There was an interesting joint Treasury / Fed Press Release today that raised as many questions as it answered:
The Federal Reserve to avoid credit risk and credit allocation
The Federal Reserve’s lender-of-last-resort responsibilities involve lending against collateral, secured to the satisfaction of the responsible Federal Reserve Bank. Actions taken by the Federal Reserve should also aim to improve financial or credit conditions broadly, not to allocate credit to narrowly-defined sectors or classes of borrowers. Government decisions to influence the allocation of credit are the province of the fiscal authorities.
This is eminently sensible – but why is it being repeated? There has been some concern expressed that the Fed is usurping fiscal functions (which I have disagreed with) – are these concerns gaining traction?
Need for a comprehensive resolution regime for systemically critical financial institutions
The Treasury and the Federal Reserve remain fully committed to preventing the disorderly failure of systemically critical financial institutions. To reduce the risk of future crises, the Treasury and the Federal Reserve will work with the Congress to develop a regime that will allow the U.S. government to address effectively at an early stage the potential failure of any systemically critical financial institution. As part of the framework set forth, the legislation should spell out to the extent possible the expected role of the Federal Reserve and other U.S. government agencies in such resolutions.
It looks like the Fiscal Stability Regulator plan is going to happen.
In the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate, the so-called Maiden Lane facilities made by the Federal Reserve as part of efforts to stabilize systemically critical financial institutions.
Is this an admission that the Maiden Lane facilities were not, in fact, adequately collateralized?
Canadian stocks rose the most in three months after the U.S. Treasury said it will spend $1 trillion to purchase distressed assets and Petro-Canada agreed to be bought in the biggest deal for a Canadian oil company.
Manulife Financial Corp., Canada’s largest insurer, climbed 16 percent after the Treasury said it will provide capital and financing for private investors to buy illiquid loans and securities held by banks.
…
Royal Bank of Canada increased 7.6 percent to C$37.94. Toronto-Dominion Bank rose 10 percent to C$45.50. A gauge of financial shares surged 8.7 percent, the most of the 10 industries in the S&P/TSX.The Treasury’s Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion. The Treasury said the program may double “over time.”
Thoughts of imminent mass-bankruptcy disappeared (at least for today) and prefs did really well – in fact, the sub-investment grade split share preferreds did really, really well.
| Split Share High Performers March 23, 2009 |
||
| Ticker | Asset Coverage |
Day’s Performance |
| FTU.PR.A | 0.4+:1 3/13 |
+14.06% |
| FTN.PR.A | 1.2-:1 3/13 |
+12.48% |
| LFE.PR.A | 1.1-:1 3/13 |
+6.84% |
| FFN.PR.A | 1.0+:1 3/13 |
+5.73% |
| ASC.PR.A | 0.7-:1 3/20 |
+5.56% |
| 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 | 0.4666 % | 843.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4666 % | 1,364.5 |
| Floater | 4.69 % | 5.65 % | 59,072 | 14.44 | 3 | 0.4666 % | 1,054.1 |
| OpRet | 5.26 % | 4.84 % | 129,999 | 3.89 | 15 | 0.0028 % | 2,059.9 |
| SplitShare | 6.81 % | 9.59 % | 52,151 | 4.79 | 6 | 1.3986 % | 1,631.6 |
| Interest-Bearing | 6.02 % | 7.98 % | 34,811 | 0.74 | 1 | 0.8089 % | 1,951.2 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5297 % | 1,506.7 |
| Perpetual-Discount | 7.18 % | 7.27 % | 152,275 | 12.13 | 71 | 0.5297 % | 1,387.6 |
| FixedReset | 6.11 % | 5.74 % | 633,745 | 13.83 | 31 | 0.1316 % | 1,813.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BMO.PR.H | Perpetual-Discount | -3.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.62 Evaluated at bid price : 19.62 Bid-YTW : 6.85 % |
| PWF.PR.L | Perpetual-Discount | -2.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 15.86 Evaluated at bid price : 15.86 Bid-YTW : 8.22 % |
| TD.PR.A | FixedReset | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 22.35 Evaluated at bid price : 22.39 Bid-YTW : 4.43 % |
| PWF.PR.G | Perpetual-Discount | -1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 7.92 % |
| CM.PR.D | Perpetual-Discount | -1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 7.49 % |
| CU.PR.A | Perpetual-Discount | -1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 21.11 Evaluated at bid price : 21.11 Bid-YTW : 6.96 % |
| RY.PR.G | Perpetual-Discount | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 17.04 Evaluated at bid price : 17.04 Bid-YTW : 6.70 % |
| GWO.PR.E | OpRet | -1.26 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2014-03-30 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 5.35 % |
| NA.PR.P | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2019-03-17 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 6.43 % |
| TD.PR.Q | Perpetual-Discount | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 21.26 Evaluated at bid price : 21.26 Bid-YTW : 6.71 % |
| IAG.PR.C | FixedReset | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 21.71 Evaluated at bid price : 21.75 Bid-YTW : 6.14 % |
| CM.PR.H | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 16.51 Evaluated at bid price : 16.51 Bid-YTW : 7.42 % |
| TD.PR.O | Perpetual-Discount | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 18.77 Evaluated at bid price : 18.77 Bid-YTW : 6.58 % |
| CM.PR.J | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 15.64 Evaluated at bid price : 15.64 Bid-YTW : 7.35 % |
| POW.PR.B | Perpetual-Discount | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 17.22 Evaluated at bid price : 17.22 Bid-YTW : 7.80 % |
| RY.PR.D | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 6.72 % |
| ELF.PR.G | Perpetual-Discount | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 13.20 Evaluated at bid price : 13.20 Bid-YTW : 9.26 % |
| TD.PR.R | Perpetual-Discount | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 6.72 % |
| ENB.PR.A | Perpetual-Discount | 1.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 22.68 Evaluated at bid price : 22.92 Bid-YTW : 6.06 % |
| PWF.PR.F | Perpetual-Discount | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 17.30 Evaluated at bid price : 17.30 Bid-YTW : 7.75 % |
| GWO.PR.F | Perpetual-Discount | 1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 7.58 % |
| SLF.PR.D | Perpetual-Discount | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 14.31 Evaluated at bid price : 14.31 Bid-YTW : 7.83 % |
| W.PR.J | Perpetual-Discount | 1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.76 Evaluated at bid price : 19.76 Bid-YTW : 7.26 % |
| BNS.PR.R | FixedReset | 1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 21.30 Evaluated at bid price : 21.57 Bid-YTW : 4.52 % |
| POW.PR.A | Perpetual-Discount | 1.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 7.70 % |
| BAM.PR.N | Perpetual-Discount | 1.97 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 12.91 Evaluated at bid price : 12.91 Bid-YTW : 9.28 % |
| SBN.PR.A | SplitShare | 2.00 % | Asset coverage of 1.6-:1 as of March 12 according to Mulvihill. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Evaluated at bid price : 8.16 Bid-YTW : 9.59 % |
| CU.PR.B | Perpetual-Discount | 2.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 21.75 Evaluated at bid price : 22.02 Bid-YTW : 6.89 % |
| W.PR.H | Perpetual-Discount | 2.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.45 Evaluated at bid price : 19.45 Bid-YTW : 7.24 % |
| POW.PR.D | Perpetual-Discount | 2.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 16.45 Evaluated at bid price : 16.45 Bid-YTW : 7.63 % |
| MFC.PR.B | Perpetual-Discount | 2.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 15.90 Evaluated at bid price : 15.90 Bid-YTW : 7.38 % |
| PWF.PR.I | Perpetual-Discount | 2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 20.68 Evaluated at bid price : 20.68 Bid-YTW : 7.41 % |
| CM.PR.K | FixedReset | 2.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 22.46 Evaluated at bid price : 22.50 Bid-YTW : 4.78 % |
| BAM.PR.O | OpRet | 2.62 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 21.55 Bid-YTW : 8.98 % |
| RY.PR.W | Perpetual-Discount | 2.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 18.74 Evaluated at bid price : 18.74 Bid-YTW : 6.63 % |
| GWO.PR.J | FixedReset | 2.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 24.40 Evaluated at bid price : 24.45 Bid-YTW : 5.14 % |
| POW.PR.C | Perpetual-Discount | 3.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 7.64 % |
| LFE.PR.A | SplitShare | 6.84 % | Asset coverage of 1.1-:1 as of March 13, according to the company. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Evaluated at bid price : 7.50 Bid-YTW : 14.43 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.O | FixedReset | 211,656 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 25.03 Evaluated at bid price : 25.08 Bid-YTW : 6.30 % |
| MFC.PR.D | FixedReset | 193,421 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 24.50 Evaluated at bid price : 24.55 Bid-YTW : 6.48 % |
| RY.PR.T | FixedReset | 109,077 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 23.25 Evaluated at bid price : 25.36 Bid-YTW : 5.69 % |
| RY.PR.R | FixedReset | 63,743 | National crossed 12,000 at 25.61. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 25.80 Bid-YTW : 5.75 % |
| BNS.PR.X | FixedReset | 60,924 | National bought 10,000 from RBC at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 6.10 % |
| TD.PR.I | FixedReset | 60,333 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-03-23 Maturity Price : 25.13 Evaluated at bid price : 25.18 Bid-YTW : 5.92 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
Late Update: Andrew Cuomo proudly announced the success of his extortion racket:
New York state’s attorney general, Andrew Cuomo, said late Monday that 15 of the top 20 recipients of $165 million in retention bonuses from American International Group Inc.’s Financial Products unit have agreed to give back their bonuses — amounting to in excess of $30 million in cash.
…
He added that he sees no public interest in disclosing the names of people who return their bonuses, and he acknowledged that returning the money is a difficult decision for many people in the unit who weren’t involved in devising the problematic transactions that helped topple AIG.
I like to think I’d hang on to the money and force Congress to illustrate the depths of their moral bankruptcy by taxing it all way. I also like to think I’d quit – CEO Liddy threw his people to the wolves rather than stand up for them. CEO Liddy is not a leader.
James, you are quite circumspect on your opinion of the latest US plan to buy “toxic” bank assets in a partnership among Treasury, the Fed and private investors — even though this caused a market “melt-up” of 7% today.
What is your view of this nth such plan, with no prior takeup on previous versions because banks were unwilling to sell and recognize a big loss and investors were unwilling to buy until sure there was a bottom?
What is your view on how private investors might feel about investing alongside a government that changes the rules after the fact to suit political opportunism (e.g. bank executive compensation and AIG bonuses dictated by politicians despite having “co-invested” with new and old private investors rather than taking over the banks)?
Finally, are you as baffled as I that such a remarkable melt-up was accompanied by more or less normal US trading volume, so might reflect a pause for sellers to reflect while shorts were busy trying to cover?
I’m dying to be optimistic and some positive market sentiment for a while would be a nice antidote to overwhelming (possibly unwarranted) negativity.
Will the plan work? Will it even be necessary? Please prognosticate…..
Sorry – I’ve been busy!
The new Treasury plan was announced in a press release today.
It is remarkably short on details. For instance, the Legacy Securities Terms states:
It seems to me that the terms and amounts of the warrants are critical to the valuation of the equity!
I agree that the political involvement is a big negative. The crisis has become so politicized – with Obama throwing gasoline onto the fire – that it is difficult to imagine a runaway success.
The Administration is terrified. They concede:
… and are terrified of reprising Japan’s lost decade (now stretching into Japan’s lost quarter-century):
The critical element – that was missing from previous plans – is the presence of FDIC guaranteed financing, providing leverage of up to 6:1. This makes the package attractive. But if anybody makes too much money, he risks becoming a target for political oppobrium (sourced at the highest levels) and excise taxes.
It will help a little, I think, but only to the extent to which politicians can claim credit.
[…] News points out that the joint Fed/Treasury press release (reported by PrefBlog on March 23) could have more implications than have been commonly discussed: The release said that while the […]
[…] noted on March 23 that Liddy, the last CEO of AIG, demonstrated his lack of qualification for the office by throwing […]