Preferred investors remain focused on recent Ally deals; BofA mixed on nixed dividend increase

By Stephanie N. Rotondo

Portland, Ore., March 24 - With no news or new issues out to drive the market, preferred stock investors continued to focus on Ally Financial Inc. preferreds, sources reported Thursday.

Part of the recent activity in the name was due to the size of the Ally deals - $2.67 billion of 8.125% hybrid trust preferreds and $1.02 billion of 8.5% perpetual preferreds - as well as the normal "lifecycle" of new issues, a trader said.

Both Ally issues traded down during Thursday trading.

Bank of America Corp. meantime closed the day out mixed as investors digested what it meant that the Federal Reserve had nixed the bank's plan to increase its dividend. The bank's $25 par issues traded higher, and its $1,000 par securities fell.

"Generally speaking, the $25 par market was more or less unchanged, which is impressive considering recent strength, negative headlines around the world and a tick-up in long rates," a trader said. "The hybrid had a firm tone and was generically [half a point to a point] better on the day."

Ally remains active, weakens

As has been the case of late, preferreds linked to Ally Financial were trading head and shoulders above the rest of the market, sources said.

"They are sizeable deals," a trader said, giving a reason as to why the preferreds were dominating. Additionally, he said the heavy trading was all part of the "lifecycle" of an issue, as underwriters attempt to place the securities in permanent hands and get them off their own books.

Ally's GMAC Capital Trust I 8.125% hybrid trust preferreds - the $2.67 billion issue that priced at par of $25.00 on March 2 - were the most actively traded preferred of the day, with some 4.1 million shares changing hands. A source said the preferreds dipped 2 cents to $25.48, leaving the market $25.47 bid, $25.48 offered.

Meanwhile, the 8.5% non-cumulative perpetual preferreds - a $1.02 billion issue that priced Tuesday at par of $25.00 - traded up 20 cents to $25.25. About 3.5 million shares turned over.

Ally received none of the proceeds from the sale of either issue, as the 8.125% trust preferreds were sold by the U.S. Department of the Treasury and General Motors Co. sold the 8.5% preferreds.

On Thursday, Fitch Ratings gave the new 8.5% preferreds a B rating. Fitch had previously assigned a B+ rating to the 8.125% trust preferreds.

Bank of America ends mixed

Bank of America preferreds were mixed in Thursday trading just one day after the Charlotte, N.C.-based bank said the Federal Reserve denied its bid to increase its dividend in the second half of 2011.

Among the company's $25.00 par securities, the 8.2% series H preferreds traded up a penny to $26.36, leaving the market $26.38 bid, $26.40 offered. The 8.625% preferreds also gained a penny, closing at $26.50 with a $26.50 bid, $26.51 offered market.

In the $1,000 par capital securities, the 5.63% notes due 2049 dropped almost 3 points to 75.5.

In a regulatory filing on Wednesday, Bank of America said the Fed "objected to the proposed increase in capital distributions for the second half of 2011." The bank said it had sought a modest increase of its dividend payments, which are currently a penny per share.

Of the 19 financial institutions that were part of the Fed's recent stress test, Bank of America is now the only major bank that did not get the go-ahead to increase its dividend. Even Citigroup Inc. said last week that it would reinstate its dividend following a 1-for-10 reverse stock split.

"Quite a few of these preferreds ran up on the assumption they would have to be called under the Frank-Dodd bill," a trader said. "This could push the call out for a while.

"If you compare where a company's preferreds are trading in relation to their corporate bonds, the preferreds look rich."

Prudential planning issue?

Market buzz is that an issuer is planning a new deal for sometime this week, but traders are speculating that it isn't going to happen.

"I heard rumors of a new deal in the next day or so," a trader said, though he added that he wasn't sure who the issuer was. However, he opined that the deal would not make March business.

Another trader said he heard rumors of an issue from Prudential Financial Inc., though he also said nothing has come of it yet.

"I have heard of a Prudential deal as well but have not seen details," said another trader.

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