May 31, 2010

There’s a scuffle brewing over FASB’s proposal that bank loans be marked-to-market:

A U.S. accounting board’s proposal that would require banks to report the fair value of loans on their books will lead to reduced lending, a former chairman of the Federal Deposit Insurance Corp. said.

“This is a terribly destructive idea to even propose,” William Isaac said in a telephone interview today. Just by making the proposal, the Financial Accounting Standards Board will lead banks to quit making loans without an easily discernable market value, and keep the ones they do make to shorter maturities, Isaac said.

The proposal comes “in the face of worldwide condemnation,” Isaac said. It conflicts with the recommendations of the Group of 20 nations, the Basel Committee on Banking Supervision and the International Accounting Standards Board, according to the American Bankers Association, which also opposes the plan.

David Larsen, who serves on FASB’s Valuation Resource Group, said the volatility created by markets and fair value “is there whether or not it is measured.”

“It comes down to the question, is greater transparency of help to users of financial statements?” said Larsen, a managing director at New York-based Duff & Phelps Corp.

Mark-to-market accounting destroyed $500 billion of bank capital as traders marked down all assets during the crisis by a total of 27 percent, and many of those values have now returned to near par, Isaac said. “Now FASB is going to spread this disease throughout the system,” he said.

The trouble with mark-to-market is that it assumes an infinitely liquid market. Sometimes, this embedded assumption gets a little frayed around the edges.

Congrats to my nephew Sam Arfin:

TORONTO INVITATIONAL

Rowing – Champions … Boys’ – 1000 m T1x – Sam Arfin, Birchmount Park, 4:39; 1000 m T2x – Sam Arfin and Oscar Kahu, Birchmount Park, 4:15;

It was a quiet but positive day for Canadian preferred shares, with PerpetualDiscounts gaining 15bp and FixedResets up 8bp.

PerpetualDiscounts now yield 6.29%, equivalent to 8.81% interest at the standard equivalency factor of 1.4x. Long corporates now yield 5.65% (maybe a hair more?) after scoring a total return of +0.46% for the month, so the pre-tax interest-equivalent spread (also called the Seniority Spread) now stands at 315bp, a 10bp tightening from the 325bp recorded on May 26.

And that’s it for another month!

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 2.67 % 2.74 % 45,481 20.70 1 0.0000 % 2,077.9
FixedFloater 5.19 % 3.26 % 31,917 20.00 1 0.6728 % 3,083.4
Floater 2.16 % 2.49 % 97,678 21.01 3 0.1281 % 2,249.1
OpRet 4.90 % 4.00 % 95,458 1.71 11 -0.0568 % 2,301.4
SplitShare 6.45 % 5.40 % 110,905 0.08 2 -0.3325 % 2,150.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0568 % 2,104.4
Perpetual-Premium 5.55 % 4.80 % 22,322 15.73 1 0.0000 % 1,817.0
Perpetual-Discount 6.22 % 6.29 % 208,177 13.50 77 0.1451 % 1,721.8
FixedReset 5.48 % 4.28 % 439,196 3.53 45 0.0762 % 2,153.6
Performance Highlights
Issue Index Change Notes
ENB.PR.A Perpetual-Discount -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 23.38
Evaluated at bid price : 23.67
Bid-YTW : 5.83 %
GWO.PR.M Perpetual-Discount -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 22.69
Evaluated at bid price : 22.81
Bid-YTW : 6.36 %
POW.PR.A Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 22.11
Evaluated at bid price : 22.33
Bid-YTW : 6.37 %
ELF.PR.F Perpetual-Discount 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 7.01 %
CL.PR.B Perpetual-Discount 1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 24.54
Evaluated at bid price : 24.78
Bid-YTW : 6.30 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.I Perpetual-Discount 65,944 TD crossed blocks of 30,000 and 25,000 at 17.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 17.64
Evaluated at bid price : 17.64
Bid-YTW : 6.39 %
TD.PR.O Perpetual-Discount 55,871 Nesbitt crossed 30,000 at 20.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 20.22
Evaluated at bid price : 20.22
Bid-YTW : 6.08 %
TD.PR.M OpRet 32,900 TD crosse 30,000 at 25.88.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-05-30
Maturity Price : 25.50
Evaluated at bid price : 25.80
Bid-YTW : 3.82 %
MFC.PR.A OpRet 24,225 TD crossed 20,000 at 25.25.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.00 %
GWO.PR.G Perpetual-Discount 22,884 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 6.32 %
SLF.PR.G FixedReset 20,221 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2040-05-31
Maturity Price : 24.40
Evaluated at bid price : 24.45
Bid-YTW : 4.25 %
There were 16 other index-included issues trading in excess of 10,000 shares.

4 Responses to “May 31, 2010”

  1. […] spread of PerpetualDiscounts over Long Corporates (which I also refer to as the Seniority Spread) ended the month at +315bp, a slight (an possibly spurious) decline from the +320bp recorded on April […]

  2. […] PerpetualDiscounts now yield 6.23%, equivalent to 8.72% interest at the standard equivalency factor of 1.4x. Long corporates are now at about 5.65%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) now stands at about 305bp, a 10bp tightening from the 315bp recorded at month end. […]

  3. […] as the Seniority Spread) ended the month at 290bp a significant decline from the +315bp recorded on May 31. The big story was the decline in long corporate yields, from 5.65% to 5.45%, as increased chatter […]

  4. […] PerpetualDiscount yield less the yield on long corporates) declined significantly from 315bp on May 31 to 290bp on June 30. The spread narrowing was not the only part of the story, however, as long […]

Leave a Reply

You must be logged in to post a comment.