French financial concerns weigh on already heavy preferred market; Aegon, ING issues faltering

By Stephanie N. Rotondo

Portland, Ore., Aug. 10 - Common stocks sold off again Wednesday, but market sources said preferred stocks held in much better.

"Preferreds held up pretty well," a trader said. "That's a good sign that things were oversold."

"Preferreds had a better day than the broader market," said another trader. "They hung in there again."

Still, there was pressure on the market, and many pointed to France as the cause.

"The big thing was the French," a trader said. Rumors of a possible sovereign downgrade as well as buzz that a French bank might collapse - possibly Societe Generale - concerned already cautious investors.

"It's just that people are scared and there are a lot of rumors floating around," a trader said.

"The French bank situation was a little bit of a curve ball," another trader remarked, explaining why the broad markets took such a hit.

As one would expect with negative news coming out of Europe, many foreign issuers were down. Even insurers like ING Groep NV and Aegon NV fell despite a relatively positive research report from Bank of America Corp.

Bank of America was having problems of its own. The bank's preferreds, as well as those linked to its failed Countrywide unit, declined during the session even as the company's chief executive attempted to reassure investors during a conference call held Wednesday.

Traders also saw continued action in Ally Financial Inc.'s two series of preferreds. The issues were mixed on the day, and traders said the spread between them was narrowing.

"They're probably moving closer in the right direction," one market source said.

France hurts Aegon, ING

Continued European economic concerns put pressure on many foreign issuers Wednesday.

Aegon's perpetual capital securities (NYSE: AEF) dropped $1.60, or 7.37%, to $20.10.

ING Groep's perpetual hybrids (NYSE: IGK) fell $1.17, or 4.90%, to $22.70, while the 7.375% preferreds (NYSE: IDG) declined a buck, or 4.87%, to $19.53.

In a research report put out Wednesday, Bank of America analysts said that there is "no crisis in the insurance sector, but one [is] priced in."

"We understand the current market backdrop means there is little or no appetite for insurers at present," the report said. "And if negative moves persist we may have to cut our earnings numbers and valuations. But this is not likely to change our view that the sector is cheap and chronically so."

The report went on to say that as the market improves, investors might look toward higher-quality names and that the insurance sector was prime for that.

In particular, the analysts put a buy recommendation out on Aegon and ING.

Bank of America tumbles

While Bank of America analysts were lauding the opportunities in the insurance sector, the bank itself was having problems of its own.

It's no secret that the bank has had some negative headlines recently. From the $10 billion lawsuit brought by American International Group Inc. to state attorneys general fighting its $8 billion mortgage settlement to rumors the bank will need to raise more funds to be compliant with Dodd-Frank and Basel III regulations, there seems to be no end to the company's woes.

Additionally, one trader noted that there were rumors the bank might miss a preferred dividend payment. He said he didn't think that it was likely but that the bank could suspend payments.

"This whole Countrywide situation could put them in a bit of a quagmire," he said.

During a conference call held Wednesday, chief executive officer Brian Moynihan attempted to assuage investor worries. In the call, Moynihan said that the bank does not plan to issue more stock nor sell any core assets such as Merrill Lynch.

"He said they've got a game plan and they are doing well, they're well capitalized," a trader said.

Despite Moynihan's best intentions, one market source called the call "bizarre." He explained that the call had been previously scheduled and that it was supposed to be with the bank's largest institutional investor only.

"They ended up inviting the public into the call," the source said, which he added "smacks of desperation."

The call, however, "helped a little bit for a while," the source said. The bank's preferreds "kind of stabilized," erasing most of the day's losses. But as the common equity market experienced a late-hour decline, so did preferreds, and Bank of America was no exception.

The 7% preferreds linked to the bank's Countrywide Financial unit (NYSE: CFCPB) were the day's most actively traded securities. About 1.84 million of them changed hands. The preferreds fell 63 cents, or 3.13%, to $19.50.

The bank's series H depositary shares (NYSE: BACPH) meantime dropped 77 cents, or 3.3%, to $22.57.

At one point, the Hs traded as low as $22.26. The Countrywide paper hit a low of $19.00 on the day.

Ally issues' spread narrows

Ally Financial's two series of preferreds continued to make the most active list, though they closed mixed on the day.

The 8.5% series A preferreds (NYSE: ALLYPA) fell 32 cents to $19.43, while the 8.125% series B preferreds (NYSE: ALLYPB) rose 55 cents to $18.17.

Market sources noted that the price difference between the issues has been narrowing recently, leading one source to remark that the preferreds are "probably moving closer in the right direction."

BRE active, higher

A market source said BRE Properties Inc.'s series D preferreds (NYSE: BREPD) were one of the day's most active issues, but he wasn't sure why.

"It's pretty specific," he said, with just one large trade going through. He opined that "somebody was looking for it."

The preferreds rose 18 cents to $24.70. About 1.68 million preferreds turned over.

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