Archive for September, 2008

September 30, 2008

Tuesday, September 30th, 2008

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!

Dexia got a massive European bail-out … equity based:

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 …

… and the rumours proved true! There is an SEC press release offering “clarifications”:

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
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.75% 4.83% 85,008 15.73 6 -0.2484% 1,081.5
Floater 5.18% 5.19% 49,223 15.16 2 +1.8867% 776.8
Op. Retract 5.07% 5.09% 128,690 3.73 14 -0.3651% 1,033.2
Split-Share 5.81% 7.93% 51,972 4.27 14 +0.4417% 970.2
Interest Bearing 6.60% 7.61% 51,656 5.16 2 +0.4330% 1,079.9
Perpetual-Premium 6.25% 6.28% 55,818 13.49 1 -0.1996% 993.0
Perpetual-Discount 6.22% 6.29% 181,483 13.49 70 -0.0111% 860.7
Fixed-Reset 5.09% 4.98% 1,216,819 15.34 10 +0.1173% 1,112.9
Major Price Changes
Issue Index Change Notes
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.
BCE.PR.I FixFloat -1.0309%  
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.
TD.PR.A FixedReset +1.0142%  
BAM.PR.H OpRet +1.0833%  
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.
BAM.PR.K Floater +3.0606%  
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!
Volume Highlights
Issue Index Volume Notes
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.
BNS.PR.R FixedReset 21,225  
RY.PR.I FixedReset 20,798  

There were eleven other index-included $25-pv-equivalent issues trading over 10,000 shares today.

DPS.UN: Retraction Season!

Tuesday, September 30th, 2008

Assiduous Readers will remember that I laid at least part of the blame for preferred shares’ appalling performance in October 2007 on forced-sales to meet retractions by DPS.UN:

Diversified Preferred Share Trust (fully described at www.sentryselect.com) is a closed-end preferred share fund trading on the Toronto Stock Exchange. In October, many of its shareholders decided that they’d had enough bad news for one year, thank you very much, and exercised their retraction rights over one-sixth of the portfolio holdings. And therefore, preferred shares worth $40-million hit the market on a “must-sell” basis.

Well … it’s October again! (very nearly)

On September 24, DPS.UN had a NAVPS of 19.64 and has gone ex-Dividend for $0.30.

We can estimate a total return for the intervening period of -1.24%, using figures for CPD ($16.63 on Sep 24, $16.21 on Sep 30, ex-Dividend of $0.2135).

With this in hand, we may estimate a NAVPS of $19.10 for DPS.UN as of the close Sep. 30. The market was 18.67-75, 10×8, last 18.67. At the bid, therefore, we can estimate a discount of 2.2%.

This is in the same region as the discount at this time last year … the discount later changed to around 4.5% at around October 10/11 and there were mass redemptions which – regardless of the actual effect on the market – created selling pressure in issues held by DPS.UN.

So … what’s going to happen this time? I don’t have any fearless predictions … does anybody?

Risk Transfer, Zombie Firms and the Credit Crunch

Tuesday, September 30th, 2008

Edward Kane of Boston College managed a rare accomplishment last April; he wrote an essay on the economics of regulation and moral hazard that is both entertaining and informative.

The paper is Extracting Nontransparent Safety-Net Subsidies by Strategically Expanding and Contracting a Financial Institution’s Accounting Balance Sheet.

He argues that the complexity of (what the Bank of England calls) Large Complex Financial Institutions is not a natural consequence of size and success, but is achieved in a deliberate (if, perhaps unconcious) effort to maximize implicit government subsidies:

… value maximization leads them to trade off diseconomies from becoming inefficiently large or complex against the safety-net benefits that increments in scale or scope can offer them. Arguably, Citigroup has been the poster child for this kind of behavior.

Along with investments in political clout, an institution can obtain and hold TDFU [Too Difficult to Fail and Unwind] and TBDA [Too Big to Discipline Adequately] status by: (1) moving highly leveraged loss exposures formally off their accounting balance-sheet, and (2) maintaining an aggressive program of mergers and acquisitions. Over time, either strategy makes a large institution ever more gigantic, ever more complex, and ever more politically influential. The profitability of undertaking these dialectical responses to FDICIA [FDIC Improvement Act] tells us that the current wave of financial-institution consolidation and convergence is not just an efficiency-enhancing Schumpeterian long-cycle response either to past overbanking or to secularly improving technologies of communication, contracting, and record-keeping. Mergers that involve a TDFU or TBTDA organization have been shown to increase the capitalized value of the implicit government credit enhancements imbedded in their capital structure (Kane, 2000; Penas and Unal, 2004; Brewer and Jagtiani, 2007).

This thesis is then particularized:

It is a mistake to characterize the current turmoil as a liquidity crisis caused by fire-sale pricing and to try to cure the turmoil by auctioning off central-bank loans. In practice, multiple-tranche securitization (and resecuritization) of highly leveraged loans has revealed itself to be less about risk transfer than about risk shifting: i.e., undercompensating counterparties for the risks they assume. TBFU originators of leveraged loans and TBFU sponsors of securitization conduits transformed traditional default and interest-rate risks into hard-to-understand counterparty and funding risks that in distressed times pass back for reputational reasons from securitization vehicles. The critical point is that off-balance-sheet vehicles that booked complex swaps and structured securitizations created reputation-driven loss exposures for sponsors that managers and accountants knew lacked transparency for supervisors and creditors. The victims were investors who accepted inflated estimates of the credit quality of the instruments they purchased and the safety-net managers and taxpayers who now have to clean up the mess.

Besides confusing investors, complex forms of structured finance expand risk-shifting possibilities by making it easy for authorities to neglect the safety-net implications these positions generate and to exempt complex loss exposures from appropriate capital discipline.

I can certainly testify that the dealer community just loves to repackage risk and charge a high price for it. Back in the old days – by which I mean the late 1980’s – it was enormously profitable in Canada simply to strip the coupons from a government bond and and sell them individually – surely one of the simpler mechanisms of creating a synthetic. And I cannot count the number of times I’ve been offered some kind of hideously complex product that has left me puzzled for hours about the methodology of pricing it, let alone actually doing the pricing! These usually came with some kind of underhanded deal in which the purchasing portfolio manager could make a bet outside his mandate – currency speculation, say – while holding something that could plausibly be called a bond.

And, of course, they took their cut!

Dr. Kane concludes:

To minimize the costs of rehabilitating a damaged firm, a private rescuer begins by poring over its books to establish a solid knowledge of unrealized losses and continuing loss exposures. Armed with that knowledge, private rescuers (whose behavior can be typified by capital assistance provided by JP Morgan-Chase and sovereign investment funds during the current turmoil) force rescued stockholders to accept a deal that gives the rescuer a claim to the incremental future profits that the rescue might generate. This tells us that to control moral hazard, government rescuers must insist that the rights of shareholders in TDFU zombie firms undergo severe dilution. To see that taxpayers receive fair compensation for their preservation efforts, government rescuers must be made accountable for establishing for their agency (and ultimately for taxpayers) an appropriately large equity or warrant position on the upside of the rescued firm.

This is a big step up from Bagehot, but Dr. Kane is referring to zombie firms – those that are insolvent. Bagehot applies only to problems of illiquidity.

FTU.PR.A: DBRS Downgrades to Pfd-5 [Trend Negative]

Tuesday, September 30th, 2008

DBRS has announced it:

has today downgraded the Preferred Shares issued by US Financial 15 Split Corp. (the Company) to Pfd-5 from Pfd-3, with a Negative trend.

Lehman Brothers Holdings Inc. (Lehman) and Washington Mutual, Inc. (WaMu) were two of the Portfolio’s core holdings…Also, American International Group, Inc. and Wachovia Corporation are two of the Portfolio’s core holdings.

As of September 15, 2008, the NAV of the Company was $10.33, declining about 50% over the past year. As a result, the downside protection available to the Preferred Shareholders is approximately 3%. The decrease in the capital protection available has resulted in a downgrade of the rating of the Preferred Shares. The revised rating is based on the downside protection available to holders of the Preferred Shares (3%) and the asset coverage test limiting distributions to the Class A Shares.

The main challenges to the rating are the following:

(1) The protection provided to holders of the Preferred Shares is dependent on the value of the common shares of the Portfolio.

(2) The volatility of price and changes in the dividend policies of the Portfolio Companies and potential erosion of the Portfolio under challenging market conditions may result in significant reductions in downside protection from time to time.

(3) The Portfolio is entirely concentrated in the US financials industry.

(4) There is a reliance on option writing to generate income.

(5) There is a risk of fluctuation in the NAV of the Portfolio due to unhedged U.S. currency exposure.

The trend is Negative due to the additional return required in order to maintain a stable NAV.

The redemption date for both classes of shares issued is December 1, 2012.

FTU.PR.A was last mentioned on PrefBlog in connection with LEH debacle. FTU.PR.A is tracked by HIMIPref™ and is a member of the “Scraps” index. It would be part of the “SplitShare” index, but there are credit concerns.

At this point, the prefs have basically full exposure to the portfolio and are effectively short a call at $10. On the other hand, they are currently quoted at 6.21-71 … so there is also a discount to NAV.

Update, 2008-9-30: The company is sufficiently alarmed that it has issued a portfolio update.

September 29, 2008

Monday, September 29th, 2008

Pump up the volume! It has been a weekend of massive bank (almost-) failure and state intervention.

Details are still sketchy, but Citigroup is taking over Wachovia:

Citigroup Inc., the biggest U.S. bank by assets, will acquire banking operations of Wachovia Corp. for about $1.6 billion after shares of the North Carolina lender collapsed under the weight of overdue mortgages.

The all-stock deal equals about $1 a share for the Charlotte-based bank, ranked sixth by assets in the U.S. All depositors will be protected, according to the Federal Deposit Insurance Corp., which helped broker the takeover by Citigroup. The New York-based bank plans to cut its own dividend in half and raise $10 billion in capital as it takes on Wachovia’s senior and subordinated debt.

The FDIC states:

Citigroup Inc. will acquire the bulk of Wachovia’s assets and liabilities, including five depository institutions and assume senior and subordinated debt of Wachovia Corp. Wachovia Corporation will continue to own AG Edwards and Evergreen. The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.

Dealbreaker has the Citi Investor Presentation.

The status of the Canadian subsidiary, Congress Financial Capital Company, is not entirely clear at the moment; they raised CAD 400-million in 2005; but since they are (via intermediaries) 100% owned by Wachovia Bank National Association I am assuming (pending confirmation from the company) that their debt is covered under the deal, but I note that S&P put the issue on Watch-Negative this afternoon; its current S&P rating is A+.

In the meantime, the Europeans were busy:

European governments stepped in to rescue Fortis, Bradford & Bingley Plc, and Hypo Real Estate Holding AG as tremors from the U.S. credit crisis reverberated around the world.

The U.K. Treasury seized Bradford & Bingley, Britain’s biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.

… and the Fed is revving up the helicopters:

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed’s emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The question remains: How many helicopters?

Nouriel Roubin loathes TARP:

Indeed, the plan also does not address the need to recapitalize those financial institutions that are badly undercapitalized: this could have been achieved by using some of the $700 billion to inject public funds in ways other and more effective than a purchase of toxic assets: via public injections of preferred shares into these firms; via required matching injections of Tier 1 capital by current shareholders to make sure that such shareholders take first tier loss in the presence of public recapitalization; via suspension of dividends payments; via a conversion of some of the unsecured debt into equity (a debt for equity swap). All these actions would have implied a much lower fiscal costs for the government as they would have forced the shareholders and creditors of the banks to contribute to the recapitalization of the banks.

As I noted on September 25, I would prefer a system whereby Treasury would buy senior preferred shares in distressed – but still solvent – banks, with a punitive coupon and the proviso that no dividends be paid on shares junior to the new issue until the issue was retired.

Via Dealbreaker comes a link … it appears that Richard A. Posner holds the same views:

A more palatable approach would be for the government to drive a Warren Buffett style hard bargain, in which, rather than buying anything from banks, the government would invest in them in a form, such as purchase of newly issued preferred stock, or bonds with a long maturity, that would augment the banks’ capital and thus enable banks to make more loans. That would avoid conferring a windfall on the banks by overpaying them for their bad securities; no one thinks Buffett is conferring a windfall on Goldman Sachs. After the industry was back on its feet, the government could sell the bank stocks or bonds that it had acquired.

… although I will note that his implication that long-term bonds are, or are equivalent to, capital is at best imprecise.

And in the end TARP failed:

Markets plunged as the House rejected, by a vote of 228 to 205, the $700 billion measure to authorize the biggest government intervention in the markets since the Great Depression. The Dow Jones Industrial Average fell 564 points, or 5 percent to 10,579, at 3:05 p.m. New York time.

The defeat of the legislation set off a scramble among the plan’s backers for additional support before another vote, which likely won’t come until later in the week.

We now await Son of TARP.

James Hamilton of Econbrowser has a good piece on understanding the TED spread.

There are interesting reports that Treasury repos are being done for fail-money; Dealbreaker notes that failed trades are increasing. Now there’s an indication of a locked up credit market if ever there was one!

Laeven & Levine have an article on VoxEU, Governance of banks, looking forward to the end of the crunch and the new – or changed – regulation that will be coming. They warn:

We find that banks with more powerful owners (as measured by the size of their shareholdings) tend to take greater risks.

This supports arguments predicting that equity holders have stronger incentives to increase risk than non-shareholding managers and debt holders and that large owners with substantial cash flows have the power and incentives to induce the bank’s managers to increase risk taking.

Furthermore, the impact of bank regulations on bank risk depends critically on each bank’s ownership structure such that the relationship between regulation and bank risk can actually change sign depending on ownership structure.

· For example, our results suggest that deposit insurance is only associated with an increase in risk when the bank has a large equity holder with sufficient power to act on the additional risk-taking incentives created by deposit insurance.

· The data also suggest that owners seek to compensate for the loss in value of owning a bank from capital regulations by increasing bank risk.

· Stricter capital regulations are associated with greater risk when the bank has a sufficiently powerful owner, but stricter capital regulations have the opposite effect in widely held banks.

Ignoring bank governance leads to incomplete and sometimes erroneous conclusions about the impact of bank regulations on bank risk taking.

PerpetualDiscounts fell in line with general credit markets today, with an average pre-tax bid-YTW of 6.29% … on the way up it hit that figure on July 9, on the way down on August 5. That’s about 8.81% at the standard 1.4x equivalency factor and Long corporates now yield about 6.5% … so the pre-tax interest equivalent spread to long corporates remains fairly constant at about 331bp.

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
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.74% 4.81% 85,732 15.76 6 -1.3126% 1,084.2
Floater 5.28% 5.29% 48,176 15.00 2 +0.5129% 762.4
Op. Retract 5.05% 5.05% 129,582 3.75 14 -0.8027% 1,037.0
Split-Share 5.83% 8.11% 51,735 4.28 14 -3.7944% 966.0
Interest Bearing 6.63% 7.70% 51,839 5.16 2 -1.1758% 1,075.2
Perpetual-Premium 6.24% 6.20% 56,161 2.16 1 -0.5952% 995.0
Perpetual-Discount 6.22% 6.29% 182,384 13.49 70 -0.8956% 860.8
Fixed-Reset 5.10% 4.99% 1,249,477 15.33 10 -0.5094% 1,111.6
Major Price Changes
Issue Index Change Notes
FFN.PR.A SplitShare -7.0194% Asset coverage of just under 1.8:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 8.22% based on a bid of 8.61 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!
BNA.PR.A SplitShare -6.8323% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of just under 2.6:1 based on BAM.A at 26.98 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 12.36% (!) based on a bid of 22.50 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (9.64% to 2016-3-25) and BNA.PR.C (11.54% to 2019-1-10).
BNA.PR.C SplitShare -5.9053% See BNA.PR.A, above
LFE.PR.A SplitShare -5.7292% Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 8.01% based on a bid of 9.05 and a hardMaturity 2012-12-1 at 10.00
FTN.PR.A SplitShare -5.4721% Asset coverage of just under 2.2:1 as of September 15, according to the company. Now with a pre-tax bid-YTW of 7.48% based on a bid of 8.81 and a hardMaturity 2015-12-1 at 10.00. Note that according to the prospectus, October is the Special Annual Concurrent Retraction month, so things could get interesting!
BAM.PR.J OpRet -5.1446% Now with a pre-tax bid-YTW of 7.02% based on a bid of 22.31 and a softMaturity 2018-3-30 at 25.00. Compare with BAM.PR.H (7.11% to 2012-3-30), BAM.PR.I (6.82% to 2013-12-30) and BAM.PR.O (8.72% to 2013-6-30).
DFN.PR.A SplitShare -5.1417% Asset coverage of just under 2.3:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.25% based on a bid of 9.04 and a hardMaturity 2014-12-1 at 10.00.
FBS.PR.B SplitShare -4.9318% Asset coverage of 1.6+:1 as of September 25, according to TD Securities. Now with a pre-tax bid-YTW of 8.26% based on a bid of 9.06 and a hardMaturity 2011-12-15 at 10.00
WFS.PR.A SplitShare -3.6145% Asset coverage of just under 1.6:1 as of September 18, according to Mulvihill. Now with a pre-tax bid-YTW of 10.46% based on a bid of 8.80 and a hardMaturity 2011-6-30. Below $9, some might find even the regular monthly retraction to be attractive.
RY.PR.H PerpetualDiscount -3.2645% Now with a pre-tax bid-YTW of 6.11% based on a bid of 23.41 and a limitMaturity.
LBS.PR.A SplitShare -3.2487% Asset coverage of just under 2.1:1 as of September 25 according to Brompton Group. Now with a pre-tax bid-YTW of 6.32% based on a bid of 9.53 and a hardMaturity 2013-11-29 at 10.00.
PWF.PR.L PerpetualDiscount -3.0331% Now with a pre-tax bid-YTW of 6.26% based on a bid of 20.78 and a limitMaturity.
SBN.PR.A SplitShare -2.9622% Asset coverage of 2.1+:1 as of September 18, according to Mulvihill. Now with a pre-tax bid-YTW of 6.30% based on a bid of 9.50 and a hardMaturity 2014-12-1 at 10.00.
CM.PR.E PerpetualDiscount -2.6634% Now with a pre-tax bid-YTW of 6.98% based on a bid of 20.10 and a limitMaturity.
CM.PR.J PerpetualDiscount -2.3866% Now with a pre-tax bid-YTW of 6.89% based on a bid of 16.36 and a limitMaturity.
CM.PR.H PerpetualDiscount -2.3729% Now with a pre-tax bid-YTW of 6.96% based on a bid of 17.28 and a limitMaturity.
GWO.PR.G PerpetualDiscount -2.3256% Now with a pre-tax bid-YTW of 6.24% based on a bid of 21.00 and a limitMaturity.
GWO.PR.H PerpetualDiscount -2.1739% Now with a pre-tax bid-YTW of 6.47% based on a bid of 18.90 and a limitMaturity.
DF.PR.A SplitShare -2.0248% Asset coverage of 1.9+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.04% based on a bid of 9.14 and a hardMaturity 2014-12-1 at 10.00.
BCE.PR.C FixFloat -2.0248%  
BCE.PR.R FixFloat -2.0000%  
ALB.PR.A SplitShare -2.0000% Asset coverage of 1.7+:1 as of September 25 according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 7.15% based on a bid of 23.52 and a hardMaturity 2011-2-28 at 25.00
GWO.PR.I PerpetualDiscount -1.9220% Now with a pre-tax bid-YTW of 6.35% based on a bid of 17.86 and a limitMaturity.
ENB.PR.A PerpetualDiscount -1.8908% Now with a pre-tax bid-YTW of 5.95% based on a bid of 23.35 and a limitMaturity.
RY.PR.W PerpetualDiscount -1.8646% Now with a pre-tax bid-YTW of 6.22% based on a bid of 20.00 and a limitMaturity.
POW.PR.A PerpetualDiscount -1.7808% Now with a pre-tax bid-YTW of 6.54% based on a bid of 21.51 and a limitMaturity.
W.PR.H PerpetualDiscount -1.6980% Now with a pre-tax bid-YTW of 6.81% based on a bid of 20.28 and a limitMaturity.
IAG.PR.A PerpetualDiscount -1.6611% Now with a pre-tax bid-YTW of 6.53% based on a bid of 17.76 and a limitMaturity.
BAM.PR.H OpRet -1.6393% See BAM.PR.J, above.
CM.PR.I PerpetualDiscount -1.6301% Now with a pre-tax bid-YTW of 6.73% based on a bid of 17.50 and a limitMaturity.
BAM.PR.I OpRet -1.6250% See BAM.PR.J, above.
NA.PR.M PerpetualDiscount -1.6188% Now with a pre-tax bid-YTW of 6.26% based on a bid of 24.31 and a limitMaturity.
BAM.PR.O OpRet -1.6018% See BAM.PR.J, above.
BCE.PR.A FixFloat -1.5732%  
SLF.PR.A PerpetualDiscount -1.5385% Now with a pre-tax bid-YTW of 6.23% based on a bid of 19.20 and a limitMaturity.
MFC.PR.B PerpetualDiscount -1.4485% Now with a pre-tax bid-YTW of 6.16% based on a bid of 19.05 and a limitMaturity.
PWF.PR.K PerpetualDiscount -1.4216% Now with a pre-tax bid-YTW of 6.28% based on a bid of 20.11 and a limitMaturity.
POW.PR.C PerpetualDiscount -1.3152% Now with a pre-tax bid-YTW of 6.46% based on a bid of 22.51 and a limitMaturity.
SLF.PR.E PerpetualDiscount -1.3108% Now with a pre-tax bid-YTW of 6.27% based on a bid of 18.07 and a limitMaturity.
CM.PR.P PerpetualDiscount -1.2897% Now with a pre-tax bid-YTW of 6.93% based on a bid of 19.90 and a limitMaturity.
BSD.PR.A InterestBearing -1.2415% Asset coverage of 1.4+:1 as of September 26, according to Brookfield Funds. Now with a pre-tax bid-YTW of 8.67% (mostly as interest) based on a bid of 8.75 and a hardMaturity 2015-3-31 at 10.00.
BCE.PR.I FixFloat -1.2220%  
RY.PR.B PerpetualDiscount -1.1311% Now with a pre-tax bid-YTW of 6.20% based on a bid of 19.23 and a limitMaturity.
POW.PR.B PerpetualDiscount -1.1257% Now with a pre-tax bid-YTW of 6.37% based on a bid of 21.08 and a limitMaturity.
FIG.PR.A InterestBearing -1.1168% Asset coverage of just under 1.9:1 as of September 26 according to Faircourt. Now with a pre-tax bid-YTW of 6.82% (mostly as interest) based on a bid of 9.74 and a limitMaturity.
MFC.PR.C PerpetualDiscount -1.1158% Now with a pre-tax bid-YTW of 6.10% based on a bid of 18.61 and a limitMaturity.
BMO.PR.L PerpetualDiscount -1.0943% Now with a pre-tax bid-YTW of 6.25% based on a bid of 23.50 and a limitMaturity.
CIU.PR.A PerpetualDiscount -1.0926% Now with a pre-tax bid-YTW of 6.13% based on a bid of 19.01 and a limitMaturity.
RY.PR.C PerpetualDiscount -1.0886% Now with a pre-tax bid-YTW of 6.12% based on a bid of 19.08 and a limitMaturity.
TD.PR.A FixedReset -1.0835% Now with a pre-tax bid-YTW of 5.07% based on a bid of 24.65 and a limitMaturity.
TCA.PR.Y PerpetualDiscount -1.0593% Now with a pre-tax bid-YTW of 5.95% based on a bid of 46.70 and a limitMaturity.
BCE.PR.G FixFloat -1.0526%  
BCE.PR.H FixFloat -1.0204%  
BAM.PR.K Floater +1.0095%  
Volume Highlights
Issue Index Volume Notes
NTL.PR.F Scraps (Would be Ratchet, but there are credit concerns) 442,350 Scotia crossed 4,000,000 at 4.00.
BNS.PR.M PerpetualDiscount 138,675 National crossed 20,000 at 19.77, then Desjardins crossed 100,000 at 19.70. Now with a pre-tax bid-YTW of 5.81% based on a bid of 19.71 and a limitMaturity.
CM.PR.I PerpetualDiscount 112,760 Nesbitt crossed 100,000 at 17.60. Now with a pre-tax bid-YTW of 6.73% based on a bid of 17.50 and a limitMaturity.
SLF.PR.B PerpetualDiscount 66,863 National crossed 50,000 at 19.75. Now with a pre-tax bid-YTW of 6.20% based on a bid of 19.51 and a limitMaturity.
GWO.PR.F PerpetualDiscount 31,497 National crossed 11,400 at 24.98, then another 16,900 at the same price. Now with a pre-tax bid-YTW of 5.98% based on a bid of 24.81 and a limitMaturity.
PWF.PR.K PerpetualDiscount 31,150 RBC crossed 23,700 at 20.20. Now with a pre-tax bid-YTW of 6.28% based on a bid of 20.11 and a limitMaturity.

There were twenty other index-included $25-pv-equivalent issues trading over 10,000 shares today

GPA.PR.A Announces Credit Event re WaMu

Monday, September 29th, 2008

Global Credit Pref Corp has announced:

it received a credit event notice today from The Toronto-Dominion Bank with respect to Washington Mutual, Inc. as a result of that entity filing for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware.

Global Credit Pref Corp. is a mutual fund corporation that issued 10-year redeemable, retractable cumulative preferred shares. The Company has exposure, by way of an equity forward sale agreement, to a structured credit linked note issued by The Toronto-Dominion Bank and held by Global Credit Trust, the return on which is currently linked to the credit performance of 125 reference entities, including Washington Mutual, Inc. (the “CLN Portfolio”).

The return on the credit linked note is linked to the number of defaults experienced over its term among the reference entities in the CLN Portfolio. The credit linked note has been structured so that it is unaffected by the first net losses on the CLN Portfolio up to 5.12% of the initial value of the CLN Portfolio (initially representing defaults by 11 reference entities in a CLN Portfolio comprised of 129 reference entities). The net loss on a reference entity that defaults is calculated as the percentage exposure in the CLN Portfolio to such reference entity reduced by a 40% fixed recovery rate. Following the credit event, the credit linked note will be able to withstand approximately 7 further credit events in the CLN Portfolio.

Global Credit Pref Corp.’s capacity to return $25.00 per preferred share on the scheduled redemption date of September 30, 2015 and the payment of quarterly fixed cumulative preferential distributions of $0.3281 per preferred share (a 5.25% yield on the original subscription price of $25.00 per preferred share) will not be affected by this credit event.

GPA.PR.A was last mentioned on PrefBlog in connection with the S&P Watch Negative after the Lehman event. There are 1.6+ million shares outstanding. GPA.PR.A is not tracked by HIMIPref™.

BlogRoll Addition: Real Time Economics Watch

Saturday, September 27th, 2008

I particularly liked Seven Reasons the US Today is Not Like Japan 15 Years Ago.

This is a brand new blog, brought to my attention by Menzie Chinn of Econbrowser.

September 26, 2008

Friday, September 26th, 2008

In a post tweaking Republicans for opposition to TARP, Menzie Chinn of Econbrowser passes along the fascinating observation that yield levels for non-financial commercial paper have become incalculable:

On Tuesday, the US Federal Reserve quietly admitted that it had been temporarily unable to calculate yield levels for non-financial commercial paper, issued by AA-rated companies for one to three months.

The problem, it seems, was a dire lack of activity; or, as Morgan Stanley says, “extreme levels of stress and illiquidity”. More specifically, while investors are still purchasing ultra short-term notes – say, for one or two days – on a massive scale, they are reluctant to buy instruments that last longer than a few days. That may be temporary (yesterday yield prices were apparently returning to the AA sector again although they were unusually high). However, even a temporary freeze is remarkable. After all, these non-financial companies typically have nothing to do with Wall Street or toxic mortgage debt.

The data is not to be found in the Federal Reserve Release H.15 for September 22: rates are listed for one- and two-month nonfinancial CP, but for three-month all we get is “n.a.”. The only ray of sunshine I can find is that the outstandings are in line with seasonal norms.

In a classic example of Banks’ advantage in hedging liquidity risk, it has been reported that corporations are drawing heavily on committed lines:

Goodyear Tire & Rubber Co., General Motors Corp., and International Lease Finance Corp. lead companies drawing on so- called revolving loans obtained before the credit crisis began in July 2007. Banks had more than $1.4 trillion in untapped loan commitments as of a year ago, the most on record, according to the Shared National Credit survey by four U.S. regulators including the Federal Reserve.

Corporate treasurers, blocked from accessing capital markets, are turning to the funding as the failure of Lehman Brothers Holdings Inc. sparks concern that other banks may be unable to provide funds. Pressure to find cheaper, longer-term capital is also building as costs rise in the $1.7 trillion short-term debt market. Banks are being forced to come up with the money after swallowing $521 billion of writedowns and losses.

We will have to see some of these borrowers biting the bullet and paying up to issue bonds before the strain on the Fed’s discount window (mentioned yesterday) will start to ease.

The JPM/WM takeover was discussed yesterday. We are told that:

Pressure on WaMu intensified in the last three months as market conditions worsened. An outflow of deposits began on September 15, 2008, totaling $16.7 billion. With insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business. The OTS closed the institution and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC held the bidding process that resulted in the acquisition by JPMorgan Chase.

I would be most interested in learning what fraction of that $16.7-billion was uninsured deposits. One would imagine the answer would be “all”, but one sometimes imagines rational things in an irrational world!

There has been a similar revelation regarding a run on Lehman:

Lehman Brothers Holdings Inc.’s brokerage lost more than $400 billion in assets in the months before its parent filed for bankruptcy protection, according to the trustee overseeing customer accounts.

Lehman’s holding company filed for bankruptcy Sept. 15 claiming $639 billion in assets, using four-month-old data. The wholly owned brokerage unit had shrunk to less than $100 billion in assets from $500 billion “a few months ago,” according to a Sept. 19 court statement by James Giddens, the trustee overseeing the settling of Lehman brokerage customer accounts by the Securities Investor Protection Corp.

Dosado and allemande left! The banks continue square-dancing, with rumours that Wachovia has asked Citigroup if they could spend some time together at the social … now that WB’s been spurned by MS.

And here’s a little throwaway line in a virtually unrelated article:

TD Ameritrade said it would spend up to $50 million to offset losses for its customers who have money in the Reserve Primary Fund. Other investors still don’t know the fate of their savings.

TD Ameritrade used the Reserve’s Primary Fund as one of its cash “sweep” accounts, a place where consumers could automatically park cash from a maturing certificate of deposit, for example.

In the past, I’ve expressed concern about bank-branded MMFs … perhaps I should have cast my net wider!

PerpetualDiscounts lost ground today, closing with a weighted-average bid-YTW of 6.23%, equivalent to 8.72% interest at the 1.4x equivalency rate. Long Corporates now yield 6.50%, so the pre-tax interest-equivalent spread is now 222bp … narrowing in slightly, but still at very elevated levels.

Massive crosses today by Scotia, with National Bank playing a supporting role. Today was the first day for an October settlement date and there wasn’t too much price movement for these issues … so my guess is that they were all internal crosses. Who wants to spend the weekend matching up the trades to the holdings of one of the big funds?

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
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.68% 4.73% 84,472 15.87 6 +0.1352% 1,098.6
Floater 5.30% 5.32% 50,159 14.97 2 +1.8302% 758.5
Op. Retract 5.00% 4.84% 129,935 3.49 14 -0.1047% 1,045.4
Split-Share 5.60% 6.98% 51,689 4.31 14 -0.9239% 1,004.1
Interest Bearing 6.55% 7.45% 51,948 5.18 2 +0.3762% 1,088.0
Perpetual-Premium 6.20% 5.90% 56,596 2.17 1 0.0000% 1,000.9
Perpetual-Discount 6.16% 6.23% 181,921 13.57 70 -0.3538% 868.5
Fixed-Reset 5.07% 4.95% 1,275,488 14.24 10 -0.1710% 1,117.3
Major Price Changes
Issue Index Change Notes
GWO.PR.H PerpetualDiscount -5.0614% Now with a pre-tax bid-YTW of 6.32% based on a bid of 19.32 and a limitMaturity.
MFC.PR.B PerpetualDiscount -4.0218% Now with a pre-tax bid-YTW of 6.07% based on a bid of 19.33 and a limitMaturity.
FTN.PR.A SplitShare -3.9615% Asset coverage of just under 2.2:1 as of September 15, according to the company. Now with a pre-tax bid-YTW of 6.48% based on a bid of 9.32 and a hardMaturity 2015-12-1 at 10.00.
BNA.PR.C SplitShare -3.0818% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of just under 2.7:1 based on BAM.A at 27.74 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 10.68% based on a bid of 15.41 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (8.37% to 2010-9-30) and BNA.PR.B (9.72% to 2016-3-25)
BAM.PR.M PerpetualDiscount -2.9823% Now with a pre-tax bid-YTW of 7.51% based on a bid of 15.94 and a limitMaturity.
ELF.PR.F PerpetualDiscount -2.5338% Now with a pre-tax bid-YTW of 7.86% based on a bid of 17.31 and a limitMaturity.
CU.PR.B PerpetualDiscount -2.4000% Now with a pre-tax bid-YTW of 6.21% based on a bid of 24.40 and a limitMaturity.
WFS.PR.A SplitShare -2.3529% Asset coverage of just under 1.6:1 as of September 18, according to Mulvihill. Now with a pre-tax bid-YTW of 8.92% based on a bid of 9.13 and a hardMaturity 2011-6-30.
CM.PR.G PerpetualDiscount -2.0000% Now with a pre-tax bid-YTW of 6.90% based on a bid of 19.60 and a limitMaturity.
DFN.PR.A SplitShare -1.9083% Asset coverage of just under 2.3:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 6.20% based on a bid of 9.53 and a limitMaturity.
IAG.PR.A PerpetualDiscount -1.8478% Now with a pre-tax bid-YTW of 6.41% based on a bid of 18.06 and a limitMaturity.
BNA.PR.A SplitShare -1.4688% See BNA.PR.C, above.
FBS.PR.B SplitShare -1.2435% Asset coverage of 1.6+:1 as of September 25, according to TD Securities. Now with a pre-tax bid-YTW of 6.48% based on a bid of 9.53 and a hardMaturity 2011-12-15 at 10.00
BCE.PR.C FixFloat -1.2245%  
DF.PR.A SplitShare -1.2237% Asset coverage of 1.9+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 6.60% based on a bid of 9.34 and a hardMaturity 2014-12-1 at 10.00.
CM.PR.D PerpetualDiscount -1.1628% Now with a pre-tax bid-YTW of 6.78% based on a bid of 21.25 and a limitMaturity.
PWF.PR.D OpRet -1.1583% Now with a pre-tax bid-YTW of 4.79% based on a bid of 25.60 and a softMaturity 2012-10-30 at 25.00.
LFE.PR.A SplitShare -1.0897% Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 6.37% based on a bid of 9.60 and a hardMaturity 2012-12-1 at 10.00
CM.PR.H PerpetualDiscount +1.0851% Now with a pre-tax bid-YTW of 6.79% based on a bid of 17.70 and a limitMaturity.
HSB.PR.C PerpetualDiscount +1.2469% Now with a pre-tax bid-YTW of 6.32% based on a bid of 20.30 and a limitMaturity.
TCA.PR.Y PerpetualDiscount +1.5907% Now with a pre-tax bid-YTW of 5.88% based on a bid of 47.20 and a limitMaturity.
CM.PR.I PerpetualDiscount +1.5991% Now with a pre-tax bid-YTW of 6.61% based on a bid of 17.79 and a limitMaturity.
LBS.PR.A SplitShare +1.7457% Asset coverage of just under 2.1:1 as of September 25 according to Brompton Group. Now with a pre-tax bid-YTW of 5.56% based on a bid of 9.85 and a hardMaturity 2013-11-29 at 10.00.
SBC.PR.A SplitShare +2.3718% Asset coverage of just under 2.1:1 as of September 25, according to Brompton Group. Now with a pre-tax bid-YTW of 5.62% based on a bid of 9.85 and a hardMaturity 2012-11-30 at 10.00.
BAM.PR.K Floater +3.9344%  
Volume Highlights
Issue Index Volume Notes
BCE.PR.D Scraps (Would be Ratchet, but there are volume concerns) 2,100,000 Scotia crossed 2,100,000 at 25.00
BCE.PR.R FixFloat 1,344,250 Scotia crossed 1,340,000 at 24.87
BCE.PR.B Scraps (Would be ratchet, but there are volume concerns) 1,325,500 Scotia crossed 1,325,500 at 24.99
BCE.PR.G FixFloat 948,200 Scotia crossed 947,700 at 24.25
GWO.PR.X OpRet 804,491 National Bank crossed 803,000 at 26.61. Now with a pre-tax bid-YTW of 2.43% based on a bid of 26.60 and a call 2009-10-30 at 25.67.
SLF.PR.A PerpetualDiscount 781,221 Scotia crossed 780,000 at 19.60. Now with a pre-tax bid-YTW of 6.13% based on a bid of 19.50 and a limitMaturity.
BCE.PR.I FixFloat 703,880 Scotia crossed 700,000 at 24.94
BCE.PR.Y Ratchet 502,264 Scotia crossed 501,700 at 24.99.
CM.PR.I PerpetualDiscount 454,326 Scotia crossed 453,676 at 18.00. Now with a pre-tax bid-YTW of 6.61% based on a bid of 17.79 and a limitMaturity.
PWF.PR.K PerpetualDiscount 427,909 Scotia crossed 425,000 at 20.40. Now with a pre-tax bid-YTW of 6.18% based on a bid of 20.40 and a limitMaturity.
BCE.PR.T Scraps (would be FixFloat, but there are volume concerns) 425,000 Scotia crossed 425,000 at 24.51
TD.PR.O PerpetualDiscount 403,775 Scotia crossed 400,000 at 20.75. Now with a pre-tax bid-YTW of 5.96% based on a bid of 20.72 and a limitMaturity.
RY.PR.W PerpetualDiscount 398,242 Scotia crossed 392,592 at 20.45. Now with a pre-tax bid-YTW of 6.10% based on a bid of 20.38 and a limitMaturity.
GWO.PR.H PerpetualDiscount 373,244 Scotia crossed 370,144 at 19.50. Now with a pre-tax bid-YTW of 6.32% based on a bid of 19.32 and a limitMaturity.
RY.PR.A PerpetualDiscount 361,430 Scotia crossed 357,630 at 18.63. Now with a pre-tax bid-YTW of 6.10% based on a bid of 18.50 and a limitMaturity.
CM.PR.P PerpetualDiscount 309,300 Scotia crossed 300,000 at 20.35. Now with a pre-tax bid-YTW of 6.83% based on a bid of 20.16 and a limitMaturity.
POW.PR.D PerpetualDiscount 306,010 Scotia crossed 296,800 at 19.85. Now with a pre-tax bid-YTW of 6.36% based on a bid of 19.74 and a limitMaturity.
MFC.PR.C PerpetualDiscount 305,750 Scotia crossed 300,000 at 19.00. Now with a pre-tax bid-YTW of 6.03% based on a bid of 18.82 and a limitMaturity.
PWF.PR.L PerpetualDiscount 301,400 Scotia crossed 300,000 at 21.60. Now with a pre-tax bid-YTW of 6.06% based on a bid of 21.43 and a limitMaturity.
ACO.PR.A Scraps (would be OpRet but there are volume concerns) 285,780 National crossed 285,000 at 26.30. Now with a pre-tax bid-YTW of 4.19% based on a bid of 26.06 and a call 2009-12-31 at 25.50.
HSB.PR.C PerpetualDiscount 276,300 Scotia crossed 275,000 at 20.15. Now with a pre-tax bid-YTW of 6.33% based on a bid of 20.30 and a limitMaturity.
BMO.PR.H PerpetualDiscount 253,300 Scotia crossed 250,000 at 21.25. Now with a pre-tax bid-YTW of 6.34% based on a bid of 21.21 and a limitMaturity.
GWO.PR.E OpRet 252,864 National crossed 247,000 at 25.50. Now with a pre-tax bid-YTW of 4.04% based on a bid of 25.41 and a call 2011-4-30 at 25.00.
CM.PR.G PerpetualDiscount 230,500 Scotia crossed 225,000 at 20.05. Now with a pre-tax bid-YTW of 6.90% based on a bid of 19.60 and a limitMaturity.
NSI.PR.D Scraps (Would be OpRet but there are credit concerns) 226,000 Scotia crossed 225,000 at 27.60. Now with a pre-tax bid-YTW of 4.79% based on a bid of 27.01 and a call 2015-11-14 at 25.00.
GWO.PR.G PerpetualDiscount 220,760 Scotia crossed 215,060 at 21.45. Now with a pre-tax bid-YTW of 6.09% based on a bid of 21.50 and a limitMaturity.
MFC.PR.A OpRet 216,525 National crossed 208,400 at 25.15. Now with a pre-tax bid-YTW of 4.13% based on a bid of 25.01 and a softMaturity 2015-12-18 at 25.00.
PWF.PR.J OpRet 199,202 National crossed 190,000 at 25.60. Now with a pre-tax bid-YTW of 4.33% based on a bid of 25.61 and a softMaturity 2013-7-30 at 25.00.
CU.PR.A PerpetualDiscount 193,250 Scotia crossed 190,000 at 24.65. Now with a pre-tax bid-YTW of 5.98% based on a bid of 24.50 and a limitMaturity.
TD.PR.N OpRet 181,685 National crossed 180,000 at 25.80. Now with a pre-tax bid-YTW of 4.29% based on a bid of 25.57 and a softMaturity 2014-1-30 at 25.00.
SLF.PR.D PerpetualDiscount 163,505 Scotia crossed 161,495 at 18.20. Now with a pre-tax bid-YTW of 6.19% based on a bid of 18.10 and a limitMaturity.
RY.PR.I FixedReset 146,523 RBC crossed 100,000 at 25.03.
ELF.PR.F PerpetualDiscount 140,000 Scotia crossed 140,000 at 17.75. Now with a pre-tax bid-YTW of 7.86% based on a bid of 17.31 and a limitMaturity.
SLF.PR.C PerpetualDiscount 114,900 Scotia crossed 112,000 at 18.30. Now with a pre-tax bid-YTW of 6.16% based on a bid of 18.19 and a limitMaturity.
HSB.PR.D PerpetualDiscount 107,875 Scotia crossed 100,000 at 19.82. Now with a pre-tax bid-YTW of 6.37% based on a bid of 19.75 and a limitMaturity.
PWF.PR.F PerpetualDiscount 105,900 Scotia crossed 100,000 at 22.20. Now with a pre-tax bid-YTW of 6.06% based on a bid of 22.05 and a limitMaturity.
TCA.PR.Y PerpetualDiscount 104,595 Scotia crossed 100,000 at 47.65. Now with a pre-tax bid-YTW of 5.88% based on a bid of 47.20 and a limitMaturity.
ENB.PR.A PerpetualDiscount 102,600 Scotia crossed 100,000 at 23.73. Now with a pre-tax bid-YTW of 5.83% based on a bid of 23.80 and a limitMaturity.
ELF.PR.G PerpetualDiscount 100,300 Scotia crossed 100,000 at 16.30. Now with a pre-tax bid-YTW of 7.57% based on a bid of 16.10 and a limitMaturity.
POW.PR.B PerpetualDiscount 100,200 Scotia crossed 100,000 at 21.50. Now with a pre-tax bid-YTW of 6.30% based on a bid of 21.32 and a limitMaturity.

There were fourteen other index-included $25-pv-equivalent issues trading over 10,000 shares today

IQW.PR.C Conversion Rate Slowing

Friday, September 26th, 2008

Quebecor World has announced:

that, on or prior to September 26, 2008, it received notices in respect of 66,601 of its remaining 1,763,029 issued and outstanding Series 5 Cumulative Redeemable First Preferred Shares (TSX: IQW.PR.C) (the “Series 5 Preferred Shares”) requesting conversion into the Company’s Subordinate Voting Shares (TSX: IQW).

The next conversion date on which registered holders of the Series 5 Preferred Shares will be entitled to convert all or any number of such shares into Subordinate Voting Shares is March 1, 2009, and notices of conversion in respect thereof must be deposited with the Company’s transfer agent, Computershare Investor Services Inc., on or before December 29, 2008.

There were 744,124 shares converted at the last opportunity.

IQW.PR.C is tracked by HIMIPref™. It is included in the “Scraps” index; it would normally be in the “Operating Retractible” index, but there are credit concerns.

GPA.PR.A on Watch-Negative after Lehman Credit Event

Friday, September 26th, 2008

Gatehouse Capital has announced:

it received credit event notices today from The Toronto-Dominion Bank with respect to Lehman Brothers Holdings Inc. as a result of that company filing a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York, as well as with respect to the Federal National Mortgage Association as a result of the appointment of a conservator.

The return on the credit linked note is linked to the number of defaults experienced over its term among the reference entities in the CLN Portfolio. The credit linked note has been structured so that it is unaffected by the first net losses on the CLN Portfolio up to 5.12% of the initial value of the CLN Portfolio (initially representing defaults by 11 reference entities in a CLN Portfolio comprised of 129 reference entities). The net loss on a reference entity that defaults is calculated as the percentage exposure in the CLN Portfolio to such reference entity reduced by a 40% fixed recovery rate. Following the credit events, the credit linked note will be able to withstand approximately 8 further credit events in the CLN Portfolio.

and today comes the news that:

Standard & Poor’s Ratings Services placed the rating of Global Credit Pref Corp.’s P-4 rated Preferred Shares on CreditWatch with negative implications yesterday. The rating on the Preferred Shares of Global Credit Pref Corp. mirrors the B/ Watch Neg rating on the structured credit linked note issued by The Toronto-Dominion Bank and held by Global Credit Trust, to which Global Credit Pref Corp. has exposure, as a result of credit events relating to reference entities in the financial industry sector.

GPA.PR.A was last mentioned on PrefBlog when it was downgraded to P-4. There are 1.6+ million shares outstanding. GPA.PR.A is not tracked by HIMIPref™.