Archive for June, 2012

June 29, 2012

Friday, June 29th, 2012

The European crisis has come to a satisfactory conclusion: central bureaucrats will gain power:

The European Union’s push to unify bank oversight moved to the euro area after two days of talks in Brussels, putting the European Central Bank at the center of Spain’s efforts to extract its government from its financial- industry rescue.

Euro-area leaders asked for proposals this year to unify banking supervision and soup up the ECB’s powers. They referred to a clause in the EU treaty that allows them to give the ECB prudential oversight of banks and other non-insurance financial companies.

The move paves the way for the European Commission, the EU’s regulatory arm, to augment its proposals on deposit insurance, capital requirements and how to handle failing banks.

Speaking of regulatory mission-creep:

Last week, the Canadian Securities Administrators published for public comment a consultation paper on the potential regulation of proxy advisory firms. The move follows a similar path taken by the U.S. Securities and Exchange Commission, which has spent two years considering ways to regulate proxy advisers.

But as shareholder activism has grown, and as mutual funds have been required to step up disclosure of how they vote on corporate matters, the institutional community has increasingly leaned on proxy advisers to help them make their thousands of voting decisions.

That’s not quite right. It is the regulatory requirement to have a solid basis for the vote and to maintain records of that basis that has caused the growth of proxy advisory companies. Very nice and proper in theory, but a PM with – say – 50 stocks can’t do it and won’t do it. There’s only maybe one or two votes a year (tops) that have any meaning anyway. It’s a lot cheaper to hire a proxy advisory company and – presto! – box ticked.

It was a good day for the Canadian preferred share market, with PerpetualPremiums and DeemedRetractibles both up 16bp, while FixedResets gained 8bp. Lots of volatility heavily skewed towards SLF on the upside. Volume was below average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.4035 % 2,299.4
FixedFloater 4.58 % 3.97 % 21,427 17.33 1 -0.3367 % 3,438.4
Floater 3.16 % 3.16 % 74,548 19.32 3 0.4035 % 2,482.7
OpRet 4.79 % 2.57 % 35,425 0.98 5 0.0771 % 2,520.2
SplitShare 5.25 % -9.11 % 42,109 0.47 4 0.1289 % 2,729.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0771 % 2,304.5
Perpetual-Premium 5.43 % 3.92 % 83,196 0.58 27 0.1555 % 2,243.2
Perpetual-Discount 5.02 % 5.01 % 116,967 15.36 7 0.1062 % 2,474.2
FixedReset 5.04 % 3.15 % 192,552 7.74 71 0.0839 % 2,400.1
Deemed-Retractible 5.01 % 3.90 % 139,551 2.91 45 0.1613 % 2,313.6
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 5.67 %
CM.PR.D Perpetual-Premium 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-29
Maturity Price : 25.00
Evaluated at bid price : 25.96
Bid-YTW : -41.15 %
SLF.PR.E Deemed-Retractible 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.16
Bid-YTW : 6.12 %
SLF.PR.C Deemed-Retractible 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.99
Bid-YTW : 6.16 %
SLF.PR.D Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.07
Bid-YTW : 6.11 %
SLF.PR.H FixedReset 1.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.77
Bid-YTW : 3.76 %
MFC.PR.C Deemed-Retractible 2.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.74
Bid-YTW : 5.79 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.H Deemed-Retractible 155,729 RBC crossed blocks of 73,000 and 75,000, both at 25.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 1.71 %
IAG.PR.F Deemed-Retractible 112,736 RBC crossed blocks of 74,400 shares, 20,000 and 14,600, all at 25.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 5.44 %
IAG.PR.G FixedReset 63,625 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.06
Bid-YTW : 4.23 %
TD.PR.G FixedReset 59,303 TD crossed 51,000 shares at 26.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.81
Bid-YTW : 2.75 %
PWF.PR.G Perpetual-Premium 55,175 TD crossed 49,000 at 25.46.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-29
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : -4.30 %
BNS.PR.Q FixedReset 51,065 Nesbitt crossed 35,000 at 25.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.32
Bid-YTW : 3.04 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.F FixedReset Quote: 23.52 – 23.99
Spot Rate : 0.4700
Average : 0.2657

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.52
Bid-YTW : 4.11 %

MFC.PR.B Deemed-Retractible Quote: 22.93 – 23.38
Spot Rate : 0.4500
Average : 0.2876

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.93
Bid-YTW : 5.84 %

IAG.PR.A Deemed-Retractible Quote: 23.10 – 23.60
Spot Rate : 0.5000
Average : 0.3416

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 5.67 %

MFC.PR.D FixedReset Quote: 26.51 – 26.87
Spot Rate : 0.3600
Average : 0.2255

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 3.54 %

CM.PR.K FixedReset Quote: 26.15 – 26.45
Spot Rate : 0.3000
Average : 0.2002

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 2.86 %

TD.PR.Y FixedReset Quote: 25.61 – 25.86
Spot Rate : 0.2500
Average : 0.1550

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 3.05 %

Basel Committee Releases D-SIB Proposal For Comments

Friday, June 29th, 2012

In addition to tweaking the rules on liquidity the Basel Committee on Banking Supervision has released a consulative document regarding A framework for dealing with domestic systemically important banks – important for Canada since we’ve got six of ’em! Provided, of course, that OSFI is honest about the assignments, which is by no means assured.:

Principle 2: The assessment methodology for a D-SIB should reflect the potential impact of, or externality imposed by, a bank’s failure.
….
Principle 8: National authorities should document the methodologies and considerations used to calibrate the level of HLA [Higher Loss Absorbency] that the framework would require for D-SIBs in their jurisdiction. The level of HLA calibrated for D-SIBs should be informed by quantitative methodologies (where available) and country-specific factors without prejudice to the use of supervisory judgement.

Principle 9: The HLA requirement imposed on a bank should be commensurate with the degree of systemic importance, as identified under Principle 5. In the case where there are multiple D-SIB buckets in a jurisdiction, this could imply differentiated levels of HLA between D-SIB buckets.

[Assessment Methodology Principle 2] 13. Paragraph 14 of the G-SIB rules text states that “global systemic importance should be measured in terms of the impact that a failure of a bank can have on the global financial system and wider economy rather than the risk that a failure can occur. This can be thought of as a global, system-wide, loss-given-default (LGD) concept rather than a probability of default (PD) concept.” Consistent with the G-SIB methodology, the Committee is of the view that D-SIBs should also be assessed in terms of the potential impact of their failure on the relevant reference system. One implication of this is that to the extent that D-SIB indicators are included in any methodology, they should primarily relate to “impact of failure” measures and not “risk of failure” measures.

Principle 7: National authorities should publicly disclose information that provides an outline of the methodology employed to assess the systemic importance of banks in their domestic economy.

[Higher Loss Absorbency Principle 8] 31. The policy judgement on the level of HLA requirements should also be guided by country-specific factors which could include the degree of concentration in the banking sector or the size of the banking sector relative to GDP. Specifically, countries that have a larger banking sector relative to GDP are more likely to suffer larger direct economic impacts of the failure of a D-SIB than those with smaller banking sectors. While size-to-GDP is easy to calculate, the concentration of the banking sector could also be considered (as a failure in a medium-sized highly concentrated banking sector would likely create more of an impact on the domestic economy than if it were to occur in a larger, more widely dispersed banking sector).

[Higher Loss Absorbency Principle 10] 40. The Committee is of the view that any form of double-counting should be avoided and that the HLA requirements derived from the G-SIB and D-SIB frameworks should not be additive. This will ensure the overall consistency between the two frameworks and allows the D-SIB framework to take the complementary perspective to the G-SIB framework.

Principle 12: The HLA requirement should be met fully by Common Equity Tier 1 (CET1). In addition, national authorities should put in place any additional requirements and other policy measures they consider to be appropriate to address the risks posed by a D-SIB.

June 28, 2012

Thursday, June 28th, 2012

Europe’s going to solve the crisis by subordinating privately held debt:

Italy today paid the most to sell 10-year debt since December, selling the notes to yield 6.19 percent. Spanish 10- year yields rose to 6.94 percent today. The focus should be on helping Spain’s banks and reducing Italian yields to around or slightly under 4 percent, Irish Finance Minister Michael Noonan said to reporters in Dublin today.

“The EFSF or ESM could stand ready to intervene in the primary market to facilitate successful issuance of the covered bonds,” [Finnish Prime Minister Jyrki] Katainen said. “Italy and Spain have lots of state properties they could use in raising money. Selling covered bonds would send a strong message they stand behind their debt.”

Katainen said the proposal is based on Finland’s experience with the sale of covered bonds during its economic troubles in the early 1990s.

It’s odd … when the bank regulators want to boost bank capital requirements, they say it won’t matter since they’ll be able to borrow cheaper and sell equity at a higher multiple, since Modigliani-Miller says enterprise value is constant. This doesn’t seem to apply to sovereigns. Gee, I wonder why that is.

Greece may get bailed out of its bail-out:

An International Monetary Fund team will start negotiating possible changes to the conditions attached to a loan to Greece after a fact-finding mission travels to Athens early next week, a fund spokesman said.

The regulators have released an electronic trading press release

IIROC released a plethora of proposed new rules regarding electronic trading – a request for comments on rules:

The most significant impacts of the Proposed Amendments would be to:
  • ensure that Participants and Access Persons adopt, document and maintain a system of risk management and supervisory controls, policies and procedures reasonably designed to manage the risks associated with electronic trading and access to marketplaces;
  • ensure that Participants and Access Persons are effectively supervising trading activity and are accounting for the risks associated with electronic access to marketplaces in their supervisory and compliance monitoring procedures; and
  • require an appropriate level of understanding, ongoing testing and appropriate monitoring of any automated order systems in use by a Participant, Access Person, or any client of the Participant.

Lots and lots of paperwork! Lots and lots of jobs for regulatory and compliance types! Lots and lots of opportunity to nail people with 20-20 hindsight when things go wrong! Yay!

… and a request for comments on guidance:

At a minimum, the post-order entry compliance procedures for clients who have been provided access to a marketplace should address the procedures for testing:
….
orders that have been entered which may constitute “spoofing” contrary to Rule 2.2 of UMIR (the entry of an order or orders which are not intended to be executed for the purpose of determining the depth of the market, checking for the presence of an iceberg order, affecting an opening price or other similar purpose);

Strikes me that this will be very difficult to enforce.

It was another quiet mixed day for the Canadian preferred share market, with PerpetualPremiums off 5bp, FixedResets down 4bp and DeemedRetractibles gaining 3bp. Volatility was good. Volume was below average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.2415 % 2,290.1
FixedFloater 4.57 % 3.95 % 21,350 17.36 1 0.0481 % 3,450.0
Floater 3.18 % 3.17 % 74,840 19.28 3 -0.2415 % 2,472.7
OpRet 4.79 % 2.05 % 36,889 0.98 5 0.1777 % 2,518.2
SplitShare 5.25 % -7.13 % 41,217 0.48 4 0.0000 % 2,725.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1777 % 2,302.7
Perpetual-Premium 5.44 % 3.72 % 84,230 0.54 27 -0.0473 % 2,239.7
Perpetual-Discount 5.03 % 5.01 % 117,009 15.38 7 0.3645 % 2,471.5
FixedReset 5.04 % 3.19 % 193,321 7.77 71 -0.0430 % 2,398.1
Deemed-Retractible 5.02 % 3.88 % 139,582 2.88 45 0.0289 % 2,309.8
Performance Highlights
Issue Index Change Notes
MFC.PR.C Deemed-Retractible -1.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.29
Bid-YTW : 6.05 %
IAG.PR.C FixedReset -1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.27 %
CM.PR.M FixedReset -1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 3.25 %
FTS.PR.E OpRet 1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.67
Bid-YTW : 1.27 %
ELF.PR.F Perpetual-Discount 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-28
Maturity Price : 24.15
Evaluated at bid price : 24.65
Bid-YTW : 5.36 %
CIU.PR.A Perpetual-Discount 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-28
Maturity Price : 24.29
Evaluated at bid price : 24.75
Bid-YTW : 4.67 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.M FixedReset 154,350 TD crossed 149,900 at 25.59.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 2.95 %
ELF.PR.H Perpetual-Premium 127,780 Scotia crossed blocks of 50,000 and 69,300, both at 25.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 5.41 %
IAG.PR.G FixedReset 116,092 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 4.25 %
HSB.PR.D Deemed-Retractible 101,960 Desjardins crossed 97,800 at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.42
Bid-YTW : 4.49 %
GWO.PR.P Deemed-Retractible 97,960 Nesbitt crossed 83,000 at 25.64.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.11 %
CU.PR.C FixedReset 94,455 RBC crossed blocks of 49,500 and 39,900, both at 25.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 3.42 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IGM.PR.B Perpetual-Premium Quote: 26.11 – 26.98
Spot Rate : 0.8700
Average : 0.5510

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 5.03 %

MFC.PR.A OpRet Quote: 25.33 – 25.97
Spot Rate : 0.6400
Average : 0.3928

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.33
Bid-YTW : 3.74 %

MFC.PR.C Deemed-Retractible Quote: 22.29 – 22.80
Spot Rate : 0.5100
Average : 0.3285

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.29
Bid-YTW : 6.05 %

RY.PR.H Deemed-Retractible Quote: 26.66 – 27.04
Spot Rate : 0.3800
Average : 0.2345

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 26.00
Evaluated at bid price : 26.66
Bid-YTW : 3.14 %

CM.PR.M FixedReset Quote: 26.50 – 26.97
Spot Rate : 0.4700
Average : 0.3437

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 3.25 %

FTS.PR.C OpRet Quote: 25.50 – 25.85
Spot Rate : 0.3500
Average : 0.2268

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-28
Maturity Price : 25.25
Evaluated at bid price : 25.50
Bid-YTW : -1.78 %

New Issue: GWO Straight Perpetual 5.15%

Thursday, June 28th, 2012

Great-West Lifeco has announced that it:

has today entered into an agreement with a syndicate of underwriters co-led by BMO Capital Markets, RBC Capital Markets and Scotiabank, under which the underwriters have agreed to buy, on a bought deal basis, 6,000,000 Non-Cumulative First Preferred Shares, Series Q (the “Series Q Shares”) from Lifeco for sale to the public at a price of $25.00 per Series Q Share, representing aggregate gross proceeds of $150 million.

Lifeco has granted the underwriters an underwriters’ option to purchase an additional 2,000,000 Series Q Shares at the same offering price. Should the underwriters’ option be fully exercised, the total gross proceeds of the Series Q Shares offering will be $200 million.

The Series Q Shares will yield 5.15% per annum, payable quarterly, as and when declared by the Board of Directors of the Company. The Series Q Shares will not be redeemable prior to September 30, 2017. On or after September 30, 2017, the Company may, on not less than 30 nor more than 60 days’ notice, redeem the Series Q Shares in whole or in part, at the Company’s option, by the payment in cash of $26.00 per Series Q Share if redeemed prior to September 30, 2018, of $25.75 per Series Q Share if redeemed on or after September 30, 2018 but prior to September 30, 2019, of $25.50 per Series Q Share if redeemed on or after September 30, 2019 but prior to September 30, 2020, of $25.25 per Series Q Share if redeemed on or after September 30, 2020 but prior to September 30, 2021 and of $25.00 per Series Q Share if redeemed on or after September 30, 2021, in each case together with all declared and unpaid dividends up to but excluding the date fixed for redemption.

The Series Q Shares offering is expected to close on July 6, 2012. The net proceeds will be used for general corporate purposes and to augment Lifeco’s current liquidity position.

This will be characterized in the HIMIPref™ database as a DeemedRetractible; which is to say, analysis will assume a maturity 2022-1-31 at 25.00, although this is not in the formal terms of the issue.

June 27, 2012

Wednesday, June 27th, 2012

Appalled by the huge outbreak of suicide bombers in Canadian office buildings, the wise folks in charge of Commerce Court in Toronto judiciously decided a few years ago to institute a visa policy – just like the big shots in New York! If you want to enter the building a tenant has to make an appointment for you with security so you can get a pass – see the February 24, 2010 post for more details. It’s working out as expected:

The four buildings and underground space that make up Commerce Court currently have a 27-per-cent vacancy rate, far above the overall rate in downtown Toronto, which hovers just above 5 per cent, according to commercial real estate company Avison Young.

There’s some cheery news from the breadbasket:

The drought in the U.S. Midwest that has pushed up corn prices 28 percent since June 15 may eventually rival a dry period in 1988 that cost agriculture $78 billion, a government meteorologist said.

This year’s weather pattern, which settled into the Great Plains and the Southwest last year and has spread into the Corn Belt, resembles those of a quarter century ago, Matthew Rosencrans, a drought specialist with the National Weather Service, said today at a forum in Washington. Sparse rainfall may drive crop costs up further, destroying livestock profits and raising food prices, said David Anderson, an agricultural economist at Texas A&M University.

Barclays was naughty during the crisis:

Barclays Plc (BARC) was fined 290 million pounds ($451.4 million), the largest penalties ever imposed by regulators in the U.S. and U.K., after admitting it submitted false London and euro interbank offered rates.

In February 2007, one of the Barclays traders wrote in an instant message to a trader at another bank:

“If you know how to keep a secret I’ll bring you in on it, we’re going to push the cash downwards on the imm day, if you breathe a word of this I’m not telling you anything else, I know my treasury’s firepower… which will push the cash downwards, please keep it to yourself otherwise it won’t work.”

“The senior U.S. dollar submitter emailed his supervisor, ‘following on from my conversation with you I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested,” the CFTC said. “I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”

That’s a hell of a position for a guy to be in, particularly if he knows that at that moment there are NO JOBS anywhere else. But he must have been making enough at the time to make obtaining independent legal advice quite reasonable – maybe he did. Maybe that’s why there’s so much documentation available, with such explicit statements to his supervisor (among others). But look what happens when you’re honest:

He recognized, at times, that if he were to submit higher, accurate LIBORs, then the market or press would report that Barclays was experiencing difficulty in funding itself.

On September 3, 2007, Bloomberg featured Barclays in a news article entitled “Barclays Takes a Money-Market Beating.” The atiicle speculated that Barclays may have been having liquidity problems, because on two occasions Barclays had to borrow Sterling from the emergency lending facility of the Banle of England,2 and because of Barclays’ relatively high LIBOR submissions in Sterling, Euro and U.S. Dollar. The article posed the question, “So what the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest in the money market?” Other newspapers, including the U.K. Financial Times and the Standard, ran similar articles about LIBOR and Barclays.

On the day of the Bloomberg article, Barclays’ U.S. Dollar LIB OR submissions in at least three tenors were the highest submissions of all panel banks, and were over six to nine basis points higher than the official BBA LIBOR fixing at those tenors. Barclays believed that its high LIBOR submissions caused its financial condition to be misperceived by the public and the media.

The negative media speculation caused significant concern within Barclays and was discussed among high levels of management within Barclays Bank. As a result, certain senior managers within Barclays Bank Treasury (“senior Barclays Treasury managers”) instructed the U.S. Dollar LIBOR submitters and their supervisor to lower Barclays’ LIBOR submissions, so that they were closer in range to the submitted rates by other banl(s but not so high as to attract
media attention.

It gets even more interesting:

One of the senior Barclays Treasury managers called a BBA representative and stated that he believed that LIBOR panel banks, including Barclays, were submitting rates that were too low because they were afraid to “stick their heads above the parapet,” and that “no one will get out of the pack, the pack sort of stays low.” He also relayed his belief that other panel banks relied too much on information from voice brokers to determine appropriate rates in the market, instead of making independent determinations for their own institutions. He encouraged the BBA to react and be heavy handed, suggesting the sanction that banles involved in such conduct be removed from the panel. In apparent response to Barclays’ call, the BBA sent an email to the Steering Committee of the BBA, which is comprised of certain panel bank members including Barclays, requesting views on whether rates were artificially low and how to address this.

The Barclays senior compliance officer subsequently had a conversation with the U.K. Financial Services Authority (“FSA”) in which LIBOR was discussed. The senior compliance officer stated in an internal email directed to several levels of Barclays’ senior management that he informed FSA of the following: that Barclays believed that LIBOR submissions by the panel banks were distorted due to market illiquidity; that Barclays had been consistently the highest or one of the two highest submitters but was concerned to go higher given the negative media reporting about Barclays; that Barclays had concerns about the trillions of dollars of derivatives fixed off LIBOR; and that there were “problematic actions” by some banks. However, the Barclays’ senior compliance officer did not inform the FSA that Barclays was making its LIBOR submissions based on considerations of negative market or press perceptions of Barclays or that its LIBOR submitters’ assessments of the appropriate rates for submission were being altered to adhere to the directive to be below “the parapet.” After this conversation, the same Barclays senior compliance officer did not follow up internally with the LIBOR submitters or their supervisor to confirm that Barclays was making its LIBOR submissions properly in accordance with the BBA’s definition and criteria for LIBOR.

Throughout the financial crisis period, Barclays’ employees, including the submitters, received routine surveillance telephone calls from staff members of the FSA, the Bank of England and the Federal Reserve Bank of New York. These conversations concerned the deepening global financial crisis and were to gauge the level of liquidity in the markets. These calls increased in frequency as the crisis worsened. In these calls, LIBOR was discussed as a measure of the severe illiquidity in the markets, and in that context, in some calls, Barclays’ employees expressed their opinion that Barclays and other panel banks were submitting rates that were too low given the market conditions. However, in those conversations, the Barclays’ employees did not explain that Barclays was not determining its LIBOR submissions in accordance with the BBA’s definition and criteria for LIBOR but instead was making its submissions in a manner to avoid negative market and media attention.

Helluva situation to be in – remember what happened to the boy who shouted that the Emporor had no clothes? He was instantly executed, his family was imprisoned for life and the village where he lived was burnt to the ground. Despite all the CFTC’s self-serving “Howevers”, it seems clear to me that the regulators were either grossly negligent or willfuly blind.

What should Barclays’ have done? Sitting here and looking at the situation in hindsight, with my own company and my own reputation not at risk in any way (in the same position as a regulator imposing a fine!), I’d guess the most honourable course would have been to have resigned from the BBA panel. And how would the markets have interpreted that? Are you sure? Would you be willing to bet the bank on it – literally?

It wasn’t much of a day for the Canadian preferred share market, with PerpetualPremiums gaining 3bp, FixedResets off 1bp and DeemedRetractibles up 1bp, but there was a surprisingly average amount of volatility considering the lack of excitement in the major indices. Volume was a little below average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.3609 % 2,295.7
FixedFloater 4.57 % 3.95 % 21,389 17.36 1 -0.5742 % 3,448.4
Floater 3.17 % 3.16 % 75,669 19.32 3 -0.3609 % 2,478.7
OpRet 4.80 % 2.51 % 36,015 0.98 5 -0.0541 % 2,513.8
SplitShare 5.25 % -7.35 % 42,914 0.48 4 0.0992 % 2,725.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0541 % 2,298.6
Perpetual-Premium 5.43 % 3.61 % 83,789 0.55 27 0.0339 % 2,240.8
Perpetual-Discount 5.03 % 5.01 % 118,585 15.39 7 0.3907 % 2,462.6
FixedReset 5.04 % 3.17 % 193,676 7.77 71 -0.0101 % 2,399.1
Deemed-Retractible 5.01 % 3.91 % 141,044 1.81 45 0.0097 % 2,309.2
Performance Highlights
Issue Index Change Notes
SLF.PR.I FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.06 %
CIU.PR.A Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-27
Maturity Price : 23.98
Evaluated at bid price : 24.42
Bid-YTW : 4.73 %
MFC.PR.C Deemed-Retractible 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 5.87 %
IGM.PR.B Perpetual-Premium 1.23 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 5.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.H Deemed-Retractible 128,235 National crossed blocks of 25,000 and 50,000, both at 25.75. RBC crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 2.30 %
RY.PR.Y FixedReset 59,200 TD crossed 49,300 at 26.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.00
Evaluated at bid price : 26.78
Bid-YTW : 3.27 %
IAG.PR.G FixedReset 57,545 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.21 %
BAM.PR.K Floater 52,118 Nesbitt crossed 50,000 at 16.63.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-27
Maturity Price : 16.60
Evaluated at bid price : 16.60
Bid-YTW : 3.16 %
BNA.PR.C SplitShare 34,825 Nesbitt crossed 30,000 at 22.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 22.55
Bid-YTW : 6.28 %
ENB.PR.H FixedReset 34,470 Scotia crossed 30,000 at 25.37.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-27
Maturity Price : 23.21
Evaluated at bid price : 25.35
Bid-YTW : 3.38 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
W.PR.J Perpetual-Premium Quote: 25.20 – 25.75
Spot Rate : 0.5500
Average : 0.3817

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-27
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : -7.33 %

CIU.PR.A Perpetual-Discount Quote: 24.42 – 24.99
Spot Rate : 0.5700
Average : 0.4127

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-27
Maturity Price : 23.98
Evaluated at bid price : 24.42
Bid-YTW : 4.73 %

FTS.PR.E OpRet Quote: 26.37 – 26.80
Spot Rate : 0.4300
Average : 0.3371

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.37
Bid-YTW : 2.51 %

ELF.PR.F Perpetual-Discount Quote: 24.69 – 25.00
Spot Rate : 0.3100
Average : 0.2250

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-27
Maturity Price : 24.18
Evaluated at bid price : 24.69
Bid-YTW : 5.45 %

POW.PR.A Perpetual-Premium Quote: 25.37 – 25.70
Spot Rate : 0.3300
Average : 0.2474

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-27
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : -15.05 %

BNS.PR.Q FixedReset Quote: 25.55 – 25.79
Spot Rate : 0.2400
Average : 0.1605

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 3.08 %

June 26, 2012

Tuesday, June 26th, 2012

Where’s all those US dollars pulled out of Europe by MMFs gone? Canada and Japan:

The latest survey from Fitch Ratings found U.S. money market exposures to Canadian and Japanese banks in May increased to more than 22 per cent of the $638-billion (U.S.) of assets under management. A year ago, they represented just 13 per cent, and in 2008, less than 5 per cent. Canada’s Bank of Nova Scotia and National Australia Bank made Fitch’s top three list of banks that drink deepest from the money market pool. In 2010, France’s BNP Paribas and Credit Agricole topped the bill, while U.S. behemoths Citigroup and JPMorgan led the rankings in 2007.

It’s possible Europe will get a supranational bank regulator:

Bank supervision in the European Union would be shifted to a European supervisor and government would seek approval from other countries to run budget deficits, according to a broad outline of the plan prepared by European Council president Herman Van Rompuy.

His seven-page report, titled Towards a Genuine Economic and Monetary Union, presents a new design that could prevent another crisis for the euro zone, the embattled 17-member monetary union.

There’s more advocacy of inflation as panacea:

As Mr. Krugman says in his New York Times blog: “What to do? One answer is fiscal policy: let governments temporarily run big enough deficits to maintain more or less full employment, while the private sector repairs its balance sheets. The other answer is unconventional monetary policy to get around the problem of the zero lower bound: maybe unconventional asset purchases, but the obvious answer is to try to create expected inflation, so as to reduce real rates.”

Meanwhile, the Spanish barber is getting a very close shave:

Spain is poised for a downgrade to junk by Moody’s Investors Service, according to investors who sent the cost of default insurance for the nation’s biggest banks and companies close to record highs.

Credit-default swaps on Banco Santander SA (SAN), the country’s biggest bank, jumped 23 percent this quarter to 454 basis points, compared with an all-time high of 474 in November. Banco Bilbao Vizcaya Argentaria SA (BBVA) rose 26 percent to 477, approaching May’s record 516, while phone company Telefonica SA (TEF) surged 70 percent to a record 540 basis points.

Moody’s downgraded 28 Spanish banks yesterday including a two-step cut for Banco Santander and a three-level reduction for BBVA, a week after it lowered Spain’s rating to Baa3, on the cusp of junk. The country remains on review for another cut by New York-based Moody’s after it sought a 100 billion-euro ($125 billion) international bailout for its banks and on speculation losses from its real estate industry will worsen.

Prop traders continue to form hedge funds:

Former Royal Bank of Canada and Bank of America Corp. proprietary traders plan to start a mortgage hedge fund at New York-based Tandem Global Management LP next month, joining at least half-a-dozen money managers wagering that home-loan bonds will rise in value.

Stuart Lippman, 40, chief investment officer of the Tandem Mortgage Opportunity Fund, was formerly a managing director and senior portfolio manager in the non-agency mortgage credit business of Royal Bank of Canada’s proprietary trading group, according to a presentation dated May 25 that was obtained by Bloomberg News. David Liu, 43, chief strategist and portfolio manager at the new fund, managed portfolios in the global proprietary trading group at Bank of America.

Canadian banks didn’t get into much trouble during the Credit Crunch, but they’re working on it:

Bank of Montreal is laying the groundwork for more expansion in the United States, signalling to investors that it may buy more lenders south of the border and build additional branches to feed its massive North American growth spurt.

Much as TD has, BMO turned to the U.S. in search of growth as competition for profits in the Canadian market continues to grind away at margins for the country’s biggest lenders.

BMO now has roughly 650 branches in the U.S. to go with about 900 locations in Canada. It has more locations in Milwaukee than in Montreal, and more branches in Chicago than Toronto.

Soon Canada will have the same bank-assets-to-GDP ratio that Iceland had!

I understand a city is building a ferris wheel on its waterfront. What kind of dumb-ass mayor would build a ferris wheel on the waterfront?

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 4bp, FixedResets up 1bp and DeemedRetractibles off 10bp. Volatility was negligible. Volume was average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.3824 % 2,304.0
FixedFloater 4.55 % 3.92 % 20,823 17.40 1 0.5775 % 3,468.3
Floater 3.16 % 3.15 % 70,136 19.33 3 0.3824 % 2,487.7
OpRet 4.80 % 2.51 % 35,491 0.99 5 0.0154 % 2,515.1
SplitShare 5.26 % -7.57 % 43,145 0.48 4 0.2287 % 2,722.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0154 % 2,299.9
Perpetual-Premium 5.42 % 3.67 % 84,924 0.55 27 0.0415 % 2,240.0
Perpetual-Discount 5.05 % 5.04 % 117,261 15.41 7 0.1007 % 2,453.0
FixedReset 5.04 % 3.10 % 192,323 4.23 71 0.0118 % 2,399.4
Deemed-Retractible 5.01 % 3.83 % 143,003 2.64 45 -0.0964 % 2,308.9
Performance Highlights
Issue Index Change Notes
BAM.PR.T FixedReset -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-26
Maturity Price : 23.26
Evaluated at bid price : 25.26
Bid-YTW : 3.59 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNA.PR.C SplitShare 115,450 Nesbitt crossed 102,600 at 22.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 6.32 %
IAG.PR.G FixedReset 95,252 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 4.22 %
RY.PR.B Deemed-Retractible 88,400 Desjardins crossed 51,300 at 25.71 and 26,000 at 25.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-08-24
Maturity Price : 25.00
Evaluated at bid price : 25.83
Bid-YTW : 3.74 %
TD.PR.O Deemed-Retractible 66,074 Desjardins crossed 38,900 at 25.88; TD crossed 24,700 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-10-31
Maturity Price : 25.50
Evaluated at bid price : 25.83
Bid-YTW : 3.15 %
CM.PR.G Perpetual-Premium 65,199 TD crossed 50,000 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-26
Maturity Price : 25.50
Evaluated at bid price : 25.55
Bid-YTW : -3.07 %
RY.PR.P FixedReset 56,560 National crossed 55,000 at 26.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.45
Bid-YTW : 3.01 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSB.PR.D Deemed-Retractible Quote: 25.37 – 25.72
Spot Rate : 0.3500
Average : 0.2368

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.37
Bid-YTW : 4.61 %

CM.PR.M FixedReset Quote: 26.73 – 27.04
Spot Rate : 0.3100
Average : 0.2000

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.73
Bid-YTW : 2.80 %

W.PR.J Perpetual-Premium Quote: 25.45 – 25.75
Spot Rate : 0.3000
Average : 0.1973

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-26
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : -2.76 %

BAM.PR.R FixedReset Quote: 25.83 – 26.39
Spot Rate : 0.5600
Average : 0.4638

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-26
Maturity Price : 23.50
Evaluated at bid price : 25.83
Bid-YTW : 3.61 %

CIU.PR.B FixedReset Quote: 26.80 – 27.10
Spot Rate : 0.3000
Average : 0.2068

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.11 %

CM.PR.K FixedReset Quote: 26.21 – 26.45
Spot Rate : 0.2400
Average : 0.1560

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.21
Bid-YTW : 2.73 %

SJR.PR.A 2nd Quarter Dividend

Tuesday, June 26th, 2012

Shaw Communications declared the 12Q2 dividend on SJR.PR.A with record date 2012-6-15.

So why does TMXMoney still report that the last ex-date was 2012-3-13?

June 25, 2012

Tuesday, June 26th, 2012

Sorry this is so late, folks!

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 -0.6599 % 2,295.2
FixedFloater 4.57 % 3.95 % 20,998 17.36 1 0.0000 % 3,448.4
Floater 3.17 % 3.16 % 70,371 19.33 3 -0.6599 % 2,478.2
OpRet 4.80 % 2.47 % 35,261 0.99 5 -0.1157 % 2,514.7
SplitShare 5.27 % -5.11 % 43,701 0.48 4 -0.0696 % 2,716.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1157 % 2,299.5
Perpetual-Premium 5.41 % 3.67 % 87,844 0.55 27 -0.0210 % 2,239.1
Perpetual-Discount 5.05 % 5.04 % 117,414 15.39 7 -0.2129 % 2,450.5
FixedReset 5.03 % 3.11 % 191,978 7.77 71 0.0517 % 2,399.1
Deemed-Retractible 5.00 % 3.93 % 143,359 1.91 45 0.1012 % 2,311.2
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-25
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.19 %
BAM.PR.M Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-25
Maturity Price : 23.11
Evaluated at bid price : 23.37
Bid-YTW : 5.09 %
BAM.PR.R FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-25
Maturity Price : 23.48
Evaluated at bid price : 25.75
Bid-YTW : 3.62 %
BAM.PR.T FixedReset 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-25
Maturity Price : 23.37
Evaluated at bid price : 25.63
Bid-YTW : 3.52 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.L Deemed-Retractible 56,160 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 26.00
Evaluated at bid price : 26.76
Bid-YTW : 2.83 %
IAG.PR.G FixedReset 51,548 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.23 %
TD.PR.Q Deemed-Retractible 50,300 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-31
Maturity Price : 26.00
Evaluated at bid price : 26.81
Bid-YTW : 1.53 %
BMO.PR.M FixedReset 26,675 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : 2.97 %
NA.PR.K Deemed-Retractible 25,140 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-25
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : -9.17 %
BMO.PR.O FixedReset 24,030 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 26.89
Bid-YTW : 2.72 %
There were 12 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.G FixedFloater Quote: 20.78 – 21.47
Spot Rate : 0.6900
Average : 0.4925

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-25
Maturity Price : 21.67
Evaluated at bid price : 20.78
Bid-YTW : 3.95 %

TCA.PR.X Perpetual-Premium Quote: 51.39 – 52.12
Spot Rate : 0.7300
Average : 0.6075

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 51.39
Bid-YTW : 4.08 %

ENB.PR.A Perpetual-Premium Quote: 25.52 – 25.93
Spot Rate : 0.4100
Average : 0.2892

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-25
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : -14.64 %

HSB.PR.C Deemed-Retractible Quote: 25.47 – 25.80
Spot Rate : 0.3300
Average : 0.2169

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.47
Bid-YTW : 4.11 %

BAM.PR.C Floater Quote: 16.45 – 16.74
Spot Rate : 0.2900
Average : 0.1969

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-25
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.19 %

MFC.PR.C Deemed-Retractible Quote: 22.16 – 22.44
Spot Rate : 0.2800
Average : 0.1880

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.16
Bid-YTW : 6.13 %

FTU.PR.A Exchanged for FTU.PR.B, FTU.WT.A & FTU.WT.B

Monday, June 25th, 2012

US Financial 15 Split Corp. has announced:

the completion of the capital reorganization of the Preferred Shares of the Company (the “Reorganization”) that was approved at the special meeting of shareholders held on April 16, 2012, and the related consolidation of Class A Shares (the “Consolidation”).

As a result of the Reorganization, holders of Preferred Shares who did not exercise the 2012 Special Retraction Right, will receive the following securities for each Preferred Share:
1. one 2012 Preferred Share (Symbol: FTU.PR.B),
2. one 2013 Warrant (Symbol: FTU.WT.A); and
3. one 2014 Warrant (Symbol: FTU.WT.B).
The 2012 Preferred Share, 2013 Warrants and 2014 Warrants will be listed on the TSX and posted for trading at market open on June 25, 2012.

The exercise prices for the 2013 Warrants and the 2014 Warrants are $5.15 and $5.40, respectively.

As previously announced, the Consolidation is necessary to maintain an equal number of Class A shares and 2012 Preferred Shares outstanding following the Reorganization. After the Reorganization and the Consolidation, there will be 2,207,399 2012 Preferred Shares and 2,207,399 Class A Shares outstanding with a net asset value per unit of $4.99 as of the opening of business on June 25, 2012. The increase in net asset value of the Company from its value as of the close of business on
June 22, 2012 is attributable to the amount of the cumulative dividend arrears for Preferred Shares that are retained by the Company and added back to the net asset value of the Company as part of the Reorganization.

Additional information regarding the capital reorganization is contained in the Management Information Circular dated March 9, 2012 prepared in respect of the special meeting, available on SEDAR at www.sedar.com or on the Company’s website www.financial15.com.

FTU.PR.A was last mentioned on PrefBlog when the capital units were consolidated.

As discussed in the post FTU.PR.A Reorganization Details, FTU.PR.B will pay a dividend of 5.25% of the lesser of NAV and $10. FTU.PR.A used to be tracked by HIMIPref™, but no more, since the preferred share dividends will now be calculated as a percentage of NAV, rather than as a percentage of par. FTU.PR.B will not be tracked by HIMIPref™.

LFE.PR.A Exchanged for LFE.PR.B, LFE.WT.A and LFE.WT.B

Monday, June 25th, 2012

Canadian Life Companies Split Corp. has announced:

the completion of the capital reorganization of the Preferred Shares of the Company (the “Reorganization”) that was approved at the special meeting of shareholders held on April 16, 2012, and the related consolidation of Class A Shares (the “Consolidation”).

As a result of the Reorganization, holders of Preferred Shares who did not exercise the 2012 Special Retraction Right, will receive the following securities for each Preferred Share:
1. one 2012 Preferred Share (Symbol: LFE.PR.B),
2. one 2013 Warrant (Symbol: LFE.WT.A); and
3. one 2014 Warrant (Symbol: LFE.WT.B).

The 2012 Preferred Share, 2013 Warrants and 2014 Warrants will be listed on the TSX and posted for trading at market open on June 25, 2012.

The exercise prices for the 2013 Warrants and the 2014 Warrants are $12.00 and $12.60, respectively. As previously announced, the Consolidation is necessary to maintain an equal number of Class A shares and 2012 Preferred Shares outstanding following the Reorganization. After the Reorganization and the Consolidation, there will be 7,776,613 2012 Preferred Shares and 7,776,613 Class A Shares outstanding with a net asset value per unit of $11.66 as of the opening of business on June 25, 2012.

Additional information regarding the capital reorganization is contained in the Management Information Circular dated March 14, 2012 prepared in respect of the special meeting, available on SEDAR at www.sedar.com or on the Company’s website www.lifesplit.com.

The NAVPU of $11.66 implies a small gain from the estimated pro-forma June 15 valuation of $11.55.

As discussed in the post LFE.PR.A Unveils Reorg Proposal, the “2013 Warrants” (LFE.WT.A), may be exercised at any time until 2013-6-3 and the “2014 Warrants” (LFE.WT.B) at any time until 2014-6-2. Note that these are the deadlines as far as the company is concerned; your custodial broker will probably have a deadline a day or two in advance of this. Your broker should be able to tell you its deadline a few weeks in advance of the company deadline.

The termination date for the company is 2018-12-1. Let’s take a shot at valuing the components!

The tricksy thing about valuing the options is that there is a very significant cash drag on the portfolio, since the dividend yield on the underlying portfolio is about 4.5% (of the whole unit value) while the preferred shares are getting a distribution of 6.25% (of their 10% par value) and the MER is about 1.00% (of the whole unit value, after the fee reduction that is part of the reorganization).

This means that at a NAVPU of 12.00, the portfolio has cash outflows of 0.625 (preferred shares) + 0.12 (1% of NAV) = $0.745, or about 6.21% of the NAV, with inflows of 0.045 * 12 = $0.54, for a net outflow of $0.205, or about 1.71% p.a. This is deducted from the Risk-Free Rate to get the Net Risk Free Rate to be used in Black-Scholes.

For Annual Volatility of the underlying portfolio, let’s use 30%

This gives rise to the following calculation when the NAVPU is $12:

LFE Components Valuation
at NAVPU = $12.00
Ticker LFE LFE.WT.A LFE.WT.B
Time 6.5 1.0 2.0
Sigma 30% 30% 30%
Gross Risk-Free 2% 2% 2%
Net Risk-Free 0.29% 0.29% 0.29%
Calculated Values
d1 0.6456 0.7675 0.6556
d2 -0.1193 0.4675 0.2314
N(d1) 0.7407 0.7786 0.7440
N(d2) 0.4525 0.6799 0.5915
Option Value 4.45 1.21 1.52

The calculation for the capital units, LFE, is dubious. In the first place, I’m not convinced Implied Volatilities for such relatively long periods are realistic; in the second place, the value will be highly path-dependent, as the end-value may be affected by dilution due to exercise of the warrants. [see note] Still, the results for the two warrants look relatively reasonable – although the quotes near the close on the day of issue are much, much, lower, this is on zero volume.


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Update – Note: And in the third place, Sequence of Returns risk means that the cash drag is more harmful than is modelled by the Black-Scholes Risk-Free Rate Adjustment.