Surprise! Increased regulation lead to migration to non-regulated channels:
For Goldman Sachs Group Inc. (GS) and Morgan Stanley, two of Wall Street’s biggest commodities-trading firms, the year’s largest initial public offering represents a nightmare come true: the rise of unregulated rivals.
Glencore International AG’s IPO probably will catapult the Baar, Switzerland-based commodities firm from relative obscurity onto London’s FTSE 100 list of most valuable stocks this month. Chief Executive Officer Ivan Glasenberg, 54, a former coal trader, owns a 16 percent stake in Glencore worth $9.6 billion if the sale assigns the firm a mid-range value of $61 billion.
…
Glencore, like rivals such as Hong Kong-based Noble Group Ltd. (NOBL) and Amsterdam-based Trafigura Beheer BV, can take bigger trading risks in the commodities markets, helping to make them more profitable and more appealing as employers for top traders.“Prop trading remains as a potent incentive to join Glencore, Noble, Trafigura and any of the major trading firms not restricted by banking rules,” said George H. Stein, managing director of Commodity Talent LLC, a recruitment firm in New York.
Glencore’s average 2010 value-at-risk, a measure of how much the firm’s traders could lose in a single day, jumped to $43 million from $27 million in 2009, according to the firm’s annual report. Goldman Sachs’s commodity price value-at-risk dropped to $33 million in 2010 from $36 million in 2009, company data show.
I don’t think that’s the end of the story, however. I suspect that the regulators will find a way to go after Glencore if there’s the slightest possibility of villainizing them. The end-game, I suspect, is a system with a multitude of small shops, each having $0.5-1.0-billion under management. This won’t do anything for financial stability because, by and large, all these guys will be making the same bets; but it will make everybody feel better that Something Was Done, and that’s what counts, isn’t it?
On cue, Bernanke delivered a warning:
Federal Reserve Chairman Ben S. Bernanke said the government must avoid imposing burdensome rules on financial companies as it carries out the biggest regulatory overhaul in seven decades.
“No one’s interests are served by the imposition of ineffective or burdensome rules that lead to excessive increases in costs or unnecessary restrictions in the supply of credit,” Bernanke said today in a speech in Chicago. “Regulators must aim to avoid stifling reasonable risk-taking and innovation in financial markets, as these factors play an important role in fostering broader productivity gains, economic growth, and job creation.”
But the immediate issues du jour are not directly related to Glencore et al:
U.S. banks have mounted a campaign against one Fed regulation under Dodd-Frank to cap “swipe” fees on debit cards. Bernanke said in March that the Fed would miss an April deadline for the rule, telling lawmakers the issues raised in more than 11,000 comment letters are “complex and difficult.”
Last week, the Treasury Department proposed exempting foreign-exchange swaps and forwards from most of the derivatives rules required under the Dodd-Frank Act, saying the market already meets many of the law’s objectives.
A coalition of 20 firms, including Deutsche Bank AG, Bank of New York Mellon Corp. and UBS AG, asked Treasury Secretary Timothy F. Geithner to grant an exemption in a November letter.
The TMX / LSE deal is getting more interesting:
:Banks opposed to the planned combination of TMX Group Inc. (X-T39.53-0.01-0.03%) and London Stock Exchange Group PLC are looking for ways to thwart the deal, and are seeking the backing of Canada’s biggest pension funds.
Talks among large Canadian financial institutions searching for an alternative to the merger of the Toronto and London stock market operators have been going on for weeks. Options under consideration include a potential counterbid for TMX, which is valued at almost $3-billion.
Call me paranoid, but I’m convinced there’s more to this than meets the eye. It may have something to do with power … with the present situation, the banks can quite reasonably expect the TMX to kowtow to them on demand, since all employees, from the CEO on down, have to worry about their future career prospects. This will not be the case if the TMX is part of a pugnacious international group. But who knows?
And anyway, commodities aren’t fashionable this week:
Commodities plunged the most since 2008, stocks worldwide posted the biggest three-day drop since March and the dollar rallied after American jobless claims unexpectedly rose and the European Central Bank signaled it will wait until after June to raise interest rates.
The Standard & Poor’s GSCI index of 24 commodities sank 7.3 percent at 3:19 p.m. in New York and has lost 11 percent this week. Silver tumbled 11 percent, extending its decline since April 29 to 28 percent. Oil sank 9.7 percent, falling below $100 a barrel for the first time since March 17. The MSCI All-Country World Index of shares in 45 nations fell 1.4 percent. The dollar gained 2.2 percent against the euro, making commodities quoted in the greenback more expensive for holders of other currencies.
Desjardins is raining all over the Maple parade:
There’s chatter in the bond world that the maple market is coming back, driven by increased issuance over the past four weeks.
However, at this point, the perceived strength is all hype. The numbers prove otherwise.
In 2011 maple issuers — which are foreign entities that raise debt issued in Canadian dollars — have financed $2.2-billion here in Canada. That’s just a fraction of the $17-billion raised in 2007 when the maple market was hot.
“Not only does this clearly put things into perspective, but also shows how far we are from a true ‘renaissance’ of the maple bond market,” Jean-François Godin of Desjardins Securities notes.
It was a restful day in the Canadian preferred share market, with PerpetualDiscounts losing 5bp, FixedResets down 3bp and DeemedRetractibles gaining 4bp. Volatility remained low, and volume was light.
| 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 | 0.1648 % | 2,441.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1648 % | 3,671.3 |
| Floater | 2.47 % | 2.25 % | 38,833 | 21.64 | 4 | 0.1648 % | 2,635.7 |
| OpRet | 4.86 % | 3.67 % | 62,297 | 1.18 | 9 | -0.0770 % | 2,417.6 |
| SplitShare | 5.20 % | -1.48 % | 72,409 | 0.61 | 6 | 0.0662 % | 2,500.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0770 % | 2,210.7 |
| Perpetual-Premium | 5.73 % | 5.53 % | 143,406 | 2.34 | 9 | 0.1168 % | 2,057.8 |
| Perpetual-Discount | 5.56 % | 5.62 % | 120,556 | 14.46 | 15 | -0.0482 % | 2,132.5 |
| FixedReset | 5.16 % | 3.37 % | 207,709 | 2.88 | 57 | -0.0305 % | 2,299.8 |
| Deemed-Retractible | 5.21 % | 5.02 % | 312,934 | 8.13 | 53 | 0.0397 % | 2,104.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.P | FixedReset | -1.05 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.43 Bid-YTW : 4.04 % |
| HSB.PR.D | Deemed-Retractible | 1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 5.29 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.A | Deemed-Retractible | 158,930 | RBC crossed 30,000 at 23.90; Desjardins crossed 40,000 at the same price; TD crossed 75,000 at the same price again. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 4.98 % |
| BMO.PR.H | Deemed-Retractible | 132,865 | TD crossed blocks of 83,000 and 40,000, both at 25.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-03-27 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 4.70 % |
| MFC.PR.D | FixedReset | 110,819 | RBC crossed 100,000 at 27.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.46 Bid-YTW : 3.66 % |
| CM.PR.I | Deemed-Retractible | 57,885 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.59 Bid-YTW : 4.93 % |
| PWF.PR.M | FixedReset | 55,000 | RBC crossed 50,000 at 26.92. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 26.80 Bid-YTW : 3.36 % |
| BNS.PR.R | FixedReset | 53,100 | Desjardins crossed 48,900 at 26.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 26.04 Bid-YTW : 3.43 % |
| There were 26 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| FTS.PR.H | FixedReset | Quote: 25.45 – 25.94 Spot Rate : 0.4900 Average : 0.3018 YTW SCENARIO |
| POW.PR.B | Perpetual-Discount | Quote: 23.52 – 23.89 Spot Rate : 0.3700 Average : 0.2433 YTW SCENARIO |
| BMO.PR.M | FixedReset | Quote: 26.12 – 26.46 Spot Rate : 0.3400 Average : 0.2391 YTW SCENARIO |
| GWO.PR.N | FixedReset | Quote: 24.60 – 24.90 Spot Rate : 0.3000 Average : 0.1996 YTW SCENARIO |
| W.PR.J | Perpetual-Discount | Quote: 24.05 – 24.30 Spot Rate : 0.2500 Average : 0.1871 YTW SCENARIO |
| BAM.PR.M | Perpetual-Discount | Quote: 21.43 – 21.62 Spot Rate : 0.1900 Average : 0.1360 YTW SCENARIO |