Financials dominate thinly-traded convert session: CIT, BofA, Wachovia add; NatCity, Merrill firmer

By Rebecca Melvin

New York, Jan. 2 - In an otherwise quiet convertibles market, several financial names continued to find buyers Friday, which marked the first session of the new year.

"People are paying up a bit for the higher-yielding issues," including CIT Group Inc., a New York-based sellside trader said of financial convertible preferreds.

"Momentum has been building there," he said. But otherwise "it's very sleepy."

With the year's first session wedged between New Year's Day and the weekend, many players opted to wait until Monday to get back to work, and it seemed college football's Cotton Bowl was one much-needed diversion for those who suffered Friday afternoon's dull market in the office. "That's what we have on," another New York-based trader said of the game.

Merrill Lynch convertible bonds were firmer and Bank of America Corp.'s preferreds gained amid news that the former's acquisition by the latter was complete.

And Wachovia Corp. convertible preferred shares were also firmer with news that its acquisition by Wells Fargo & Co. was a done deal.

National City Corp. and Prudential Financial Inc., which for several weeks have been mentioned consistently as active, were in trade again.

Elsewhere, Transocean Inc. saw its series C convertibles tick up nicely along with a 10% rise in its underlying shares as oil prices extended a week's worth of gains amid geopolitical concerns including the Gaza conflict.

Crude oil for February delivery jumped $1.74, or 3.9%, to $46.34 a barrel Friday afternoon on the New York Mercantile Exchange, for a 23% rise for the week.

Meanwhile, stocks rallied in light volume, with the Dow Jones Industrial Average adding 258.30 points, or 2.8%, to 9,035.

CIT Group, old Wachovia, BofA add

The CIT 8.75% perpetual convertible preferred shares rose about a point outright to 29.70, which was up compared to a previous market of 28.86, according to a pricing source.

Shares of the New York-based commercial bank holding company settled at $4.58, which was up nearly a percentage point in light volume.

CIT has been edging higher since news last month that it has been approved for funding under the U.S. government's Troubled Asset Recovery Program.

Under the TARP agreement, CIT will issue preferred stock and warrants to the government in exchange for $2.33 billion in cash.

Meanwhile the old Wachovia 7.5% convertible preferred shares, which are heading into the new year as part of Wells Fargo now, were firmer at 780 and yielding 9.62%.

One sellsider said he still thinks there's the potential for 10 points more in the Wachovia preferreds, which would bring them to where similarly dated Wells Fargo paper is yielding.

The Wells Fargo preferred is at 22.65 and a 8.80% current yield, a sellsider said.

"It's the new year, and people are coming in to buy things," a trader said. Most things are up except for the Citigroup preferred, which was quoted at 27.25 bid, 27.75 offered, he said.

Bank of America's 7.25% perpetual convertible preferreds added about 10 points to 663 from 652.

Shares of the Charlotte, N.C.-based bank added 25 cents, or nearly 2%, to $14.33.

Merrill, NatCity, Prudential firmer

Bank of America closed its all-stock deal to acquire New York-based Merrill Lynch, the world's largest and most widely recognized brokerage.

Merrill Lynch's 0% convertible bonds due 2032 printed in the area of 108.625 bid, 108.75 offered, which was up from 108.5 on Wednesday.

It had been expected to accrete up to the 109 area up until the closing of the deal.

It's not a dramatic move, but trading efficiently given that the guess work has been removed, a sellside trader said.

Not a lot had traded Friday, he pointed out.

National City's 4% convertibles due 2011 were seen at 91 bid, 91.25 offered Friday afternoon, with one sellsider citing a trade at 92.

"People were looking around to see if there was any more at that price," he said.

The paper was expected to continue to edge higher since it is now essentially PNC Financial paper, and PNC is trading at par.

"I think come Monday, this will bounce five or six points," a New York-based sellside trader said.

Another trader, who also feels the paper, which has no put, will rise, called the name steady compared to Wednesday, and up from 90 on Dec. 30 and 89.625 on Dec. 26.

Meanwhile, Prudential's floating-rate convertibles due 2037 were up to about 96.5 from 95.5.

Shares of the Newark, N.J.-based financial services and insurance company rose 51 cents, or 1.7%, to $30.77.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

CIT Group Inc. NYSE: CIT

Prudential Financial Inc. NYSE: PRU

Transocean Inc. NYSE: RIG

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