Bank of America remains driving force behind preferred market losses; Magnum Hunter gyrates

By Stephanie N. Rotondo

Portland, Ore., Aug. 23 - Preferred stocks were rather mixed in Tuesday trading as Bank of America Corp. continued to weigh the arena down.

"The tone is ridiculous," said one market source. "When the U.S. bank market is up so much, why is our market down? Bank of America is a factor, but it's spread around."

The source went on to lambast another batch of rumors floating around about the bank, including one that claims a takeover is imminent.

"What absolute garbage," he said.

Whether true or not, spooked investors continued to shed Bank of America paper.

Meanwhile, Magnum Hunter Resources Corp. held a conference call during the session to address volatility in the company's two series of preferreds. The preferreds had been trading closer to par as recently as Monday but began gyrating wildly on Tuesday. According to the company, the cause is inaccurate information regarding its liquidity position.

Though Bank of America preferreds were tanking, European issuers like HSBC Holdings plc were heading upward. A source said that of the day's most actively traded securities, the gainers were all European.

Bank of America gets clobbered

The preferreds of Charlotte, N.C.-based Bank of America continued to tumble in Tuesday trading as another round of rumors began circulating.

According to a market source, of the day's five most actively traded issues, Bank of America securities took three spots. The 8.2% series H depositary shares (NYSE: BACPH) had the most volume, with nearly 1.9 million shares turning over. They fell 32 cents, or 1.47%, to $21.39.

The Merrill Lynch 8.625% series Q depositary shares (NYSE: BMLPQ) also saw heavy trading, with 1.44 million shares changing hands. They fell 41 cents, or 1.83%, to $22.04.

The Countrywide 7% capital securities (NYSE: CFCPB) rounded out the list, with volume of about 612,600 securities. They dropped 40 cents, or 2.03%, to $19.35.

As has been the name of the game of late, the market was buzzing with various rumors - all of which are perceived as negative.

First, Henry Blodget, a former Merrill Lynch securities analyst and blogger on Business Insider, said in a post that Bank of America could be dealing with anywhere from $100 billion to $200 billion of write-offs and exposures. Blodget said that the charges could result in a loss of book value, which is now around $222 billion.

"That's why Bank of America's stock is tanking," Blodget wrote in the blog. "The owners of that stock will be the first folks to get hit if Bank of America has to raise more capital."

Bank of America responded to the post, deeming Blodget's suppositions as "exaggerated and unwarranted."

"I believe they have more than enough resources to raise capital if they need it," said one exasperated market source.

The source went on to call rumors of a looming takeover by JPMorgan Chase & Co. "absolute garbage."

"It would be one of the biggest regulatory mistakes ever," he said. "But the market is so bad right now, people will believe anything."

Another trader, however, was not so quick to dismiss the takeover buzz.

"It seems like something is happening," he said. "Where there's smoke, there's fire. Nobody knows.

"About 25% of people think they will suspend the dividend," he added.

Magnum Hunter gyrates

Magnum Hunter Resources' two series of preferreds - the 10.25% series C cumulative preferreds (NYSE Amex: MHRPC) and the 8% series D cumulative perpetual preferreds (NYSE Amex: MHRPD) - were trading wildly early on in Tuesday's session, prompting the company to hold an "impromptu" conference call.

At one point, the Cs traded down as low as $22.41, compared with Monday's close at $24.49. About midway through the conference call, however, the preferreds began to rebound, leading the Cs to eventually close 36 cents higher at $24.85.

The Ds hit an intraday low of $35.51 versus Monday's close of $40.25. The $50-par issue closed the day at $42.98, up $2.73.

According to Gary C. Evans, chairman and chief executive officer of the company, there had been inaccurate information moving around regarding the company's liquidity position. Evans was adamant that the company's liquidity is sufficient, with about $80 million available.

"The only thing that's going wrong is what is going on in the market," he said. "And that we have no control over."

Magnum Hunter is a Houston-based oil and gas exploration company.

Europe issues gain

A market source said that "anything that was more liquid and traded up was a European issuer."

Such was the case for HSBC Holdings' 8% perpetual subordinated capital securities (NYSE: HCSPB), which are exchangeable for preferreds. The issue made the top five most active list, with nearly 671,000 securities trading. They rose 23 cents to $25.97.

"Maybe it was just oversold," a trader said of the good-sized action in the name.

Other European issuers also posted gains on the day.

Barclays Bank plc's 8.125% non-cumulative callable dollar preference shares (NYSE: BCSPD), for example, gained 55 cents, or 2.36%, to close at $23.85 on volume of over 350,000 shares.

ING Groep NV's 8.5% perpetual hybrid capital securities (NYSE: IGK) were better, rising 15 cents to $23.52.

Royal Bank of Scotland Group plc's 6.6% noncumulative dollar preference shares (NYSE: RBSPS) were one of the few European losers. The preferreds fell 14 cents to $11.90.

RenaissanceRe heads up

Fitch Ratings affirmed its issuer default rating on RenaissanceRe Holdings Ltd. at A on Tuesday and its rating on the company's preferreds at BBB. The outlook is stable.

The Bermuda-based reinsurance company's two series of preferreds traded higher following the news.

The 6.08% series C preference shares (NYSE: RNRPC) moved up 40 cents to $22.77. The 6.6% series D preference shares (NYSE: RNRPD) meantime gained 27 cents to close at $24.71.

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