day.

The only news anyone could find Monday was the Dallas-based maker of rail cars and inland barges announcing the appointment of a new director and a dividend of 7 cents on its common stock for the third quarter.

Trinity's 3.875% convertible subordinated notes due June 1, 2036 closed at 98.625 versus a closing stock price of $34.91. They were last traded Sept. 6, when they closed at 102.83 versus a closing stock price of $37.38.

Trinity stock (NYSE: TRN) gave back a hefty $1.48, or 4.07%, on Monday.

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