Archive for February, 2011

February 28, 2011

Monday, February 28th, 2011

No commentary today! Too much going on!

A mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp, FixedResets up 15bp and DeemedRetractibes taking a 15bp loss. Volume was very heavy.

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 -0.1073 % 2,388.5
FixedFloater 4.74 % 3.46 % 15,165 19.08 1 0.0000 % 3,592.3
Floater 2.51 % 2.27 % 48,078 21.55 4 -0.1073 % 2,578.9
OpRet 4.83 % 3.94 % 84,886 2.18 8 -0.1400 % 2,388.5
SplitShare 5.14 % 3.81 % 242,316 1.05 5 -0.9717 % 2,462.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1400 % 2,184.0
Perpetual-Premium 5.75 % 5.54 % 123,016 1.28 9 -0.1014 % 2,032.7
Perpetual-Discount 5.54 % 5.62 % 130,659 14.40 15 0.0622 % 2,113.2
FixedReset 5.21 % 3.55 % 197,166 3.00 54 0.1478 % 2,277.4
Deemed-Retractible 5.22 % 5.22 % 386,079 8.24 53 -0.1473 % 2,081.4
Performance Highlights
Issue Index Change Notes
BNA.PR.E SplitShare -4.41 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 5.87 %
TRP.PR.B FixedReset -1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-28
Maturity Price : 24.52
Evaluated at bid price : 24.57
Bid-YTW : 3.99 %
IAG.PR.E Deemed-Retractible -1.44 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 5.70 %
SLF.PR.A Deemed-Retractible -1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.95
Bid-YTW : 5.75 %
SLF.PR.D Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.95
Bid-YTW : 5.97 %
IAG.PR.A Deemed-Retractible -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 5.86 %
SLF.PR.F FixedReset 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 3.51 %
SLF.PR.G FixedReset 1.24 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-07-30
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.01 %
Volume Highlights
Issue Index Shares
Traded
Notes
ALB.PR.B SplitShare 122,044 New issue settled today.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-03-29
Maturity Price : 21.80
Evaluated at bid price : 21.90
Bid-YTW : 3.81 %
TCA.PR.X Perpetual-Premium 112,018 RBC crossed 100,000 at 50.29.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-28
Maturity Price : 46.93
Evaluated at bid price : 50.20
Bid-YTW : 5.56 %
NA.PR.P FixedReset 81,767 Issuer bid
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.30
Bid-YTW : 2.26 %
CM.PR.H Deemed-Retractible 55,944 TD crossed 22,400 at 24.42.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.40
Bid-YTW : 5.17 %
BMO.PR.N FixedReset 52,175 TD bought 20,000 from Nesbitt at 27.30, then crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-27
Maturity Price : 25.00
Evaluated at bid price : 27.31
Bid-YTW : 3.35 %
BMO.PR.P FixedReset 52,066 Desjardins bought 10,000 from Nesbit at 26.67.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-27
Maturity Price : 25.00
Evaluated at bid price : 26.68
Bid-YTW : 3.63 %
There were 60 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNA.PR.E SplitShare Quote: 23.61 – 24.50
Spot Rate : 0.8900
Average : 0.5879

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 5.87 %

SLF.PR.A Deemed-Retractible Quote: 22.95 – 23.37
Spot Rate : 0.4200
Average : 0.2576

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.95
Bid-YTW : 5.75 %

BAM.PR.I OpRet Quote: 25.50 – 25.95
Spot Rate : 0.4500
Average : 0.3070

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-30
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.71 %

IAG.PR.A Deemed-Retractible Quote: 22.45 – 22.83
Spot Rate : 0.3800
Average : 0.2713

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 5.86 %

TD.PR.M OpRet Quote: 25.61 – 25.89
Spot Rate : 0.2800
Average : 0.1792

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.25
Evaluated at bid price : 25.61
Bid-YTW : 3.80 %

BAM.PR.P FixedReset Quote: 27.51 – 27.84
Spot Rate : 0.3300
Average : 0.2451

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-30
Maturity Price : 25.00
Evaluated at bid price : 27.51
Bid-YTW : 4.39 %

ASC.PR.A Rigamarole Extraordinarily Abusive

Monday, February 28th, 2011

Assiduous Reader Cal alerted me in the comments to the prior post on the ASC term extension proposal that the company, AIC Global Financial Split Corp., which is now flying the banner of Manulife Investments has – finally – posted the Management Information Circular on SEDAR.

The plan is extraordinarily abusive and the directors

  • Paul Lorentz
  • Sheila Hart
  • Jennifer Mercanti
  • Warren Law

should be extremely ashamed of themselves.

There is, as projected in the comments to the notification of intent, no “sweetener” to the NAV that might convince a rational preferred shareholder to vote in favour. The current asset coverage is 1.1-:1, a very low figure that means a lot of immediate downside risk is being borne by the preferred shareholders.

Readers will remember the recent proposal to extend term for PIC.PR.A which was eventually approved. I didn’t think much of that plan either, given the distribution policy and the low level of asset coverage (which was nevertheless higher than is currently the case with ASC.PR.A), but the promoter, Mulvihill, acted with all the integrity one might wish: they provided that in the case of the term extension proceeding, there would be a special retraction right, effective on the date of the original maturity, whereby shareholders could bail out if they didn’t like the prospects going forward. This resulted in a large retraction, which wound up improving the credit quality of the preferred shares significantly. This was well done: bravo Mulvihill!

There is no such privilege being offered to holders of ASC.PR.A.

Instead, security holders are treated to a page and a half of unfamiliar gobbledygook regarding their Rights of Dissent:

Pursuant to the provisions of Section 185 of the Business Corporations Act (Ontario) (“OBCA”), Securityholders are entitled to dissent and be paid the fair value of their shares if they object to the Special Resolution and the Special Resolution becomes effective.

In order to dissent, a Securityholder must send a written objection (an “Objection Notice”) to the Special Resolution to the Corporation at Proxy Tabulation, P.O. Box 2800 Stn LCD Malton, Mississauga, Ontario L5T 2T7 on or before the date of the Special Meeting.

Within 10 days following the date of the Special Meeting, the Corporation will deliver to each Securityholder who has filed an Objection Notice in respect of the Special Resolution, at the address specified for such purpose in such Securityholder’s Objection Notice, a notice stating that the Special Resolution has been adopted (the “Corporation Notice”).

Within 20 days after receipt by a Securityholder of the Corporation Notice or, if no Corporation Notice is received by the dissenting Securityholder, within 20 days after such Securityholder learns that the Special Resolution has been adopted, the dissenting Securityholder is required to send a written notice to the Corporation, at the address set forth in the preceding paragraph, containing the Securityholder’s name and address, the number of shares held in respect of which such Securityholder dissents and a demand for payment of the fair value of such shares (the “Demand for Payment”). Within 30 days thereafter, the Securityholder must send the share certificates representing such shares to the Corporation. Such share certificates will be endorsed by the Corporation with a notice that the holder is a dissenting Securityholder and will be returned to the dissenting Securityholder. A Securityholder who fails to forward share certificates within the time required loses any right to make a claim for payment of the fair value of such Securityholder’s shares.

Not later than seven days after the later of the day on which the action approved by the Special Resolution becomes effective and the date the Corporation receives the Demand for Payment, the Corporation will send to each dissenting Securityholder a written offer (the “Offer to Pay”) to pay for the shares which are the subject of the Objection Notice in an amount considered by the Board of Directors of the Corporation to be the fair value of such shares as of the close of business on the day before the day on which the action approved by the Special Resolution becomes effective accompanied by a statement showing how the fair value was determined.

If the Corporation fails to make the Offer to Pay or a dissenting Securityholder fails to accept the Offer to Pay within the time limit prescribed therfor, the Corporation may apply under the OBCA to a court to fix a fair value for the shares within 50 days after the day on which the action approved Special Resolution becomes effective or within such further period as the court may allow.

Provided that the Special Resolution becomes effective, a Securityholder who complies with each of the steps required to dissent effectively is entitled to be paid the fair value of the shares in respect of which such Securityholder has dissented. Such fair value as determined by the court may be more than, less than or equal to the consideration to be received under the Offer to Pay.

The foregoing is a summary only of the rights of dissenting Securityholders. Any Securityholder desiring to exercise a right to dissent should seek legal advice since failure to comply strictly with the provisions of Section 185 of the OBCA may prejudice that right.

Look at all the backing-and-forthing! Dissenters have to send at least three official notices to the compay: first the Objection Notice, then the Demand for Payment, then – if you’re lucky – the acceptance of the Offer to Pay. Ridiculous!

The repeated references to share certificates are a disgraceful attempt to confuse shareholders such as my good friend Cal: there aren’t any:

As a result of the Corporation issuing shares in book-entry form only, CDS is the sole registered Securityholder of each of the shares.

The only good thing one can say about this is that at least the corporation is not adding injury to insult by paying the expenses itself:

All external costs incurred by the Corporation in connection with the Extension will be borne by the Manager. Such external costs are estimated to be $50,000.

On the other hand:

Management fees in the amount of $127,438 were paid by the Corporation to the Manager during the year ended December 31, 2010.

Of course, we’re not told what the “internal” costs might be, so don’t break out the champagne and party hats just yet!

I’ll probably catch some flak due to my characterization of the plan as “abusive”. After all, some might say, since the Manager is paying the $50,000 ticket, all that’s happening is the preferred shareholders are being asked to vote. A no vote on the resolution will halt the plan at no cost to them, either directly or in the form of reduced Asset coverage (unless, of course, there are significant “internal” costs not disclosed in the Circular).

To which I say: piffle. Most preferred shareholders are not financial professionals and most of their advisors – being stockbrokers – aren’t much good. Those who take the view that this process is perfectly fair are in the same moral position as those who convince grandma to pay $20,000 for new aluminum siding.

A term extension will come with very high risk to preferred shareholders. Hymas Investment Management Inc. strongly recommends that preferred shareholders:

  • Vote NO!
  • Exercise rights of dissent

Specific details of who must do what by what date in order to dissent will – probably – vary from broker to broker. Preferred shareholders should contact their brokers well before the meeting (“to be held on Monday, April 4, 2011 at 10:00 a.m.”) to ensure their rights of dissent are not inadverdently lost. Note that:

If you are a holder of Class A Shares or Preferred Shares … you should submit a voting instruction form … well in advance of the 5:00 p.m. (Toronto time) deadline on April 1, 2011 for deposit of proxies.

Specific dates will vary from broker to broker, but will generally be at least a day or two in advance of Friday April 1.

Update, 2011-3-1: Note that the prospectus (available on SEDAR, dated May 18, 2004, allows for:

Annual Concurrent Retraction. A holder of a Preferred Share may concurrently retract an equal number of Preferred Shares and an equal number of Class A Shares on the Retraction Date in May of each year, commencing on the Retraction Date in May in 2005, at a retraction price equal to the NAV per Unit on that date. To be retracted in this manner, the Preferred Shares and Class A Shares must both be surrendered for retraction at least five Business Days prior to the Retraction Date in May for the applicable year. Payment of the proceeds of retraction will be made on or before the eighth Business Day following the Retraction Date in May for the applicable year.

However, the Capital Units are currently quoted at 1.45-50, well above their intrinsic value; additionally, preferred shareholders will have to incur commission expenses and take exposure to Whole Units in order to take advantage of this provision. The preferreds are now at 9.45-89.

New Issue: ALB.PR.B 5-Year SplitShare 4.25%

Monday, February 28th, 2011

Allbanc Split Corp. II has announced:

that it has completed its public offering of 2,175,956 Class B Preferred Shares, Series 1 (“Series 1 Preferred Shares”), raising approximately $47.4 million. The Series 1 Preferred Shares were offered to the public by a syndicate of agents led by Scotia Capital Inc. In addition, the Company has redeemed all of its outstanding Class A Preferred Shares and 2,315,664 of its Class A Capital Shares.

The Series 1 Preferred Shares were offered in order to maintain the leveraged “split share” structure of the Company following the successful reorganization of the Company approved at a special meeting of holders of Class A Capital Shares on December 7, 2010, which among other things, extended the redemption date of the Class A Capital Shares for an additional five year term. At the close of business on February 28, 2011 there will be 4,351,912 Class A Capital Shares and 2,175,956 Series 1 Preferred Shares issued and outstanding.

Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.B respectively.

The new issue has a par value of 21.80 and is redeemable at that price every February 28 until 2016-2-28, when it matures at par.

There is no NAV test on the capital unit distributions, but the prospectus (available via SEDAR dated 2011-2-18) states:

Series 1 Preferred Share distributions will be funded from the dividends received on the Portfolio Shares. If necessary, any shortfall in the distributions on the Series 1 Preferred Shares will be funded by proceeds from the sale of, or, if determined appropriate by the Board of Directors, premiums earned from writing covered call options on, the Portfolio Shares. Based on the current dividends paid on the Portfolio Shares, it is not expected that the Company would have to sell any Portfolio Shares to fund the Series 1 Preferred Share distributions.

As reported in February 2009, the board has a distribution policy for the Capital Units that states these distributions will not be paid when Asset Coverage is less than unity, but this is a company policy, not a contracual provision specified in the prospectus.

There is a monthly retraction privilege:

The Series 1 Preferred Shares may be surrendered for retraction at any time. Provided the Series 1 Preferred Shares have been surrendered for retraction at least five business days before the 15th day of a month, such shares will be retracted on the 15th day of such month (the ‘‘Valuation Date’’). Payment for such shares will be made on the last day of such month or, where such day is not a business day, on the preceding business day (a ‘‘Retraction Payment Date’’).

A holder retracting Series 1 Preferred Shares will receive a cash price per Series 1 Preferred Share retracted equal to the amount, if any, by which 95% of the Unit Value exceeds the aggregate of: (i) the average cost to the Company, including commissions, of purchasing two Class A Capital Shares in the market; and (ii) $1.00. See ‘‘Retraction and Redemption of Series 1 Preferred Shares’’.

Asset Coverage as of February 24 was 2.1-:1, based on the situation with ALB.PR.A still outstanding and ALB.PR.B not issued. This will have changed a little due to issue expenses, but not to any great extent.

The prospectus claims a provisional rating of Pfd-2(low) from DBRS, but this cannot be confirmed on the DBRS website at time of writing.

Update: DBRS has announced:

a rating of Pfd-2 (low) to the Class B Preferred Shares, Series 1 (the Class B Preferred Shares) issued by Allbanc Split Corp. II (the Company) and discontinued the rating assigned to the Class A Preferred Shares, which have been repaid. The Company has issued approximately 2.18 million Class B Preferred Shares at $21.80 each as part of a share reorganization, whereby all of the Class A Preferred Shares were redeemed and a portion of the Class A Capital Shares were redeemed. The Class B Preferred Shares were issued to maintain the leveraged split share structure of the Company so that the amount of issued and outstanding Class A Capital Shares is twice the amount of issued and outstanding Class B Preferred Shares.

The Portfolio provides initial downside protection of approximately 55% to the holders of the Class B Preferred Shares (after reorganization expenses).

The dividends received from the Portfolio will be used to pay a fixed cumulative quarterly distribution of $0.2316 per share to holders of the Class B Preferred Shares, yielding approximately 4.25% annually on the initial issue price. The current yield on the Portfolio shares fully covers the Class B Preferred Share dividends, providing dividend coverage of approximately 1.6 times. The Class A Capital Shares are expected to receive all excess dividend income after the Class B Preferred Share distributions and other expenses of the Company have been paid.

The Pfd-2 (low) rating of the Class B Preferred Shares is based primarily on the downside protection and dividend coverage available, as well as on the strong credit quality and consistency of dividend distributions of the Portfolio holdings.

The main constraints to the rating are the following:

(1) The downside protection provided to holders of the Class B Preferred Shares is dependent on the value of the shares in the Portfolio.

(2) Volatility of price and changes in the dividend policies of the Canadian banks may result in significant reductions in downside protection from time to time.

(3) The entire Portfolio is concentrated in the Canadian financial services industry.

The Class B Preferred Shares will be redeemed by the Company on February 28, 2016

Update: ALB.PR.A will be tracked by HIMIPref™. The issue traded 122,044 shares today in a range of 21.85-00 before closing at 21.90-92, 1×13.

Vital statistics are:

ALB.PR.B SplitShare YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-03-29
Maturity Price : 21.80
Evaluated at bid price : 21.90
Bid-YTW : 3.81 %

The issue has been assigned to the HIMIPref™ SplitShare index.

February 25, 2011

Friday, February 25th, 2011

The details remain obscure, but the joke of the day is that BoA will have to pay government agencies a chunk of money for not foreclosing fast enough:

Bank of America’s agreements with Fannie Mae and Freddie Mac “provide for timelines to resolve delinquent loans through workout efforts or liquidation, if necessary,” the Charlotte, North Carolina-based lender said today in its annual report to the Securities and Exchange Commission. “In the fourth quarter of 2010, we recorded an expense of $230 million for compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure delays.”

They’re also having increasing problems with obstreperous securitization holders:

Bank of America Corp. said a bondholder group pressuring the lender to repurchase soured mortgages has almost doubled the number of securitizations on which it is challenging the company.

There are 225 securitizations in dispute with the group, compared with 115 as of Oct. 18, the Charlotte, North Carolina- based bank said today in a regulatory filing. In October, the dispute covered about $46 billion in bonds.

The group includes Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York, people familiar with the matter said in October. The group said then in a letter that the bank failed in its role as a loan servicer to provide required notice of faults in the underlying mortgages.

I’m not a big fan of them in general, but IIROC deserves applause for its short-selling decision:

The Investment Industry Regulatory Organization of Canada (IIROC) has completed two studies examining trends in trading activity, short sales and failed trades between 2007 and 2010. It has concluded that rates of short selling have been relatively constant and that there has been no negative change in the pattern of short selling in Canadian markets.

As a result, IIROC has decided it is safe to eliminate the current rule – known as the “tick test” – that prohibits short selling in a company’s shares at a price lower than the last sale price. The rule has meant short selling is not allowed while a stock is declining in price.

“Studies by IIROC support the premise that the tick test has no appreciable impact on price,” the regulator said on Friday.

It was a strong day in the Canadian preferred share market with all HIMIPref™ indices gaining ground. PerpetualDiscounts were up 13bp, FixedResets gained 20bp and DeemedRetractibles advanced 23bp. Volatility was low, with only three entries in the Performance Highlights table; volume was heavy.

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 0.1194 % 2,391.1
FixedFloater 4.74 % 3.46 % 15,357 19.09 1 0.0000 % 3,592.3
Floater 2.50 % 2.27 % 48,333 21.56 4 0.1194 % 2,581.7
OpRet 4.82 % 3.81 % 87,727 2.19 8 0.2613 % 2,391.8
SplitShare 5.31 % 0.55 % 242,164 0.79 4 0.2460 % 2,486.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2613 % 2,187.1
Perpetual-Premium 5.74 % 5.47 % 122,338 1.29 9 0.1722 % 2,034.7
Perpetual-Discount 5.54 % 5.62 % 128,140 14.41 15 0.1302 % 2,111.9
FixedReset 5.22 % 3.58 % 192,776 3.01 54 0.2015 % 2,274.1
Deemed-Retractible 5.20 % 5.26 % 385,316 8.24 53 0.2297 % 2,084.4
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.68
Bid-YTW : 5.73 %
BNA.PR.E SplitShare 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 5.07 %
HSB.PR.E FixedReset 1.45 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 28.00
Bid-YTW : 3.27 %
Volume Highlights
Issue Index Shares
Traded
Notes
IAG.PR.F Deemed-Retractible 173,617 Desjardins crossed blocks of 146,800 and 25,000, both at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.49 %
BNS.PR.R FixedReset 112,000 Desjardins crossed 30,000 at 26.08. Desjardins then bought 50,000 from Nesbitt and crossed 20,000, both at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 3.55 %
HSB.PR.D Deemed-Retractible 63,895 Nesbitt crossed 40,000 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 5.75 %
NA.PR.P FixedReset 62,410 Issuer bid.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.26
Bid-YTW : 2.30 %
BMO.PR.N FixedReset 60,532 Nesbitt crossed 43,000 at 27.27.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-27
Maturity Price : 25.00
Evaluated at bid price : 27.27
Bid-YTW : 3.40 %
RY.PR.A Deemed-Retractible 57,543 RBC crossed 47,100 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 5.11 %
There were 57 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
W.PR.H Perpetual-Discount Quote: 24.21 – 24.64
Spot Rate : 0.4300
Average : 0.3023

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-25
Maturity Price : 23.26
Evaluated at bid price : 24.21
Bid-YTW : 5.71 %

RY.PR.L FixedReset Quote: 26.54 – 26.86
Spot Rate : 0.3200
Average : 0.2117

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.54
Bid-YTW : 3.48 %

W.PR.J Perpetual-Discount Quote: 24.50 – 24.76
Spot Rate : 0.2600
Average : 0.1666

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-25
Maturity Price : 24.21
Evaluated at bid price : 24.50
Bid-YTW : 5.79 %

TRP.PR.A FixedReset Quote: 25.51 – 25.75
Spot Rate : 0.2400
Average : 0.1646

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 3.93 %

BNA.PR.C SplitShare Quote: 22.28 – 22.54
Spot Rate : 0.2600
Average : 0.1888

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 22.28
Bid-YTW : 6.12 %

GWO.PR.G Deemed-Retractible Quote: 24.51 – 24.73
Spot Rate : 0.2200
Average : 0.1531

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 5.58 %

February 24, 2011

Thursday, February 24th, 2011

No commentary today! Sorry!

It was quite the day for FixedResets on the Canadian preferred share market, as the issuer bid for NA.PR.N, NA.PR.O and NA.PR.P seems to have ignited some speculative buying. PerpetualDiscounts gained 1bp, FixedResets leaped upwards by 62bp and DeemedRetractibles were basically flat. Volume was heavy.

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 -0.1669 % 2,388.2
FixedFloater 4.74 % 3.46 % 15,937 19.09 1 0.1746 % 3,592.3
Floater 2.51 % 2.27 % 50,015 21.56 4 -0.1669 % 2,578.6
OpRet 4.83 % 4.01 % 88,535 2.19 8 -0.0725 % 2,385.6
SplitShare 5.32 % 0.19 % 245,110 0.79 4 0.2516 % 2,480.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0725 % 2,181.4
Perpetual-Premium 5.75 % 5.52 % 122,476 1.20 9 -0.0155 % 2,031.2
Perpetual-Discount 5.55 % 5.62 % 127,891 14.39 15 0.0142 % 2,109.1
FixedReset 5.23 % 3.69 % 193,453 3.01 54 0.6206 % 2,269.5
Deemed-Retractible 5.22 % 5.26 % 387,043 8.25 53 0.0040 % 2,079.7
Performance Highlights
Issue Index Change Notes
TD.PR.E FixedReset 1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.26
Bid-YTW : 3.52 %
TD.PR.K FixedReset 1.22 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.27
Bid-YTW : 3.64 %
IAG.PR.F Deemed-Retractible 1.24 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.57
Bid-YTW : 5.50 %
RY.PR.L FixedReset 1.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 3.26 %
BNS.PR.X FixedReset 1.34 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 27.26
Bid-YTW : 3.53 %
BNS.PR.T FixedReset 1.49 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 27.26
Bid-YTW : 3.50 %
IAG.PR.E Deemed-Retractible 1.54 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.62
Bid-YTW : 5.56 %
NA.PR.P FixedReset 3.33 % Issuer Bid
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.27
Bid-YTW : 2.29 %
NA.PR.O FixedReset 3.36 % Issuer Bid
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.27
Bid-YTW : 2.28 %
NA.PR.N FixedReset 4.09 % Issuer Bid
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-14
Maturity Price : 25.00
Evaluated at bid price : 26.96
Bid-YTW : 2.21 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.P FixedReset 156,400 Issuer Bid. National bought 13,200 from CIBC at 28.27; anonymous bought 13,900 from TD at 28.22; anonymous crossed (?) 25,000 at 28.25; National crossed 25,000 at 28.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.27
Bid-YTW : 2.29 %
NA.PR.O FixedReset 152,991 Issuer Bid. Anonymous bought 19,500 from Nesbitt at 28.24; National crossed blocks of 52,300 and 25,000, both at 28.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.27
Bid-YTW : 2.28 %
NA.PR.N FixedReset 95,520 Issuer Bid. Anonymous bought 10,000 from RBC at 26.95; National crossed 27,900 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-14
Maturity Price : 25.00
Evaluated at bid price : 26.96
Bid-YTW : 2.21 %
BNS.PR.R FixedReset 74,243 Desjardins crossed 44,100 at 26.10; RBC crossed 11,800 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.08
Bid-YTW : 3.58 %
BMO.PR.O FixedReset 57,706 TD bought 17,900 from Raymond James at 27.25, then crossed 25,000 at 27.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-24
Maturity Price : 25.00
Evaluated at bid price : 27.43
Bid-YTW : 3.47 %
MFC.PR.D FixedReset 55,724 Desjardins bought 10,100 from anonymous at 27.10; TD bought 15,000 from anonymous at the same price; and anonymous crossed (?) 14,200 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.12
Bid-YTW : 3.85 %
There were 57 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CM.PR.K FixedReset Quote: 26.56 – 26.99
Spot Rate : 0.4300
Average : 0.2758

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.56
Bid-YTW : 3.59 %

BAM.PR.H OpRet Quote: 25.50 – 25.93
Spot Rate : 0.4300
Average : 0.3086

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-03-26
Maturity Price : 25.25
Evaluated at bid price : 25.50
Bid-YTW : 4.07 %

PWF.PR.A Floater Quote: 23.20 – 23.59
Spot Rate : 0.3900
Average : 0.2922

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-24
Maturity Price : 22.93
Evaluated at bid price : 23.20
Bid-YTW : 2.24 %

RY.PR.N FixedReset Quote: 26.90 – 27.15
Spot Rate : 0.2500
Average : 0.1609

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 3.64 %

PWF.PR.M FixedReset Quote: 26.66 – 27.00
Spot Rate : 0.3400
Average : 0.2543

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-02
Maturity Price : 25.00
Evaluated at bid price : 26.66
Bid-YTW : 3.80 %

PWF.PR.O Perpetual-Premium Quote: 25.02 – 25.25
Spot Rate : 0.2300
Average : 0.1678

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-24
Maturity Price : 24.80
Evaluated at bid price : 25.02
Bid-YTW : 5.85 %

ABK.PR.B: Partial Call for Redemption

Thursday, February 24th, 2011

Allbanc Split Corp has announced:

that it has called 244,293 Preferred Shares for cash redemption on March 10, 2011 (in accordance with the Company’s Articles) representing approximately 23.003% of the outstanding Preferred Shares as a result of the special annual retraction of 244,293 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on March 9, 2011 will have approximately 23.003% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $26.75 per share.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including March 10, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on March 10, 2011. From and after March 10, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

Allbanc Split Corp. is a mutual fund Corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Class A Capital Shares and Class B Preferred Shares of Allbanc Split Corp. are listed for trading on The Toronto Stock Exchange under the symbols ABK.A and ABK.PR.B respectively.

NA: Issuer Bid for NA.PR.N, NA.PR.O, NA.PR.P

Thursday, February 24th, 2011

National Bank has announced:

that it intends to make an offer to purchase (the “Offers”) all of the issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 21 (the “Preferred Shares Series 21”), all of the issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 24 (the “Preferred Shares Series 24”), and all of the issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 26 (the “Preferred Shares Series 26”, and together with the Preferred Shares Series 21 and the Preferred Shares Series 24, the “Preferred Shares”).

Holders of the Preferred Shares (the “Shareholders”) will have the opportunity to tender all or a portion of their Preferred Shares for the applicable purchase price payable in cash. The purchase price for each of the Preferred Shares is as follows:

(i) $26.81 per Preferred Share Series 21, representing a 2.8% premium over the February 23, 2011 closing price;

ii) $28.03 per Preferred Share Series 24, representing a 2.5% premium over the February 23, 2011 closing price;

(iii) $28.03 per Preferred Share Series 26, representing a 2.4% premium over the February 23, 2011 closing price.

In addition, Shareholders of record as of April 8, 2011 (including Shareholders who tender their Preferred Shares under the Offers) will also be entitled to the regularly scheduled dividend payment on May 15, 2011.

The Bank believes that the Offers provide an opportunity for holders of Preferred Shares to realize all or a portion of their investment at a premium to the market prior to the announcement of the Offers. The Bank also believes that the Offers represent an appropriate use of its available cash and is part of prudent capital management practice by the Bank in accordance with its capital plan to meet regulatory requirements.

The take up of the Preferred Shares tendered pursuant to the Offers will be financed from the Bank’s existing cash reserves. Preferred Shares acquired pursuant to the Offers will be cancelled. The Offers are not subject to any minimum number of Preferred Shares being deposited but are subject to customary conditions, including obtaining all regulatory approvals required.

Shareholders can tender their Preferred Shares in accordance with the terms and subject to the conditions set forth in the Offers to be contained in an issuer bid circular which will be filed with applicable Canadian securities regulators and mailed to Shareholders. The Bank expects to mail the circular on or about March 4, 2011. The Bank advises its Shareholders to read the circular when it is available, as it contains important information. The circular will also be available at www.sedar.com.

Computershare Investor Services Inc. will serve as the depositary. It is expected that the Offers will expire at 5:00 p.m. (Montréal time) on April 11, 2011 or at such later time and date to which the Offers may be extended by the Bank.

Well, you can’t tell your players without a programme!

NA FixedResets
Series Ticker Bid Price Dividend Par Call Date Bid Yield Quote
2011-2-23
21 NA.PR.N 26.81 1.3438 2013-8-15 1.98% 25.90-01
24 NA.PR.O 28.03 1.65 2014-2-15 1.98% 27.35-42
26 NA.PR.P 28.03 1.65 2014-2-15 1.98% 27.36-43
Yields have been calculated with the Preferred Share Yield to Call Calculator (broken link redirected 2024-2-1) Note: There was an error in the quoted yields when originally posted, which has now been corrected. One day, the guy at Microsoft who decided that turning off automatic calculation in one spreadsheet also turns it off in all other open spreadsheets and I are going to have a little chat. Yields are calculated from the expiration of the offer, April 11, to the call date; on that date the purchaser, NA, is not entitled to the May dividend.

I realize that as a financial professional, I am at this point expected to stroke my beard wisely and murmer that I was expecting this …. but, I confess, this has got me flummoxed. The bid is extraordinarily rich , as shown by the yields to call (calculated as of the expiration date, April 11, at the Offer Price, to the first par call, holders at that point not getting the May dividend (the estimated ex-Dividend date is April 5, and the offer is quite clear that those who tender will get the dividend.

Clearly, given the yields to par call, holders should tender. The Issuer Bid is clearly related to the issues’ eventual loss of Tier 1 status. But questions remain: what’s the rush? and what about their straight perpetuals, NA.PR.K, NA.PR.L and NA.PR.M ?

Update: Note that an error in the yield in the table in the original posting has now been corrected. Thanks to Assiduous Reader MC for alerting me.

Update: OK, I’ve come up with two possible rationales, neither of which I find particularly convincing:

1) They have, and expect to have, way more capital than necessary and also have a lot more available cash than they can profitably deploy, currently sitting in Money Market. They are therefore quite happy to swap their money market instruments, yielding 1%+ as interest, for FixedResets yielding about 2% dividend.

2) They have decided to try to issue a FixedReset with an NVCC clause at a very low coupon/reset in the second half of April. They are therefore trying to get everybody feeling happy about their wonderful NA preferred share investment.

Updated, 2011-2-25: Assiduous Reader blue notes a better reason in the comments. The webcast conference call disclosed that the premium will be a direct hit to retained earnings, bypassing the P&L statement, and the gross preferred dividends saved will be paid out as common dividends.

Update, 2011-2-25, Later: It seems to me that there is a strong possibility that this is accounting gimmickry that is ultimately deleterious to the best interests of the common shareholders. Their 2010 Annual Report discloses an effective tax rate of 16.7% in 2010 compared to 21.7% in 2009. If we estimate the effective tax rate at 20% going forward, then the 2.7% pre-tax financing cost disclosed in conference calls becomes 2.16% after tax; compared to the 1.98% they are saving by buying the preferreds at the given prices.

There are a lot of moving parts to this simple calculation, though (marginal tax rate? tax effect of buying at a premium out of retained earnings?) and I’m certainly not an expert on bank taxation. Further comment are welcome.

Update, 2011-2-28: National Bank Investor Relations states in an eMail:

For information purpose our average statutory tax rate is approximatly 30%. The effective tax rate is affected by non taxable revenues such as dividends from Canadian corporations. To analyse the after tax cost of
funding it is more appropriate to use the statutory tax rate.

A 30% tax rate on a financing cost of 2.7% makes the after-tax cost of funds 1.89% – giving the transaction a slightly positive Net Present Value on an after-tax basis … subject to any peculiarities the purchase premium might have on the taxation of the bank.

February 23, 2011

Wednesday, February 23rd, 2011

The Bank for International Settlements has released a working paper by Paolo Angelini, Laurent Clerc, Vasco Cúrdia, Leonardo Gambacorta, Andrea Gerali, Alberto Locarno, Roberto Motto, Werner Roeger, Skander Van den Heuvel and Jan Vlček titled BASEL III: Long-term impact on economic performance and fluctuations:

We assess the long-term economic impact of the new regulatory standards (the Basel III reform), answering the following questions. (1) What is the impact of the reform on long-term economic performance? (2) What is the impact of the reform on economic fluctuations? (3) What is the impact of the adoption of countercyclical capital buffers on economic fluctuations? The main results are the following. (1) Each percentage point increase in the capital ratio causes a median 0.09 percent decline in the level of steady state output, relative to the baseline. The impact of the new liquidity regulation is of a similar order of magnitude, at 0.08 percent. This paper does not estimate the benefits of the new regulation in terms of reduced frequency and severity of financial crisis, analysed in BCBS (2010b). (2) The reform should dampen output volatility; the magnitude of the effect is heterogeneous across models; the median effect is modest. (3) The adoption of countercyclical capital buffers could have a more sizeable dampening effect on output volatility.

The FDIC has released its 4Q10 Quarterly Banking Profile with highlights:

  • Banks Earned $21.7 Billion in Fourth Quarter as Recovery Continues
  • Full-Year Net Income of $87.5 Billion Is Highest Since 2007
  • Asset Quality Improves for Third Consecutive Quarter
  • Institutions Set Aside Half as Much for Loan Losses as a Year Earlier
  • 157 Insured Institutions Failed During 2010

Former Fed governor Hoenig is taking a hard line on Too-Big-To-Fail:

Federal Reserve Bank of Kansas City President Thomas Hoenig said U.S. regulators should avert another crisis by breaking up large financial institutions that pose a threat “to our capitalistic system.”

“I am convinced that the existence of too-big-to-fail financial institutions poses the greatest risk to the U.S. economy,” Hoenig said today in a speech in Washington. “They must be broken up. We must not allow organizations operating under the safety net to pursue high-risk activities and we cannot let large organizations put our financial system at risk.”

The full speech makes some interesting points:

At the Federal Reserve Bank of Kansas City, we estimated the ratings and funding advantage for the five largest U.S. banking organizations during this crisis. In June 2009, these organizations had senior, long-term bank debt that was rated four notches higher on average than it would have been based on just the actual condition of the banks, with one bank given an eight notch upgrade for being too big to fail. Looking at the yield curve, this four-notch advantage translates into more than a 160 basis point savings for debt with two years to maturity and over 360 basis points at seven years to maturity.

So long as we have systemic organizations operating under the government’s protection, we will face the matter of whether we have the will to allow the market and bankruptcy to resolve them. In a major crisis, there will always be an overwhelming impulse to avoid putting such institutions through receivership. Always, it is feared that public confidence will be shattered, creditors or depositors at other institutions will panic, and that there are too many connections that will bring down other institutions. In addition, important services will be lost and the international activities will be too complex to resolve.

Many of these fears are likely overstated. I maintain the view that the long-term consequences are much more severe if we fail to take action to end this cycle of repeated crises. In an environment where market participants are truly at risk, they will be much more likely to take steps to protect themselves, thus reducing the side effects of resolutions, and a failed institution’s essential activities can be continued through bridge banks and other means.

Glad to hear it! Instead of weekend bail-outs, lets have weekend bankruptcies, with governments if necessary, providing Debtor in Possession financing at a punitive interest rate rather than equity infusions.

The Bank for International Settlements has released a working paper by Richhild Moessner, Feng Zhu and Colin Ellis titled Measuring disagreement in UK consumer and central bank inflation forecasts:

We provide a new perspective on disagreement in inflation expectations by examining the full probability distributions of UK consumer inflation forecasts based on an adaptive bootstrap multimodality test. Furthermore, we compare the inflation forecasts of the Bank of England’s Monetary Policy Committee (MPC) with those of UK consumers, for which we use data from the 2001-2007 February GfK NOP consumer surveys. Our analysis indicates substantial disagreement among UK consumers, and between the MPC and consumers, concerning one-year-ahead inflation forecasts. Such disagreement persisted throughout the sample, with no signs of convergence, consistent with consumers’ inflation expectations not being “well-anchored” in the sense of matching the central bank’s expectations. UK consumers had far more diverse views about future inflation than the MPC. It is possible that the MPC enjoyed certain information advantages which allowed it to have a narrower range of inflation forecasts.

I found the charts of consumer expectations enlightening:


Click for Big

An Instinet analyst opines that the TMX-LSX merger will be blocked:

But she argued such positives were outweighed by the fact that LSE would have a slight edge in governance (getting the CEO seat and one more board seat) and that Canada’s influence could be watered down further in coming years.

One of the biggest hurdles may be intangible — the symbolic importance of having a national exchange company.

“Canadian policy seeks to ensure Canada’s “ownership” of its culture. As the Toronto and Montreal Exchanges are important at both strategic and symbolic levels, we do not believe that the government will feel comfortable ceding control of either. While the least concrete, this factor may ultimately prove to be one of the most important determinants in Minister Clement’s decision,” [director of global trading research at brokerage firm Instinet] Ms. [Alison] Crosthwait wrote, adding that public opinion will play a big role.

Gee, I’m sure glad business sense doesn’t enter the equation! That would really complicate matters!

It was a gloomy day in the Canadian preferred share market, with PerpetualDiscounts down 17bp, FixedResets losing 15bp and DeemedRetractibles giving up 14bp. Volatility continued to be on the low side, with only five entries in the Performance Highlights table, albeit all negatives. Volume was heavy.

PerpetualDiscounts now yield 5.61%, equivalent to 7.85% interest at the standard equivalency factor of 1.4x. Long corporates now yield about 5.5%, so the pre-tax interest-equivalent spread is now 235bp, a significant increase from the 225bp reported on February 16. It will be remembered that comparability of these levels over the long term has been compromised by drastic changes to index composition necessitated by OSFI’s refusal to grandfather extant preferreds when new capital rules come into force.

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 0.0238 % 2,392.2
FixedFloater 4.75 % 3.47 % 16,587 19.08 1 0.2187 % 3,586.0
Floater 2.50 % 2.27 % 49,678 21.56 4 0.0238 % 2,582.9
OpRet 4.83 % 3.88 % 92,073 2.19 8 0.0242 % 2,387.3
SplitShare 5.33 % 0.19 % 248,160 0.80 4 0.0806 % 2,474.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0242 % 2,183.0
Perpetual-Premium 5.75 % 5.54 % 123,964 1.29 9 -0.2246 % 2,031.6
Perpetual-Discount 5.55 % 5.61 % 129,329 14.41 15 -0.1724 % 2,108.8
FixedReset 5.26 % 3.87 % 190,867 3.01 54 -0.1476 % 2,255.5
Deemed-Retractible 5.21 % 5.29 % 387,358 8.25 53 -0.1422 % 2,079.6
Performance Highlights
Issue Index Change Notes
FTS.PR.H FixedReset -1.36 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-07-01
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 3.84 %
GWO.PR.H Deemed-Retractible -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.46
Bid-YTW : 5.74 %
CU.PR.B Perpetual-Premium -1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-01
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 5.58 %
BNS.PR.Z FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 4.18 %
BMO.PR.P FixedReset -1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-27
Maturity Price : 25.00
Evaluated at bid price : 26.34
Bid-YTW : 3.97 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.A FixedReset 197,606 Nesbitt crossed 125,000 at 25.75 and 50,000 at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 3.95 %
BNS.PR.K Deemed-Retractible 113,817 Nesbitt crossed 80,000 at 24.50; TD crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.47
Bid-YTW : 5.13 %
TD.PR.M OpRet 75,318 RBC crossed 45,700 at 25.65; Desjardins crossed 28,700 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-30
Maturity Price : 25.25
Evaluated at bid price : 25.59
Bid-YTW : 3.82 %
TD.PR.G FixedReset 72,859 Nesbitt crossed 20,000 at 27.00; TD crossed blocks of 25,000 and 12,500 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 26.94
Bid-YTW : 3.92 %
SLF.PR.B Deemed-Retractible 65,012 Nesbitt crossed 50,000 at 23.80.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 5.53 %
CM.PR.L FixedReset 64,139 RBC crossed 50,000 at 27.47.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.41
Bid-YTW : 3.56 %
There were 55 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNS.PR.Z FixedReset Quote: 24.35 – 25.00
Spot Rate : 0.6500
Average : 0.4759

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 4.18 %

TRI.PR.B Floater Quote: 23.00 – 23.97
Spot Rate : 0.9700
Average : 0.8607

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-23
Maturity Price : 22.71
Evaluated at bid price : 23.00
Bid-YTW : 2.27 %

CU.PR.B Perpetual-Premium Quote: 25.12 – 25.42
Spot Rate : 0.3000
Average : 0.1914

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-01
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 5.58 %

TRP.PR.B FixedReset Quote: 25.05 – 25.43
Spot Rate : 0.3800
Average : 0.2735

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-23
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 3.98 %

BAM.PR.J OpRet Quote: 26.86 – 27.30
Spot Rate : 0.4400
Average : 0.3429

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 26.86
Bid-YTW : 4.33 %

FTS.PR.E OpRet Quote: 26.35 – 26.64
Spot Rate : 0.2900
Average : 0.2089

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-07-01
Maturity Price : 25.75
Evaluated at bid price : 26.35
Bid-YTW : 3.69 %

February 22, 2011

Wednesday, February 23rd, 2011

The Bank of Canada has released a working paper by Katya Kartashova titled The Private Equity Premium Puzzle Revisited:

In this paper, I extend the results of Moskowitz and Vissing-Jørgensen (2002) on the returns to entrepreneurial investments in the United States. First, following the authors’ methodology I replicate the original findings from the Survey of Consumer Finances (SCF) for the period 1989–1998 and show that the returns to private and public equity are similar. I then extend the period under consideration using data from subsequently released waves of SCF 2001, 2004, and 2007 and assess the robustness of their results to this extension. I find that the “private equity premium puzzle” is not a robust feature of the data and does not survive beyond the period of high public equity returns in the 1990s. In particular, returns to entrepreneurial equity remain largely unaffected when public equity returns plunge to near zero values between 1999 and 2001. The average return to private equity exceeds public equity return in 1999-2007 and for the period 1989-2007 as a whole. To validate the results, I provide alternative measures of private equity returns in the data.

The Bank of England has released a working paper by Filipa Sá, Pascal Towbin and Tomasz Wieladek titled Low interest rates and housing booms: the role of capital inflows, monetary policy and financial innovation:

A number of OECD countries experienced an environment of low interest rates and a rapid increase in housing market activity during the last decade. Previous work suggests three potential explanations for these events: expansionary monetary policy, capital inflows due to a global savings glut and excessive financial innovation combined with inappropriately lax financial regulation. In this study we examine the effects of these three factors on the housing market. We estimate a panel VAR for a sample of OECD countries and identify monetary policy and capital inflows shocks using sign restrictions. To explore how these effects change with the structure of the mortgage market and the degree of securitisation, we augment the VAR to let the coefficients vary with mortgage market characteristics. Our results suggest that both types of shocks have a significant and positive effect on real house prices, real credit to the private sector and real residential investment. The responses of housing variables to both types of shocks are stronger in countries with more developed mortgage markets, roughly doubling the responses to a monetary policy shock. The amplification effect of mortgage-backed securitisation is particularly strong for capital inflows shocks, increasing the response of real house prices, residential investment and real credit by a factor of two, three and five, respectively.

A mixed day on the Canadian preferred share market, but mainly down. PerptualDiscounts gained 9bp, FixedResets lost 8bp and DeemedRetractibles were off 14bp. Volume picked up a bit, to elevated levels.

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 -0.2853 % 2,391.6
FixedFloater 4.76 % 3.48 % 16,345 19.07 1 -0.1747 % 3,578.2
Floater 2.50 % 2.27 % 50,423 21.57 4 -0.2853 % 2,582.3
OpRet 4.83 % 3.78 % 92,161 2.20 8 -0.0918 % 2,386.7
SplitShare 5.34 % 1.16 % 251,174 0.80 4 0.1362 % 2,472.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0918 % 2,182.5
Perpetual-Premium 5.74 % 5.53 % 122,573 1.06 9 0.0154 % 2,036.1
Perpetual-Discount 5.54 % 5.61 % 129,352 14.39 15 0.0877 % 2,112.5
FixedReset 5.25 % 3.81 % 184,749 3.02 54 -0.0829 % 2,258.8
Deemed-Retractible 5.20 % 5.26 % 389,993 8.23 53 -0.1420 % 2,082.5
Performance Highlights
Issue Index Change Notes
BAM.PR.O OpRet -1.54 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 4.18 %
PWF.PR.M FixedReset -1.30 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-02
Maturity Price : 25.00
Evaluated at bid price : 26.62
Bid-YTW : 3.85 %
HSB.PR.C Deemed-Retractible -1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.34
Bid-YTW : 5.55 %
FTS.PR.G FixedReset -1.12 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-01
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.35 %
BNS.PR.Z FixedReset 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 4.06 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 161,156 Nesbitt crossed 150,000 at 27.06.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.07
Bid-YTW : 3.91 %
TD.PR.Y FixedReset 89,061 Nesbitt crossed 50,000; RBC crossed 21,700; and Nesbitt crossed another 10,000; all at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 3.81 %
RY.PR.X FixedReset 77,048 RBC crossed 48,200 at 27.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-23
Maturity Price : 25.00
Evaluated at bid price : 27.02
Bid-YTW : 3.89 %
BMO.PR.J Deemed-Retractible 68,191 Nesbitt crossed 50,000 at 23.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 5.05 %
PWF.PR.K Perpetual-Discount 66,166 Nesbitt crossed 50,000 at 23.02.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-22
Maturity Price : 22.76
Evaluated at bid price : 22.97
Bid-YTW : 5.43 %
TD.PR.G FixedReset 57,055 Nesbitt crossed 20,000 at 27.05; TD crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.01
Bid-YTW : 3.83 %
There were 41 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRI.PR.B Floater Quote: 23.02 – 24.00
Spot Rate : 0.9800
Average : 0.7409

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-22
Maturity Price : 22.73
Evaluated at bid price : 23.02
Bid-YTW : 2.27 %

RY.PR.W Deemed-Retractible Quote: 24.34 – 24.73
Spot Rate : 0.3900
Average : 0.2553

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.34
Bid-YTW : 5.25 %

ELF.PR.F Deemed-Retractible Quote: 22.49 – 23.14
Spot Rate : 0.6500
Average : 0.5260

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.49
Bid-YTW : 6.72 %

BAM.PR.O OpRet Quote: 25.65 – 26.05
Spot Rate : 0.4000
Average : 0.2825

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 4.18 %

POW.PR.D Perpetual-Discount Quote: 22.96 – 23.32
Spot Rate : 0.3600
Average : 0.2430

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-22
Maturity Price : 22.75
Evaluated at bid price : 22.96
Bid-YTW : 5.51 %

IAG.PR.E Deemed-Retractible Quote: 25.50 – 25.85
Spot Rate : 0.3500
Average : 0.2447

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 5.86 %

ASC.PR.A Directors Recommend Term Extension

Wednesday, February 23rd, 2011

Manulife Asset Management Limited has announced:

that the Corporation’s board of directors has reviewed the terms of a proposed extension of the termination date of the Class A Shares and Preferred Shares of the Corporation for an additional term of five years from May 31, 2011 to May 31, 2016 and has determined that the extension is in the best interests of the Corporation and its securityholders and unanimously recommends that securityholders vote in favour of such extension.

The proposed extension would provide securityholders the potential to benefit from a more complete market recovery of the Corporation’s net asset value.

A special meeting of holders of the Class A Shares, Preferred Shares and Class J Shares of the Corporation (the “Securityholders”) has been called and will be held on April 4, 2011 to consider and vote upon the extension (the “Special Meeting”). Securityholders of record of the Corporation at the close of business on February 18, 2011 are entitled to receive notice of and vote at the Special Meeting. Further details of the extension are outlined in a management information circular that has been delivered to Securityholders in connection with the Special Meeting.

Asset coverage of the preferreds is currently 1.1+:1.

The Management Information Circular is not yet available on SEDAR.

As previously discussed, Manulife is disgracing itself by engaging in such an egregious form of shareholder abuse. With such skimpy first-loss protection, no preferred shareholder in his right mind will vote in favour of the deal.

Vote No.