Assiduous Reader KL was intrigued by my note on OSFI’s target for depositor recovery on March 27 and passed along a few links.
A US stockbroker pointed out (with assistance from a goldbug) that the federal budget contained (pages 154-155 of the PDF) the following:
The Government also recognizes the need to manage the risks associated with systemically important banks—those banks whose distress or failure could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of options for resolving these institutions without the use of taxpayer funds, in the unlikely event that one becomes non-viable.
The Government intends to implement a comprehensive risk management framework for Canada’s systemically important banks. This framework will be consistent with reforms in other countries and key international standards, such as the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions, and will work alongside the existing Canadian regulatory capital regime. The risk management framework will include the following elements:
- Systemically important banks will face a higher capital requirement, as determined by the Superintendent of Financial Institutions.
- The Government proposes to implement a ―bail-in‖ regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants.
- Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.
This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are “too big to fail”.
Both commentators assumed that the word “liabilities” in the second point means “deposits”, which could ultimately be the case, of course (particularly for uninsured deposits), but for now can be taken to mean “contingent capital” – Garth Turner has it right, just as a change of pace.
While there is no clarity yet, the budget announcement is probably a signal that the feds have bought into the Ban the Bond Movement and that soon all bank bonds will be contingent capital; hey, who needs bankruptcy law anyway?
The first and third points of the three-part process refers to OSFI’s inadequate provision for D-SIBs.
Speaking of totally inadequate government agencies, the Toronto Transit Commission’s CEO Report for 12Q4 just came to my attention, with the following commentary regarding streetcar service:
The last two weeks of Period 12 (December Board) saw high levels of insufficient workforce due to vacation, resulting in numerous cancellations due to no Operator. The resulting cancelled service contributed to delays, longer trip times, and ragged headways.
Is there any doubt but that the TTC is grossly mismanaged? Is there anybody employed at the TTC who could run a three-house paper route?
DBRS confirmed CU at Pfd-2(high) [Stable]:
DBRS has today confirmed the Issuer Rating and the ratings of the Unsecured Debentures, Cum. Preferred Shares and Commercial Paper of Canadian Utilities Limited (CU or the Company) at “A,” “A,” Pfd-2 (high) and R-1 (low), respectively, all with Stable trends. The confirmations reflect CU’s relatively stable business risk profile, strong financial profile and the credit quality of its primary subsidiary, CU Inc. (CUI; rated A (high)). The one-notch differential in the ratings of CU and CUI reflects structural subordination at CU.
…
DBRS assesses CU’s financial profile based on a non-consolidated basis. CU is expected to continue to support the significant capital expenditure program at CUI (approximately $2 billion annually from 2013 to 2015) with debt and preferred shares issuances over the medium term. As of March 25, 2013, the Company has approximately $900 million of preferred shares outstanding (including a $175 million issuance in March 2013). Pro forma the $175 million issuance, $145 million of CU’s outstanding preferred shares are treated as debt by DBRS in the adjusted debt-to-capital calculation (with a pro forma adjusted debt-to-capital ratio of approximately 9%). In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferred) is treated as debt. DBRS expects the Company to continue to maintain its non-consolidated adjusted debt-to-capital ratio in line with the 20% threshold on a non-consolidated basis. Should CU exceed the 20% threshold, this could result in negative rating implications
It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 9bp, FixedResets down 23bp and DeemedRetractibles off 1bp. Volatility was average. Volume was low.
| 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 | -0.4905 % | 2,621.9 |
| FixedFloater | 4.13 % | 3.48 % | 27,411 | 18.30 | 1 | -0.6479 % | 3,937.4 |
| Floater | 2.65 % | 2.83 % | 79,460 | 20.15 | 4 | -0.4905 % | 2,830.9 |
| OpRet | 4.81 % | 1.94 % | 55,431 | 0.22 | 5 | -0.1546 % | 2,605.0 |
| SplitShare | 4.82 % | 3.99 % | 137,684 | 4.17 | 5 | -0.1338 % | 2,950.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1546 % | 2,382.0 |
| Perpetual-Premium | 5.18 % | 1.02 % | 93,032 | 0.54 | 32 | 0.0932 % | 2,374.5 |
| Perpetual-Discount | 4.86 % | 4.84 % | 167,550 | 15.74 | 4 | -0.0407 % | 2,676.4 |
| FixedReset | 4.89 % | 2.53 % | 293,394 | 3.27 | 80 | -0.2305 % | 2,516.9 |
| Deemed-Retractible | 4.85 % | 2.07 % | 126,238 | 0.24 | 44 | -0.0105 % | 2,456.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BNS.PR.Y | FixedReset | -3.24 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.17 Bid-YTW : 2.98 % |
| BMO.PR.Q | FixedReset | -2.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 2.84 % |
| BNS.PR.Z | FixedReset | -1.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 3.00 % |
| BAM.PR.C | Floater | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-04-01 Maturity Price : 18.30 Evaluated at bid price : 18.30 Bid-YTW : 2.86 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.D | FixedReset | 219,052 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.97 Bid-YTW : 3.36 % |
| BNS.PR.Z | FixedReset | 200,314 | TD sold 16,800 at 25.15 and 10,500 at 25.10 to Nesbitt; then sold 20,000 to RBC at 24.99; then crossed three blocks, 14,400 shares, 31,000 and 49,500 at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 3.00 % |
| BNS.PR.P | FixedReset | 150,390 | RBC crossed 50,000 at 25.19; Nesbitt crossed 20,400 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.18 Bid-YTW : -2.53 % |
| BNS.PR.Y | FixedReset | 128,258 | Anonymous bought blocks of 10,500 and 18,700 from CIBC at 24.70; then bought 30,500 at 24.61 and 24,200 at 24.60 from TD. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.17 Bid-YTW : 2.98 % |
| GWO.PR.P | Deemed-Retractible | 92,428 | Scotia crossed blocks of 32,100 and 50,000 at 26.30. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.36 Bid-YTW : 4.67 % |
| ENB.PR.P | FixedReset | 71,297 | Scotia crossed 55,000 at 25.92. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.92 Bid-YTW : 3.39 % |
| There were 20 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| IAG.PR.F | Deemed-Retractible | Quote: 26.89 – 27.48 Spot Rate : 0.5900 Average : 0.4227 YTW SCENARIO |
| BAM.PR.O | OpRet | Quote: 25.06 – 25.42 Spot Rate : 0.3600 Average : 0.2419 YTW SCENARIO |
| BNS.PR.Y | FixedReset | Quote: 24.17 – 24.50 Spot Rate : 0.3300 Average : 0.2372 YTW SCENARIO |
| BAM.PR.K | Floater | Quote: 18.38 – 18.68 Spot Rate : 0.3000 Average : 0.2085 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 23.00 – 23.45 Spot Rate : 0.4500 Average : 0.3682 YTW SCENARIO |
| FTS.PR.J | Perpetual-Premium | Quote: 25.89 – 26.09 Spot Rate : 0.2000 Average : 0.1223 YTW SCENARIO |
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