Bank of America, Citi downgraded, preferreds decline; Aegon, ING move into higher territory

By Stephanie N. Rotondo

Portland, Ore., Sept. 21 - The Federal Reserve's official unveiling of its latest stimulus effort, "Operation Twist," was classified as a "non-event" for preferred stocks on Wednesday.

"They just confirmed what they were going to do," a trader said.

Instead, the big news of the day was a round of bank downgrades by Moody's Investors Service. Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. were all affected by the rating changes, and traders said Bank of America's preferreds reacted by selling off. Citigroup's preferreds were also weakening in active trading.

Foreign issuers, however, were trading up. A trader said that Aegon NV came out to say that its European exposure was minimal and ING Groep NV also said that it had cut its exposure.

In recent deals, Qwest Corp.'s new issue was increased through the exercise of the over-allotment option, and the notes officially listed during the midweek session. The $25-par senior notes were seen sliding slightly.

U.S. banks fall on downgrades

Moody's cut its ratings on Bank of America, Citigroup and Wells Fargo Wednesday after a three-month review.

The basis of the change was the agency's view that the U.S. government is less likely to step in should one of the banks get into trouble.

"I don't put much into credit ratings on banks anymore," said one trader. He noted that Moody's report also indicated that the government might still be willing to help out if need be, but that it is simply "slightly less probable now."

Regardless of anyone's feelings on bank credit ratings, the preferreds reacted as expected. Bank of America in particular was "selling off fairly sharply," the trader said.

The bank's 8.2% series H depositary shares (NYSE: BACPH) fell $1.17, or 4.98%, to $22.33. The decline gave the issue a spot in the biggest percentage losers column for the day.

Also among the day's biggest losers were the 6.204% series D noncumulative depositary shares (NYSE: BACPD) and the 8.625% series 8 noncumulative preferreds of Merrill Lynch (NYSE: BMLPQ) The former fell 73 cents, or 3.71%, to $19.23, while the latter dove a buck, or 4.19%, to $22.85.

Countrywide Financial Corp.'s 7% capital securities (NYSE: CFCPB) were trading actively but fared somewhat better than its bank counterparts. The securities slipped 23 cents, or 1.15%, to $19.82.

Also under pressure were Citigroup's 7.875% fixed-to-floating trust preferreds (NYSE: CPN). They dropped 29 cents, or 1.09%, to $26.31. Volume in the issue was about 635,000 trust preferreds.

Aegon, ING head higher

Foreign issuers were seen moving higher in an otherwise negative market, traders reported.

One trader said that Aegon had said that its exposure to Europe was minimal and that its "balance sheet is great." Meanwhile, ING Groep said that it had cut its Italian and Spanish sovereign debt exposure.

Of Aegon's issues, the 6.375% perpetual capital securities (NYSE: AEH) experienced the biggest percentage gain, moving up 27 cents, or 1.44%, to $19.07.

The 7.25% perpetual capital securities (NYSE: AEF) were up 13 cents, or 0.62%, at $21.11.

ING paper was "up across the board ... for a change," a market source said. "Some of these ones had been beaten up the most."

The 8.5% perpetual hybrid capital securities (NYSE: IGK) increased 25 cents, or 1.09%, to $23.14. The 7.375% perpetual hybrid capital securities (NYSE: IDG) rose 12 cents, or 0.59%, to $20.42.

In a statement Wednesday, ING said its Italian holdings had dropped to €1.9 billion while its Spanish debt fell to €800 million.

Qwest notes list

Qwest said the greenshoe was exercised in full for its new 7.5% $25-par senior notes due 2051, increasing the size of the issue to $575 million from $500 million.

The new notes officially listed on the New York Stock Exchange on Wednesday. The ticker symbol is "CTW."

At midday, a trader said the notes "look to be hanging in there just below par" at $24.85.

The issue closed at $24.87.

After the close, a trader said the notes had lost some ground.

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