PrefBlog

The FDIC is reducing the capitalization requirements for private equity firms buying banks:

The FDIC board approved the rules today at a meeting in Washington, agreeing to lower to 10 percent from the proposed 15 percent the Tier 1 capital ratio private-equity investors must maintain after buying a bank.

This issue was last discussed on PrefBlog on July 28.

I’m not usually a big fan of bureaucrats, but Jed Rakoff, the US District Judge hearing the SEC / BAC / MER case is saying some unusually sensible things:

U.S. District Judge Jed Rakoff has twice refused to approve the Securities and Exchange Commission’s $33 million settlement over the bank’s failure to better disclose bonuses it had authorized Merrill Lynch & Co, which it was acquiring, to pay.

Rakoff has faulted the SEC for appearing to let the bank off too easily, and dismissed as nonsensical why the bank would agree to pay anything without admitting it had done anything wrong.

Hear, hear, Mr. Rakoff! Regulators are quick to tout their negotiated settlements, but a negotiated settlement without admission of guilt is either a license to cheat or simple regulatory extortion. The politicians who ultimately bear responsibility for the conduct of their regulators should revise legislation such that negotiated settlements are banned.

Not content with saying one sensible thing, Judge Rakoff continued:

In the Bank of America case, executives said they relied on lawyers’ judgments as to what bonus details should be revealed. Yet the bank did not waive attorney-client privilege, meaning the names of the decision makers remained secret. An exasperated Judge Rakoff questioned why the SEC would agree to this.

“If the company does not waive the privilege,” the Manhattan judge wrote, “the culpability of both the corporate officer and the company counsel will remain beyond scrutiny. This seems so at war with common sense.”

The SEC’s position, if it has been reported correctly by Reuters, is nothing short of insane. Everything’s OK as long as you sought legal counsel? This implies that the SEC has out-sourced the interpretation, prosecution and judgement of securities law to any two-bit shyster with a law degree who happens to be consulted. By the SEC’s reasoning, if I put every cent of client money into sub-prime paper and lose the whole whack, I should be able to claim that I consulted the rating agencies and so did nothing wrong!

Where is the responsibility here? Regardless of what was discussed with whom, the fact is that BofA – and BofA’s executives – knew X and disclosed Y. The consultation of legal advisors is irrelevant to the question of whether X is sufficiently close to Y to meet their legal obligations; the consultation is not wholly irrelevant to personal responsibility, but it is merely a detail.

The preferred share market halted its decline today, with FixedResets up 11bp and PerpetualDiscounts eking out a 6bp gain. This left PerpetualDiscounts yielding 5.66%, equivalent to 7.92% interest at the standard equivalency factor of 1.4x. Long Corporates are a little under 6%, call it 5.95%, so the pre-tax interest-equivalent spread is now near-as-dammit to 200bp, widening 12bp from August 19 and bang on what I have come to call ‘Credit Crunch Normal’.

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	0.0000 %	1,459.0
FixedFloater	5.74 %	4.02 %	59,491	18.57	1	0.7443 %	2,676.1
Floater	3.13 %	3.15 %	71,999	19.29	2	0.0000 %	1,822.7
OpRet	4.86 %	-8.00 %	143,642	0.09	15	0.0995 %	2,275.9
SplitShare	5.67 %	2.86 %	99,666	0.62	3	0.1957 %	2,047.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0995 %	2,081.1
Perpetual-Premium	5.71 %	5.15 %	70,907	2.61	4	-0.3939 %	1,883.3
Perpetual-Discount	5.67 %	5.66 %	190,026	14.33	67	0.0578 %	1,812.7
FixedReset	5.50 %	4.07 %	496,656	4.11	40	0.1128 %	2,103.0

Performance Highlights
Issue	Index	Change	Notes
IGM.PR.A	OpRet	-2.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2009-09-25 Maturity Price : 26.00 Evaluated at bid price : 26.61 Bid-YTW : -11.94 %
MFC.PR.B	Perpetual-Discount	-1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 20.31 Evaluated at bid price : 20.31 Bid-YTW : 5.74 %
CU.PR.A	Perpetual-Premium	-1.56 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2012-03-31 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 5.47 %
PWF.PR.G	Perpetual-Discount	-1.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 24.57 Evaluated at bid price : 24.94 Bid-YTW : 5.97 %
HSB.PR.C	Perpetual-Discount	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 22.59 Evaluated at bid price : 22.76 Bid-YTW : 5.69 %
BMO.PR.H	Perpetual-Discount	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 22.90 Evaluated at bid price : 24.00 Bid-YTW : 5.50 %
GWO.PR.H	Perpetual-Discount	-1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 21.44 Evaluated at bid price : 21.73 Bid-YTW : 5.66 %
TCA.PR.Y	Perpetual-Discount	1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 46.21 Evaluated at bid price : 49.50 Bid-YTW : 5.64 %
MFC.PR.E	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.61 Bid-YTW : 4.16 %
SLF.PR.F	FixedReset	1.19 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 27.10 Bid-YTW : 4.03 %
TCA.PR.X	Perpetual-Discount	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 46.40 Evaluated at bid price : 49.85 Bid-YTW : 5.59 %
BAM.PR.J	OpRet	1.41 %	YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 5.50 %
NA.PR.L	Perpetual-Discount	1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 21.51 Evaluated at bid price : 21.51 Bid-YTW : 5.69 %
BAM.PR.I	OpRet	1.56 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2009-09-25 Maturity Price : 25.75 Evaluated at bid price : 26.00 Bid-YTW : 3.66 %
HSB.PR.D	Perpetual-Discount	1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 22.35 Evaluated at bid price : 22.50 Bid-YTW : 5.65 %
PWF.PR.E	Perpetual-Discount	2.64 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 23.12 Evaluated at bid price : 24.50 Bid-YTW : 5.60 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.T	FixedReset	303,051	Desjardins crossed three blocks of 100,000 shares each at 27.70. Nice tickets! YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.66 Bid-YTW : 3.94 %
RY.PR.R	FixedReset	164,107	Desjardins bought two blocks from National, of 49,400 and 23,500 shares, both at 27.50. RBC crossed 66,100 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.46 Bid-YTW : 3.92 %
TD.PR.G	FixedReset	126,900	Desjardins bought three blocks from National, one of 20,900 and two of 25,000, all at 27.65; then crossed 20,000 at 27.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.65 Bid-YTW : 3.95 %
RY.PR.B	Perpetual-Discount	109,500	RBC crossed 100,000 at 21.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 21.39 Evaluated at bid price : 21.70 Bid-YTW : 5.43 %
CM.PR.L	FixedReset	103,163	RBC bought three blocks from National: 10,000 shares, 29,500 and 20,000, all at 27.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.76 Bid-YTW : 4.09 %
CM.PR.P	Perpetual-Discount	102,300	RBC crossed blocks of 75,000 and 19,400 shares, both at 24.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-08-26 Maturity Price : 23.11 Evaluated at bid price : 24.40 Bid-YTW : 5.63 %
CM.PR.A	OpRet	100,041	Desjardins crossed three blocks, each at 26.20: 50,000 shares, 25,000 and 20,000. YTW SCENARIO Maturity Type : Call Maturity Date : 2009-09-25 Maturity Price : 25.50 Evaluated at bid price : 26.38 Bid-YTW : -29.27 %
There were 39 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Wednesday, August 26th, 2009 at 8:42 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.