September 12, 2008

Treasury has released FAQs regarding the FNM/FRE Preferred Stock Purchase Agreement.

Naked Capitalism reprints an article in the Financial Times claiming that a consortium including BofA is looking at Lehman. Who knows? We could be having yet another Sunday Special!

Moody’s has cut Washington Mutual’s senior unsecured rating to junk:

Moody’s Investors Service downgraded the long-term deposit and issuer ratings of Washington Mutual Bank to Baa3 from Baa2. The bank’s financial strength rating was downgraded to D+ from C-, base line credit assessment (BCA) to Ba1 from Baa2, and short term rating to Prime-3 from Prime-2. Washington Mutual Inc.’s senior unsecured rating was downgraded to Ba2 from Baa3. The rating action concludes the review that was initiated on July 22, 2008. The outlook is negative.

Moody’s also expects WaMu to report future quarters of large losses. This could exacerbate negative market sentiment and lead to franchise impairment.

Washington Mutual Inc.’s preferred stock was downgraded to B2 from Ba2, reflecting Moody’s view that the risk of a suspension of dividends on these instruments has risen materially.

The Auction Rate Securities shakedown in the States continues, with Fidelity close to a $300-million buy-back:

Fidelity Investments is close to a settlement with New York Attorney General Andrew Cuomo to buy back $300 million in auction-rate securities, according to a person familiar with the negotiations.

If there was misrepresentation of the product, or if clients were given grossly unsuitable advice, then somebody should be losing their license. After public hearings. If there was no such fraudulent misrepresentation, if the only problem was that investments didn’t work out as hoped, then nobody should be doing anything. Attorney General Andrew Cuomo would be well advised to look back at his schoolbooks, under “Rule of Law”. This whole business of negotiated settlements in regulatory matters is an affront to civilized values.

Hard on the heels of my speculation yesterday that the BoE was preparing the ground for a more punitive rate for its liquidity operations comes the news that the Fed’s discount window is working overtime:

Borrowing from the Fed’s discount window hit record levels in six of the past eight weeks, and reached $23.5 billion as of Sept. 10, Fed data show. By comparison, lending averaged just $779 million a week in the three months after New York Fed President Timothy Geithner urged banks to use the program.

The increasing use of the funds risks delaying banks’ disposal of nonperforming assets and capital raising. It also may make it tough to restore the rate on the loans to the historical 1 percentage point premium over overnight funds, analysts said. The Fed has lowered the rate nine times since August 2007.

The data comes from the Federal Reserve Statistical Release H.4.1. Bloomberg has a neat graph:

Nine times in twelve months! There is even some speculation that that the next move move might be a loosening:

Inflation looks likely to ebb, thanks to falling commodity prices and contained labor costs. The U.S. economy, meanwhile, may be set to take another lurch down as consumer spending gives way and the credit crunch intensifies with the plunge in Lehman Brothers Holdings Inc.’s shares.

San Francisco Fed President Janet Yellen left open the possibility of a rate cut in comments to reporters after a Sept. 4 speech in Salt Lake City. “There is some chance” of easing credit “if things start going seriously wrong,” she said.

Well … in and of itself, Yellen’s comment doesn’t mean anything. Of course there’s always the possibility of easing. There is also the possibility of … well, just about anything!

Including Lehman’s survival! They have reportedly received some serious bids for their Asset Management business:

Lehman Brothers Holdings Inc. received bids for its asset-management unit from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., as the investment bank seeks offers for the entire firm.

The bids value the unit, which includes the Neuberger Berman fund-management business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion, according to people familiar with the auction who asked not to be named because the process is private.

A very good day for the PerpetualDiscount sector on decent volume.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.60% 4.62% 65,314 15.99 6 +0.0270% 1,112.5
Floater 4.40% 4.40% 47,807 16.65 2 -0.1245% 908.3
Op. Retract 4.94% 4.21% 126,651 3.08 14 -0.0328% 1,055.8
Split-Share 5.34% 5.82% 48,684 4.38 14 +0.0620% 1,046.7
Interest Bearing 6.42% 7.19% 51,097 5.19 2 -0.1568% 1,099.0
Perpetual-Premium 6.19% 5.73% 56,778 2.21 1 -0.4339% 1,002.5
Perpetual-Discount 5.99% 6.06% 183,803 13.62 70 +0.4551% 889.0
Fixed-Reset 5.06% 4.89% 1,425,073 14.16 9 +0.0600% 1,120.7
Major Price Changes
Issue Index Change Notes
BNA.PR.C SplitShare -1.1662% Asset coverage of 3.2+:1 as of August 29 according to the company. Now with a pre-tax bid-YTW of 9.34% based on a bid of 16.95 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (6.33% to 2010-9-30) and BNA.PR.B (8.85% to 2016-3-25).
POW.PR.C PerpetualDiscount +1.0080% Now with a pre-tax bid-YTW of 6.13% based on a bid of 24.05 and a limitMaturity.
W.PR.J PerpetualDiscount +1.0348% Now with a pre-tax bid-YTW of 6.65% based on a bid of 21.48 and a limitMaturity.
BMO.PR.K PerpetualDiscount +1.0565% Now with a pre-tax bid-YTW of 6.03% based on a bid of 22.00 and a limitMaturity.
BNS.PR.N PerpetualDiscount +1.0818% Now with a pre-tax bid-YTW of 5.70% based on a bid of 23.36 and a limitMaturity.
ELF.PR.F PerpetualDiscount +1.1856% Now with a pre-tax bid-YTW of 6.89% based on a bid of 19.63 and a limitMaturity.
SLF.PR.E PerpetualDiscount +1.3904% Now with a pre-tax bid-YTW of 5.96% based on a bid of 18.96 and a limitMaturity.
SLF.PR.B PerpetualDiscount +1.4106% Now with a pre-tax bid-YTW of 5.99% based on a bid of 20.13 and a limitMaturity.
HSB.PR.D PerpetualDiscount +1.5347% Now with a pre-tax bid-YTW of 6.12% based on a bid of 20.51 and a limitMaturity.
SLF.PR.D PerpetualDiscount +1.5821% Now with a pre-tax bid-YTW of 6.00% based on a bid of 18.62 and a limitMaturity.
IAG.PR.A PerpetualDiscount +1.8468% Now with a pre-tax bid-YTW of 6.16% based on a bid of 18.75 and a limitMaturity.
GWO.PR.I PerpetualDiscount +2.0452% Now with a pre-tax bid-YTW of 5.96% based on a bid of 18.96 and a limitMaturity.
ELF.PR.G PerpetualDiscount +2.4404% Now with a pre-tax bid-YTW of 6.88% based on a bid of 17.63 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
TD.PR.A FixedReset 908,645 New issue settled today.
TD.PR.M OpRet 107,700 Now with a pre-tax bid-YTW of 3.94% based on a bid of 26.04 and a softMaturity 2013-10-30 at 25.00.
BNS.PR.L PerpetualDiscount 88,725 Now with a pre-tax bid-YTW of 5.76% based on a bid of 19.85 and a limitMaturity.
CM.PR.K FixedReset 84,315 New issue settled Wednesday.
SLF.PR.A PerpetualDiscount 62,400 Now with a pre-tax bid-YTW of 5.99% based on a bid of 19.90 and a limitMaturity.

There were twenty-six other index-included $25-pv-equivalent issues trading over 10,000 shares today.

2 Responses to “September 12, 2008”

  1. business risk assessment…

    safety course…

  2. […] return (BMO went ex-dividend) to bring the weighted median YTW below 6% for the first time since September 12, 2008, just before Lehman’s bankruptcy. Very good volume today and FixedReset issues made it back […]

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