November 11, 2008

The Fed appears to be winning the bureaucratic turf-fight over the nascent CDS Clearinghouse industry:

The Federal Reserve is working on a plan that would give it authority to regulate the clearing of trades for the $33 trillion credit-default swap market, according to people with knowledge of the proposal.

The Fed, the U.S. Securities and Exchange Commission, the Treasury Department and the Commodity Futures Trading Commission are discussing a memorandum of understanding that lays out oversight of clearinghouses that would become the central counterparty to credit-default swap trades, said the people who asked not to be named because the discussions are private.

VoxEU has announced a new collection of essays titled “What G20 leaders must do to stabilise our economy and fix the financial system”. The article “Returning to narrow banking” by Paul De Grauwe looks most interesting, but I have not yet been able to read it:

Bubbles and crashes have been part of financial markets for centuries. Allowing banks – which inevitably borrow short and lend long – to get deeply involved in financial markets is a recipe for disaster. The solution is to restrict banks to traditional, narrow banking with traditional oversight and guarantees while requiring firms operating in financial markets to more closely match the average maturities of their assets and liabilities.

The Globe and Mail reported further evidence that Canada’s political leadership has the collective intelligence of a peanut:

The premiers also want Ottawa to delay the age at which seniors must begin taking money out of their Registered Retirement Income Funds. Several premiers expressed concern that, in the current economic climate, forcing Canadians at 71 to begin liquidating their RRIFs would cause significant losses on portions of their earnings that depend on stock holdings.

Um … bozos? Nobody says they have to sell their holdings. They just have to withdraw the holdings from the RRIF, stick them in a regular account and declare the withdrawal as income. Collapsing their RRIFs with the least amount of declared income is a Good Thing.

SunLife’s common got whacked:

Manulife Financial, Canada’s biggest insurance company, slid 3.4 percent to C$25.75. Sun Life Financial Inc., the third- largest, fell 6.7 percent to C$27.24.

Goldman Sachs Group Inc. reduced its rating on the life- insurance industry to “cautious” from “neutral,” saying investment losses may force insurers to raise more capital and threaten credit ratings.

… and their prefs were caught in the downdraft. SunLife’s 3Q08 Financials show they took a $636-million hit on credit-related and $326-million on equity-related issues. SLF does not yet know the effect of OSFI’s MCCSR Rule-Change on capital. They have $69.0-billion in segregated fund assets, compared to $16.6-billion in equity including preferred shares.

A description of the equity risk associated with policyholder obligations is included in Note 9 of the 2007 annual consolidated financial statements. The estimated impact from these obligations on the Company from an immediate 10% increase across all equity markets would be an increase in net income of $159 [-million]; conversely, the impact of an immediate 10% drop across all equity markets would be an estimated decrease in net income of $222 [-million]

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.93% 4.89% 68,516 15.76 6 +1.5855% 1,062.4
Floater 7.00% 7.12% 51,799 12.33 2 +0.3010% 498.4
Op. Retract 5.27% 5.94% 137,052 3.97 15 -0.3439% 1,003.8
Split-Share 6.30% 10.69% 57,224 3.93 12 +0.0400% 937.8
Interest Bearing 7.98% 14.28% 57,081 3.26 3 -1.1096% 890.0
Perpetual-Premium N/A N/A N/A N/A N/A N/A N/A
Perpetual-Discount 6.85% 6.93% 176,448 12.66 71 -0.7914% 796.0
Fixed-Reset 5.36% 5.09% 962,801 15.18 12 -0.0238% 1,087.7
Major Price Changes
Issue Index Change Notes
SLF.PR.A PerpetualDiscount -5.2976% Now with a pre-tax bid-YTW of 7.61% based on a bid of 15.91 and a limitMaturity. Closing quote 15.91-30, 18×16. Day’s range 15.31-16.80.
SBN.PR.A SplitShare -4.9945% Asset coverage of 1.9+:1 as of October 31 according to Mulvihill. Now with a pre-tax bid-YTW of 8.36% based on a bid of 8.56 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 8.56-04, 13×3. Three trades at 9.00 today.
PWF.PR.F PerpetualDiscount -4.6012% Now with a pre-tax bid-YTW of 7.11% based on a bid of 18.66 and a limitMaturity. Closing Quote 18.66-40, 2×5. Day’s range of 18.50-19.80.
BSD.PR.A InterestBearing -4.0323% Asset coverage of 1.0+:1 as of October 31, according to Brookfield Funds. Now with a pre-tax bid-YTW of 17.02% based on a bid of 5.95 and a hardMaturity 2015-3-31 at 10.00. Closing quote of 5.95-15, 112×1. Day’s range of 5.96-20.
BNA.PR.C SplitShare -3.9725% Asset coverage of just under 2.8:1 as of September 30 according to the company. Coverage now of 2.1-:1 based on BAM.A at 21.73 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 13.81% based on a bid of 12.57 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (17.28% to 2010-9-30) and BNA.PR.B (9.38% to 2016-3-25). Closing quote 12.57-62, 4×27. Day’s range 12.62-45.
POW.PR.B PerpetualDiscount -3.9634% Now with a pre-tax bid-YTW of 7.18% based on a bid of 18.90 and a limitMaturity. Closing Quote 18.90-24, 2×7. Day’s range of 18.68-50.
SLF.PR.B PerpetualDiscount -3.8576% Now with a pre-tax bid-YTW of 7.55% based on a bid of 16.20 and a limitMaturity. Closing Quote 16.20-62, 13×4. Day’s range of 16.20-86.
GWO.PR.G PerpetualDiscount -3.5806% Now with a pre-tax bid-YTW of 7.02% based on a bid of 18.85 and a limitMaturity. Closing Quote 18.85-98, 4×4. Day’s range of 18.85-55.
SLF.PR.C PerpetualDiscount -3.3722% Now with a pre-tax bid-YTW of 7.61% based on a bid of 14.90 and a limitMaturity. Closing Quote 14.90-27, 2×5. Day’s range of 14.81-37.
SLF.PR.D PerpetualDiscount -2.9928% Now with a pre-tax bid-YTW of 7.60% based on a bid of 14.91 and a limitMaturity. Closing Quote 14.91-25, 4×10. Day’s range of 15.00-91.
SLF.PR.E PerpetualDiscount -2.7599% Now with a pre-tax bid-YTW of 7.57% based on a bid of 15.15 and a limitMaturity. Closing Quote 15.15-56, 3×10. Day’s range of 15.05-75.
ENB.PR.A PerpetualDiscount -2.5424% Now with a pre-tax bid-YTW of 6.09% based on a bid of 23.00 and a limitMaturity. Closing Quote 23.00-35, 11×4. Day’s range of 22.86-46.
BNS.PR.L PerpetualDiscount -2.5071% Now with a pre-tax bid-YTW of 6.64% based on a bid of 17.11 and a limitMaturity. Closing Quote 17.11-30, 12×19. Day’s range of 17.20-35.
BAM.PR.O OpRet -2.4390% Now with a pre-tax bid-YTW of 10.84% based on a bid of 20.00 and optionCertainty 2013-6-30 at 25.00. Compare with BAM.PR.H (8.69% to 2012-3-30), BAM.PR.I (9.36% to 2013-12-30) and BAM.PR.J (2018-3-30). Closing quote of 20.00-15, 9×2. Day’s range of 20.00-75.
POW.PR.A PerpetualDiscount -2.3798% Now with a pre-tax bid-YTW of 6.92% based on a bid of 20.51 and a limitMaturity. Closing Quote 20.51-99, 1×3. Day’s range of 10.51-90.
RY.PR.A PerpetualDiscount -2.3757% Now with a pre-tax bid-YTW of 6.33% based on a bid of 17.67 and a limitMaturity. Closing Quote 17.67-75, 8×23. Day’s range of 17.69-01.
IAG.PR.A PerpetualDiscount -2.2262% Now with a pre-tax bid-YTW of 7.21% based on a bid of 16.25 and a limitMaturity. Closing Quote 16.25-49, 10×8. Day’s range of 16.25-60.
MFC.PR.B PerpetualDiscount -2.0682% Now with a pre-tax bid-YTW of 6.77% based on a bid of 17.52 and a limitMaturity. Closing Quote 17.52-10, 8×3. Day’s range of 17.70-14.
CIU.PR.A PerpetualDiscount +2.3706% Now with a pre-tax bid-YTW of 7.04% based on a bid of 16.41 and a limitMaturity. Closing Quote 16.41-65, 1×10. Two trades at 16.72.
BCE.PR.R FixFloat +2.8261%  
BCE.PR.A FixFloat +3.7952%  
BCE.PR.I FixFloat +4.4444%  
BNA.PR.B SplitShare +5.0081% See BNA.PR.C, above.
Volume Highlights
Issue Index Volume Notes
IGM.PR.A OpRet 96,050 CIBC crossed 20,000 at 25.15, then another 68,000 at the same price. Now with a pre-tax bid-YTW of 5.86% based on a bid of 25.10 and a softMaturity 2013-6-29 at 25.00.
BMO.PR.I OpRet 80,100 Nesbitt crossed 80,000 at 25.00. Called for Redemption.
TD.PR.O PerpetualDiscount 76,932 Nesbitt crossed 30,000 at 18.30; CIBC crossed 33,100 at the same price. Now with a pre-tax bid-YTW of 6.68% based on a bid of 18.34 and a limitMaturity.
GWO.PR.E PerpetualDiscount 52,281 TD crossed 50,000 at 24.75. Now with a pre-tax bid-YTW of 5.19% based on a bid of 24.60 and a limitMaturity.
TD.PR.M OpRet 51,216 Nesbitt crossed 45,600 at 25.32. Now with a pre-tax bid-YTW of 4.48% based on a bid of 25.31 and a softMaturity 2013-10-30 at 25.00.

There were twenty-seven other index-included $25-pv-equivalent issues trading over 10,000 shares today.

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