Ontario is on Outlook-Negative by Moody’s:
Ontario’s rating outlook was cut to negative from stable by Moody’s Investors Service on concern Canada’s most populous province faces a higher risk in meeting fiscal targets given a recent slowdown in economic growth.
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The province in November revised its forecasts down for provincial growth in 2011 and 2012 to 1.8 percent and 1.8 percent, from 2.4 percent and 2.7 percent, Moody’s said. The provincial economy is affected by the moderation in U.S. growth, given its higher export share relative to other Canadian provinces and the estimated 80 percent of international exports destined for the nation’s largest trading partner.“The negative outlook on the province reflects the softening economic outlook, Ontario’s growing debt burden, and the extended timeframe to achieving a balanced budget,” Moody’s Assistant Vice President Jennifer Wong, lead analyst for the Province of Ontario, said in the statement.
Thank you, Premier Dad! Thank you, green energy lobbyists!
Fitch downgraded GS and BAC among others:
The downgrades “reflected challenges faced by the sector as a whole,” Fitch said. “These challenges result from both economic developments as well as a myriad of regulatory changes.”
Credit ratings of the world’s biggest lenders have come under pressure amid weak economic growth and doubts about whether European regulators have done enough to end the continent’s debt crisis. Lenders in the European Union must raise about $149 billion in fresh capital to help address the sovereign-debt turmoil, the European Banking Authority said on Dec. 9.
Long-term issuer default ratings for Bank of America, Citigroup and Goldman Sachs were cut to A from A+, according to the statement. Barclays and Credit Suisse were downgraded to A from AA-, while BNP Paribas (BNP) and Deutsche Bank fell to A+ from AA-. Morgan Stanley’s long-term issuer default rating was affirmed at A.
First Asset has decided there aren’t enough index providers:
Toronto-based First Asset Investment Management Inc. has licensed seven Morningstar indexes to serve as benchmarks for exchange-traded funds that it expects to launch early in the new year on the Toronto Stock Exchange.
… the Morningstar Canada Momentum Index, Morningstar Canada Dividend Income Index, Morningstar Canada Value Index and Morningstar U.S. Dividend Target 50 Index. … Morningstar Canada Liquid Bond Index and the Morningstar Emerging Market Composite Bond Index … the Morningstar Diversified Futures Index
…
First Asset Investment Management, a subsidiary of First Asset Capital Corp., entered the ETF business in June and currently manages six ETFs with combined assets of $50 million.
There is well-founded speculation on European bank runs:
Kyle Bass, the Dallas-based hedge fund manager who said in 2009 that governments would default within three years, said Greek, Portuguese and Spanish depositors will withdraw money from banks in the coming months.
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In Greece, business and household bank deposits have slumped 26 percent in the past two years to 176 billion euros ($229 billion), and fell in October by the most since the nation joined the euro, according to the Bank of Greece. There were 2.24 trillion euros of overnight deposits with euro-region financial institutions at the end of September, down from 2.26 trillion in July, according to data compiled by Bloomberg.Latvians pulled about $54 million from local Swedbank AB automatic teller machines on Dec. 11 and 12 on speculation customers wouldn’t be able to access their funds. “The rumors were knowingly distributed with the goal of destabilizing the situation in Latvia,” Prime Minister Valdis Dombrovskis said, according to the Leta newswire. Clients withdrew about 1.5 percent of total deposits on Dec. 12, the Swedish bank said in an e-mailed statement.
The IMF managing director says the Europeans have to call in the IMF:
The European debt crisis is growing to the point that it won’t be solved by one group of countries, Christine Lagarde, the managing director of the International Monetary Fund said today.
Lagarde said that if countries don’t work together, the world will face a situation similar to the 1930s, before the world slid into World War II.
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Lagarde said international support would probably be channeled through the IMF for “organizing a collective financial responsibility, a fiscal solidarity and that element of risk-sharing that is expected, pretty much, around the globe.”
Let us all give thanks that we will be saved by the heroic bureaucrats of the IMF!
The SEC has released a statement whining that regulatory extortion is getting more difficult:
Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ‘unsupported by any proven or acknowledged facts.’ As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.
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We believe the court was incorrect in requiring an admission of facts — or a trial — as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions.
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The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.In cases such as this, a settlement puts money back in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount – risks that always exist no matter how strong the evidence is in a particular case.
What has happened to ethics? What has happened to respect for the rule of law? If the court system has become so grossly inefficient that trials take too long, then the solution is to reform the court system – not to tell the accused that since a trial would take too long, we’re going to string you up.
Meanwhile, we may finally be getting some clarity on the MF Global fiasco:
Corzine suggested Terrence Duffy, CME Group executive chairman, may have been referring to some funds transfers that occurred as MF Global was selling billions of dollars in securities. JPMorgan Chase & Co. (JPM), which was involved in the transactions, told MF Global the sale could not be completed until overdrafts in some accounts in London were corrected.
“I contacted the firm’s back office in Chicago and asked them to resolve the issues, which I understood they did,” Corzine said. He didn’t say explicitly whether he was aware at the time that the loan may have included funds from customer accounts.
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“The back office in Chicago explicitly confirmed to me that the funds were appropriately transferred,” Corzine said.
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Texas Republican Randy Neugebauer, chairman of the oversight subcommittee, said he was uncomfortable with the amount of power Corzine held at MF Global before he stepped down.“What we saw was one person had an extreme amount of authority, Mr. Corzine, as the chair of the board and the CEO of the company,” Neugebauer said in his opening statement. “And, according to people we have interviewed, one of the principal traders of this company. There was no real barrier or firewall for protecting the investors of the company.”
Three cheers for Randy Neugebauer, who appears to have a good head on his shoulders! All kinds of criminal instructions are issued with plausible denial by the big boss saying ‘Get it done’.
Ed Clark wants his mummy to look after him:
Ed Clark, the chief executive officer of Toronto-Dominion Bank (TD-T71.85-0.55-0.76%), said in an interview that he believes Ottawa could tighten the rules on housing loans more than it already has, without hurting the economy or putting the housing market at risk.
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The banks prefer that the government direct the industry on mortgage lending, concerned that if one lender were to stop offering 30-year mortgages, another would likely swoop in and try to steal that market share. Last December, Mr. Clark warned that if a bank tried to cut back on longer mortgages on its own, it would be “carved up” by its rivals.
Well, we wouldn’t want to lose any of our likely-to-default customers, would we? Then we might be left only with good customers.
As I have said so many times this year (*sigh*) I can’t figure out what’s going on with YLO. The common is trading at $0.20. YLO.PR.A can be converted by the company into 12.5 common shares at the end of March, after paying one more dividend of $0.26563, and it’s prudent to assume that this will happen. If the company doesn’t convert prior to December 2012, then holders will get $25, which will be highly inconvenient for the company, to say the least, so it will (almost) certainly happen next year, probably sooner rather than later (to avoid either paying a dividend or skipping it).
So here’s my question: why is YLO.PR.A trading for $1.60? That’s an implied conversion price of about $0.10 for the common, half the market price.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 14bp, FixedResets up 1bp, and DeemedRetractibles losing 13bp. The Bozo Spread (Current Yield PerpetualDiscounts less Current Yield FixedResets) is now only 10bp! MFC issues got hammered again today, amid more than usual volatility skewed to the downside. Volume was average.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -1.4067 % | 2,015.5 |
| FixedFloater | 4.90 % | 4.65 % | 35,153 | 17.04 | 1 | -0.3085 % | 3,145.4 |
| Floater | 3.30 % | 3.65 % | 68,859 | 18.20 | 3 | -1.4067 % | 2,176.2 |
| OpRet | 4.92 % | 1.42 % | 60,986 | 1.41 | 6 | -0.1157 % | 2,479.8 |
| SplitShare | 5.52 % | 3.12 % | 62,634 | 0.98 | 4 | 0.1693 % | 2,533.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1157 % | 2,267.5 |
| Perpetual-Premium | 5.49 % | 2.70 % | 88,782 | 0.09 | 18 | 0.1431 % | 2,169.2 |
| Perpetual-Discount | 5.21 % | 5.16 % | 106,203 | 15.12 | 12 | 0.1376 % | 2,323.8 |
| FixedReset | 5.11 % | 3.06 % | 218,381 | 2.48 | 64 | 0.0054 % | 2,338.0 |
| Deemed-Retractible | 5.05 % | 4.18 % | 188,703 | 3.17 | 46 | -0.1256 % | 2,222.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.C | Deemed-Retractible | -3.94 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.24 Bid-YTW : 7.21 % |
| MFC.PR.B | Deemed-Retractible | -3.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.62 Bid-YTW : 7.14 % |
| BNA.PR.E | SplitShare | -1.74 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 22.65 Bid-YTW : 6.85 % |
| BAM.PR.K | Floater | -1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-12-15 Maturity Price : 14.30 Evaluated at bid price : 14.30 Bid-YTW : 3.67 % |
| SLF.PR.H | FixedReset | -1.36 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.46 Bid-YTW : 4.98 % |
| BAM.PR.B | Floater | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-12-15 Maturity Price : 14.36 Evaluated at bid price : 14.36 Bid-YTW : 3.65 % |
| PWF.PR.A | Floater | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-12-15 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 2.78 % |
| GWO.PR.N | FixedReset | -1.23 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.55 Bid-YTW : 4.24 % |
| IAG.PR.E | Deemed-Retractible | -1.01 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.25 Evaluated at bid price : 25.54 Bid-YTW : 5.70 % |
| BMO.PR.J | Deemed-Retractible | 1.14 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-25 Maturity Price : 25.25 Evaluated at bid price : 25.76 Bid-YTW : 3.88 % |
| RY.PR.G | Deemed-Retractible | 1.19 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-05-24 Maturity Price : 25.25 Evaluated at bid price : 25.55 Bid-YTW : 4.18 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| FBS.PR.C | SplitShare | 200,185 | New issue settled today. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-12-15 Maturity Price : 10.00 Evaluated at bid price : 10.16 Bid-YTW : 3.12 % |
| MFC.PR.G | FixedReset | 187,045 | Recent blue light special. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 4.95 % |
| CM.PR.E | Perpetual-Premium | 158,744 | RBC crossed blocks of 49,900 shares, 49,800 and 44,000, all at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 5.01 % |
| PWF.PR.M | FixedReset | 100,500 | Nesbitt crossed blocks of 20,000 and 75,400, both at 26.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.66 Bid-YTW : 3.13 % |
| RY.PR.Y | FixedReset | 77,985 | Scotia crossed 75,000 at 27.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 27.25 Bid-YTW : 3.03 % |
| FTS.PR.C | OpRet | 59,459 | TD bought 55,300 from CIBC at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-01-14 Maturity Price : 25.50 Evaluated at bid price : 25.70 Bid-YTW : -1.69 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| W.PR.J | Perpetual-Premium | Quote: 25.55 – 26.44 Spot Rate : 0.8900 Average : 0.5238 YTW SCENARIO |
| POW.PR.A | Perpetual-Premium | Quote: 25.29 – 25.75 Spot Rate : 0.4600 Average : 0.2814 YTW SCENARIO |
| BNA.PR.E | SplitShare | Quote: 22.65 – 23.50 Spot Rate : 0.8500 Average : 0.7053 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 23.52 – 23.90 Spot Rate : 0.3800 Average : 0.2450 YTW SCENARIO |
| BMO.PR.K | Deemed-Retractible | Quote: 26.12 – 26.39 Spot Rate : 0.2700 Average : 0.1520 YTW SCENARIO |
| PWF.PR.O | Perpetual-Premium | Quote: 26.01 – 26.41 Spot Rate : 0.4000 Average : 0.2982 YTW SCENARIO |
Why is YLO.PR.A trading for $1.60? (and PR.B for not much more even though it should get 36 cents more in dividends in 2012)?
Reason #1: They went ex-dividend on Monday the 12th and promptly fell 50% (> $1.50) as retail sold out. Holding on for that extra 20-30c dividend was real smart when the pref price collapses afterward.
Reason #2: Tax loss selling. Dumb idea, but it happens with many stocks at or near their year lows in December. This pressure will continue through Dec 23 (and maybe longer, based on retail momentum fears). Interestingly, the common seems just now to be struggling past tax loss selling and inching upward.
As far as I am concerned, the tax benefits (a one year delay in getting a credit for a tax loss is worth no more than 4% of the taxes) are trivial compared with the downward price pressure (50% of the pref price) to implement tax loss selling at year end. Yet tax loss selling goes on, year after year, fed by an equally dozy media touting it.
Example: Suppose an investor has an unrecognized capital loss of $20 on YLO.PR.A or B. In the top marginal Ontario bracket, the taxes are worth 23% of this. However, the difference between getting the credit this year or next year is only the time value of money (4% after tax return is darn good). $20×23%x4% = 18 cents. The 18 cents is close to maximum value — recent purchasers would have a much smaller loss. To “get” this 18 cent value, retail is selling so fast as to give up 9 times as much in current value ($1.62, for example). Furthermore, my experience with retail clients is that (sadly) most of them can’t use capital losses because they haven’t posted any gains in the past 3 years, so even this calculation overstates the value of tax loss selling.
Fearless forecast: YLO and its prefs could gain 100% in the first six weeks of 2012. Still probably won’t be enough to save the firm, but nimble, optimistic, rank speculators may be rewarded (along with the patient long-term holders who refuse to get swept along with rushed decisions not supported by analysis).
Keep up the fine work James.
on the pref side, look at the slide on GMP.PR.B? in one week from 23.74 to 20.26? Is there news on this? Havent seen any news out
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