December 17, 2010

Bank of Montreal is buying Marshall & Ilsley:

Bank of Montreal agreed to buy Marshall & Ilsley Corp. for about $4.1 billion in stock to double its U.S. deposits and branches in the largest takeover by Canada’s fourth-biggest bank.

Bank of Montreal will pay 0.1257 of its own share for each share of Marshall & Ilsley, the Toronto-based bank said today in a statement. The deal values Marshall & Ilsley at $7.75 a share, 34 percent higher than yesterday’s closing price of $5.79 on the New York Stock Exchange.

Toronto-Dominion Bank, the country’s second-biggest lender, may reach an agreement to acquire Chrysler Financial Corp., the auto-loan company owned by Cerberus Capital Management LP, three people with knowledge of the matter said this month.

Marshall & Ilsley has posted eight straight quarterly losses while Bank of Montreal has reported six consecutive quarters of profit growth, a streak unmatched by Canada’s five other large lenders. Marshall & Ilsley traded as high as $40 in 2007.

The takeover has a price-to-book ratio of 0.61 for Marshall & Ilsley, less than half of the median ratio of 1.4 for 33 regional, commercial bank deals since the start of 2009, according to Bloomberg merger data.

Australian Banc Capital Securities Trust, briefly discussed here on November 30, and best known for having a kangaroo as part of its logo, which is really, like, awesome, you know? has closed its initial public offering:

The Fund raised gross proceeds of $145,815,760 from the sale of 14 million Class A Units and 581,576 Class F Units, respectively, at a price of $10.00 per Unit. The Fund has granted to the agents an over-allotment option, exercisable for a period of 30 days from the closing date, to offer an additional 2.1 million Class A Units.

The Class A Units are listed on the Toronto Stock Exchange (“TSX”) under the symbol AUZ.UN. Class F Units will not be listed on a stock exchange but may be converted into Class A Units on a weekly basis.

$146-million. With total agents’ fees, by my calculation, of nearly $7.5-million. Sometimes all one can do is shake one’s head.

Moody’s downgraded Ireland:

The yield on the Irish 10- year Irish bond rose to 8.60 percent, the highest since Dec. 2, and German bund yields fell. Credit-default swaps insuring Irish debt climbed for a third day, the longest streak this month.

Portuguese bonds also fell as Ireland’s credit rating was cut five levels to Baa1 from Aa2 by Moody’s, with further downgrades possible, as the government struggled to contain losses in the country’s banking system. European Union leaders are meeting in Brussels after agreeing yesterday to create a permanent crisis-management mechanism.

It was a good day on the Canadian preferred share market today, as preferreds finally caught a bid after a long string of losses. TXPR total return is still down about 1.46% on the month-to-date, though, so don’t upgrade your New Year’s champagne plans just yet. PerpetualDiscounts were up 34bp and FixedResets gained 13bp on continued elevated volume.

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 0.1124 % 2,282.2
FixedFloater 4.81 % 3.51 % 29,648 19.01 1 -0.7030 % 3,495.6
Floater 2.62 % 2.40 % 50,834 21.23 4 0.1124 % 2,464.2
OpRet 4.83 % 3.46 % 71,155 2.39 8 -0.0965 % 2,376.4
SplitShare 5.34 % 1.13 % 1,030,650 0.97 4 0.1211 % 2,446.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0965 % 2,173.0
Perpetual-Premium 5.73 % 5.66 % 148,741 6.43 27 0.1305 % 1,999.0
Perpetual-Discount 5.47 % 5.49 % 274,737 14.67 51 0.3420 % 1,993.0
FixedReset 5.27 % 3.64 % 347,736 3.10 52 0.1277 % 2,246.9
Performance Highlights
Issue Index Change Notes
NA.PR.M Perpetual-Premium -1.35 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 5.66 %
BAM.PR.I OpRet -1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-30
Maturity Price : 25.25
Evaluated at bid price : 25.47
Bid-YTW : 3.70 %
GWO.PR.M Perpetual-Premium 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 24.58
Evaluated at bid price : 24.80
Bid-YTW : 5.86 %
CM.PR.M FixedReset 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.89
Bid-YTW : 3.43 %
SLF.PR.B Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 21.13
Evaluated at bid price : 21.13
Bid-YTW : 5.71 %
BNS.PR.N Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 24.25
Evaluated at bid price : 24.48
Bid-YTW : 5.43 %
GWO.PR.G Perpetual-Discount 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 23.05
Evaluated at bid price : 23.30
Bid-YTW : 5.59 %
RY.PR.A Perpetual-Discount 2.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 21.47
Evaluated at bid price : 21.74
Bid-YTW : 5.15 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.L Perpetual-Premium 214,100 Desjardins crossed three blocks, of 100,000 shares, 50,000 and 54,800, all at 25.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 5.53 %
TD.PR.M OpRet 116,200 Desjardins crossed 100,000 at 25.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-05-30
Maturity Price : 25.50
Evaluated at bid price : 25.78
Bid-YTW : 3.50 %
RY.PR.A Perpetual-Discount 59,550 rBC crossed 49,200 at 21.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 21.47
Evaluated at bid price : 21.74
Bid-YTW : 5.15 %
CM.PR.M FixedReset 53,083 RBC crossed 25,000 at 27.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 27.89
Bid-YTW : 3.43 %
TD.PR.O Perpetual-Discount 39,752 Nesbitt crossed 25,000 at 23.32.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-12-17
Maturity Price : 23.06
Evaluated at bid price : 23.28
Bid-YTW : 5.27 %
RY.PR.I FixedReset 34,300 RBC crossed 24,100 at 26.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.63 %
There were 41 other index-included issues trading in excess of 10,000 shares.

2 Responses to “December 17, 2010”

  1. pugwash says:

    Hi James,

    Whilst stuck in Berlin for the last three days waiting for BA to get their flights via Heathrow going (“wrong type of snow”) – I pondered on the following and would appreciate your comments:

    Somehow I believe that in 3-5 years time the world will have deleveraged and interest rates will rise – no particular skill/experience gives me any reason to support this concept but it is my starting point.

    So based on my starting point I thought about buying fixed resets with a low reset. eg BNS.PR.P – I would not want it to be called since I am interested in the GOC 5y plus 2% or 90d Tbill plus 2% at the reset date – which would be nice to have in a rising interest rate environment.I know they decide to call, but if rates are going up would they?

    What have I missed in my jetlagged brain?

    Or does the call only have downside for Fixeds? (both hi and low resets)

    Puggy

  2. jiHymas says:

    I think you’re trying to make one investment do too much.

    While a FixedReset with a low Issue Reset Spread would do reasonably well in this scenario, I suggest you would be better off buying a higher-yielding, explicitly short term investment, and making a reinvestment decision when the time comes.

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