The Irish Government has announced its own bailout:
The Government has decided to put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II), with the following banks: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society and such specific subsidiaries as may be approved by Government following consultation with the Central Bank and the Financial Regulator. It has done so following advice from the Governor of the Central Bank and the Financial Regulator about the impact of the recent international market turmoil on the Irish Banking system. The guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers’ interest can be protected. The guarantee will cover all existing aforementioned facilities with these institutions and any new such facilities issued from midnight on 29 September 2008, and will expire at midnight on 28 September 2010.
Guaranteeing sub-debt is breathtaking!
Belgium and France threw Dexia SA a 6.4 billion-euro ($9.2 billion) lifeline and ousted the chairman and chief executive officer as the widening financial crisis forced governments to prop up institutions across Europe.
The capital infusion for Brussels- and Paris-based Dexia comes two days after Belgium, the Netherlands and Luxembourg agreed to inject 11.2 billion euros into Fortis, the largest Belgian financial-services company. Britain seized Bradford & Bingley Plc, the U.K.’s biggest lender to landlords, while Germany bailed out Hypo Real Estate Holding AG.
And as if poor old Fortis didn’t have enough problems, it looks like they have problems with an asset sale.
Writing in VoxEU, Daniel Gros & Stefano Micossi want to go even further and establish a permanent bail-out authority:
Europe’s largest banks are highly leveraged and thus vulnerable, as Fortis showed. But some of these banks are both too large to fail and too big to be rescued by a single government. The EU should: (1) urgently pass legislation to cover banks with significant cross-border presence and empower the ECB to provide direct support, and (2) create an EU-level rescue fund managed by an existing institution like the European Investment Bank.
And in a familiar scenario, UniCredit’s stock price has plunged because they might need to sell some:
UniCredit SpA, Italy’s biggest bank and the owner of Germany’s HVB Group, tumbled more than 10 percent for the second day in Milan trading amid concern the company may need to raise money to strengthen its finances.
UniCredit fell a record 38 cents, or 13 percent, to 2.60 euros, giving the bank a market value of about 34 billion euros ($48 billion). The stock, at its lowest since Dec. 4, 1997, has fallen 55 percent this year, compared with the 41 percent slide in the 69-member Bloomberg Europe Banks and Financial Services Index.
The fun isn’t confined to the banking sector: Jefferson County’s up against it:
Jefferson County, Alabama, faces a deadline today to reach a new agreement with creditors to avoid defaulting on bonds sold by its municipal sewer system that have pushed the state’s most populous county toward bankruptcy.
The county has won agreements since April with JPMorgan Chase & Co., bond insurers and other creditors to postpone full interest and principal payments on the $3.2 billion of debt it amassed building its sewers. The current agreement, which Governor Bob Riley brokered last month, expires today.
It’s a great time to be desperately in need of money, ain’t it? But don’t worry: Obama’s got a plan:
Barack Obama, the Democratic presidential nominee, today proposed increasing the Federal Deposit Insurance Corp. limit to $250,000 from the current level of $100,000.
In proposing an increase, Obama noted that the current $100,000 limit was set 28 years ago and hasn’t been adjusted for inflation.
Utter craziness. $100,000 in the bank is comfortably in excess of what anybody should have for their day to day needs; small businesses and investors will just have to do their due diligence on their bank of choice if they need to hold more in a single bank. At that level of deposit, it is more than reasonable that bank customers be expected to understand the concept of diversification.
However, the decision appears to be unanimous: both presidential candidates and the FDIC itself want a deposit insurance limit of $250,000.
There has been some criticism of a diversification service which allows large deposits to be distributed amongst many banks and be entirely insured:
“When I first saw Promontory, I was amazed that the regulators would let it fly,” says Sherrill Shaffer, a former chief economist at the New York Federal Reserve Bank. “It undermines a lot of the safeguards around the FDIC deposit fund. I’m astounded that the FDIC has not picked up on that and tried to shut down that loophole.”
The loophole Promontory exploits is the FDIC rule that allows an individual to open up federally insured accounts of up to $100,000 at an unlimited number of banks.
Edward Kane, senior fellow of the FDIC’s Center for Financial Research, says CDARS intercepts FDIC premiums.
“It’s portrayed as a public-spirited way to help customers as opposed to a way to game the system,” he says. “They’ve decided there’s a loophole that they’re in charge of.”
… which I confess I don’t understand. The only legitimate criticism I have been able to come up with is that it exploits the minimum and therefore deprives the financial system as a whole of the due diligence that would arise from a large depositor being worried about the soundness of the bank he uses. But this concern is not consistent with the criticism in the article, or with the level of disdain for the process expressed.
However, I have had some discussion with specialists in the field; the concern is that the FDIC is insuring all deposits anyway – the Wachovia deal – and should get paid for it. Infinite deposit insurance! Now there’s a moral hazard issue if ever there was one. Problems at IndyMac & WaMu and the subsequent wipe-out of common shareholders were brought to a head by a run on deposits … it seems to me that infinite deposit insurance will allow banks to ignore the hazards of losing confidence.
Rumours certain to get the Internuts into a lather are going around: Fair Value Accounting might be getting an overhaul … it’s the endless struggle … expected cash flows vs. market price …
When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable.
Further, in some cases using unobservable inputs (level 3) might be more appropriate than using observable inputs (level 2); for example, when significant adjustments are required to available observable inputs it may be appropriate to utilize an estimate based primarily on unobservable inputs.
Broker quotes may be an input when measuring fair value, but are not necessarily determinative if an active market does not exist for the security.
when markets are less active, brokers may rely more on models with inputs based on the information available only to the broker.
The results of disorderly transactions are not determinative when measuring fair value.
Transactions in inactive markets may be inputs when measuring fair value, but would likely not be determinative.
In general, the greater the decline in value, the greater the period of time until anticipated recovery, and the longer the period of time that a decline has existed, the greater the level of evidence necessary to reach a conclusion that an other-than-temporary decline has not occurred.
The last sentence is a classic of the genre.
And that’s all she wrote for September, 2008!
|Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
|Index||Mean Current Yield (at bid)||Mean YTW||Mean Average Trading Value||Mean Mod Dur (YTW)||Issues||Day’s Perf.||Index Value|
|Major Price Changes|
|SBN.PR.A||SplitShare||-7.7895%||Asset coverage of 2.1+:1 as of September 18, according to Mulvihill. Now with a pre-tax bid-YTW of 7.91% based on a bid of 9.50 and a hardMaturity 2014-12-1 at 10.00. This thing must trade in Toronto … closing quote of 8.76-9.78, 8×3, volume for the day of a big fat zero. Boy … am I glad I don’t have to put a price on this to evaluate quarter end returns!|
|BAM.PR.J||OpRet||-4.7064%||Now with a pre-tax bid-YTW of 7.70% based on a bid of 21.26 and a softMaturity 2018-3-30 at 25.00. Compare with BAM.PR.H (6.76% to 2012-3-30), BAM.PR.I (7.06% to 2013-12-30) and BAM.PR.O (8.84% to 2013-6-30).|
|POW.PR.D||PerpetualDiscount||-3.3924%||Now with a pre-tax bid-YTW of 6.58% based on a bid of 19.08 and a limitMaturity.|
|CM.PR.D||PerpetualDiscount||-2.8436%||Now with a pre-tax bid-YTW of 7.03% based on a bid of 20.50 and a limitMaturity.|
|POW.PR.C||PerpetualDiscount||-2.4878%||Now with a pre-tax bid-YTW of 6.63% based on a bid of 21.95 and a limitMaturity.|
|W.PR.H||PerpetualDiscount||-2.3669%||Now with a pre-tax bid-YTW of 6.98% based on a bid of 19.80 and a limitMaturity.|
|POW.PR.B||PerpetualDiscount||-2.2770%||Now with a pre-tax bid-YTW of 6.52% based on a bid of 20.60 and a limitMaturity.|
|HSB.PR.C||PerpetualDiscount||-2.1256%||Now with a pre-tax bid-YTW of 6.49% based on a bid of 19.80 and a limitMaturity.|
|ALB.PR.A||SplitShare||-2.0833%||Asset coverage of 1.7+:1 as of September 25 according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 8.12% based on a bid of 23.03 and a hardMaturity 2011-2-28 at 25.00|
|GWO.PR.I||PerpetualDiscount||-2.0157%||Now with a pre-tax bid-YTW of 6.48% based on a bid of 17.50 and a limitMaturity.|
|BMO.PR.K||PerpetualDiscount||-1.6317%||Now with a pre-tax bid-YTW of 6.31% based on a bid of 21.10 and a limitMaturity.|
|LBS.PR.A||SplitShare||-1.1543%||Asset coverage of just under 2.1:1 as of September 25 according to Brompton Group. Now with a pre-tax bid-YTW of 6.59% based on a bid of 9.42 and a hardMaturity 2013-11-29 at 10.00.|
|BAM.PR.I||OpRet||-1.0165%||See BAM.PR.J, above.|
|CM.PR.P||PerpetualDiscount||+1.0050%||Now with a pre-tax bid-YTW of 6.86% based on a bid of 20.10 and a limitMaturity.|
|SLF.PR.A||PerpetualDiscount||+1.0938%||Now with a pre-tax bid-YTW of 6.17% based on a bid of 19.41 and a limitMaturity.|
|NA.PR.M||PerpetualDiscount||+1.1929%||Now with a pre-tax bid-YTW of 6.19% based on a bid of 24.60 and a limitMaturity.|
|RY.PR.H||PerpetualDiscount||+1.2815%||Now with a pre-tax bid-YTW of 6.04% based on a bid of 23.71 and a limitMaturity.|
|LFE.PR.A||SplitShare||+1.3260%||Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.65% based on a bid of 9.17 and a hardMaturity 2012-12-1 at 10.00|
|ELF.PR.F||PerpetualDiscount||+1.4456%||Now with a pre-tax bid-YTW of 7.70% based on a bid of 17.30 and a limitMaturity.|
|ELF.PR.G||PerpetualDiscount||+1.5334%||Now with a pre-tax bid-YTW of 7.44% based on a bid of 16.05 and a limitMaturity.|
|FBS.PR.B||SplitShare||+1.5453%||Asset coverage of 1.6+:1 as of September 25, according to TD Securities. Now with a pre-tax bid-YTW of 7.73% based on a bid of 9.20 and a hardMaturity 2011-12-15 at 10.00|
|SLF.PR.E||PerpetualDiscount||+1.5495%||Now with a pre-tax bid-YTW of 6.18% based on a bid of 18.35 and a limitMaturity.|
|SLF.PR.D||PerpetualDiscount||+1.7778%||Now with a pre-tax bid-YTW of 6.12% based on a bid of 18.32 and a limitMaturity.|
|CU.PR.B||PerpetualDiscount||+2.0408%||Now with a pre-tax bid-YTW of 6.07% based on a bid of 25.00 and a limitMaturity.|
|WFS.PR.A||SplitShare||+2.2727%||Asset coverage of just under 1.6:1 as of September 18, according to Mulvihill. Now with a pre-tax bid-YTW of 9.55% based on a bid of 9.00 and a hardMaturity 2011-6-30. Below $9, some might find even the regular monthly retraction to be attractive.|
|CM.PR.J||PerpetualDiscount||+2.4450%||Now with a pre-tax bid-YTW of 6.73% based on a bid of 16.76 and a limitMaturity.|
|DFN.PR.A||SplitShare||+2.8761%||Asset coverage of just under 2.3:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 6.70% based on a bid of 9.30 and a hardMaturity 2014-12-1 at 10.00.|
|BNA.PR.A||SplitShare||+4.4444%||Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.7+:1 based on BAM.A at 28.69 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 9.94% (!) based on a bid of 23.50 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (9.64% to 2016-3-25) and BNA.PR.C (11.53% to 2019-1-10).|
|FFN.PR.A||SplitShare||+4.5296%||Asset coverage of just under 1.8:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.35% based on a bid of 9.00 and a hardMaturity 2014-12-1 at 10.00. Note that according to the prospectus, October is the Special Annual Concurrent Retraction month, so things could get interesting!|
|NTL.PR.F||Scraps (Would be Ratchet, but there are credit concerns)||255,195||CIBC crossed 200,000 at 4.11.|
|NTL.PR.G||Scraps (Would be Ratchet, but there are credit concerns)||134,584||CIBC crossed 69,100 at 3.80.|
|TD.PR.O||PerpetualDiscount||58,605||Nesbitt crossed 50,000 at 20.55. Now with a pre-tax bid-YTW of 6.00% based on a bid of 20.60 and a limitMaturity.|
|MFC.PR.C||PerpetualDiscount||42,017||CIBC bought two blocks of 10,000 from Nesbitt, both at 18.75. Now with a pre-tax bid-YTW of 6.14% based on a bid of 18.51 and a limitMaturity.|
|PWF.PR.H||PerpetualDiscount||32,800||CIBC crossed 30,000 at 23.90. Now with a pre-tax bid-YTW of 6.12% based on a bid of 23.90 and a limitMaturity.|
There were eleven other index-included $25-pv-equivalent issues trading over 10,000 shares today.