Bank of America gains on earnings, boosts financial sector; primary quiet

By Paul Deckelman and Sheri Kasprzak

New York, July 21 - Financial names were better in investment-grade trading Monday even as the market overall was wider against Treasuries.

Meanwhile the primary was silent.

Overall in trading, advancing issues trailed decliners by a narrow margin, while market activity, reflected in dollar volumes, was off 10% from Friday's pace.

Spreads in general showed were seen widening, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year issue decreased by 4 basis points to 4.04%.

The important financial sector was seen better, as investors reacted positively to Bank of America Corp.'s second-quarter earnings, which were not as bad as some analysts had feared.

B of A said that it earned $3.41 billion, or 72 cents per share, in the quarter. While that was down 41% from year-ago levels of $5.76 billion, or $1.28 per share, it was still considerably better than the roughly 48 to 50 cents per share of earnings that Wall Street had been looking for. B of A also expressed optimism that its recently completed acquisition of Countrywide Financial Corp. will be accretive to earnings more quickly than anticipated and produce bigger cost cuts as the two companies' mortgage operations are integrated.

Little expected in primary

The primary market is likely to remain fairly quiet this week, according to market sources reached Monday.

"There's not much to report," said one sell-sider.

"There may be a few things coming up later this week. The whole week is going to be pretty quiet from what I can tell."

Another source echoed that sentiment.

"It's really dead, to be honest," he said. "I don't know of anything pricing in the next few days."

Financials add 2 to 3 bps

In the secondary market, a trader said that financials were generally 2 bps to 3 bps tighter "across the board," buoyed by B of A's earnings.

He said that the Charlotte, N.C.-based banking giant's own bonds were "more so" - probably around 5 bps, although these had "lost a little steam by the end of the day."

A market source saw B of A's 4.90% notes due 2013 as having come in by 9 bps on the session to a spread over comparable Treasury issues of 235 bps.

Its 7.40% notes due 2011 were likewise seen firmer at 268 bps over, while the Bank of America Capital Trust XI 6.625% bonds due 2036 finished at 286 bps over.

B of A unit Countrywide's 5.80% notes due 2012 firmed by 20 bps to the 4.30 bps level.

Other financials gain

Among some of the other major financial names, Goldman Sachs Group's 5.25% notes due 2013 were seen about 20 bps tighter at the 220 bps level, while J.P. Morgan Chase & Co.'s 6.95% bonds due 2036 were around 15 bps tighter at 345 bps over.

On the other hand, Citigroup's 8.40% notes due 2018 were being quoted at 525 bps over, or about 10 bps wider on the session.

The trader said that in addition to the big banks, he saw some better bid levels on regional banks.

He saw "a lot of Goldman [Sachs] markets, but I didn't see a lot trade," and "a lot of Merrill [Lynch] markets."

American Express Corp.'s earnings came too late in the day for any meaningful aftermarket dealings.

Walgreen narrows further

Among the non-financial names, Walgreen Co.'s new 4.875% notes due 2013 were seen having firmed to 159 bps over. The Deerfield Ill.-based Number-One U.S. drugstore operator priced $1.3 billion of the notes at 175 bps over last Monday.

In the credit-default swaps market, a trader said that big-bank paper debt-protection costs narrowed by 5 bps to 15 bps, while major brokerage CDS costs were 5 bps to 10 bps tighter, a sign of increased investor confidence in the sector.

B of A's CDS cost was 5 bps tighter at around the 112 mid-swaps level, while Wachovia Corp.'s was 15 bps tighter at 305 bps.

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