Archive for the ‘Miscellaneous News’ Category

Bank of Canada Gives Up on Commercial Paper & Bankers Acceptance Statistics

Saturday, January 12th, 2019

The Bank of Canada has announced (on 2018-11-13):

As of January 2019, the Bank of Canada will no longer publish the daily, weekly or monthly prime commercial paper (CP) or bankers’ acceptance (BA) rates. This decision has been taken after a thorough review of these rates and in keeping with the Bank’s policy of only publishing reliable data using appropriate sources and calculation methodologies.

The Investment Industry Regulatory Organization of Canada (IIROC) will start publishing for informational purposes only the 1- and 3-month transaction based BA rates on the same date. These new BA rates will be publicly available on the IIROC’s website on a delayed basis IIROC’s website.

The historical data for these rates will continue to be available on the Bank of Canada website at the Selected Historical Interest Rates page.

For further inquiries contact Bank of Canada at communications@bankofcanada.ca or IIROC Victoria Pinnington vpinnington@iiroc.ca

Naturally, given the secretive nature of the BoC, details of this review are not linked.

I also note their statement that:

The final publication of the “Selected Historical Interest Rates” package will be in January 2019, and on July 31, 2019 the page will be removed from the Bank of Canada’s website. After that date DSOCapitalMarkets@bankofcanada.ca will be pleased to respond to requests for publications.

Please note that you can find all the historical data through Statistics Canada’s CANSIM repository in tables 10-10-0122-01 and 10-10-0123-01, and data for the last ten years on the Canadian Interest Rates, Bond Yields, Treasury Bills and U.S. Interest Rates pages on our website. For a full mapping of the various time series and their new locations please refer to the attached document.

I have sent the following eMail to the Bank:

Sirs,

I understand from your website notice (https://www.bankofcanada.ca/2018/11/changes-to-publication-of-interest-rate-statistics/ ) that the BoC will no longer publish indicative CP or BA rates due to “the Bank’s policy of only publishing reliable data using appropriate sources and calculation methodologies” following “a thorough review of these rates”.

I have two questions regarding this policy change:
i) will this review be published, or is it available on request?
ii) I note that you continue to publish Series “V80691335: Conventional mortgage – 5-year”, claiming that it has not varied in the past five weeks from the nonsensical claim of “5.34%”, a figure that appears to be based on the commercial banks’ “posted rate”, which bears no relationship to actual rates in the marketplace (see, e.g., https://www.ratehub.ca/best-mortgage-rates/5-year/fixed ). Why do you consider the rates you publish to be ” reliable data using appropriate sources and calculation methodologies”?

Sincerely,

Well … I’ll give them a chance to answer. But I suspect that this termination of service is a disgraceful disservice to Canadians, and just another gift to Our Glorious Banks that will assist them to exploit their practical hegemony over the Canadian financial system for commercial purposes.

Update, 2019-1-17: I have received an answer from the BoC:

Good day,

Thank you for your email.

i) The Bank does not plan on releasing this review publicly.

ii) The methodology for calculating the Chartered Bank Interest Rates: Conventional mortgage – 5 year rate (weekly series V80691335 and monthly series V122521) published by the Bank of Canada is the statistical mode of 5-year mortgage rates posted by the Big Six Canadian banks. This rate is designated as a benchmark qualifying rate for the debt service ratio calculations in the mortgage approval process.

If the client’s analytical needs are better met by effective/charged interest rates, could you please point him to the ‘Interest rates for new and existing household lending’ table on the Banking and Financial Statistics web page: https://www.bankofcanada.ca/rates/banking-and-financial-statistics/interest-rates-for-new-and-existing-household-lending/

Kind regards,

Manulife Preferred Income Class Terminates

Saturday, May 12th, 2018

If one searches on SEDAR for “Manulife Preferred Income Class Apr 25 2018 16:25:30 ET Material document – English PDF 94 K” (as usual, the Canadian Securities Administrators prohibit me from linking to the document directly) one will find notification that Manulife Preferred Income Class has been terminated and merged into Manulife Dividend Income Class, effective as of the Close of Business, April 20, 2018.

There was a chaotic close in the preferred share market on April 20; it would be interesting to know if these two incidents were related!

The preferred fund had previously absorbed the poorly performing Manulife Preferred Income Fund, which was originally the AIC Preferred Income Fund.

According to the public document that I am not allowed to link to, “Manulife Preferred Income Class Mar 14 2018 14:27:09 ET Management information circular – English PDF 481 K”, the fund had 1,450 security holders and paid Manulife about $390,000 in management fees in 2017. According to another unlinkable document, “Manulife Preferred Income Class Jul 28 2017 07:55:29 ET Audited annual financial statements – English PDF 1191 K”, the NAV of the fund was about $27.2-million as of April 30, 2017.

Sic transit gloria mundi! As shown on the MAPF Performance Review for March, 2018 the fund was not a terrible performer (provided the absorbed fund is forgotten!) but was nothing special, returning +3.29% annualized in the three years to March, 2018, compared to +4.45% for the BMO-CM “50” Preferred Share Index and +2.76% for TXPR.

Toronto Rock Lacrosse: Instant Playoff Ticket Contest!

Sunday, April 30th, 2017

I have one pair of Toronto Rock Lacrosse playoff tickets to give away!

The Toronto Rock won their last regular season game:

The Toronto Rock (9-9) defeated the Buffalo Bandits (6-12) by a score of 19-15 and got the help they needed on Saturday night as the Vancouver Stealth defeated the New England Black Wolves in OT, meaning the Rock will now host the Black Wolves on Saturday, May 6 at 7pm at Air Canada Centre.

So I have an excellent pair of tickets for Saturday’s East Division Semi-Final at Air Canada Centre on Saturday, May 6 at 7 p.m. If you want them, entry deadline is 4pm, Monday May 1, which will allow me to post the tickets to the lucky winner in time for the 5pm pick-up time at my local post office box. Simply eMail me with your address if you want the tickets … preference will be given to clients and those who will be taking a kid who plays lacrosse to the game, but anybody can win. Determining the winner is not a mechanical scoring process, but it’s not completely random either! Let me know if I may announce your name if you win.

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

There will be more tickets next year!

Toronto Rock Lacrosse Tickets: Update #4

Monday, March 13th, 2017

I have no more pairs of Toronto Rock Lacrosse tickets to give away!

The fifth lucky winner, who got the tickets for March 25 against the Vancouver Stealth, was Jeremy Tabarrok.

Giveaways this year were:

Toronto Rock Lacrosse Ticket Giveaway
Date Opponent
Saturday
2017-1-28
7pm
Rochester Knighthawks
Friday
2017-2-3
7:30pm
Buffalo Bandits
Friday
2017-3-3
7:30pm
New England Black Wolves
Saturday
2017-3-11
7:00pm
Calgary Roughnecks
Saturday
2017-3-25
7:00pm
Vancouver Stealth

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

There will be more tickets next year!

Toronto Rock Lacrosse Tickets: Update #3

Saturday, February 25th, 2017

I have one more pair of Toronto Rock Lacrosse tickets to give away!

The games take place at the Air Canada Centre and the seats are very good. A decision regarding who gets tickets to the last home game (barring playoffs!) will be made on March 10. I will mail them to the lucky winner; while preference will be given to customers and those who tell me they’ve got a kid who plays lacrosse, anybody can win. If you win and don’t want your name publicized, that’s fine.

The third lucky winner, who got the tickets for March 3 against the New England Black Wolves, prefers to remain anonymous. The fourth winner, who will be attending the March 11 game against the Calgary Roughnecks, was Paul Bates.

The remaining ticket giveaway is:

Toronto Rock Lacrosse Ticket Giveaway
Date Opponent
Saturday
2017-1-28
7pm
Rochester Knighthawks
Friday
2017-2-3
7:30pm
Buffalo Bandits
Friday
2017-3-3
7:30pm
New England Black Wolves
Saturday
2017-3-11
7:00pm
Calgary Roughnecks
Saturday
2017-3-25
7:00pm
Vancouver Stealth

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

To try your luck at receiving a pair of tickets, just eMail me or comment on this post.

The next deadline is Friday, March 10 … if you want tickets to see the game against the Vancouver Stealth on March 25, contact me on or before that date!

Toronto Rock Lacrosse Tickets: Update #2

Saturday, February 4th, 2017

I have three more pairs of Toronto Rock Lacrosse tickets to give away!

The games take place at the Air Canada Centre and the seats are very good. Just tell me which ones you would like. A decision regarding who gets tickets will be made two weeks before each game and I will mail them to the lucky winner; while preference will be given to customers and those who tell me they’ve got a kid who plays lacrosse, anybody can win. If you win and don’t want your name publicized, that’s fine.

The second lucky winner was Fed Sanchez, who got the tickets for the Rock’s 18-10 blowout over Buffalo.

The three remaining ticket giveaways are:

Toronto Rock Lacrosse Ticket Giveaway
Date Opponent
Saturday
2017-1-28
7pm
Rochester Knighthawks
Friday
2017-2-3
7:30pm
Buffalo Bandits
Friday
2017-3-3
7:30pm
New England Black Wolves
Saturday
2017-3-11
7:00pm
Calgary Roughnecks
Saturday
2017-3-25
7:00pm
Vancouver Stealth

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

To try your luck at receiving a pair of tickets, just eMail me or comment on this post.

The next deadline is Friday, February 17 … if you want tickets to see the game against the New England Black Wolves on Mar 3, contact me on or before that date!

Toronto Rock Lacrosse Tickets – Update #1

Monday, January 16th, 2017

I have four more pairs of Toronto Rock Lacrosse tickets to give away!

The games take place at the Air Canada Centre and the seats are very good. Just tell me which ones you would like. A decision regarding who gets tickets will be made two weeks before each game and I will mail them to the lucky winner; while preference will be given to customers and those who tell me they’ve got a kid who plays lacrosse, anybody can win. If you win and don’t want your name publicized, that’s fine.

The first lucky winner is Charles Chiu, who will shortly receive the tickets to the January 28 game against the Rochester Knighthawks.

The four remaining ticket giveaways are:

Toronto Rock Lacrosse Ticket Giveaway
Date Opponent
Saturday
2017-1-28
7pm
Rochester Knighthawks
Friday
2017-2-3
7:30pm
Buffalo Bandits
Friday
2017-3-3
7:30pm
New England Black Wolves
Saturday
2017-3-11
7:00pm
Calgary Roughnecks
Saturday
2017-3-25
7:00pm
Vancouver Stealth

The games are a lot of fun. One thing that has impressed me is that these guys’ technical skills are so good they can concentrate on strategy … there are a lot fewer loose balls than I remember from my days of box lacrosse at age 10!

To try your luck at receiving a pair of tickets, just eMail me or comment on this post.

The next deadline is Friday, January 20 … if you want tickets to see the game against the Buffalo Bandits on February 3, contact me on or before that date!

FPSC Releases Projection Assumption Guidelines for 2016

Wednesday, July 13th, 2016

OK, so this doesn’t have much to do with preferred shares. But it is such a basic part of portfolio planning and so little known that I really should give it its own post. I mentioned last year’s version on May 25, 2015.

The Financial Planning Standards Council has announced:

and Institut québécois de planification financière (IQPF) have released updated unified Projection Assumption Guidelines for financial planners across Canada. Developed in 2015 by a committee of actuarial and financial planning professionals and updated annually, the Guidelines aid financial planners in making medium and long-term financial projections that are free from potential biases or predispositions.

The 2016 updates were completed with extensive feedback from financial planners across Canada and financial firms from across industry sectors. Based on feedback, additions incorporated into the 2016 Guidelines include:

  • •Rate of return assumption guidelines for foreign developed market equities (including U.S. market and EAFE market equities) and emerging market equities, as well as rate of return assumption guidelines for short-term investments, Canadian fixed income and Canadian equities
  • •Margins within which financial planners may deviate from the rate of return assumption guidelines, with explanation for how to apply the margins
  • •Additional explanations for the rate of return assumption guidelines referenced in footnotes, as well as in the body of the report
  • •Updated life expectancy information

The Projection Assumption Guidelines for 2016 are the following:

Inflation rate: 2.1%
Return rates
Short term: 3.0%
Fixed income: 4.0%
Canadian equities: 6.4%
Foreign developed market equities: 6.8%
Emerging market equities: 7.7%
YMPE or MPE growth rate 3.1%
Borrowing rate: 5.0%

To ensure full transparency and replicability, the Guidelines are drawn from four publicly available data sources: the Canada Pension Plan, Quebec Pension Plan, Willis Towers Watson portfolio managers’ survey, and historical data (based on the DEX 91-day T-bill index S&P/TSX, the DEX Universe Bond™ [Canadian bonds] index, the S&P/TSX [Canadian equities] index, the S&P 500 [U.S. equities] index, the MSCI EAFE [Europe, Australia, Far East] index and the MSCI Emerging Markets index).

“Updates to the Projection Assumption Guidelines ensure that financial planners are equipped with the current information to make financial projections,” says Joan Yudelson, FPSC Vice President of Professional Practice, “allowing them to project their clients’ progress toward meeting their life goals and provide appropriate financial planning advice to address any gaps.”

The 2016 Guidelines are in effect as of June 30, 2016. Full detail on the 2016 unified Projection Assumption Guidelines can be found here.

I must say, a nominal return of 4% for Fixed Income looks very optimistic, given that long Canadas yield 1.65% and long corporates are about 3.7%! The main document states that:

The Guidelines were set by combining assumptions from the following sources (each weighted at 25%):
  • assumption used in the most recent QPP actuarial analysis, weighted as follows: 50% of the medium-term assumption (2013 to 2022) and 50% of the long-term assumption (2023 and later)
  • assumption used in the most recent CPP actuarial report (2019 and later)
  • result of the Willis Towers Watson annual portfolio managers’ survey, weighted as follows: 50% of the medium-term projection (year to year) and 50% of the long-term projection (year to year)
  • historic returns over the 50 years ending the previous December 31st (adjusted for inflation) or dating back to inception of the index

The historical component is based on the DEX 91-day T-bill index S&P/TSX, the DEX Universe Bond™ (Canadian bonds) index, the S&P/TSX (Canadian equities) index, the S&P 500 (U.S. equities) index, the MSCI EAFE (Europe, Australia, Far East) index and the MSCI Emerging Markets index.

… and ….

The fixed income assumptions used in the most recent QPP and CPP actuarial reports have been adjusted to account for the opportunity of the QPP and CPP to buy and hold fixed income securities for significantly longer than the typical holding period of individuals. A margin of 0.75% is therefore deducted from the QPP and CPP actuarial assumptions to convert the long-term fixed income assumptions into a more relevant fixed income assumption for individual financial planning.

This does not fill my heart with comfort. Using historical returns as an input for fixed income projections is not an endeavor I would recommend to my friends (it can be justified with equities). Perhaps somebody would like to defend the 4% projection in the comments?

The actual document has material of further interest, including portfolio guidelines:

Portfolio return assumptions based on asset allocation
Investor profile: Conservative Balanced Aggressive
Short term: 5% 5% 5%
Fixed income: 70% 45% 20%
Canadian equities: 25% 40% 35%
Foreign developed market equities 0 10% 25%
Emerging market equities 0   15%
Gross return before fees 4.55% 5.19% 6.05%
Assumed fees 1.25% 1.25% 1.25%
Net return after fees 3.30% 3.94% 4.80%

DBRS Releases and Applies New Insurance Company Methodology

Friday, December 18th, 2015

DBRS has touted their new insurance company rating methodology:

DBRS Limited (DBRS) has today released its “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2015)” after a public request for comment period. The new methodology considers several factors, including the increased complexity of insurance risks and regulation; major shifts and dynamics in competition across the diverse financial services space; regulatory environment evolution, particularly in respect of evolving views on the definitions of capital; and the growing global reach of internationally active insurance companies.

The methodology, which places a high emphasis on the prevailing regulatory and operating environments, is underpinned by the DBRS core rating philosophy of “rating through the cycle.” The unique approach outlined in the new methodology incorporates a transparent approach to the notching between the holding company and operating company ratings, as well as a clear qualitative and quantitative approach to assessing franchise strength, while incorporating other key analytical considerations, including earnings ability, liquidity, risk profile, capitalization and asset quality.

The methodology specifically addresses the rating of insurance holding companies by taking into consideration the unique aspects of these parent companies and the operating groups that they control, considering various characteristics, including their diversified holdings, capital structure and cash flows.

Given an existing FSR at the operating company, the parent holding company would typically be notched down two notches from this FSR to reflect structural subordination under this new methodology. Ratings of a holding company’s debt and preferred shares depend on the FSR at its operating company, which then serves as the anchor point for the rating of the various capital instruments at the operating company and the holding company. Existing insurance company ratings and related ratings of insurance holding companies were revised.

The methodology itself is titled Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations:

Impact of Related Methodologies and Criteria – Final Rating and Ratings for Specific Securities

Once DBRS has determined the initial FSR of the insurer, several other methodologies and criteria are employed to determine the final FSR and ratings for specific classes of securities from senior debt to preferred shares. As discussed in these methodologies, the final rating will consider aspects such as the support assessment (or pressure) of applicable sovereign governments and appropriate notching for the holding company, ranking and contingent risk considerations.

Operating Company Ranking of Creditors

This global insurance methodology generates an FSR for the main operating insurance company based on information applicable
to the consolidated group. In jurisdictions where policyholder claims rank above senior and subordinated debt, this claim superiority will be recognized in the notching with reference to the ranking of the various classes of creditors noted below.

General method of ranking (for a standard operating insurance company):
1a. FSR: Credit risk evaluation of the policyholders’ risk of the company’s expected future probability of failing to honour undisputed claims or benefit payments as per the policy contract.
1b. Issuer Rating: The FSR rating will also be the Issuer Rating for the operating insurance company.
2. Senior Debt Rating: FSR minus one notch (if no senior debt will be issued because of regulatory disadvantage and management practice, this placeholder notching for senior debt could be ignored, uplifting the subordinated debt rating, etc.).
3. Sub-Debt Rating: FSR minus two notches.
4. Preferred Shares Rating: FSR minus three notches.

Holding Company Notching

In determining the appropriate rating of holding company debt, DBRS will notch from the FSR of the operating insurance company in accordance with the following general guidelines. While a rating differential between the FSR of the operating insurance company and the rating of the holding company’s senior debt is typically two notches, it can range from zero to four notches or more depending on a number of factors. Such factors include:
• Legal structure and management of the insurance group,
• Diversity of subsidiary operating businesses and their contributions to the strength of the holding company,
• Consistency of dividends from operating businesses as well as the assessment of regulatory upstream dividend constraints and the liquidity of operating companies,
• Stand-alone liquidity of the holding company to meet capital servicing charges,
• Holding company access to funds to pay fixed holding company charges and rollover funding,
• Consolidated financial leverage measures,
• Double leverage ratio (please refer to definitions in the Appendix 2),
• Consolidated fixed-charge coverage ratio,
• Presence of a common regulator for the holding company and operating company, resulting in coordination of regulation and
regulatory action,
• Low solvency ratios in operating subsidiaries, limiting the ability to pay dividends regardless of the regulatory approval process and
• If the operating company’s FSR is rated BBB high or lower, an assessment will be made that may determine a greater than two notch differential for the holding company.

The holding company’s investment in subsidiaries is primarily equity based, which creates a structural subordination for holding company debtholders. DBRS recognizes that this structural subordination will only be realized in the event of the operating company being declared insolvent and, following the creditor adjudication process, the holding company debt investors may find that their claim is treated with the ranking of an equity holder of the operating subsidiary.

By rating the holding company’s senior debt at least two or more notches below the FSR of the main operating company, the senior and subordinated debt of the holding company is always at least one notch lower than the operating company’s senior and subordinated debt. In jurisdictions where operating companies do not typically issue senior debt, the operating company’s subordinated debt may be rated one notch below the FSR. In this case, the holding company’s senior debt will likely be rated one notch below the operating company’s subordinated debt. Maintaining a notching difference between the operating company’s debts and holding company’s debts will communicate to the investor that there is a ranking and recovery difference between similar debt tranches of the holding company and operating company.

This pass-through of debt capital in the form of equity capital can be reflected in the double leverage ratio (for a definition of this ratio, please refer to Appendix 2). Regulatory environments can place limits when and if dividends can be paid to the holding company by the operating company. A restrictive regulatory environment with respect to dividends creates risk that the holding company may have difficulty meeting its capital servicing obligations. This and other factors that assist or hinder the holding company will be evaluated. Generally, the notching of the capital instruments for a holding company with a two-notch differential would have this pattern of notching for the various rankings of security instruments:

1. Parent Holding Company Issuer Rating – FSR minus two notches.
2. Holding Company Senior Debt – FSR minus two notches.
3. Holding Company Sub-Debt – FSR minus three notches.
4. Holding Company Preferred shares – FSR minus four notches.

The extent of the notching can vary with the restrictiveness of the regulatory and supervisory environment in terms of dividends and other payments. For example, as a result of U.S. regulatory dividend restrictions for insurance companies, the issuer rating for U.S. holding companies would typically be rated three notches below the FSR. For non-U.S. insurance holding companies that have significant U.S. insurance operations, the analysis would consider the parent holding company’s ability to access sufficient dividend income from other operations as well as the U.S. insurance subsidiaries.

A New Competitor: Canadian Preferred Share Trust

Monday, July 20th, 2015

On May 28, Fierra Capital announced:

that Canadian Preferred Share Trust (the “Fund”) has filed a preliminary prospectus dated May 27, 2015with the securities regulatory authorities of all of the Canadian provinces and territories for an initial public offering (the “Offering”) of Class A Units and Class F Units (collectively, the “Units”) of the Fund at a price of $10.00 per Unit. The Class F Units are designated for fee based and/or institutional accounts and will not be listed on a stock exchange but will be convertible into Class A Units on a weekly basis.

The Fund’s investment objectives are to provide holders of Units with monthly cash distributions, preserve capital and provide the opportunity for capital appreciation and reduce the risk of rising interest rates by managing portfolio duration. The Fund has been created to invest in an actively managed portfolio comprised primarily of Canadian preferred shares. The Fund’s distributions are initially targeted to be $0.0333 per Unit per month ($0.40 per annum) to yield 4.0% on the subscription price per Unit.

Fiera Capital is the manager, portfolio manager and promoter of the Fund. Fiera Capital is responsible for creating, structuring, managing and promoting the Fund and will also implement the Fund’s investment strategies.

The final prospectus was announced on June 23.

Exchange Ratios (when offering extant preferred shares in exchange for units of the fund; many, many different issues will be accepted) were announced June 24.

And on July 2 the issue closed:

Canadian Preferred Share Trust (the “Trust”) announces the closing of its initial public offering (the “Offering”) for aggregate gross proceeds of approximately $90 million. Pursuant to the Offering, the Trust issued Class A Units and Class F Units (together, the “Units”) at a price of $10.00per Unit. The Trust has granted the Agents an over-allotment option, exercisable for a period of 30 days from today’s date, to purchase up to an additional 1 million Class A Units.

The Class A Units are listed on the Toronto Stock Exchange under the symbol PFT.UN. The Class F Units are designated for fee based and/or institutional accounts and will not be listed on a stock exchange but will be convertible into Class A Units on a weekly basis.

The Trust’s investment objectives are to:

(i) provide holders of Units with monthly cash distributions;
(ii) preserve capital and provide the opportunity for capital appreciation; and
(iii) reduce the risk of rising interest rates by managing portfolio duration.

The Trust has been created to invest in an actively managed portfolio comprised primarily of Canadian preferred shares. The Trust’s distributions are initially targeted to be $0.0333 per Unit per month ($0.40 per annum) to yield 4.0% per annum on the subscription price per Unit.

Fiera Capital is the manager, portfolio manager and promoter of the Trust. Fiera Capital is responsible for creating, structuring, managing and promoting the Trust and will also implement the Trust’s investment strategies.

Fiera Capital is also the manager of National Bank Preferred Equity Fund, which used to be Altamira Preferred Equity Fund, which launched quietly in 2012.

Good luck!