Low rates could be helpful for preferreds, trader says; Bank of America recovers lost ground

By Stephanie N. Rotondo

Portland, Ore., Aug. 9 - The Federal Reserve's assertion that it will keep its rates low through mid-2013 "should be good for preferred stocks," a trader said Tuesday.

He said that the lower rates could be a boon for banks and that once banks have a few good quarters under their belts, investors searching for yield will flock to the paper because it is already cheaper than its corporate-debt counterparts.

"That should help these banks a lot," he said. "Preferred stocks are so much cheaper than most corporate debt. So it's a good buying opportunity."

After the sell-off Monday, preferreds "jumped sharply" at Tuesday's open, only to sell off a bit by mid-day.

Bank of America Corp.'s preferreds managed to regain some, if not all, of the ground lost in the previous session. According to a trader, investors are mixed about the bank's current plight and whether it will have to raise more funds in order to comply with the new Dodd-Frank regulations.

Meanwhile, Aegon NV and ING Groep NV headed higher. A trader said that the insurers are better positioned than some other foreign entities because their exposure to the "Euro-contagion" is minimal. He said the preferreds are "relatively cheap," making for a good investment opportunity.

Bank of America recovers

Bank of America preferreds were all higher, nearly erasing all of Monday's losses.

The series H depositary shares (NYSE: BACPH) closed $1.04, or 4.66%, higher at $23.34. The Merrill Lynch series I preferreds (NYSE: BMLPI) meantime gained $2.84, or 17.48%, to close at $19.09. The 5.8% "baby bonds" (NYSE: IKM) moved up $3.11, or 16.72%, to $21.74.

"People are mixed on what is happening with BofA," a trader said. Though the company has said on more than one occasion that it will not need to raise new funding in order to be Dodd-Frank compliant, rumors of capital raising persist.

"I guess people are looking for better information than that," the trader said.

On Monday, the bank was hit with a $10 billion lawsuit from American International Group Inc. The suit is in regards to losses AIG incurred due to mortgage investments that went south. AIG claims that Bank of America falsely misrepresented the quality of the securities.

Aegon, ING good buys

A trader said that Aegon and ING Groep paper present an attractive buying opportunity for investors because the companies' exposure to foreign entities is limited.

"They seem to be doing quite well," he said, adding that both parties have "strong balance sheets."

Despite that, the insurers' preferreds have taken hits along with the broader market over the last few days. On Tuesday, the preferreds attempted to recover lost ground.

Aegon's perpetual capital securities (NYSE: AEF) closed $2.95, or 15.73%, higher at $21.70. Another issue (NYSE: AEH) meanwhile moved up $2.38, or 14.04%, to $19.33.

ING's perpetual hybrids (NYSE: IGK) improved by $3.42, or 16.72%, to end at $23.87. The perpetual hybrid capital securities (NYSE: ISF) gained $2.42, or 15.43%, to close at $18.10.

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