Archive for November, 2010

GWO.PR.N: Inventory Clearance Sale at 24.50

Tuesday, November 30th, 2010

GWO.PR.N, a 3.65%+130 FixedReset which met with a lackadaisical reception when it settled on November 23, has apparently proved to be a tough sell – the underwriters are attempting to blow out their inventory at 24.50, with the repriced offering closing on December 3.

Still looks expensive according to me – that’s a pretty skimpy Issue Reset Rate and one must assume that it will never be called – but what do I know? Toronto Stock Exchange volume is about 440,000 shares as of 1pm, traded in a range of 24.48-54.

November 29, 2010

Monday, November 29th, 2010

The Globe featured the opinions of John Parkins in a squib on Friday:

Here are two words you don’t often see placed next to each other: “corrosive trust.”

That’s a term used by an Alberta professor to describe the clubby atmosphere that tends to emerge when people supposed to represent the public interest are put into a room with industry.

John Parkins of the University of Alberta doesn’t employ the term as a form of flattery. That kind of atmosphere, his research found, is “damaging to democracy” – and that’s an important finding, given that such citizen advisory groups are increasingly being used by industry as sounding boards for public opinion.

But Mr. Parkins found the watchdogs eventually develop a trust in the companies they are supposed to scrutinize, which can mute skepticism. His findings also apply to corporate directors, who are supposed to look after shareholders’ interests.

In other words, it’s another name for regulatory capture.

December 1 is CIBC’s Miracle Day, in which money managers are encouraged to forget all that stupid “best execution” crap and direct their business to a charity case. Anybody doing business with CIBC on December 1 should be subjected to a hostile audit by their clients, but you know something? They won’t be.

Looks like Ireland got its bail-out:

Ireland will receive 67.5 billion euros from the European Union and International Monetary Fund and provide 17.5 billion euros from its own pension reserves, Martti Salmi, a spokesman for the Finnish Finance Ministry, said today after EU finance ministers endorsed the plan in Brussels.

The need for a pact is intensifying as Irish banks’ capital dwindles. Allied Irish Banks Plc and Bank of Ireland Plc bonds fell Nov. 26 on concern the government will abandon a pledge to protect senior bondholders and force them to share the bailout costs. Ireland’s Sunday Business Post and the Sunday Tribune newspapers today reported that the ECB vetoed hurting senior bond holders.

The EU Statement reads:

The financial package of the programme will cover financing needs up to 85 billion euros, including 10 billion euros for immediate recapitalisation measures, 25 billion euros on a contingency basis for banking system supports and 50 billion euros covering budget financing needs. Half of the banking support measures (17.5 billion euros) will be financed by an Irish contribution through the Treasury cash buffer and investments of the National Pension Reserve Fund

If I were to make investment decisions on behalf of a client with anything else in mind other than the client’s best interests, I would be in serious trouble. Politicians are not subject to the same rules. However, it tends to emphasize the general principle that sovereign wealth funds (whether they are explicitly named as such, or are pension funds) should be invested outside the home country. That’s where the Caisse’s mandate gets it wrong.

Bank senior debt escaped an immediate write-down:

Irish banks’ senior bonds rose after the nation’s 85 billion-euro ($113 billion) bailout spared holders of the debt from having to share in lenders’ losses.

Bank of Ireland Plc’s 1.47 billion euros of senior floating-rate notes due September 2011 rose 6.9 cents on the euro to 90.25 cents as of 1:10 p.m. in London, an 8 percent increase, according to composite prices compiled by Bloomberg. The securities fell 7 percent on Nov. 26 on concern senior noteholders were being lined up to take some of the burden of the imminent Irish rescue.

EU ministers also took time to grease the skids for sovereign default:

European finance leaders endorsed a Franco-German compromise on post-2013 sovereign bailouts that waters down calls by German Chancellor Angela Merkel for investors to assume losses and share the costs with taxpayers.

The plan asks investors to take writeoffs on a “case-by- case” basis, according to a statement issued today by euro- area finance ministers after a meeting in Brussels to ratify a bailout for Ireland. The proposal is designed to address “collective action clauses” for debt issued after temporary crisis facilities expire in 2013. Such clauses allow bondholders to change terms of their contracts.

Merkel said Nov. 18 she was “absolutely convinced” creditors had to share bailout costs.

“The proposed clauses for investors are nothing that markets do not know in other currency areas,” said [German government spokesman Steffen] Seibert. “The plan holds no surprises for markets.”

Although the markets may not be surprised, I presume the European banking regulators will be astonished: their stwess tests completely discounted the possibility of sovereign default and looked only at mark-to-market losses in the trading book.

At any rate, it’s been a fizzle so far:

European governments’ 85 billion- euro ($113 billion) bailout package for Ireland failed to quell the market turmoil menacing the euro as stocks, bonds and the currency declined.

Irish 10-year bonds slid after an early advance, European stocks and the euro declined, and the cost of insuring the debt of Spain and Portugal against default soared to record highs.

Merkel’s big ambition is to ensure that politics trumps markets – a foolish notion. The only sensible thing ever said by any politician about financial markets was by then Prime Minister Chretien when the Canadian bond market was teetering back in 1994. I don’t have the reference, or the exact quote (tell me! Somebody please tell me!) but it was something like: “We’re not doing this [budget cuts] because we want to please the bond markets. We’re doing this so we won’t have to care about the bond markets”.

With respect to the Iberian penninsula:

The cost of insuring against default on Portuguese and Spanish government debt soared to record-high levels as an aid package for Ireland failed to reassure investors the region’s debt crisis will be contained.

Credit-default swaps on Portugal jumped 37 basis points to 539, and contracts on Spain climbed 28.75 to 351.5, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 9 basis points to 197, a record based on closing prices.

European stocks fell, extending losses into a fourth week, and bonds dropped as Ireland’s 85 billion-euro ($113 billion) bailout brought focus on the prospect of more aid to indebted nations. The region’s economy may weaken next year as budget cuts to stem the crisis hurt consumer demand and faltering global expansion curbs exports, the European Commission said.

Nouriel Roubini cheerfully opines:

“There is not enough official money to bail out Spain if trouble occurs.”

The CDS business is changing:

Trading in credit-default swaps, Wall Street’s fastest-growing business before the credit crisis, has tumbled 40 to 60 percent from three years ago as banks prepare for new regulation of derivatives.

Barclays Plc analyst Roger Freeman in New York estimates that before and during the credit crisis, Goldman Sachs generated two-thirds of its credit-trading revenue from derivatives. The contracts now likely contribute about a third, with the rest coming from bonds, he said. Michael DuVally, a spokesman at Goldman Sachs in New York, declined to comment.

To reduce opacity that Commodity Futures Trading Commission Chairman Gary Gensler says gives banks an information advantage, trades will have to be done on systems that make dealers compete over pricing and may automate some transactions now done by phone. The deals also will be reported publicly.

The changes may drive down pre-tax profit margins for credit swaps to 22 to 23 percent from about 35 percent, said Sanford C. Bernstein & Co. analyst Brad Hintz, ranked by Institutional Investor as the top analyst covering brokerage firms.

Goldman Sachs Chief Executive Officer Lloyd Blankfein described such a scenario at a Nov. 16 conference sponsored by Bank of America. After changes in equities markets drove commission rates down and volume up for the bank, the firm invested in new computerized stock-trading platforms and was able to slash half the department’s 5,000 trading jobs, he said.

Regulation of the over-the-counter “derivatives market will drive greater transparency and automation,” Blankfein said at the conference. “While transparency can reduce margins, it also introduces new opportunities in the form of greater client participation and product innovation.”

Good thing? Bad thing? Who knows? Who cares? What’s important is that there are now MORE RULES and therefore no financial crisis will ever happen again.

The BOC has released a working paper by Scott Hendry and Alison Madeley titled Text Mining and the Information Content
of Bank of Canada Communications
:

This paper uses Latent Semantic Analysis to extract information from Bank of Canada communication statements and investigates what type of information affects returns and volatility in short-term as well as long-term interest rate markets over the 2002-2008 period. Discussions about geopolitical risk and other external shocks, major domestic shocks (SARS and BSE), the balance of risks to the economic projection, and various forward looking statements are found to significantly affect market returns and volatility, especially for short-term markets. This effect is over and above that from the information contained in any policy interest rate surprise.

HP, among others, is extending term on its borrowings:

Companies are cutting back on commercial paper, short-term borrowings that typically mature in 270 days or less, with the amount outstanding falling for a fourth straight week to $1.065 trillion in the period ended Nov. 24, Federal Reserve data show. HP’s commercial paper outstanding surged to $5.17 billion on July 31 from $294 million in October 2009, according to a regulatory filing.

HP may issue $650 million of five-year notes that yield 73 basis points more than similar-maturity Treasuries, and $1.35 billion of 10-year bonds that pay a spread of 95 basis points, according to a person familiar with the transaction, who declined to be identified because terms aren’t set. Bank of America Corp., BNP Paribas SA, UBS AG and Wells Fargo & Co. are managing the sale, the person said.

DBRS commented on SEC Rule 17g-5 and its exemption today:

The Amended Rule relates to credit rating agencies (CRAs) that are registered with the SEC as NRSROs and hired by issuers, sponsors or arrangers (collectively, the Arrangers) to assign credit ratings to SF instruments. The Amended Rule prohibits an NRSRO from issuing or maintaining ratings on certain SF instruments unless the following requirements are met:
  • Hired NRSROs disclose on a password-protected website to any non-hired NRSRO certain information about the SF instrument(s) they are engaged to rate.
  • Arrangers make available on a password-protected website all information they provide a hired NRSRO to any non-hired NRSRO that wishes to access that information.

This is total craziness. They’re recognizing that you need (or would very much appreciate) material non-public information to do a proper credit analysis, but continue to allow selective disclosure to the rating agencies at the expense of actual investors. I’ve urged the repeal of Regulation FD, but the new rules simply entrench it further.

When will the first arrest of a CRA employee for tipping be made? The more people that have access to this information, the more likely it will squirm its way out into the marketplace. Credit analysis is not, perhaps, quite as sexy or immediate as take-over news and earnings projections, but I’m sure a hedge fund or two would greatly appreciate, say, a list of structured finance vehicles with underlying assets having certain characteristics.

We’re doing a fine job in Afghanistan:

When Afghanistan’s vice president visited the United Arab Emirates last year, local authorities working with the Drug Enforcement Administration discovered that he was carrying $52 million in cash. With wry understatement, a cable from the American Embassy in Kabul called the money “a significant amount” that the official, Ahmed Zia Massoud, “was ultimately allowed to keep without revealing the money’s origin or destination.”

This is an important secret, so Clinton’s trying to whip up a Global War on WikiLeaks.

Closer to home, Chief Blair is all upset because the SIU had to investigate police violence through YouTube. I agree, and I’m upset too. Why hasn’t Blair found out who made the arrests and taken statements, maybe held a press conference? Is it because Snitches Get Stitches? Every time something like this happens, I make a mental note. Perhaps someday the police will want something from me that they can’t demand. I’ll review my notes.

It was a down day on fair volume for the Canadian preferred share market; FixedResets were particularly soft. PerpetualDiscounts were down 8bp and FixedResets lost 17bp, taking the median weighted average yield on the latter index up to 3.27%.

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 0.0750 % 2,268.4
FixedFloater 4.81 % 3.46 % 27,086 19.14 1 -0.4405 % 3,495.6
Floater 2.62 % 2.35 % 51,470 21.37 4 0.0750 % 2,449.2
OpRet 4.75 % 3.11 % 61,284 2.40 8 0.0238 % 2,396.2
SplitShare 5.44 % 0.32 % 118,986 1.03 3 -0.3120 % 2,472.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0238 % 2,191.1
Perpetual-Premium 5.67 % 5.32 % 157,722 5.40 24 0.0394 % 2,013.9
Perpetual-Discount 5.35 % 5.37 % 276,608 14.87 53 -0.0808 % 2,043.7
FixedReset 5.22 % 3.27 % 342,008 3.15 51 -0.1702 % 2,273.2
Performance Highlights
Issue Index Change Notes
BNS.PR.Y FixedReset -1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-29
Maturity Price : 24.75
Evaluated at bid price : 24.80
Bid-YTW : 3.46 %
TRP.PR.A FixedReset -1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.50 %
BMO.PR.M FixedReset -1.09 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-24
Maturity Price : 25.00
Evaluated at bid price : 26.36
Bid-YTW : 2.93 %
BNS.PR.M Perpetual-Discount -1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-29
Maturity Price : 22.52
Evaluated at bid price : 22.67
Bid-YTW : 5.01 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.N Perpetual-Discount 126,180 TD crossed 100,000 at 24.85 and bought 16,100 from Nesbitt at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-29
Maturity Price : 24.55
Evaluated at bid price : 24.78
Bid-YTW : 5.35 %
TRP.PR.A FixedReset 99,096 RBC crossed two blocks of 25,000 each and one of 30,000, all at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.50 %
TD.PR.O Perpetual-Discount 72,479 Desjardins crossed 30,000 at 24.23.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-29
Maturity Price : 23.95
Evaluated at bid price : 24.21
Bid-YTW : 5.05 %
BNS.PR.P FixedReset 67,182 RBC crossed 25,000 at 26.28; Nesbitt crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.20 %
GWO.PR.N FixedReset 43,525 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-29
Maturity Price : 24.55
Evaluated at bid price : 24.60
Bid-YTW : 3.68 %
TDS.PR.C SplitShare 37,985 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-12-15
Maturity Price : 10.00
Evaluated at bid price : 10.44
Bid-YTW : 0.32 %
There were 40 other index-included issues trading in excess of 10,000 shares.

November 26, 2010

Friday, November 26th, 2010

Ireland’s causing more trouble:

Senior bonds of Allied Irish Banks Plc and Bank of Ireland Plc slumped today amid concern the government will force holders of such debt to share the cost of bailing out its financial system.

The need for speed in securing a deal for Ireland is growing amid an outflow of funds from its banks and as investors dump the bonds of other European governments on concern they too will be infected by the sovereign debt crisis. As officials from Portugal and Spain rejected speculation that their economies would also need saving, the average yield investors demand to hold 10-year debt from Greece, Ireland, Portugal, Spain and Italy today reached a euro-era record of 7.56 percent.

Aid negotiators from the EU and International Monetary Fund are taking legal advice on how senior bondholders can share the cost of the 85 billion-euro ($113 billion) bailout without triggering lawsuits, the Irish Times reported today, without saying where it got the information.

Allied Irish’s 750 million euros of 5.625 percent senior notes due 2014 plunged 4 cents on the euro to 73 cents, a 5.2 percent decline, according to composite prices on Bloomberg at 1:25 p.m. in London. Bank of Ireland’s 974 million euros of 4.625 percent senior unsecured notes maturing in 2013 fell 4 cents on the euro, or 4.8 percent, to 81 cents.

Two years ago, the Irish government assured senior bondholders that they wouldn’t lose their money if banks failed.

This is what happens when you throw out 300 years of bankruptcy law because it’s inconvenient. I don’t think the Irish banks have any chance at all of rolling that debt when it comes due.

And the PIIGS are getting slaughtered:

The average yield for 10-year debt from Greece, Ireland, Portugal, Spain and Italy reached 7.57 percent today, a euro- era record. The average premium investors demand to hold those securities instead of German bunds widened to as much as 492 basis points, the highest level of 2010. The average cost of insuring against default by the five nations using credit- default swaps reached a record 517 basis points on Nov. 23.

Hungary’s going a step further: confiscation of pension assets:

The government told Hungarians on Nov. 24 to move private- pension fund assets to government control or lose their state pension, an ultimatum designed to shift 3 trillion forint ($14.2 billion) of privately managed pension assets.

While the extra funds will move Hungary’s budget into surplus next year and may drive down government bond yields, the measure will undermine peoples’ ability to manage their savings, said Sandor Vizkeleti, chief executive of Budapest-based Pioneer Alapkezelo, a unit of UniCredit SpA.

Hungary, the first European Union country to obtain an International Monetary Fund-led bailout during the credit crisis in 2008, is following the example of Argentina, which in 2001 seized retirement savings by forcing private pension funds to transfer money to a state bank in exchange for Treasury bills.

The government in Buenos Aires nationalized the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt restructuring. In Hungary, private fund members have the option of staying outside the state retirement system at the cost of giving up 70 percent of their contributions and the right to a state pension.

Some interesting developments with US pension funding:

United Parcel Service Inc., the world’s largest package- delivery business, Dow Chemical Co., Northrop Grumman Corp. and PPG Industries Inc. sold at least $5.25 billion of investment- grade U.S. corporate bonds in November to fund their pensions, making it the busiest month since June 2003, according to data compiled by Bloomberg.

The Federal Reserve’s effort to hold down interest rates to stimulate the economy has caused corporate pension obligations, which are pegged to bond yields, to rise by $105.8 billion this year to $1.44 trillion as of October, according to Milliman Inc.

Cyborg Trading was featured in a nice piece in the Globe yesterday:

Cyborg, a startup three years ago that today employs 14 math PhDs in its two Canadian offices, is helping day traders build and run their own trading algorithm. “You still have to come up with your own model, but that’s just one part of the equation,” Mr. Bittrolff says. “After that, it becomes, how do you execute it?”

Cyborg helps customers turn their algorithm into a simple trading strategy, and then incorporate that into their own online trading platform. “Our tool lets the trader manage and monitor his own algo,” Mr. Bittrolff adds. “No one wants these things to run amok.”

This was probably inspired by a piece in Business London Magazine, which I haven’t read because the software used to publish it on-line is such a total piece of shit.

One of their “recent developments” is a rather crude tool to monitor trading depth:

Cyborg Trader™ now offers traders the ability to cancel bids or offers based on the number of shares that are present at the top of book. Cyborg Trader™’s depth threshold technology monitors the size posted on the bid or offer of a price level. If the number of shares posted at a given price reduces by a specified amount (or percentage) the order is cancelled. This gives traders the opportunity to be filled on the bid/offer while they are close to the front of the queue without having stocks trade through their price level.

Yesterday’s Globe had an article titled This 7-per-cent yield comes with questions, about Quadravest’s new Dividend Select 15:

Dividend Select 15 uses an established options strategy called covered call writing to generate the additional five percentage points of return necessary to make those payments of 5.83 cents a month and cover fees.. Covered call writing limits your upside gains on a stock, but it also offers the potential to outperform in a slightly rising, flat or falling market. It works best in volatile markets.

Is it feasible to expect Dividend Select 15 to consistently generate the extra returns needed to make its targeted level of cash payouts? For an answer, [president and CEO of Weigh House Investor Services] Mr. [Warren] MacKenzie consulted an outside money management firm with some expertise in dividend investing.

“They said you can’t do that,” Mr. MacKenzie said. “There’s no way to consistently generate [the extra] 5 per cent.”

This points to a familiar theme in my complaints about regulation: Quadravest has been touting covered call writing in just about every single one of its products. yet in their prospectus they are not compelled to talk about their success in implementing the technique … all they have to disclose is their years of experience.

Assiduous Reader BF points out that Garth Turner continues to promote preferred shares as a panacea. His one-size-fits-all views are discussed on FWF – and probably elsewhere. Mr. Turner does not publish his performance track record. Update: He is a stockbroker with Turner Tomenson & Associates Family Wealth Management of Wellington West Capital Inc.

The Canadian preferred share market eased downwards on average volume today, with PerpetualDiscounts down 6bp and FixedResets losing 5bp.

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 0.4271 % 2,266.7
FixedFloater 4.79 % 3.43 % 27,166 19.18 1 0.8889 % 3,511.1
Floater 2.63 % 2.35 % 53,587 21.38 4 0.4271 % 2,447.4
OpRet 4.75 % 2.83 % 60,030 2.41 8 0.1000 % 2,395.6
SplitShare 5.43 % 0.23 % 115,866 1.03 3 -0.1260 % 2,480.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1000 % 2,190.6
Perpetual-Premium 5.67 % 5.37 % 157,524 5.41 24 -0.0706 % 2,013.1
Perpetual-Discount 5.34 % 5.36 % 276,009 14.90 53 -0.0571 % 2,045.4
FixedReset 5.22 % 3.23 % 346,558 3.16 51 -0.0474 % 2,277.0
Performance Highlights
Issue Index Change Notes
PWF.PR.I Perpetual-Premium -1.22 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 5.92 %
PWF.PR.F Perpetual-Discount -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 23.41
Evaluated at bid price : 23.70
Bid-YTW : 5.59 %
GWO.PR.H Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 23.03
Evaluated at bid price : 23.25
Bid-YTW : 5.29 %
MFC.PR.D FixedReset 1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.52
Bid-YTW : 3.55 %
HSB.PR.C Perpetual-Discount 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 23.78
Evaluated at bid price : 24.05
Bid-YTW : 5.38 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.I Perpetual-Discount 118,860 Nesbitt crossed 110,800 at 21.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 21.43
Evaluated at bid price : 21.43
Bid-YTW : 5.34 %
TD.PR.Q Perpetual-Premium 98,100 Nesbitt crossed 80,000 at 25.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-02
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 5.28 %
RY.PR.F Perpetual-Discount 56,430 Nesbitt crossed 50,000 at 22.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 22.34
Evaluated at bid price : 22.48
Bid-YTW : 4.97 %
BMO.PR.L Perpetual-Premium 56,408 Desjardins crossed three blocks, of 25,000 shares, 14,700 and 10,900, all at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 26.08
Bid-YTW : 5.06 %
CM.PR.L FixedReset 54,747 RBC crossed 45,600 at 27.98.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.98
Bid-YTW : 3.07 %
BNS.PR.N Perpetual-Discount 43,270 RBC crossed 25,000 at 24.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-26
Maturity Price : 24.60
Evaluated at bid price : 24.83
Bid-YTW : 5.34 %
There were 28 other index-included issues trading in excess of 10,000 shares.

November 25, 2010

Friday, November 26th, 2010

Ireland’s decision to rewrite bankruptcy law on the fly has had a surprising effect:

The cost of insuring bonds sold by European banks rose for a sixth day on concern other governments will follow Ireland in forcing investors to share the cost of bailouts.

The Markit iTraxx Financial Index of credit-default swaps on subordinated debt of 25 European banks and insurers rose 4 basis points to a five-month high of 272 as of 3:30 p.m. in London, according to JPMorgan Chase & Co.

Markit Group Ltd.’s index of subordinated financial swaps is up from 225.5 on Nov. 19, setting it on pace for the biggest weekly increase since March 2009, JPMorgan Chase data show. The senior index rose 1.5 basis points to 159 today, up from 135.5 at the end of last week.

The Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose 3 basis points to a record 184, according to CMA. Spain increased 8 basis points to an all-time high based on closing prices of 303 and Ireland jumped 11.5 basis points to 591, after earlier reaching a record.

Ireland has also pledged to impose losses on junior bondholders at Irish Nationwide Building Society.

By me, this is just one more argument in favour of contingent capital that converts well before the business has reached the point of non-viability. If it converts when things are bad but not yet horrific, then at least holders will have the comfort that their contractual rights will be honoured.

I had a look at the Canadian Bankers Association recommendations for legislative review:

In our view, the federal government should ensure that financial institutions under the federal oversight system (including Crown lending agencies such as Farm Credit Canada) operate under equivalently strict capital, prudential and risk management standards as banks operating in Canada.

I wonder if that applies to the CDIC as well.

Given the complexity of both the regulatory system and the domestic/international marketplace in which financial institutions operate, the potential for significant and negative unintended consequences of regulatory changes is large. In light of this, we are strongly urging that the government adopt, as its standard practice, the practice of prior consultations with the industry and other stakeholders before any new regulatory requirements are initiated, to better determine the scope and nature of the issue to be addressed, and to explore if there are more effective alternatives to regulation.

That’s one for you, OSFI!

in its 2008-2009 Global Competitiveness Report, the World Economic Forum placed Canada at the top of the list of sound banks.

A tired old canard, as I have previously discussed. There were no comparisons made in the preparation of the WEF report.

Recommendation #2 – Bring the single securities regulator to completion: The banking industry commends the federal government for its efforts to create a national securities regulator. Given the importance of the initiative for the future strength of the Canadian economy, for improved consumer protection, and for stronger influence on international policy development, the industry urges the government to stay the course in its strong efforts to gain the support of provinces and territories.

Then they’ll be able to capture the regulators with one fat salary, rather than the present thirteen.

For example, in 2008 it came to light that the BEA allows for cheque writers to “cross” a cheque (putting two diagonal lines through the cheque) to make the instrument non-negotiable so that the only option for the payee is to deposit the cheque at his/her branch. While common in some other countries, the practice is virtually unknown now in Canada. As such, if cheque-crossing had suddenly come in vogue, it would have created a number of technical challenges and would have required a massive education effort on the part of institutions and the government to ensure that both cheque writers and cheque recipients understood the ramifications of crossing a cheque (since there are implications for both).

I didn’t know that!

Recommendation #12 – Critical need for stakeholder engagement in policy/regulatory planning: Given the complexity of both the regulatory system and the domestic/international marketplace in which financial institutions operate, the potential for significant and negative unintended consequences of regulatory changes is large. In light of this, it is critical that the government undertake prior consultations with the industry and other stakeholders before any new regulatory requirements are initiated, to better determine the scope and nature of the problem to be addressed, and to explore if there are more effective alternatives to regulation.

Hear, hear!

In addition, the federal government should be active in working with the provinces to ensure that financial literacy is part of the school curriculum.

The school curriculum is like a prospectus … things get added continually for very good reason until the system as a whole collapses under the weight of its own box-ticking uselessness.

Currently there is a limitation in the Insurance Companies Act which limits the amount of debt and preferred shares to 2% of overall balance sheet. Under Basel III requirements, banks that own an insurance company may want to have more debt and preferred shares. The limit is believed to be an historical restriction which pre-dates when insurance capital regulations were changed to mimic the banks capital structure, and which therefore is not only no longer necessary, but is also inconsistent with the Tier 1 / Tier 2 insurance capital structure.

Recommendation #32 – Remove limit on debt and preferred shares from Insurance Companies Act: Removing the limit would make the Insurance Companies Act consistent with capital requirements for banks.

The National Securities Regulator pipedream is coming to its predictable end. I’ve said it before … I’ll say it again: like-minded provinces should merge their regulation. Maybe if the OSC merges with the PEISC that won’t be much of a step forward, but you know something? It’ll be better than what we have now.

The SIU investigation of police conduct during the G20 meeting is just another whitewash. Since wrong was clearly done and no line officers are being punished, Chief Blair is clearly obliged to resign. But I’m not holding my breath while waiting for a bit of integrity in the service of the public.

A mixed day on pretty good volume for the Canadian preferred share market, with PerpetualDiscounts up 12bp and FixedResets losing 6bp.

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 0.0000 % 2,257.0
FixedFloater 4.83 % 3.48 % 28,249 19.13 1 1.2601 % 3,480.2
Floater 2.64 % 2.36 % 55,790 21.35 4 0.0000 % 2,437.0
OpRet 4.76 % 3.05 % 60,171 2.41 8 0.0810 % 2,393.2
SplitShare 5.42 % -0.23 % 119,625 1.04 3 -0.1126 % 2,483.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0810 % 2,188.4
Perpetual-Premium 5.67 % 5.32 % 158,908 5.41 24 0.0690 % 2,014.6
Perpetual-Discount 5.34 % 5.35 % 278,677 14.90 53 0.1217 % 2,046.6
FixedReset 5.21 % 3.16 % 351,065 3.16 51 -0.0581 % 2,278.1
Performance Highlights
Issue Index Change Notes
CM.PR.K FixedReset -1.30 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 3.59 %
ELF.PR.G Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 5.95 %
TRP.PR.C FixedReset -1.12 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 3.90 %
PWF.PR.K Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 22.82
Evaluated at bid price : 23.03
Bid-YTW : 5.42 %
SLF.PR.F FixedReset 1.21 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 27.50
Bid-YTW : 2.97 %
BAM.PR.G FixedFloater 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 3.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.I Perpetual-Discount 85,390 RBC crossed blocks of 25,000 and 50,000, both at 21.31.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 21.40
Evaluated at bid price : 21.40
Bid-YTW : 5.35 %
NA.PR.L Perpetual-Discount 73,394 RBC crossed blocks of 20,000 and 15,200, both at 23.25. Desjardins crossed 20,000 at 23.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 22.97
Evaluated at bid price : 23.20
Bid-YTW : 5.26 %
CM.PR.I Perpetual-Discount 65,310 Desjardins crossed 25,000 at 23.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 22.75
Evaluated at bid price : 22.93
Bid-YTW : 5.17 %
RY.PR.F Perpetual-Discount 60,961 RBC sold three blocks of 10,000 shares each to anonymous, all at 22.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-25
Maturity Price : 22.31
Evaluated at bid price : 22.45
Bid-YTW : 4.98 %
CL.PR.B Perpetual-Premium 60,540 Called for redemption
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 2.40 %
BNS.PR.R FixedReset 56,000 RBC crossed 45,000 at 26.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 3.00 %
There were 40 other index-included issues trading in excess of 10,000 shares.

November 24, 2010

Wednesday, November 24th, 2010

I’d say things in Europe are heading for a crescendo … or should I say cascade?:

Mr. Honohan’s comments, and worries that Ireland’s hugely overextended lenders face nationalization or the butcher’s block, sent shares in Bank of Ireland and Allied Irish tumbling by 20 per cent on Tuesday. Depositors have been fleeing Irish banks since the beginning of the year, with Allied Irish losing €13-billion ($21-billion).

But the focus of market anxiety is moving from Dublin to other European capitals, especially Lisbon and Madrid, where banks shares were under pressure Tuesday amid refinancing fears.

Instead of sparking a relief rally in the euro zone bond markets, the €80-billion to €90-billion rescue package for Ireland triggered alarm bells – and a jump in the risk premium that a bondholder pays for insuring Irish, Greek, Portuguese and Spanish bonds. The yields on these bonds continued to rise on Tuesday, exacerbating the feverish market mood.

The problem is a rolling tide of debt maturities on the horizon. Each wave is bigger than the last and the European Union’s ability to surf this breaker is looking doubtful.

Consider Greece. According to London brokerage Evolution Securities, Greece needs to repay €28-billion in rescue loans in 2014. But under the new German-inspired rules, any new bond Greece issues must contain a clause about debt restructuring, implying that bondholders will take a haircut in the event of default. As Evolution’s Gary Jenkins put it: “Who will lend to Greece €28-billion in 2014 on subordinated terms?”

But Ireland’s teetering government has proposed a budget:

Ireland’s government said it will cut spending by about 20 percent and raise taxes over the next four years as talks on a bailout of the country near conclusion.

Welfare cuts of 2.8 billion euros ($3.8 billion) and income tax increases of 1.9 billion euros are among the steps planned to narrow the budget deficit to 3 percent of gross domestic product by the end of 2014. The shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue.

Irish bonds fell today after the country’s credit rating was downgraded yesterday two levels by Standard & Poor’s on estimates the cost of bailing out its banks will escalate.

The decline push the yield on the country’s 10-year debt up 52 basis points to 9.17 percent. The premium investors charge to hold the debt over German bunds, Europe’s benchmark, widened by 33 basis points to 619 basis points. The premium reached a record 652 basis points on Nov. 11.

The premium on Spanish 10-year bonds over bunds climbed to a euro-era record today.

Finance Minister Brian Lenihan will maintain Ireland’s 12.5 percent corporate tax rate, criticized by some European governments such as Austria. Hewlett-Packard Co., the world’s largest computer maker, said this week it may reconsider its investment in Ireland should the country raise its company tax rate as part of an aid accord.

DBRS has downgraded some Anglo Irish Bank sub debt:

Today’s downgrade follows the execution of the Bank’s note exchange offer. The default status for the exchanged and now-extinguished 2017 Notes reflects DBRS’s view that bondholders were offered limited options, which, as discussed in DBRS’s press release dated 25 October 2010, is considered a default per DBRS policy.

The exchange offer was coercive and Orwellian:

Ireland faces a bill of more than 50 billion euros to prop up its banks and is seeking to ensure the losses of lenders it owns outright are shared with subordinated noteholders. Finance Minister Brian Lenihan has said he will legislate to allow the government to impose penalties on subordinated creditors while making senior investors whole.

but it’s working:

Nationalised lender Anglo Irish Bank cleared the first major hurdle in its closely watched debt restructuring when a group of subordinated creditors agreed to take an 80 percent write-down on the value of their holdings.

Hear that whistling noise? That was 300 years of bankruptcy law being thrown out the window. It really gives you confidence that Europe will work out its problems in a rational, predictable and legal manner, eh? Maybe tomorrow I’ll rush out and make a great big investment, one that’s backed by the full faith and credit of the Irish government. Or maybe not.

The Canadian preferred share market enjoyed a bit of a bounce today, as volume came off its recent very high levels, but remained above average. PerpetualDiscounts gained 12bp and FixedResets were up 3bp.

PerpetualDiscounts now yield 5.36%, equivalent to 7.50% interest at the standard equivalency factor of 1.4x. Long Corporates now yield about 5.4%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now 210bp, a significant tightening from the 220bp reported on November 17 … although mind you, it was also 210bp on November 10, when the relevant yields were 5.28%, 7.39% and 5.3%.

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 -0.2006 % 2,257.0
FixedFloater 4.89 % 3.54 % 27,074 19.06 1 -1.0245 % 3,436.9
Floater 2.64 % 2.35 % 57,631 21.36 4 -0.2006 % 2,437.0
OpRet 4.76 % 3.03 % 60,321 2.42 8 -0.0952 % 2,391.3
SplitShare 5.41 % 0.04 % 120,271 1.04 3 -0.0463 % 2,486.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0952 % 2,186.6
Perpetual-Premium 5.67 % 5.29 % 160,629 5.42 24 0.0753 % 2,013.2
Perpetual-Discount 5.35 % 5.36 % 269,788 14.91 53 0.1208 % 2,044.1
FixedReset 5.21 % 3.13 % 354,687 3.17 51 0.0332 % 2,279.4
Performance Highlights
Issue Index Change Notes
MFC.PR.D FixedReset -1.28 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.10
Bid-YTW : 4.02 %
IGM.PR.B Perpetual-Discount -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-24
Maturity Price : 24.74
Evaluated at bid price : 24.96
Bid-YTW : 5.97 %
HSB.PR.C Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-24
Maturity Price : 23.37
Evaluated at bid price : 23.62
Bid-YTW : 5.48 %
BAM.PR.G FixedFloater -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-24
Maturity Price : 25.00
Evaluated at bid price : 22.22
Bid-YTW : 3.54 %
IAG.PR.A Perpetual-Discount 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-24
Maturity Price : 21.55
Evaluated at bid price : 21.55
Bid-YTW : 5.34 %
IAG.PR.C FixedReset 1.56 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 27.39
Bid-YTW : 2.81 %
IAG.PR.E Perpetual-Premium 1.62 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.09
Bid-YTW : 5.89 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.T FixedReset 105,491 RBC crossed 50,000 at 27.85; TD crossed the same number at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-23
Maturity Price : 25.00
Evaluated at bid price : 27.77
Bid-YTW : 3.19 %
RY.PR.B Perpetual-Discount 78,410 Nesbitt crossed 40,800 at 23.45; National crossed 20,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-24
Maturity Price : 23.19
Evaluated at bid price : 23.40
Bid-YTW : 5.04 %
RY.PR.I FixedReset 78,367 Scotia crossed 66,700 at 26.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 3.18 %
BNS.PR.R FixedReset 74,145 RBC crossed 45,000 at 26.60; Nesbitt crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.45
Bid-YTW : 3.19 %
BNS.PR.L Perpetual-Discount 62,060 RBC crossed 47,200 at 22.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-24
Maturity Price : 22.49
Evaluated at bid price : 22.64
Bid-YTW : 5.01 %
BMO.PR.H Perpetual-Discount 58,625 Nesbitt crossed 50,000 at 25.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-27
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.77 %
There were 34 other index-included issues trading in excess of 10,000 shares.

CL.PR.B Called For Redemption

Wednesday, November 24th, 2010

Canada Life Financial Corporation has announced:

that it intends to redeem all 6,000,000 of its Series B Preferred Shares on December 31, 2010.

A formal notice and instructions for the redemption of the Series B Preferred Shares will be forwarded to shareholders in accordance with the rights, privileges, restrictions and conditions attached to the Series B Preferred Shares.

The redemption price will be $25.00 for each Series B Preferred Share plus an amount equal to all declared and unpaid dividends, up to but excluding the redemption date, less any tax required to be deducted and withheld by CLFC. The paid-up capital of each Series B Preferred Share is $25.00.

CLFC was established in 1999. CLFC’s principal subsidiary, The Canada Life Assurance Company, was founded in 1847 and provides insurance and wealth management products and services in Canada, the United Kingdom, Isle of Man, Ireland and Germany. CLFC and Canada Life are subsidiaries of The Great-West Life Assurance Company, and members of the Power Financial Corporation group of companies.

Finally! This issue has spent considerable time over the years trading well above its current call price, but those parsimonious gnomes at GWO just had to wait until the first day of its par call!

November 23, 2010

Tuesday, November 23rd, 2010

The Irish government has fallen:

Amid calls for his immediate resignation from at least two MPs in his own Fianna Fail party and the withdrawal of support from coalition partners the Green Party, Prime Minister Brian Cowen was forced on Monday to announce the pending dissolution of his government.

“There will be a time for political accountability to the electorate,” Mr. Cowen said in a terse address Monday night in which he pleaded with MPs to keep his government afloat until the austerity budget passes in exchange for an election in January.

But contagion has set in:

German Chancellor Angela Merkel said the prospect of serial European bailouts was “exceptionally serious,” sending the euro to a three-month low as officials estimated saving Ireland will cost 85 billion euros ($114 billion).

Irish bonds dropped and the premium that investors demand to hold Spanish debt over German counterparts jumped to a euro- era record as the relief rallies triggered by Ireland’s Nov. 21 aid request evaporated. Traders are now betting the turmoil that started in Greece a year ago will spread to Portugal and Spain.

“The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis,” Charles Diebel and David Page, fixed-income strategists at Lloyds TSB Corporate Markets in London, said in a note today. “With markets effectively in a position to dictate policy, the risk is that the credibility crisis shifts to more sizeable European Union countries and thereby poses a greater risk to the system as a whole.”

And S&P has downgraded Ireland:

S&P cut Ireland’s long-term sovereign rating to A from AA- and the short-term grade to A-1 from A-1+, today’s statement said.

Wanna buy a bank?:

Ireland’s banks are effectively up for sale, central bank Governor Patrick Honohan said on Tuesday as Dublin sought aid from the European Union and International Monetary Fund to prop up its lenders.

“They are for sale as far as I am concerned,” Honohan said. “I’ve been an advocate for a number of years for small countries to have foreign owners for their banks.”

MFC is not having a nice time:

Shares of Manulife Financial Corp. fell nearly 5% at one point on Monday after a downgrade at Citigroup. Analyst Colin Devine cut his rating to Sell from Buy and reduced his price target to US$14.50 from US$21 after a disappointing trip to the life insurance company’s Annual Investor Day on Friday.

Information provided at the meeting led Mr. Devine to estimate that roughly 35% of Manulife’s capital is tied up supporting three products at its U.S. John Hancock operations: living benefit variable annuities (VA), individual long-term care (LTC), and secondary guarantee universal life (SGUL). By the analyst’s count, each is responsible for losses of at least $1-billion since the beginning of 2009.

Yet the analyst pointed out that management only provided one slide and “did not devote even five minutes to discussing what had gone wrong with these products or what steps were available and a timetable to address them.”

Government Motors’ hybrids are a big hit!

President Barack Obama’s administration has bought almost a fourth of the Ford Motor Co. and General Motors Co. hybrid vehicles sold since he took office, accelerating federal purchases as consumer demand wanes.

Q: What happens when a draconian law hits reality? A: Regulators ursurp power:

The Securities and Exchange Commission extended the ability of asset-backed bond issuers to omit credit ratings from filings to comply with the Dodd-Frank financial reform act that became U.S. law in July.

Pending further notice, the SEC won’t recommend enforcement action if an asset-backed issuer doesn’t include the ratings disclosure required by the legislation, according to a letter today from Katherine Hsu, senior special counsel.

“Without this extension, the entire public securitization market would have closed in late January,” Tom Deutsch, executive director of the American Securitization Forum, said today in an e-mailed statement.

Well, sure. That’s what happens with every zero-tolerance law, right? Instead of a judicial process, you get a regulatory process, with selective reporting and private decisions.

BMO redeemed some more BOaTS:

Bank of Montreal is back in the market to redeem its second batch of trust capital securities, better known as BMO BOaTS.

This batch, Series B, totals $400-million and pays 6.64 per cent interest annually.

There are two factors at play here in BMO’s decision to redeem. For starters, as of year-end 2010, holders of these securities can exchange them into a series of preferred shares.

But maybe more important now, under Basel III, these innovative securities will no longer count as Tier 1 capital. Starting in 2013, the amount that they contribute to Tier 1 capital will be phased out by 10 per cent each year, for 10 years.

The FDIC has released its Quarterly Banking Profile: 3Q10, with highlights:

  • Year-over-Year Earnings Improve for Fifth Consecutive Quarter
  • Net Income Totals $14.5 Billion, Up from $2 Billion a Year Earlier
  • Lower Loan-Loss Provisions Remain Key to Earnings Gains
  • Asset Quality Trends Continued to Improve
  • Industry Assets Increase by $163 Billion

Concerned investors will be pleased to learn there is now a cool name for offshore yuan debt:

Chinese bonds sold in Hong Kong rallied more than debt from the biggest developing nations in the past three months as international investors snapped up the securities to benefit from expected appreciation of the yuan.

“There’s pent-up demand,” said Per Nordstrom, the head of euro medium term notes in Asia at London-based Standard Chartered Plc. “Investors are generally ‘buy and hold’ as supply is limited. The dim sum bond market is a frontier market and it is growing.”

Got Milk?:

Several studies have argued that the supply management system pushes up dairy prices for Canadian consumers. A recent study by the Conference Board of Canada estimated Canadians pay 60 cents more for a one litre carton of whole milk than Americans and $1.50 more for a one-pound package of butter than Australians, which has a deregulated dairy system. The OECD estimates dairy prices in Canada are more than double the world market.

An analysis by the Dairy Farmers of Ontario shows that New Zealand has the highest retail price, at $5.69, for a four-litre size package of milk. That was followed by Ontario at $4.66, Britain at $3.57 and the U.S. at $3.38.

Good old farmers … taking milk away from children to finance the bucolic lifestyle of the favoured few.

The market slid slightly lower today on continued heavy volume, with PerpetualDiscounts down 10bp and FixedResets losing 7bp, taking the median weighted average yield on the latter index to 3.14%.

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 0.2388 % 2,261.5
FixedFloater 4.84 % 3.48 % 26,683 19.14 1 1.9991 % 3,472.4
Floater 2.63 % 2.35 % 58,452 21.41 4 0.2388 % 2,441.9
OpRet 4.75 % 2.71 % 61,296 2.42 8 0.0572 % 2,393.6
SplitShare 5.41 % -0.05 % 120,460 1.04 3 -0.1388 % 2,487.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0572 % 2,188.7
Perpetual-Premium 5.67 % 5.32 % 162,867 5.41 24 -0.2382 % 2,011.7
Perpetual-Discount 5.35 % 5.38 % 270,358 14.87 53 -0.1030 % 2,041.6
FixedReset 5.21 % 3.14 % 358,699 3.17 51 -0.0717 % 2,278.7
Performance Highlights
Issue Index Change Notes
IAG.PR.E Perpetual-Premium -2.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 24.84
Evaluated at bid price : 25.06
Bid-YTW : 6.08 %
ELF.PR.F Perpetual-Discount -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 22.52
Evaluated at bid price : 22.72
Bid-YTW : 5.90 %
IAG.PR.F Perpetual-Premium -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 24.98
Evaluated at bid price : 25.20
Bid-YTW : 5.95 %
ELF.PR.G Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 5.87 %
BAM.PR.O OpRet -1.14 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.70 %
BAM.PR.K Floater 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 17.53
Evaluated at bid price : 17.53
Bid-YTW : 3.02 %
TRP.PR.C FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 23.41
Evaluated at bid price : 25.89
Bid-YTW : 3.69 %
BMO.PR.L Perpetual-Premium 1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 26.38
Bid-YTW : 4.84 %
BAM.PR.G FixedFloater 2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 3.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.L Perpetual-Discount 269,623 Desjardins crossed three blocks: 40,000 at 22.65, then 100,000 and 101,200, both at 22.70. RBC crossed 20,000 at 22.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 22.47
Evaluated at bid price : 22.62
Bid-YTW : 5.02 %
GWO.PR.N FixedReset 110,585 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 24.60
Evaluated at bid price : 24.65
Bid-YTW : 3.67 %
CM.PR.E Perpetual-Premium 109,078 RBC crossed three blocks of 50,000 shares, 20,000 and 22,100, all at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 5.43 %
BNS.PR.M Perpetual-Discount 107,909 RBC crossed 95,000 at 22.65.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 22.46
Evaluated at bid price : 22.61
Bid-YTW : 5.02 %
GWO.PR.J FixedReset 71,485 Anonymous sold 38,700 to Nesbitt and 11,000 to Desjardins, both at 27.50. Desjardins crossed 12,300 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 27.47
Bid-YTW : 3.04 %
BNS.PR.O Perpetual-Premium 59,919 Nesbitt crossed 40,000 at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-05-26
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 5.41 %
There were 50 other index-included issues trading in excess of 10,000 shares.

GWO.PR.N Slides on Issue with Muted Volume

Tuesday, November 23rd, 2010

Great-West Lifeco has announced:

the closing of its previously announced offering of 3.65% Non-cumulative 5-Year Rate Reset First Preferred Shares, Series N (the “Series N Shares”) through a syndicate of underwriters led by BMO Nesbitt Burns Inc., RBC Dominion Securities Inc. and Scotia Capital Inc. and including CIBC World Markets Inc., TD Securities Inc., National Bank Financial Inc. and Desjardins Securities Inc. for gross proceeds of $250 million.

The Series N Shares were priced at $25.00 per share. The net proceeds will be used for general corporate purposes and to augment Lifeco’s current liquidity position. The Series N Shares will be posted for trading on the Toronto Stock Exchange under the symbol “GWO.PR.N”.

GWO.PR.N is the 3.65%+130 FixedReset announced November 15. The final size of $250-million means that the greenshoe of $50-million was not exercised.

GWO.PR.N traded 110,585 shares today in a range of 24.65-76 before closing at 24.65-70, 39×128. Vital statistics are:

GWO.PR.N FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-11-23
Maturity Price : 24.60
Evaluated at bid price : 24.65
Bid-YTW : 3.67 %

GWO.PR.N is tracked by HIMIPref™ and has been assigned to the FixedReset index.

DGS.PR.A To Get Bigger

Tuesday, November 23rd, 2010

Dividend Growth Split Corp has announced:

it has filed a preliminary short form prospectus with respect to a treasury offering of preferred shares and class A shares.

Dividend Growth Split Corp. invests in a portfolio of common shares of high quality, large capitalization companies, which have among the highest dividend growth rates of those companies included in the S&P/TSX Composite Index.

The offering price of the preferred shares is $10.00 per share. The closing price of the preferred shares on the TSX on November 19, 2010 was $10.45. The investment objectives for the preferred shares are to provide their holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.13125 per preferred share to yield 5.25% per annum on the original issue price, and to return the original issue price to holders of preferred shares at the time of redemption on November 30, 2014.

The final class A share offering price will be non-dilutive to existing class A shareholders as it will be set at a level that ensures that the net proceeds of the Offering per Unit are greater than the most recently calculated Net Asset Value per Unit prior to the date of the final prospectus. The closing price of the class A shares on the TSX on November 19, 2010 was $9.70. The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share, and to provide the opportunity for growth in net asset value per class A share.

DGS.PR.A was last mentioned on PrefBlog when the last treasury offering closed. DGS.PR.A is not tracked by HIMIPref™ as it is too small … but that excuse won’t hold up for much longer if they keep up the pace of treasury offerings!

HPR: Horizons AlphaPro Preferred Share ETF

Tuesday, November 23rd, 2010

The TMX has announced:

Horizons AlphaPro Preferred Share ETF (the “ETF”) – An application has been granted for the original listing in the Industrial category of 1,015,000 Class E units (the “Units”) of the ETF, all of which will be issued and outstanding, and none will be reserved for issuance upon completion of an initial public offering.

Listing of the Units will become effective at 5:01 p.m. on Monday, November 22, 2010 in anticipation of the offering closing prior to the opening on Tuesday, November 23, 2010. The Units will be posted for trading at the opening on November 23, 2010.

Horizons AlphaPro has announced:

AlphaPro Management Inc. (“AlphaPro”), manager of the Horizons AlphaPro exchange traded funds (“ETFs”), has launched Canada’s first actively managed preferred share ETF, the Horizons AlphaPro Preferred Share ETF (the “Preferred Share ETF”).

The Preferred Share ETF will begin trading today on the Toronto Stock Exchange under the symbol HPR. The sub-advisor to the Preferred Share ETF is Natcan Investment Management Inc. (“Natcan”), which currently manages more than $1 billion dollars in preferred share assets.

“We’re very happy to be working with Natcan once again. Their fixed income team has done a great job in managing the recently launched Horizons AlphaPro Corporate Bond ETF, Canada’s largest actively managed ETF. We expect more of the same with the Preferred Share ETF based on our belief that an active strategy can overcome many of the limitations found in trying to replicate a preferred share index,” said Ken McCord, President of AlphaPro.

The investment objective of the Preferred Share ETF is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The Preferred Share ETF may also invest in preferred shares of companies located in the United States, fixed income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units. The Preferred Share ETF will, to the best of its ability, seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.

Natcan anticipates yields on investment grade preferred shares will stay strong over the next two years and that the asset class will likely continue to see a growth in interest from income seeking retail investors, many of whom are looking to increase their income in retirement. This process could be accelerated by the phase-out of many income trusts in 2011 and beyond.

“Preferred shares really hit a sweet spot for many Canadian investors,” Mr. McCord said. “They offer attractive, tax-efficient yields and are generally less volatile than common shares. For investors with a need for income and an appropriate risk tolerance, preferred shares can be a very effective investment solution.”

The Preferred Share ETF has closed the offering of its initial units and will begin trading on the Toronto Stock Exchange when the market opens this morning.

The prospectus, on SEDAR under Investment Funs, dated 2010-11-19, states:

The investment objective of the AlphaPro Preferred Share ETF is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The AlphaPro Preferred Share ETF may also invest in preferred shares of companies located in the United States, fixed income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units. The AlphaPro Preferred Share ETF will, to the best of its ability, seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.

To achieve AlphaPro Preferred Share ETF’s investment objectives, the ETF’s Sub-Advisor will use fundamental research to select companies that, based on the Sub-Advisor’s view on the company’s industry and growth prospects should be included in the ETF’s investment portfolio. An extensive credit analysis for each security as well as an assessment of each company’s risk profile is completed in order to confirm the selection and relative weight of each security held by the ETF. The AlphaPro Preferred Share ETF will primarily invest in the preferred securities of Canadian issuers whose debt, generally, at a minimum, have an investment grade rating at the time of purchase.

The AlphaPro Preferred Share ETF may also invest in Canadian equity securities that have attractive dividend yields and Listed Funds that pay dividend income. In anticipation of or in response to adverse conditions or for defensive purposes the AlphaPro Preferred Share ETF may temporarily hold a portion of its assets in cash, money market instruments, bonds or other debt securities generally not to exceed 20% of the ETFs net assets.

[Management Fee] 0.55% of the net asset value of the AlphaPro Preferred Share ETF

Natcan, the Sub-Advisor of the AlphaPro Corporate Bond ETF, the AlphaPro Preferred Share ETF and the AlphaPro Floating Rate Bond ETF is an affiliate of NBF and NBF holds an indirect minority interest in the Manager. As a result, Natcan may be considered to be an associate of the Manager.

Since 2009, Marc-André Gaudreau, has been Senior Vice-President of Natcan. Mr. Gaudreau, has more than 12 years of investment management and credit markets experience and has been with Natcan since 2004. From 2005 to 2009 Mr. Gaudreau was Vice-President, Corporate Bonds and Income Funds of Natcan.

Roger Rouleau, Vice President, Fixed Income of Natcan, has more than 4 years of fixed income research and investment management experience. Mr. Rouleau has been with Natcan since 2007 and from 2005 to 2007 was a Research Associate with RBC Capital Markets.

Mathieu Lachance, Vice President, Fixed Income of Natcan, has more than 7 years of experience in the financial markets industry. Before joining Natcan in 2009, he worked in the fixed income arbitrage sector of the Ministère des finances du Québec and as assistant index portfolio manager and derivatives trader at PSP Investments. Mathieu also has extensive experience with derivative products.

Regretably, the prospectus does not specify the track records of these individuals or their firms, despite the fact that Natcan “currently manages more than $1 billion dollars in preferred share assets.”

Unfortunately:

Mutual fund regulations restrict the presentation of performance figures until a fund reaches its one-year anniversary.

… but I will report performance once it becomes available.

Update: Jonathan Chevreau reports:

Natcan will also hold some floating rate preferred shares to protect against rising interest rates: Floating rate preferreds are not included in the S&P/TSX Preferred Share Index tracked by the passive rivals.

DPS.UN has lots of floaters; so I suppose it must be classified as active.

The management fee is 0.55%. Estimated weighted average yield of the securities at inception are 5.5%, with minimum credit quality of P-3/BBB.

Current Yield, obviously.