Preferreds fail to gain with equities; BofA rumors abound, preferreds fall; HSBC busy, lower

By Stephanie N. Rotondo

Portland, Ore., Aug. 22 - Though the common equity market managed to post gains during Monday trading, the same could not be said for preferred stocks.

"It was a decent day in the equity market, except preferreds didn't really follow," a trader said. "There was more red than green.

"The market seems to want QE3," he added, but he remarked that he is "not sure it's a solution."

The focus of preferred investors continued to be foreign issuers and Bank of America Corp.

"Bank of America rumors were the biggest news," a market source said.

The source said yet another equity analyst came out alleging that the bank will have to raise $40 billion to $50 billion of new capital in order to be compliant with new financial regulations. Additionally, there were more reports about the ongoing mortgage settlement saga and concerns about the bank's stake in China Construction Bank.

Still, the source said there is "not a lot of substantiation" to the so-called "rumors."

But substantiated or not, Bank of America's preferreds were among the most active - as well as the weakest - securities of the day.

HSBC Holdings plc was also active. There was news that the bank is looking to sell off its Canadian brokerage, but a source said he didn't think the news was what was driving the action.

BofA slammed again

The market continued to buzz about Bank of America's plight on Monday, and chatter was particularly busy during the session.

A trader said that there were rumors that the bank is considering selling off its stake in China Construction Bank. On Monday, reports came out indicating that the bank is potentially considering selling half of its 10% stake - once the shares are freed to trade - but that it would keep at least a 5% interest in the long term.

"We think Bank of America will be a long-term strategic partner and important shareholder," Guo Shuqing, chairman of the state-run bank, told reporters in Beijing.

Still, a market source said there is concern that "they are not going to get the amount of money they want.

"That's been the story among analysts for a while now," he noted, saying that the media is just now picking up on that.

Meanwhile, the ongoing mortgage settlement saga continues as New York attorney general Eric Schneiderman fights the plan that would cap all banks' liability. Because of its Countrywide acquisition, Bank of America will likely have the largest payment.

"They can't come out and say they have enough money, because then the New York attorney general would want it," a trader said. "So they have to be very careful. If they can get through [the mortgage crisis], then BofA will become the sweetheart again."

"It's just a matter of getting it off their books," said another trader.

The bank's 8.2% non-cumulative series H depositary shares (NYSE: BACPH) were the day's most actively traded securities, with 1.76 million shares changing hands. The preferreds fell $1.19, or 5.2%, to $21.71.

"That's substantially down," a market source said. "But it wasn't the biggest loser in the BofA family."

The biggest loser within the structure was the 6% capital trust VIII securities (NYSE: BACPZ), which fell $1.23, or 6.03%, to $19.10.

"We're very perplexed by that one," the source said. "Our view, and most peoples' view, is that bank trust preferreds, as Dodd-Frank becomes effective, banks will want to refinance those. It doesn't seem to make a lot of fundamental sense.

"It may be nothing more than technicals," he said of the loss.

HSBC active, modestly weaker

HSBC's 8% perpetual subordinated capital securities (NYSE: HCSPB), which are exchangeable for series 2 preferreds, traded actively and lower as news outlets reported that the company is considering selling off its Canadian brokerage unit.

The securities fell a quarter, or 0.96%, to $25.74. Over half a million of them traded.

A market source said that "news of them selling assets has been out there for a while. It's not new news." As such, he doubted the news was driving the activity in the preferreds.

In order to overhaul its balance sheet, HSBC is planning layoffs and asset sales, including the selling of bank branches and its U.S. credit card unit to Capital One Corp.

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