February 20, 2009

Bernanke gave a speech to the National Press Club dismissing concerns about the Fed’s credit risk:

for the great bulk of Fed lending, the credit risks are extremely low. The provision of short-term credit to financial institutions–our traditional function–exposes the Federal Reserve to minimal credit risk, as the loans we make to financial institutions are generally short-term, overcollateralized, and made with recourse to the borrowing firm. In the case of the liquidity swaps, the foreign central banks are responsible for repaying the Federal Reserve, not the financial institutions that ultimately receive the funds, and the Fed receives an equivalent amount of foreign currency in exchange for the dollars it provides foreign central banks. The Treasury stands behind the debt and other securities issued by the GSEs.

Our special lending programs have also been set up to minimize our credit risk. The largest program, the commercial paper funding facility, accepts only the most highly rated paper. It also charges borrowers a premium, which is set aside against possible losses. And the TALF, the facility that will lend against securities backed by consumer and small business loans, is a joint Federal Reserve-Treasury program, as I mentioned, and capital provided by the Treasury will help insulate the Federal Reserve from credit losses.

The transactions we undertook to prevent the systemically destabilizing failures of Bear Stearns and AIG, which, as I noted, make up about 5 percent of our balance sheet, carry more risk than our traditional activities. But we intend, over time, to sell the assets acquired in those transactions in a way that maximizes the return to taxpayers, and we expect to recover the credit we have extended.

Not much meat on those bones, but at least he’s putting his name on the claims!

Biovail’s lawsuit against short sellers has been dismissed:

A federal judge threw out a Biovail Corp. shareholder lawsuit against a group of hedge funds including SAC Capital Advisors LP in which investors in the Canadian drugmaker accused them of driving down its share price.

The Biovail shareholders had accused SAC of helping “ghostwrite” negative and false analyst reports in 2003 and 2004 to lower the share price after the Stamford, Connecticut- based hedge fund manager took short positions in the stock. Short sellers borrow shares in anticipation of making a profit by paying for them after the price drops.

In March 2008 the company agreed to pay $10 million to settle Securities and Exchange Commission charges that it lied to investors to boost its share price in 2003 and 2004. In January the drugmaker agreed to pay $5.4 million to settle the same charges with the Ontario Securities Commission.

Biovail also pleaded guilty to criminal charges of paying doctors in 2002 and 2003 to buy Cardizem. It was fined $24.6 million.

Strong companies respond to criticism with a sigh and a press release. Adults too, for that matter.

Easy come, easy go:

As recently as October 2007, Barron’s magazine ranked Highland CDO Opportunity third among the top 50 hedge funds, with an average annual return of 44.12 percent during the three-year period ended that June. Its fortunes reversed last year, as the securities it invests in, known as collateralized debt obligations, plunged in value amid the credit crunch and downgrades by ratings firms.

The fund became insolvent after assets values were eroded by “the unprecedented market volatility and disruption to the financial system, and the market for structured products assets in particular,” Highland Capital said in the letter, a copy of which was provided by an investor to Bloomberg News. Assets were valued at $361.6 million, according to a June 2008 regulatory filing.

OSFI is increasing required derivatives disclosures:

Banks, authorized foreign banks in respect of their business in Canada – foreign bank branches (FBBs), bank holding companies, trust and loan companies, life insurance companies and insurance holding companies should disclose the positive replacement cost, credit equivalent amount and the risk-weighted equivalent by class of derivative instrument.

An improvement, but basically cosmetic. I consider disclosure by class of counterparty (credit strength, degree of collateralization) to be much more important.

I’m of two minds about the Olympics. On the one hand, they’re egregiously expensive and nowadays should be awarded for two successive events; so that at least the velodrome and bobsled track get used more than once. On the other had, the one in Vancouver is countercyclical with a vengeance:

DBRS has today downgraded the Long-Term Debt rating of the City of Vancouver (the City or Vancouver) to AA from AA (high). The trend is now Negative.

On February 18, 2009, the City announced it had secured a $400 million revolving line of credit, $90 million of which has so far been used to buy out the original lender to the project along with $240 million from reserves. Additionally, $134 million in construction advances have been made to the developer by the City since September 2008. This brings Vancouver’s total investment in the project to $464 million, leaving more than $400 million in additional funding required to complete the project by the November 2009 deadline.

Trouble is, it’s just dumb luck that we actually need stimulus right now – they made the committment in 2003 – five years after becoming the official Canadian contender.

HSBC Bank Canada has announced financials for the year ended 2008-12-31 that look pretty good:

The bank’s Tier 1 and overall capital ratios calculated in accordance with the new framework were 10.1 per cent and 12.5 per cent respectively

The total allowance for credit losses, as a percentage of loans and acceptances outstanding, was 1.24 per cent at 31 December 2008 compared with 1.09 per cent at 30 September 2008 and 1.03 per cent at 31 December 2007.

Full financials are not yet available.

Everybody sold preferreds to buy gold today:

Gold futures for April delivery rose $25.70, or 2.6 percent, to $1,002.20 an ounce on the New York Mercantile Exchange’s Comex division. Earlier the price touched $1,007.70, the highest since March 18. Gold, the only metal to advance in 2008, has rallied annually since 2000 and is up 13 percent this year.

Global stocks extended an eight-session slide, erasing 54 percent of their market value since the start of last year on concern that the economic slump may worsen and wipe out corporate earnings.

Splits got hit especially hard, not surprising because many of them now have direct downside exposure to the underlying equities and many others are getting close. It will be most interesting to check back in a few years and see what this episode has done to the split-share market.

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 5.25 % 3.68 % 23,390 18.00 2 -0.1274 % 859.3
FixedFloater 7.37 % 6.87 % 74,082 13.97 7 -0.8676 % 1,361.6
Floater 5.08 % 4.24 % 28,662 16.96 4 0.0484 % 1,034.0
OpRet 5.24 % 4.96 % 140,036 3.98 15 -0.1948 % 2,052.3
SplitShare 6.87 % 12.62 % 67,338 3.98 15 -2.2029 % 1,628.3
Interest-Bearing 7.21 % 10.19 % 33,525 0.82 2 -1.3364 % 1,960.8
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 -0.8543 % 1,535.4
Perpetual-Discount 7.01 % 7.13 % 180,202 12.37 71 -0.8543 % 1,414.0
FixedReset 6.06 % 5.72 % 575,520 13.94 27 -0.1935 % 1,814.8
Performance Highlights
Issue Index Change Notes
SBN.PR.A SplitShare -7.80 % Traded 15,235 shares in a range of 8.14-10 before closing at 8.39-01, 5×1. Asset coverage of 1.6+:1 as of February 12 according to Mulvihill. YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.39
Bid-YTW : 8.96 %
FFN.PR.A SplitShare -5.21 % Traded 6,500 shares in a range of 6.25-31 before closing at 6.00-25, 10×9.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 6.00
Bid-YTW : 16.47 %
BMO.PR.L Perpetual-Discount -4.98 % Whoosh! Traded 18,040 shares in a range of 19.50-20.60 before settling at 19.46-00, 23×10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 19.46
Evaluated at bid price : 19.46
Bid-YTW : 7.52 %
BCE.PR.F FixedFloater -4.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 25.00
Evaluated at bid price : 14.31
Bid-YTW : 7.25 %
BNA.PR.C SplitShare -4.36 % Asset coverage of 1.9+:1 as of January 31, according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 11.40
Bid-YTW : 15.21 %
ALB.PR.A SplitShare -4.25 % Oopsy-daisy! Asset coverage of 1.0:1 as of February 19, according to Scotia. Looks like the capital unit holders dividend will be halted.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-02-28
Maturity Price : 25.00
Evaluated at bid price : 18.91
Bid-YTW : 20.26 %
PWF.PR.F Perpetual-Discount -4.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 7.52 %
POW.PR.C Perpetual-Discount -4.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 7.69 %
DFN.PR.A SplitShare -3.64 % Asset coverage of 1.6-:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.20
Bid-YTW : 9.51 %
POW.PR.B Perpetual-Discount -3.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.93
Evaluated at bid price : 17.93
Bid-YTW : 7.59 %
DF.PR.A SplitShare -3.18 % Asset coverage of 1.3+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.92
Bid-YTW : 10.26 %
CM.PR.P Perpetual-Discount -3.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 19.07
Evaluated at bid price : 19.07
Bid-YTW : 7.31 %
HSB.PR.D Perpetual-Discount -3.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.27
Evaluated at bid price : 17.27
Bid-YTW : 7.39 %
PPL.PR.A SplitShare -3.11 % Asset coverage of 1.3+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.80
Bid-YTW : 12.62 %
POW.PR.D Perpetual-Discount -2.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.15
Evaluated at bid price : 17.15
Bid-YTW : 7.42 %
POW.PR.A Perpetual-Discount -2.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 19.47
Evaluated at bid price : 19.47
Bid-YTW : 7.32 %
BNS.PR.M Perpetual-Discount -2.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 6.61 %
PWF.PR.E Perpetual-Discount -2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 7.34 %
FIG.PR.A Interest-Bearing -2.16 % Asset coverage of 1.0+:1 as of February 10, based on Capital units at $0.72 and 0.53 Capital Units per preferred.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-31
Maturity Price : 10.00
Evaluated at bid price : 7.25
Bid-YTW : 13.52 %
CM.PR.I Perpetual-Discount -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 16.03
Evaluated at bid price : 16.03
Bid-YTW : 7.44 %
BMO.PR.J Perpetual-Discount -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 16.18
Evaluated at bid price : 16.18
Bid-YTW : 7.01 %
GWO.PR.G Perpetual-Discount -1.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.28
Evaluated at bid price : 17.28
Bid-YTW : 7.69 %
BNA.PR.A SplitShare -1.85 % Asset coverage of 1.9+:1 as of January 31 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2010-09-30
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 9.14 %
CL.PR.B Perpetual-Discount -1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 21.37
Evaluated at bid price : 21.37
Bid-YTW : 7.47 %
BCE.PR.Z FixedFloater -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 25.00
Evaluated at bid price : 14.81
Bid-YTW : 7.16 %
MFC.PR.C Perpetual-Discount -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 7.31 %
FBS.PR.B SplitShare -1.56 % Crunch! Asset coverage of 0.9+:1 as of February 19 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-12-15
Maturity Price : 10.00
Evaluated at bid price : 6.31
Bid-YTW : 24.15 %
BAM.PR.H OpRet -1.40 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 23.17
Bid-YTW : 8.86 %
NA.PR.M Perpetual-Discount -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 21.16
Evaluated at bid price : 21.16
Bid-YTW : 7.16 %
FTN.PR.A SplitShare -1.28 % Asset coverage of 1.2-:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2015-12-01
Maturity Price : 10.00
Evaluated at bid price : 6.92
Bid-YTW : 12.24 %
TCA.PR.X Perpetual-Discount -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 44.81
Evaluated at bid price : 46.41
Bid-YTW : 6.06 %
RY.PR.D Perpetual-Discount -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.06
Evaluated at bid price : 17.06
Bid-YTW : 6.65 %
RY.PR.C Perpetual-Discount -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.18
Evaluated at bid price : 17.18
Bid-YTW : 6.75 %
IAG.PR.C FixedReset -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 21.51
Evaluated at bid price : 21.51
Bid-YTW : 6.67 %
RY.PR.W Perpetual-Discount -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 19.11
Evaluated at bid price : 19.11
Bid-YTW : 6.46 %
PWF.PR.D OpRet -1.19 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.32 %
LFE.PR.A SplitShare -1.15 % Asset coverage of 1.2+:1 as of February 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.75
Bid-YTW : 13.20 %
BNS.PR.Q FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 21.76
Evaluated at bid price : 21.80
Bid-YTW : 4.59 %
BAM.PR.B Floater -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 7.93
Evaluated at bid price : 7.93
Bid-YTW : 6.74 %
MFC.PR.B Perpetual-Discount -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 7.10 %
GWO.PR.I Perpetual-Discount -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 7.59 %
GWO.PR.H Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 7.62 %
TD.PR.C FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 23.96
Evaluated at bid price : 24.00
Bid-YTW : 5.17 %
CM.PR.J Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 7.36 %
NA.PR.L Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 17.71
Evaluated at bid price : 17.71
Bid-YTW : 6.92 %
PWF.PR.A Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 12.45
Evaluated at bid price : 12.45
Bid-YTW : 4.24 %
BCE.PR.R FixedFloater 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 25.00
Evaluated at bid price : 15.51
Bid-YTW : 6.72 %
BAM.PR.N Perpetual-Discount 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 12.90
Evaluated at bid price : 12.90
Bid-YTW : 9.44 %
CIU.PR.A Perpetual-Discount 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-20
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 7.02 %
LBS.PR.A SplitShare 3.80 % Asset coverage of 1.1+:1 as of February 19 according to Brompton.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2013-11-29
Maturity Price : 10.00
Evaluated at bid price : 7.37
Bid-YTW : 13.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
WFS.PR.A SplitShare 214,641 RBC crossed 187,500 at 7.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-06-30
Maturity Price : 10.00
Evaluated at bid price : 7.62
Bid-YTW : 18.73 %
TD.PR.G FixedReset 129,629 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 6.18 %
BNS.PR.X FixedReset 66,320 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 6.16 %
RY.PR.R FixedReset 64,203 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 6.00 %
MFC.PR.A OpRet 39,100 YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 4.56 %
FBS.PR.B SplitShare 35,669 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-12-15
Maturity Price : 10.00
Evaluated at bid price : 6.31
Bid-YTW : 24.15 %
There were 31 other index-included issues trading in excess of 10,000 shares.

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