Financials fall as Moody's may downgrade; National Bank of Greece preferreds take a beating

By Stephanie N. Rotondo

Portland, Ore., June 2 - The preferred stock market "was off across the board," a preferred market source said Thursday.

He estimated that paper was down 5 to 10 cents "on average."

"The market is under a lot of pressure," said another trader. Concerns about financial institution downgrades in names like Bank of America Corp. and Citigroup Inc. were coupled with concerns about a potential restructuring in Greece, as well as poor economic data, the trader said, resulting in "perfect storm" conditions.

And the new issue flow is expected to lighten up as there is "no talk of anything new on the calendar right now," the trader said.

The softness of the market also put pressure on recent new deals, such as CommonWealth REIT, Qwest Corp. and Endurance Specialty Holdings Ltd. Still, a trader said that he liked the new deals and expected most of them to perform rather well.

Meanwhile, a trader saw iStar Financial Inc. trading actively - and lower - during the session, though it was unclear what was behind the action.

BofA, Citi weaken

Moody's Investors Service said Thursday that it was considering downgrading the debt of financials such as BofA and Citigroup, as the new Dodd-Frank regulations will alter the level of support the institutions can receive from the government.

"The banks had some selloff, but most of them had a junk rating [on the preferreds] anyway," a trader said. "No big surprise."

Another trader noted that the potential downgrade was specifically on the debt and that BofA and Citigroup preferreds were actually on positive watch.

"The preferreds are looking good," he said.

Citi's preferreds ended mixed on the day, as the 7.875% series N (NYSE: CPN) paper gained 15 cents to close at $28.05, while the 6.35% series E preferreds (NYSE: CPE) fell 12 cents to $24.31.

BofA, however, was mostly weaker. The 6.25% series B preferreds (NYSE: BACPB) dropped 11 cents to $23.98 and the 6.375% series I (NYSE:BMLPI) securities declined 12 cents to $23.28.

Greek bank beat down

Moody's also cut its sovereign debt rating on Greece Thursday, which might have triggered a $5-plus dip in National Bank of Greece SA's preferreds.

A market source said the series A preferreds were the day's most actively traded issue, with over 1 million shares changing hands. The preferreds (NYSE: NBGPA) fell $5.02, or 29.19%, to $12.18.

"You had to be a fool to hang on to that one," said another trader.

Greece is facing a $34 billion government shortfall next year, thus the downgrade to Caa1 by Moody's. Last year, the country received $158 billion in rescue funding, which served to be insufficient to fix the balance sheet problems.

New issues suffer

A trader said Qwest's new $575 million issue of 7.375% $25-par bonds was trading "cheaper than where it should be" at $24.75 bid, $24.80 offered.

Another trader pegged the issue at $24.75 bid, $24.79 offered, adding that he did not know why the newly priced deal traded down.

"It's like a game of musical chairs in this market," another trader opined.

The second trader also saw CommonWealth's new 7.25% series E cumulative redeemable perpetual preferreds trading around $24.72, compared to $24.70 previously.

And, Endurance Specialty Holdings' $230 million issue of 7.5% series B non-cumulative preferred shares "traded off," a trader said, from levels around par to levels around $24.84.

"That's a great price to buy at," he said. Still, he said that overall market uncertainty left him with concerns that the issue - as well as the other recent new issues - could sell off in the near term, though he expected all of them to perform well.

iStar takes a hit

iStar Financial's preferreds were seen falling in active trading Thursday, though there was no news to cause the movements.

"Something must be going on," a preferred trader said. "That is bizarre."

The 7.5% series I preferred (NYSE: SFIPI) fell 13 cents to $20.91, on volume of over 871,000 shares. The 8% series D preferred (NYSE: SFIPD) was also weaker, dropping 16 cents to close at $22.28.

iStar is a New York-based fully-integrated finance and investment company focused on the commercial real estate industry.

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