Financials lower after bank plan; other convertibles hold up as equities slide; AMD steady

By Rebecca Melvin

New York, Feb. 10 - Financials slipped but convertibles overall didn't follow equities steeply lower on Tuesday.

Pricing, however, wasn't the real focus of the day. Instead, players expressed disappointment over the lack of specifics on the bank plan that was unveiled by the Obama administration.

After weeks of waiting for plan details and after a one-day postponement on Monday, expectations for U.S. Treasury secretary Timothy Geithner's roll out of the so-called "Financial Stability Plan" were running high.

"The rhetoric was encouraging in that he emphasized several times that he understood past mistakes in withdrawing stimulus too soon, and that they would do whatever it takes....[But] what was extremely discouraging was the lack of anything specific," a West Coast-based buysider said.

"Given how hyped up this announcement was, I thought he had his work cut out for him; but he didn't even try to live up to expectations," the buysider said.

There was "no talk on mark-to-market accounting. No talking on how they would bring back private capital," he said.

Bank of America Corp. traded at 400 during the session but was seen settling near 385.

Other bank names, particularly those that could possibly come up short on a so-called government stress test, were also lower. KeyCorp was a name in trade that was lower in tandem with a 27% drop in its underlying shares.

BankUnited Financial Corp., on the other hand, was quiet, despite a more than 70% spike in its underlying shares during the session on reports that billionaire investor Wilbur Ross and the Carlyle private equity group were considering a bid for the ailing lender. Its shares retraced about half of those gains to settle up by 38%.

Despite a 4.6% drop of the Dow Jones Industrial Average to 7,888.88, which was down 381.99 points, and a 4.9% fall in the S&P 500 index, convertibles didn't fare too badly, however, and volume wasn't terrible.

There was "no panic in the convert market, certainly," a New York-based sellside desk analyst said.

Among names in trade were Advanced Micro Devices Inc. convertible bonds, which held in despite an 11% fall in their underlying shares.

The Sunnyvale, Calif.-based chip maker said Tuesday that it had postponed a shareholder vote to approve its plan to spin off its manufacturing plants.

BioMarin Pharmaceutical Inc. convertibles were steady to higher in trade amid no particular news. But Cubist Pharmaceuticals Inc. looked to be about 7.5 points lower outright after reports that a unit of Teva Pharmaceutical Industries Ltd. filed for approval of a copy version of Cubist's lead drug.

B of A slips back

Bank of America's series L 7.25% convertible preferreds slipped Tuesday, along with other bank financial preferreds and bonds, amid concerns about the government's bailout plan.

Shares of the Charlotte, N.C.-based bank fell $1.33, or 19%, to $5.56 in heavy volume.

"I am amazed by how little progress has been made," a Connecticut-based sellsider said of the government's plan to stabilize the financial system. "We are right back where we were with Paulson."

The administration's new plan includes a partnership between the government and the private sector to get private investors to buy bad assets that are currently weighing down banks' balance sheets. But it doesn't seem to specify how to get the toxic assets off banks' books.

One move that would go a long way to bringing back private capital, buysiders and sellsiders said, would be to reinstate agency preferred dividends.

"They need to definitively say that they want to back the market for preferreds and that one of the first steps is to reinstate the agency preferred dividends," a West Coast-based buysider said.

"This $400 billion to $500 billion market is crucial for financial institutions in that it qualifies as tier 1 capital. The problem is that when the government doesn't give investors the assurance that they won't get wiped out - like what Paulson did - no private capital will ever step back in," he said.

Others concurred. "This was really mishandled from the very beginning. They didn't consider the effect on the entire preferred market. It shut off an area of financing that might have helped," a New York-based sellsider said.

But he didn't believe that the Fannie Mae and Freddie Mac, or agency, preferred dividends would be reinstated. Instead, he predicted a bid on the paper around mid-year at something better than the 4 to 5 range in which it's currently trading.

BankUnited little changed

BankUnited Financial's 3.125% convertibles due 2034 were seen around 9, but little if anything was traded, sources said, even after shares of the Coral Gables, Fla.-based parent rocketed up to as high as 45 cents.

Shares settled lower at 34.5 cents, but still up 38% on the day.

KeyCorp's 7.75% perpetual convertible preferred series A traded intraday at 62 versus a share of $7.00. But the paper also traded at 60.

Shares of the Cleveland-based bank holding company closed down $2.40, or 21%, at $6.63.

Cubist lower, BioMarin steady

Cubist's 2.25% convertibles due 2013 were seen at 82.675 at the end of the day, which was down from previous levels at about 90. Shares of the Lexington, Mass.-based biopharmaceutical company fell $3.35, or 15%, to $18.90.

Cubist received notice from a Teva unit challenging patents on its antibiotic injection Cubicin. It plans to start a patent infringement lawsuit against Teva.

On Jan. 23, Cubist convertibles gained about a point dollar neutral after the biopharmaceutical concern reported better-than-expected results due to improving sales.

Meanwhile, BioMarin's 1.875% convertibles due 2017 traded at 103 versus a share price of $19.00, and the BioMarin 2.5% convertibles due 2013 traded at 124 versus a stock price of $19.00.

AMD holds in as shares drop

Advanced Micro Devices' 5.75% convertibles due 2012 traded at 39 and even 40 on Tuesday, which was flat to higher, despite lower shares.

The AMD 6% convertibles due 2015 were reported having traded at 35 and also at 33.5.

Shares of AMD fell by a quarter, or 11%, to $2.11 after the company said that its special meeting of stockholders has been adjourned until Feb. 18 to allow additional time to solicit shareholder proxies to establish the required quorum.

As of Feb. 10, about 42% of the shareholders had voted, with about 97% of those voting in favor of the issuance of shares and warrants under a master transaction agreement. That agreement will allow the spinoff of factories and sale of a bigger stake of the company in deals with Abu Dhabi.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Bank of America Corp. NYSE: BAC

BankUnited Financial Corp. Nasdaq: BKUNA

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Cubist Pharmaceuticals Inc. Nasdaq: CBST

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