PrefBlog

I weep for this world. In a move mocking the rule of law, British banks are being asked (told) to sign extra-legal agreements with the government:

Chancellor of the Exchequer Alistair Darling will put pressure on senior executives at Britain’s banks to sign agreements promising to end all tax avoidance, a person with knowledge of the plans said.

The Revenue and Customs wing of the Treasury on Monday will seek board level agreement from all U.K. banks and consult them on how to implement the plan, the person said. Banks refusing to sign the code will face more intrusive inspections from tax authorities.

The revenue office wants to change behavior to make sure banks comply with the the spirit as well as the letter of the law, the person said.

Fascism doesn’t usually come with fiery oration and jackboots. Fascism comes with earnest and well-meaning bureaucrats.

There might be some excitement in the CMBS business:

The ratings on $235.2 billion in debt backed by commercial mortgages may be cut by Standard & Poor’s as the ratings company seeks to reflect how the securities would fare in an “extreme economic downturn.”

The possible reductions, disclosed today in a report, follow S&P’s May 26 statement that the ratings of as much as 90 percent of top-ranked commercial mortgage-backed bonds sold in 2007 may be cut because of the changes in how they’re assessed.

However, as mentioned on June 15, there are plenty of other CRAs available for discriminating ratings-shoppers. That post also mentioned how NAIC wanted to regulate AND provide credit ratings; apparently some have pointed out that this is Not A Good Idea:

Dierdre Manna, vice president of industry, regulatory and political affairs for the Property Casualty Insurers Association of America (PCI), questioned whether transferring rating responsibilities to regulators comports with the NAIC’s mission statement.

She also questioned whether it would be possible for the NAIC to fully separate regulatory and rating agency responsibilities.

A totally insane idea; much like grading schools and universities on their proportion of passing students … er, wait, we do that don’t we? Never mind.

US Banks made some pretty good money on derivative trading in the first quarter:

• The notional value of derivatives held by U.S. commercial banks increased $1.6 trillion in the first quarter, or 1%, to $202.0 trillion, due to the continued migration of investment bank derivatives business into the commercial banking system.
• U.S. commercial banks generated record revenues of $9.8 billion trading cash and derivative instruments in the first quarter of 2009, compared to a $9.2 billion loss in the fourth quarter of 2008.
• Net current credit exposure decreased 13% to $695 billion.
• Derivative contracts remain concentrated in interest rate products, which comprise 84% of total derivative notional values. The notional value of credit derivative contracts decreased by 8% during the quarter to $14.6 trillion.

There’s an essay on Credit Rating Agencies on VoxEU today, by Marc Flandreau & Norbert Gaillard, titled Icarus’ syndrome: Rating agencies and the logic of regulatory license:

But again, this per se does not explain why rating agencies were privileged by regulators over other instruments to promote forbearance. For instance, regulators could have used bond prices at the time of issue as a possible alternative. Our investigation revealed that what caused the emergence of rating agencies as a pillar of regulation was the perceived conflict of interest that investment banks and commercial banks involved in origination suffered at the time. It was perceived that bankers were “banksters” and had been unable to resist conflicts of interest between their role as originators and their role as gatekeepers of liquidity. As a result, the public suspected that the prices at which securities had been issued were likely to have been manipulated. Certification and regulatory intervention had to rest on some assessment of “value” that would be as far away from the origination process as conceivable. Rating agencies provided just this.

The rest of the story is well known. In doing this, regulators dragged the agencies closer to the core of the origination of new securities, which eventually proved damaging for their reputation. While some will emphasise the irony of now blaming the agencies for the very sins that caused their emergence in the first place, we suggest that there must be deep reasons for history to go in circles. And whatever they are, the lesson must be that there is no long-run, simple, and sustainable regulatory fix for our current troubles.

Deep reasons? I don’t think it’s all that deep:

• Doing a good job is not as important as one might hope. It’s all about sales.
• Forecasting the future is fraught with pitfalls. Only a pack of MBAs would bet their company’s future on a single forecast.
• The rating agencies are not paid to do a good job. Hardly anybody cares if they do a good job and even fewer are capable of evaluating ex ante whether they do a good job. They’re paid to be the fall-guy; they are now earning their pay.

PerpetualDiscounts took a break today, but FixedResets continued to rock ‘n’ roll. It’s astonishing! How low can yields on those suckers go? I’m amazed that a lot of new issuance isn’t being coaxed out of the woodwork … but if the price action is based on Current Yields rather than Yield-to-Worst (as I suspect is at least partially the case), perhaps it’s not as surprising as all that. Maybe it’s not even Current Yield – maybe it’s just the plain old coupon! It wouldn’t surprise me. mumble mumble … all these oh-so-clever quants running around, dividing one number by another number … I knew a quant once, he lost money.

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	-0.8481 %	1,206.4
FixedFloater	7.09 %	5.51 %	35,368	16.31	1	0.0000 %	2,126.6
Floater	3.16 %	3.54 %	75,606	18.42	3	-0.8481 %	1,507.1
OpRet	4.95 %	3.50 %	122,961	0.90	14	0.1832 %	2,205.0
SplitShare	5.75 %	6.36 %	68,280	4.21	3	0.2724 %	1,895.5
Interest-Bearing	6.00 %	2.21 %	22,898	0.08	1	1.3986 %	2,017.0
Perpetual-Premium	0.00 %	0.00 %	0	0.00	0	-0.0043 %	1,740.2
Perpetual-Discount	6.34 %	6.37 %	161,335	13.42	71	-0.0043 %	1,602.7
FixedReset	5.65 %	4.73 %	491,750	4.35	40	0.3790 %	2,022.7

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.B	Perpetual-Discount	-2.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 18.53 Evaluated at bid price : 18.53 Bid-YTW : 6.33 %
BAM.PR.B	Floater	-2.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 11.00 Evaluated at bid price : 11.00 Bid-YTW : 3.58 %
HSB.PR.D	Perpetual-Discount	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 19.32 Evaluated at bid price : 19.32 Bid-YTW : 6.52 %
CM.PR.J	Perpetual-Discount	-1.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 17.63 Evaluated at bid price : 17.63 Bid-YTW : 6.39 %
IAG.PR.A	Perpetual-Discount	-1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 17.26 Evaluated at bid price : 17.26 Bid-YTW : 6.71 %
BAM.PR.M	Perpetual-Discount	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 15.60 Evaluated at bid price : 15.60 Bid-YTW : 7.68 %
CM.PR.I	Perpetual-Discount	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 18.22 Evaluated at bid price : 18.22 Bid-YTW : 6.45 %
RY.PR.L	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.16 Bid-YTW : 4.65 %
NA.PR.M	Perpetual-Discount	1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 23.86 Evaluated at bid price : 24.06 Bid-YTW : 6.33 %
MFC.PR.D	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.92 Bid-YTW : 4.96 %
RY.PR.R	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.31 Bid-YTW : 4.25 %
RY.PR.A	Perpetual-Discount	1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 18.41 Evaluated at bid price : 18.41 Bid-YTW : 6.13 %
IAG.PR.C	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.94 Bid-YTW : 5.29 %
STW.PR.A	Interest-Bearing	1.40 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2009-07-26 Maturity Price : 10.00 Evaluated at bid price : 10.00 Bid-YTW : 2.21 %
SLF.PR.F	FixedReset	1.50 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 26.40 Bid-YTW : 4.94 %
CM.PR.R	OpRet	1.76 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2009-07-26 Maturity Price : 25.60 Evaluated at bid price : 26.00 Bid-YTW : -18.74 %
CIU.PR.B	FixedReset	2.64 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 27.25 Bid-YTW : 4.84 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.X	OpRet	173,898	RBC crossed two blocks of 59,700 at 25.95 (in and out of inventory, maybe?); Scotia crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2010-10-30 Maturity Price : 25.67 Evaluated at bid price : 25.95 Bid-YTW : 3.81 %
BMO.PR.P	FixedReset	142,900	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 23.18 Evaluated at bid price : 25.20 Bid-YTW : 5.05 %
BAM.PR.P	FixedReset	32,815	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 6.70 %
MFC.PR.D	FixedReset	32,724	Nesbitt bought 14,800 from Scotia at 26.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 26.92 Bid-YTW : 4.96 %
TD.PR.S	FixedReset	32,685	National bought 10,000 from anonymous at 24.95. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-26 Maturity Price : 24.83 Evaluated at bid price : 24.88 Bid-YTW : 4.52 %
NA.PR.O	FixedReset	31,445	RBC bought 15,000 from TD at 27.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 27.06 Bid-YTW : 4.87 %
There were 41 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Friday, June 26th, 2009 at 8:13 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.