The Credit Suisse bonus pool is doing well:
Credit Suisse Group AG, the largest Swiss bank by market value, told bankers a pool of toxic bonds and mortgages set aside as part of their compensation gained 17 percent since January, a person familiar with the matter said.
About 2,000 bankers were told of the return, based on a $5 billion fund of bad mortgages and bonds, the person said, declining to be identified because the matter is private.
When the mechanism was announced on December 18, I commented:
If I am correct – with the support of the BoE – and bank assets have, in general, been written down to far below fundamental value, this is a clever way for the executives to (a) earn brownie points, and (b) give themselves enormous bonuses.
The Globe and Mail had a host of adulatory articles about the MFC Dividend Cut today, by Tara Perkins, Steve Ladurantaye and Andrew Willis, all praising Guloien’s forthright and incisive action in repairing the battered balance sheet. None of them mentioned the pending charge of about $500-million due to changing assumptions or speculated as to whether tough times might cause a decrease to the marketting budget, but the Perkins story did add some colour regarding the hurried changing of the capital rules last fall:
On Sept. 30, the head of Canada’s regulator, the Office of the Superintendent of Financial Institutions, wrote an e-mail to various OSFI officials. “D’Alessandro just called and asked that we try to meet next week with the company to discuss capital,” Julie Dickson wrote, noting that the meeting would replace one that had been arranged for November. Mr. D’Alessandro wanted to discuss the capital requirements for the variable-annuity, or segregated funds, business, other e-mails show.
Discussions took place in October in which he laid out why he felt the rules were too onerous, and OSFI officials had a flurry of internal discussions. On Oct. 28, the rules were changed.
OSFI consulted with more than one insurer that month, but the changes were most important to Manulife.
Federal lobbyist records show that Mr. D’Alessandro also met with Prime Minister Stephen Harper on Nov. 6 to discuss “financial institutions.” It is not known what was discussed at the meeting with Mr. D’Alessandro.
On Nov. 18, Finance Minister Jim Flaherty received a memorandum from OSFI updating him on Manulife.
“In short, while Manulife’s results have been very good historically, the recent downturn in equity markets has had a significant impact on its capital levels,” the memorandum stated.
The arbitrary rule change was highlighted in my opinion piece OSFI and the Third Pillar. Lynx-eyed analysts at Credit Suisse AG and CIBC World Markets, however, noticed that dividend cuts are not a Good Thing and downgraded the common.
Citigroup is considering selling its energy trading unit:
— Citigroup Inc. may give up control of its Phibro LLC energy-trading business to outside investors, a person familiar with the matter said, as the bank faces what may be a $100 million payday for the unit’s chief, Andrew Hall.
Billionaire investor Warren Buffett also held talks with New York-based Citigroup about buying the business, and those negotiations have now ended, according to the person, who declined to be identified because the discussions are private.
…
Hall’s payout, which will be determined at the end of this year based on Phibro’s profits, may raise concern among lawmakers and regulators who are scrutinizing Citigroup’s compensation practices after a $45 billion government bailout last year.
On the one hand, I think is good news because I am in favour of a separation of banking & trading – with the strict proviso that this be accomplished by transparent nudges to capital rules, so that any regulated entity may determine whether it is primarily a banker or trader and have its regulatory capital calculated in an appropriate manner.
Even the whisper of this story is bad news, however. Citigroup isn’t examining the issue based on things like risk and reward – that’s too old fashioned for the new era. It appears that the basis for the decision will be cosmetic appeal: it’s a disgrace. I am, however, please to see that they have the moral character to resist the temptation to unleash an army of lawyers and accountants on Philbro, desperately seeking an uncrossed t in the regulatory requirements so they can pretend to be shocked and cancel the contract. There is still some integrity, at least, left in the world.
Today’s fascinating question is: Are Ken Lewis & Mom Boucher related, or what?
 Ken Lewis CEO Bank of America |
 Mom Boucher President Hells Angels, Montreal |
This question came to mind during the PrefBlog Sloppy Investment Thinking Awards Ceremony, which honoured Richard X. Bove of Rochdale Securities:
Mr. Bove notes that on Dec. 29 – when the new information concerning Merrill Lynch’s losses were disclosed to Bank of America’s management – that the bank’s stock was selling at $12.94 per share, whereas today the combined banks’ stock is trading close to $17 a share.
“Thus, one cannot argue that shareholders have been harmed by the bank’s decision that this was not a material reason to put off the merger,” he said in the note to clients.
The award is made with the assumption that the published extract has not distorted the main argument, which is akin to suggesting that blowing 90% of your paycheque on beer and prostitutes doesn’t do you any financial harm, since you’ve still got 10% left.
PerpetualDiscounts continued their winning ways of the week, up almost 45bp and leaving FixedResets in the dust again. These results were aided by superb performance from POW, which announced earnings today … no disaster, but held back by sub-par results from PWF (which owns GWO). Volume continued to be quite strong.
| 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 | 0.3229 % | 1,259.2 |
| FixedFloater | 6.68 % | 4.91 % | 46,931 | 17.40 | 1 | 1.6240 % | 2,297.6 |
| Floater | 3.62 % | 3.63 % | 70,348 | 18.21 | 2 | 0.3229 % | 1,573.1 |
| OpRet | 4.89 % | -4.23 % | 138,235 | 0.09 | 15 | 0.0539 % | 2,259.5 |
| SplitShare | 5.75 % | 6.57 % | 95,565 | 4.11 | 3 | -0.2401 % | 2,018.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0539 % | 2,066.1 |
| Perpetual-Premium | 5.77 % | 5.55 % | 83,377 | 14.20 | 4 | 0.4012 % | 1,857.2 |
| Perpetual-Discount | 5.87 % | 5.89 % | 174,751 | 14.02 | 67 | 0.4469 % | 1,749.8 |
| FixedReset | 5.50 % | 4.02 % | 536,459 | 4.16 | 40 | 0.0665 % | 2,100.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| NA.PR.N | FixedReset | -1.73 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-14 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 4.05 % |
| CU.PR.A | Perpetual-Premium | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 24.43 Evaluated at bid price : 24.75 Bid-YTW : 5.86 % |
| PWF.PR.K | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 20.83 Evaluated at bid price : 20.83 Bid-YTW : 5.99 % |
| BAM.PR.K | Floater | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 10.95 Evaluated at bid price : 10.95 Bid-YTW : 3.63 % |
| CM.PR.G | Perpetual-Discount | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 22.62 Evaluated at bid price : 22.80 Bid-YTW : 5.96 % |
| POW.PR.C | Perpetual-Discount | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 23.37 Evaluated at bid price : 23.68 Bid-YTW : 6.18 % |
| BMO.PR.N | FixedReset | 1.23 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-27 Maturity Price : 25.00 Evaluated at bid price : 27.95 Bid-YTW : 3.66 % |
| IAG.PR.A | Perpetual-Discount | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 18.72 Evaluated at bid price : 18.72 Bid-YTW : 6.24 % |
| BAM.PR.M | Perpetual-Discount | 1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 17.45 Evaluated at bid price : 17.45 Bid-YTW : 6.92 % |
| TCA.PR.Y | Perpetual-Discount | 1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 45.75 Evaluated at bid price : 48.35 Bid-YTW : 5.77 % |
| BAM.PR.G | FixedFloater | 1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 25.00 Evaluated at bid price : 16.27 Bid-YTW : 4.91 % |
| MFC.PR.B | Perpetual-Discount | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 20.25 Evaluated at bid price : 20.25 Bid-YTW : 5.84 % |
| BAM.PR.N | Perpetual-Discount | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 17.43 Evaluated at bid price : 17.43 Bid-YTW : 6.93 % |
| POW.PR.A | Perpetual-Discount | 1.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 22.93 Evaluated at bid price : 23.20 Bid-YTW : 6.09 % |
| POW.PR.B | Perpetual-Discount | 2.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 21.73 Evaluated at bid price : 22.12 Bid-YTW : 6.10 % |
| POW.PR.D | Perpetual-Discount | 2.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 21.39 Evaluated at bid price : 21.68 Bid-YTW : 5.82 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.I | Perpetual-Discount | 46,500 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 19.82 Evaluated at bid price : 19.82 Bid-YTW : 5.98 % |
| RY.PR.D | Perpetual-Discount | 37,345 | Nesbitt crossed 10,000 at 20.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 20.06 Evaluated at bid price : 20.06 Bid-YTW : 5.63 % |
| BNS.PR.Q | FixedReset | 32,639 | TD bought 11,300 from National at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-24 Maturity Price : 25.00 Evaluated at bid price : 25.85 Bid-YTW : 4.15 % |
| PWF.PR.G | Perpetual-Discount | 31,830 | RBC crossed 17,900 at 24.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 24.15 Evaluated at bid price : 24.53 Bid-YTW : 6.05 % |
| RY.PR.B | Perpetual-Discount | 30,675 | RBC bought 19,800 from anonymous at 20.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-07 Maturity Price : 20.89 Evaluated at bid price : 20.89 Bid-YTW : 5.65 % |
| MFC.PR.D | FixedReset | 29,091 | TD bought 14,000 from RBC at 27.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.79 Bid-YTW : 4.34 % |
| There were 50 other index-included issues trading in excess of 10,000 shares. | |||