The Volcker Rule is costing Citigroup some employees:
[Citigroup prop trader Jay] Glasser, 53, who was based in New York and specializes in derivative and currency trades linked to Japanese interest rates, generated an average of more than $10 million a year of revenue for Citigroup from 2007 through 2009, people with knowledge of the matter said. He started at Nomura last week and is based in New York, said Peter Truell, a spokesman for the Tokyo-based firm.
Glasser told his former bosses at Citigroup, which has lost at least 10 proprietary traders this year, that he quit partly because of concern that President Barack Obama’s proposed Volcker rule may force U.S. banks to divest or close proprietary-trading units, people with knowledge of the matter said. As a Japanese securities firm, Nomura wouldn’t be subject to the rule. Citigroup is the third-biggest U.S. bank by assets.
The administration is warning that fragmentation can go too far:
Treasury Secretary Timothy F. Geithner said Congress won’t improve the stability of the financial system by forcing banks to split up core parts of their business.
In testimony today to the Senate Finance Committee, Geithner declined to comment on a specific proposal from Senator Blanche Lincoln to force Bank of America Corp., JPMorgan Chase & Co. and other lenders to separate swaps trading from commercial banking. The proposal is part of a broader financial overhaul proposed by Senate Banking Committee Chairman Christopher Dodd.
…
Federal Deposit Insurance Corp. Chairman Sheila Bair has come out against the proposal and the Federal Reserve has warned that the measure could be costly to the banks and their customers.
There is a push to ensure that big banks won’t be the only ones with ‘living wills’:
German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states burdened with debt to avoid a repeat of the Greek fiscal crisis.
…
Merkel, who faces elections in Germany’s most populous state on May 9, is seeking to shift focus from the Greek bailout to drawing lessons from the euro’s biggest crisis. An “orderly insolvency” process would ensure that creditors participate in any future rescue, she said on ARD television yesterday.
In other words, the idea is that sovereign debt in the EU will less secure than previously … that could have some very interesting knock-on effects.
The CalPERS lawsuit against the rating agencies is proceeding:
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings must face the California Public Employees Retirement System’s lawsuit claiming their faulty risk assessments on structured investment vehicles caused $1 billion in losses.
A state court judge in San Francisco rejected the companies’ requests to dismiss Calpers’ claims of negligent misrepresentation, Brad Pacheco, a spokesman for Calpers, the largest U.S. pension fund, said today in a phone interview.
Funny – I used to respect CalPERS. Now it seems that they don’t do their own credit analysis. I last mocked CalPERS and its lackadaisical attitude towards investment management on July 31, 2009.
Assiduous Reader KH writes in and says:
your comment today about the Goldman Sachs story. This story seems to be going in the wrong direction. In my view, what is being missed here is the reality that the buyers and sellers of these CDOs were purely gambling and knew (or should have known) they were doing so. I mean it’s not as if these synthetic CDOs represented any productive capital at work or any socially redeeming value. It was a zero-sum game bet, similar to betting a portion of an institutional portfolio on red at the roulette table. Isn’t the real issue whether pension portfolios should be allowed to gamble like this in the first place?
In the particular story about ABACUS, none of the players was a pension fund, but the point is well taken – particularly in light of the CalPERS lawsuit! However, I do not feel that securities laws and regulations should restrict the investments of pension funds. Structured notes can have characteristics that make them very useful for portfolio management (although they usually don’t. Structured notes are most often vehicles whereby the intent of investment mandates can be evaded; for instance, buying “S&P Bear” instruments in a portfolio that is supposed to be fully invested.).
I take issue with the implication that “redeeming social value” should be judged, with access to investments being restricted accordingly. In the first place, whether a particular investment action has redeeming social value is very much in the eye of the beholder. Secondly, as I pointed out yesterday, Paulson’s action in shorting the instruments had the effect of intercepting the ACA/IKB sub-prime investment in the financial marketplace; otherwise, that money would have gone into further distorting an already over-heated US housing market. Paulson’s action can be viewed as helping to precipitate the crisis sooner, rather than later, before the inefficient allocation of capital did even more damage to the real economy. Which is something I consider to be socially redeeming.
PerpetualDiscounts squeaked out a win today, gaining 2bp, while FixedResets continued their strong recovery with a win of 16bp. Volume was slightly off, but still at elevated levels dominated by FixedResets.
| 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 | 2.54 % | 2.58 % | 50,746 | 21.03 | 1 | 0.0450 % | 2,182.3 |
| FixedFloater | 4.92 % | 2.98 % | 43,988 | 20.38 | 1 | 0.4545 % | 3,252.7 |
| Floater | 2.04 % | 2.25 % | 101,966 | 21.73 | 3 | -0.2579 % | 2,385.2 |
| OpRet | 4.90 % | 3.98 % | 98,319 | 1.18 | 11 | -0.0320 % | 2,302.7 |
| SplitShare | 6.39 % | 6.50 % | 133,430 | 3.56 | 2 | 0.2428 % | 2,137.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0320 % | 2,105.6 |
| Perpetual-Premium | 5.53 % | 4.76 % | 24,038 | 15.85 | 1 | 0.0399 % | 1,823.5 |
| Perpetual-Discount | 6.28 % | 6.35 % | 217,100 | 13.37 | 77 | 0.0236 % | 1,701.3 |
| FixedReset | 5.53 % | 4.42 % | 524,779 | 3.59 | 44 | 0.1568 % | 2,139.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| ELF.PR.F | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-04 Maturity Price : 18.87 Evaluated at bid price : 18.87 Bid-YTW : 7.11 % |
| ELF.PR.G | Perpetual-Discount | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-04 Maturity Price : 16.66 Evaluated at bid price : 16.66 Bid-YTW : 7.22 % |
| IAG.PR.A | Perpetual-Discount | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-04 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 6.41 % |
| TRI.PR.B | Floater | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-04 Maturity Price : 22.71 Evaluated at bid price : 23.00 Bid-YTW : 1.69 % |
| MFC.PR.D | FixedReset | 1.09 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.00 Bid-YTW : 4.78 % |
| IAG.PR.C | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.41 Bid-YTW : 4.73 % |
| CU.PR.B | Perpetual-Discount | 8.00 % | Simply a reversal of yesterday’s nonsense. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-04 Maturity Price : 23.94 Evaluated at bid price : 24.30 Bid-YTW : 6.28 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.O | FixedReset | 145,714 | RBC bought 11,700 from Nesbitt at 27.09; Desjardins crossed 100,000 at 27.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-24 Maturity Price : 25.00 Evaluated at bid price : 27.05 Bid-YTW : 4.30 % |
| TD.PR.G | FixedReset | 111,620 | National crossed 70,800 at 26.77; RBC bought 13,900 from anonymous at 26.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 26.66 Bid-YTW : 4.55 % |
| TD.PR.I | FixedReset | 97,713 | Desjardins crossed 49,000 at 26.70; RBC crossed 25,000 at 26.73. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 26.73 Bid-YTW : 4.52 % |
| MFC.PR.E | FixedReset | 88,440 | RBC crossed 65,000 at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.16 Bid-YTW : 4.66 % |
| GWO.PR.H | Perpetual-Discount | 76,803 | TD crossed 40,000 at 19.35. Desjardins crossed 20,000 at 19.16. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-05-04 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 6.41 % |
| TD.PR.E | FixedReset | 65,910 | National crossed 11,900 at 26.78; Desjardins crossed 34,600 at 26.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 26.72 Bid-YTW : 4.49 % |
| There were 46 other index-included issues trading in excess of 10,000 shares. | |||
However, I do not feel that securities laws and regulations should restrict the investments of pension funds.
So you’d do away with the Prudent Man rule? Or you’d allow fund sponsors/investment managers to interpret it? Or you’d let plan beneficiaries take it in the neck when fund sponsors/investment managers do something truly stupid such as betting the farm on acquiring BCE. Or you’d let taxpayers take it in the neck because fund sponsors/investment managers do something truly stupid such as betting the farm on acquiring BCE. Remember that teachers are employees of the province taxpayer.
I know you’re anti-government, anti-reg but free markets as they currently operate have minimal to no penalties unless you’re running a bucket shop or a ponzi scheme.
If you read all my writings, you will find that I am a strong supporter of the prudent man rule and of investment manager responsibility and authority.
My remarks you quoted were intended to address questions of which investments should be legal – I consider that a restriction disallowing CDOs would be unduly restrictive and unwise.
I am unaware that there were any fund sponsors or investment managers who wished to “do something truly stupid such as betting the farm on acquiring BCE”. Do you believe there were any? If so, can you provide an indication of (potentially) invested capital as a percentage of fund assets?
free markets as they currently operate have minimal to no penalties
If the board doesn’t want the manager to own CDOs or stocks beginning with “R”, they can write that into the mandate. If the pension board doesn’t like what (one of) its managers is doing, they can terminate the relationship.
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