August 31, 2009

Spend-Every-Penny has declared:

As the United States and other countries debate giving more authority to central banks and other regulatory agencies, [Spend-Every-Penny] Sunday said he is sticking with his current approach to systemic oversight, which brings together the heads of the Bank of Canada, the federal banking regulator and other key authorities on a regular basis to compare notes. The decision means a previously obscure grouping of senior officials – the Financial Institutions Supervisory Committee – will be thrust into the spotlight as Canada’s answer to the pledge the federal government and its allies in the Group of 20 made to correct regulatory failings that contributed to the financial crisis.

[Spend-Every-Penny] made clear that even though unelected public servants will play crucial roles, responsibility for ensuring that Canada stays out of financial trouble rests with him.

There’s a very good chance that there won’t be another major banking crisis before he retires, so it’s a pretty safe way to appear tough and authoritative. In most countries, however, the idea that the politicians are ultimately responsible for the performance of their appointees is generally understood. I can’t find a public copy of the speech anywhere, by the way. I hope Spend-Every-Penny won’t be so shy when something bad happens … but I won’t bet on it.

I see that Toronto, well known for its inability to license a souvlaki cart in less than three years is attempting to create a bigger sink-hole than the one on Finch Avenue by bidding to host the Pan-Am games. Send in the clowns!

I noted on March 23 that Liddy, the last CEO of AIG, demonstrated his lack of qualification for the office by throwing his people to the wolves during the bonus controversy. The new guy, Benmosche, is much better:

Benmosche criticized Cuomo and lawmakers during a town-hall style meeting this month for life insurance workers in Houston. Cuomo subpoenaed AIG in March during a national furor about $165 million in retention bonuses sent after the firm’s bailout and said those who returned the cash wouldn’t have their names published. That month, some employees received death threats and protesters visited the Connecticut homes of two AIG executives.

“What he did is so unbelievably wrong,” Benmosche said during the Aug. 11 remarks, according to a record obtained by Bloomberg. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.”

Speaking of bonuses…:

U.S. Securities and Exchange Commission Chairman Mary Schapiro, in a letter to brokerage chiefs, warned that burgeoning recruitment bonuses may push employees to engage in improper sales and trades.

Large, up-front bonuses and enhanced commissions may lead brokers “to believe they must sell securities at a sufficiently high level to justify special arrangements,” she wrote today. “Those pressures may in turn create incentives to engage in conduct that may violate obligations to investors.”

Brokers may be motivated to make excessive trades to generate fees, a process known as churning, Schapiro said. They might recommend products that don’t suit their clients’ objectives or generate fees with transactions that aren’t in their customers’ interest, Schapiro said.

Warning! Increased political scrutiny may lead regulators to believe they must make gratuitously precious statements about activities that are already illegal.

Volume ticked upward today, but the market ended a very good month on a sour note, with PerpetualDiscounts losing 13bp and FixedResets down 14bp. The latter may be related to the BPO new issue.

PerpetualDiscounts closed with a pre-tax bid-YTW of 5.66%, equivalent to 7.92% interest at the standard equivalency factor of 1.4x. Long Corporates closed the month with a yield of about 5.95% (after generating +2.83% total return in August), implying that the pre-tax interest-equivalent spread remains at about 200bp.

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 -0.3957 % 1,457.2
FixedFloater 5.72 % 4.00 % 60,880 18.60 1 0.4757 % 2,684.5
Floater 3.13 % 3.16 % 174,664 19.27 2 -0.3957 % 1,820.5
OpRet 4.86 % -10.56 % 132,541 0.09 15 0.1285 % 2,280.1
SplitShare 5.67 % 3.97 % 98,723 0.08 3 -0.3891 % 2,056.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1285 % 2,085.0
Perpetual-Premium 5.69 % 5.10 % 69,784 2.60 4 0.5453 % 1,888.0
Perpetual-Discount 5.68 % 5.66 % 188,811 14.31 67 -0.1288 % 1,812.5
FixedReset 5.50 % 4.00 % 483,272 4.12 40 -0.1369 % 2,104.2
Performance Highlights
Issue Index Change Notes
BAM.PR.P FixedReset -3.83 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-30
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 6.16 %
POW.PR.D Perpetual-Discount -2.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-31
Maturity Price : 21.37
Evaluated at bid price : 21.65
Bid-YTW : 5.85 %
BAM.PR.I OpRet -2.63 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-12-30
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 5.19 %
MFC.PR.B Perpetual-Discount -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-31
Maturity Price : 20.27
Evaluated at bid price : 20.27
Bid-YTW : 5.76 %
NA.PR.L Perpetual-Discount -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-31
Maturity Price : 21.31
Evaluated at bid price : 21.31
Bid-YTW : 5.75 %
CIU.PR.B FixedReset -1.39 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-01
Maturity Price : 25.00
Evaluated at bid price : 27.71
Bid-YTW : 4.26 %
GWO.PR.E OpRet 1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-09-30
Maturity Price : 25.50
Evaluated at bid price : 26.21
Bid-YTW : -30.79 %
BNS.PR.O Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-05-26
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 5.53 %
CM.PR.R OpRet 1.79 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-09-30
Maturity Price : 25.60
Evaluated at bid price : 26.78
Bid-YTW : -40.35 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PR.P FixedReset 44,640 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-30
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 6.16 %
BMO.PR.L Perpetual-Premium 43,803 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-24
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 5.76 %
CM.PR.I Perpetual-Discount 30,940 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-31
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 5.75 %
RY.PR.Y FixedReset 26,300 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 27.50
Bid-YTW : 4.07 %
BNS.PR.X FixedReset 23,568 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 27.82
Bid-YTW : 3.82 %
BAM.PR.N Perpetual-Discount 23,507 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-08-31
Maturity Price : 18.53
Evaluated at bid price : 18.53
Bid-YTW : 6.54 %
There were 44 other index-included issues trading in excess of 10,000 shares.

2 Responses to “August 31, 2009”

  1. […] The slow pullback in the preferred share market continued, with PerpetualDiscounts losing 17bp and FixedResets down 7bp on the day. PerpetualDiscounts closed yielding 5.73%, equivalent to 8.02% interest at the standard equivalency factor of 1.4x. Long corporates now yield about 5.9%, so the pre-tax interest-equivalent spread is now roughly 210bp, up 10bp from August 31. […]

  2. […] August 31 Portfolio Composition analysis (which is slightly in excess of the 5.66% index yield on August 31). Given such reinvestment, the sustainable yield would be 12.6695 * 0.0571 = 0.7234, a slight […]

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