Category: Market Action

There are rumours that European rates will continue low:

The European Central Bank will keep interest rates at record lows for an extended period and could yet cut them further, the bank’s chief, Mario Draghi, said on Thursday.

Less than two hours after the Bank of England gave a steer about future interest rate moves at Mark Carney’s debut policy meeting as governor, the ECB president adopted the same tactic.

“The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time,” Draghi told a news conference after the ECB left interest rates at 0.5 per cent, emphasizing that this was the first time that the ECB had done so.

Mind you, European leadership demonstrated during the crisis that they were willing to compromise their personal integrity when this was considered expedient; as for the BoE, Lapdog Carney will do what he’s told and read whatever speech he’s handed. That’s why he was hired. And, I’m afraid, with Parakeet Poloz now in charge of the Bank of Canada, we’re left only with Bernanke as a trustworthy central banker.

There are more jolly bond fund statistics:

Investors have pulled about $60 billion from U.S. bond funds since Federal Reserve Chairman Ben S. Bernanke rattled markets by outlining his plan to end the central bank’s unprecedented asset purchases.
The redemptions foreshadow what’s in store for asset managers when the central bank eventually scales back the $85 billion in monthly purchases of bonds and mortgage securities that investors have come to rely on. Bond funds had $28.1 billion in net redemptions in the week ended June 26, the Washington-based Investment Company Institute said yesterday.

But to put that in perspective:

Overall bond redemptions were less than 2 per cent of total assets.

Here’s another object lesson in regulatory competence and honesty:

[Vincent] Tchenguiz has launched an unprecedented legal assault on the Serious Fraud Office, one of the top agencies for prosecuting white-collar crime in the U.K. After the SFO’s investigation of Tchenguiz’s dealings with an Icelandic bank fell apart last year, he accused the office of malicious prosecution and false imprisonment in a lawsuit filed in the High Court in London in December.

Tchenguiz, who was arrested on suspicion of fraud in 2011, is seeking damages of 200 million pounds ($313 million). And his younger brother, Robert, 52, who was also arrested, filed a similar suit, asking for 100 million pounds.

n July 2012, the High Court ruled that the SFO, under former director Richard Alderman, had misrepresented key facts in the case and directed the SFO to pay Vincent’s 3 million pound legal bill. The agency isn’t appealing the decision.
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The SFO also erred when it alleged Vincent had failed to inform Kaupthing that other banks had prior claims on his real estate; the loan agreement stated that fact more than 100 times.

The SFO’s key mistake was in taking on somebody with the resources to pay a £3-million legal bill. But the rest isn’t surprising.

DBRS confirmed RON.PR.A at Pfd-4(high) [Trend Negative]:

Same-store sales were flat in 2012, yet net sales increased approximately 1.7% to nearly $4.9 billion versus the previous year based on higher sales in the Commercial and Professional Market segment, new store openings, new dealer-owners and improved same-store distribution sales to affiliate dealers. EBITDA margins were negatively affected by weaker gross margins due to promotional activity in a highly competitive environment and higher selling, general and administrative costs. As such, EBITDA declined by approximately 40% to $171 million, marking the third consecutive year of declining EBITDA.

Balance-sheet debt increased notably in F2012 to approximately $328 million, which combined with weakness in operating income to result in further deterioration of credit metrics. Lease-adjusted debt-to-EBITDAR increased to approximately 3.77 times (x) in 2012 versus 2.54x in 2011 and 2.80x in 2010 (improvement in 2011 was primarily attributable to the early voluntary repurchase of debentures) and lease-adjusted EBIT coverage declined to 1.51x in 2012 versus 2.26x in 2011 and nearly 3.7x in 2010.

Going forward, DBRS believes meaningful recovery in Rona’s earnings profile will remain challenging as the Company is expected to continue to face intense competition and a highly promotional environment while Canadian consumers may remain prudent in the uncertain housing and interest rate environment. On June 27, 2013, the Company announced the next phase of its Transformational Plan, which includes the closure of 11 non-profitable stores in Ontario and British Columbia, as well as additional administrative headcount reduction and other cost-cutting initiatives. DBRS expects that a significant improvement in operating performance will be difficult to realize over the near term but EBITDA could benefit from the successful implementation of the Company’s Transformational Plan over the medium term.

Capstone Infrastructure, proud issuer of CSE.PR.A, is making an acquisition by share exchange:

Capstone Infrastructure Corporation (TSX: CSE; CSE.PR.A; CSE.DB.A – “Capstone”) and Renewable Energy Developers Inc. (formerly Sprott Power Corp.) (TSX: RDZ; RDZ.DB – “ReD”) have entered into a definitive agreement (the “Agreement”) whereby Capstone will acquire all the outstanding shares of ReD (the “Transaction”) by way of a share exchange, which will result in a larger infrastructure company with power generation facilities across Canada totalling approximately net 465 megawatts (“MW”) of installed capacity, an attractive pipeline of contracted development opportunities in Canada representing net 79 MW of capacity, and international investments in regulated water and district heating businesses. The Board of Directors of each company has unanimously approved the Transaction.

Under the terms of the Transaction, shareholders of ReD will receive 0.26 of a Capstone common share and $0.001 in cash, which, combined, is currently the equivalent of $1.01, for each common share of ReD. The consideration payable to ReD’s shareholders represents a premium of 10.8% based on the 20-day volume weighted average price (“VWAP”) of ReD’s common shares and Capstone’s common shares on the Toronto Stock Exchange (“TSX”) as at July 2, 2013 of $0.91 and $3.88, respectively. Upon completion of the Transaction, which is valued at approximately $70 million, existing Capstone shareholders and ReD shareholders will own approximately 80% and approximately 20% of the common shares of the combined company, respectively.
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• • Expands Capstone’s renewable power footprint in Canada by adding net 95 MW in operating wind power facilities in Nova Scotia and Ontario.
• • Enables Capstone to access a net 35 MW pipeline of wind power projects with 20-year power purchase agreements (“PPAs”) under development in Nova Scotia, Ontario, Saskatchewan and Quebec, and the option to acquire an additional net 44 MW in wind power projects with PPAs in Ontario. These projects will require equity funding from Capstone in the amount of approximately $60 million over the next two years, with the balance of the projects’ financing requirement to be satisfied with project-level debt.
• • Brings additional proven development and project management personnel with a record of completing renewable power projects on time and on budget.
• • Delivery of the development projects in ReD’s pipeline is expected to be accretive to cash flow over the long term.

Tomorrow’s report will be late, by which I mean Sunday.

It was another day of strong recovery for the Canadian preferred share market, with PerpetualDiscounts winning 56bp, FixedResets gaining 12bp and DeemedRetractibles up 19bp. The performance highlights table is comprised entirely of winners. Volume was on the low side of average, but not bad for a US holiday.

Europe’s back in the news:

A broad market selloff was triggered Wednesday morning by the crumbling of the centre-right government of Portuguese prime minister Pedro Passos Coelho, which has been rocked by the resignations of its finance and foreign ministers in the last two days.

The prospect of the outright collapse of his government has triggered a fresh political crisis in Portugal that is unnerving investors across the continent. The fear is that a political vacuum, followed by polls that could elect an anti-austerity government, or another shaky coalition government, would undermine the reforms and spending cuts agreed in 2011, when the European Union and the International Monetary Fund sponsored a €78-billion Portuguese bailout package.

Lisbon’s main market index, the PSI 20 was down about 5.5 per cent in early afternoon trading, European time though it had been down almost 7 per cent in the morning.
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The government of Greek prime minister Antonis Samaras last month lost one of its two coalition partners in protest of Mr. Samaras’s unilateral decision to shut the national broadcaster, ERT, eliminating almost 3,000 jobs.

In Italy, the government of prime minister Enrico Letta, in office since April, faces uncertainty because former prime minister Mario Monti is frustrated by the slow pace of economic reform and has threatened to withdraw his support.

There are some interesting changes coming in the US securities market:

U.S. securities regulators are set to vote next week to lift an 80-year-old rule that prohibits companies and private funds from advertising to raise capital outside of a public offering.

The Securities and Exchange Commission is required to remove the advertising ban under a 2012 law that sought to ease regulations on financing for startups and small businesses. In a nod to complaints from critics who say the change will open the door to more fraud, the SEC will also propose a separate rule during the July 10 meeting to add some investor protections and make it easier for the agency to monitor the change.
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A third rule scheduled for a vote the same day would block felons and others found culpable of securities-law violations from marketing such deals, which are more lightly regulated than public offers of stock or debt.

Gotta have that third rule! What’s the point of being a big-shot regulator if you can’t indulge in a little extra-judicial punishment every now and then?

David Parkinson of the Globe reminds us that the economy is still shaky:

The ISM’s index, which indicates the pace of service-sector activity in the U.S. economy, slipped to 52.2 for June, its lowest level in more than three years. While any reading above 50 still indicates growth, the index indicates that the pace of growth has been in steady decline; it has fallen in three of the past four months, after hitting a one-year high of 56.0 in February.

Yet the stock market has been somewhere between dismissive and contemptuous toward this erosion in the services ISM. The S&P 500 was up slightly in mid-afternoon trading Monday; over the course of the services ISM’s four-month slide, the S&P 500 is up almost 8 per cent.

OSFI has published Capital Disclosure requirements.

It was another very nice recovery day for the Canadian preferred share market, with PerpetualDiscounts winning 40bp, FixedResets gaining 12bp and DeemedRetractibles up 24bp. There’s a very lengthy Performance Highlights table, but with no clear pattern to it. Volume was above average.

PerpetualDiscounts now yield 5.39%, equivalent to 7.01% interest at the standard conversion factor of 1.3x. Long Corporates now yield about 4.6%, so the pre-tax interest-equivalent spread is now about 240bp, down substantially from the 270bp reported June 26 but still above post-Crunch norms. Note that this week’s figure is not strictly comparable with last weeks figure due to the significant influx of former PerpetualPremiums into the PerpetualDiscount pool but, on a brighter note, is more comparable with older figures than has been the case recently.

Hands up who’s happy it’s not June!

Witness the record $61.7 billion of redemptions in U.S.-listed bond mutual funds and exchange-traded funds through June 24, according to TrimTabs Investment Research. That sum broke the previous monthly high of $41.8 billion, set in the scary days of October 2008.

“The unprecedented liquidation of bonds this month is a dramatic departure from recent trends,” David Santschi, chief executive officer of TrimTabs, said in a statement. “Before June, bond funds had posted inflows for 21 consecutive months.”

In May, Bill Gross’s Pimco Total Return Fund—the world’s largest—saw its first monthly withdrawals since 2011.
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Also whipsawing is the otherwise sleepy $3.7 trillion municipal bond market, where the largest exchange-traded fund tracking the sector had its best two days since 2008 after falling to the cheapest price in two years. The $3.4 billion iShares S&P National AMT-Free Municipal Bond Fund, known as MUB, sold at a record 2.86 percent discount to the value of its assets on June 21 after Federal Reserve Chairman Ben Bernanke said the central bank may moderate purchases of federal and mortgage debt in 2013 and stop them around mid-2014.

The ratio of the yield of munis to those on Treasuries is about 115 percent, the highest since July 2012.

The factoids regarding US municipals is relevant to the Canadian preferred share market, since the motivation for owning them and the broad outlines of the investor base are similar.

OSC expenses are up 5.5% over last year, but revenue is up only a little more than inflation, at 2%. Some say this shows revenue isn’t growing fast enough.

Does this remind anyone of Toronto?

San Francisco’s median house price is poised to surpass $1 million this year after setting a record in May, the California Association of Realtors estimates. The county is the only one in the state with values to set a new high, said Leslie Appleton-Young, chief economist for the group. A limited supply of houses available for sale has allowed condo developers to step in and lure frustrated buyers such as Boortz.
Tishman Speyer Properties LP’s 655 luxury units in two towers south of the financial district, and the first phase of Lennar Corp. (LEN)’s Hunters Point project at a former naval shipyard with 480 studios and townhomes, are both scheduled to break ground today, according to the companies. The projects will add to 709 condos that were under way in the city at the end of May, according to Mark Co., a San Francisco-based firm specializing in condo marketing, the most since 2008.

Well – maybe this part is different:

Buyers have been making down payments of 35 percent in a market awash in wealth from tech workers and overseas investors, Mark said.

Still, SF’s condo boom is small potatoes by Toronto standards:

In March, active condo listings for sale on the MLS rose 8 per cent over last year to hit a record high for the month. At the same time, condo sales slumped 18 per cent. Compounding this growing supply-demand imbalance is the 55,000 new condo units currently under construction in the city, the majority of which are set to hit the market through the rest of the year and into 2014.

San Francisco has a population of only 800-odd thousand, but still!

Oh, boy! Nowadays an eager young kid can get a Bachelor of Boxtickingology!

York University’s business school has created a new specialty program to train business students to become financial regulators – or at least to work with them from within the banking industry.

The Schulich School of Business said Tuesday it has created a new 12-month specialty stream called regulatory affairs for financial institutions as part of its Masters of Finance program.

It was another day of solid recovery for the Canadian preferred share market, with PerpetualDiscounts (yes! They now outnumber PerpetualPremiums!) winning 36bp, FixedResets gaining 10bp and DeemedRetractibles up 18bp. The performance highlights table is suitably lengthy, markedly skewed towards winners. Volume was very low.

Nothing happened today.

It was another day of solid, if slowing, recovery for the Canadian preferred share market, with PerpetualPremiums winning 22bp, FixedResets up 15bp and DeemedRetractibles gaining 5bp. There is another lengthy Performance Highlights table, which pales in comparison only to how long it has been in previous weeks. Volume was above average.

The Fed is trying to get the show back on the road:

Federal Reserve officials stepped up their campaign to stem an increase in long-term borrowing costs that threatens to blunt the U.S. expansion and sought to clarify comments by Chairman Ben S. Bernanke that sparked turmoil in global financial markets.

William C. Dudley, president of the Federal Reserve Bank of New York, said any decision to reduce the pace of asset purchases wouldn’t represent a withdrawal of stimulus, and that an increase in the Fed’s benchmark interest rate is “very likely to be a long way off.” He said bond purchases could be prolonged if economic performance fails to meet the Fed’s forecasts.
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[Atlanta Fed President Dennis] Lockhart, using a smoking metaphor, said the investors had misinterpreted the Chairman’s remarks. “It seems to me the Chairman said we’ll use the patch, and use it flexibly, and some in the markets reacted as if he said ‘cold turkey,” Lockhart said in a speech to the Kiwanis Club of Marietta in Georgia.

[Fed Governor Jerome ] Powell said and decision to reduce purchases would depend on economic data, and that there’s no set timetable.

“I want to emphasize the importance of data over date,” Powell said at the Bipartisan Policy Center in Washington. “In all likelihood, the current” large-scale asset purchases “will continue for some time.”

There was continued recovery for the Canadian preferred share market today, with PerpetualPremiums up 30bp, FixedResets gaining 19bp and DeemedRetractibles winning 46bp. There was, naturally enough, another bumper harvest of Performance Highlights. Volume was average.

Who says Canada’s big financial institutions aren’t responsive and socially forward-looking? They have demonstrated yet again their concern about the financial comfort of the mentally deficient:

A group including Royal Bank of Canada and five other large investment firms is launching a competitor to the Toronto Stock Exchange, which handles the most trading in Canada.

The new market is designed to attract investors who are upset with what they see as unfair competition from high-frequency traders, who use ultrafast computers to exploit market quirks or to try to get ahead of other investors. The success of the new exchange may hinge on how much discontent there is with high-frequency trading (HFT) activity.
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The plan is the product of months of work by RBC and a group of supporters including mutual fund giants IGM Financial Inc. and CI Financial Corp., Canadian pension fund PSP Investments and international brokerages ITG and Barclays.

‘Boo-hoo-hoo!’ cry the traders, “Our lunch is being eaten by a mob of parvenu geeks who understand these complicated computer thingamajigs! Save us, save us!’

‘Certainly!’ answer the bosses. ‘We’ll open up a new exchange that makes competition illegal! That will boost profits and cover up our incompetence!’

‘Great idea!’ enthuse the regulators. ‘Just give us a little cut of the take and we’ll make the Competition Act … go away.’

Aequitas, naturally enough, claims its major purpose is to enable double-dipping on transaction fees paid by clients:

Our stakeholders are professional money managers, pension funds, institutional and retail brokers and Canadian issuers, who believe there should be a level playing field for all market participants. A new and different exchange that strikes the right balance between liquidity, price discovery and cost efficiency, and enhances markets for the long-term investor.

It was another day of impressive bounce-back for the Canadian preferred share market, with PerpetualPremiums winning 66bp, FixedResets gaining 26bp and DeemedRetractibles up 65bp. The Performance Highlights table is suitably lengthy. Volume was very high.

PerpetualDiscounts now yield 5.65%, equivalent to 7.34% interest at the standard equivalency factor of 1.3x. Long Corporates now yield 4.65%, so the pre-tax interest-equivalent spread is now about 270bp, hugely elevated from post-Crunch norms and from the 235bp reported June 12.

In today’s news, a politician announced that insurance companies have lots of money so people should be encouraged to build on floodplains:

Insurance companies are between a rock and a hard place. The potential cost of overland flood insurance is enormous but, at the same time, Feltmate said companies are aware there are repercussions for the industry’s already dismal image in continuing to allow victims of devastating floods to “go apoplectic” when they discover they’re not covered.

Moreover, if the industry doesn’t deal with the issue itself, he said the government could impose a solution that is less palatable.

Immigration Minister Jason Kenney, the minister responsible for southern Alberta, strongly encouraged insurance companies on Monday to pay the claims of people whose homes were damaged by both backed up water and overland flooding, without being overly nit-picky about the exact cause of the damage.

Or, to put it another way:

The map of flood plain for 70-yr flood is shown in next page. Much of Downtown, Sunnyside, Bowness, and other residential areas are under water. This size of flood has not occurred since 1932, but it could occur anytime.

The City proposed management plans, but met with great disfavor by community group, who were worried that property values would decline if hazard zones were officially declared.

I grumbled about the closing quote on GWO.PR.I yesterday …. it turns out that most of the problem was the ridiculous TMX Close != Last issue. Some very expensive data purchased from the TMX has revealed that the closing quote was 21.75-21, 5×5 … a pretty wide spread, but not as nonsencical as the 21.01-22.21 last quote which, in their infinite wisdom, the TMX has decided to sell exclusively and is usually reported as the “closing” quote.

The imminent end of the world forecast by the Canadian preferred share market was postponed today, with PerpetualPremiums up 50bp, FixedResets gaining 34bp and DeemedRetractibles winning 101bp. These rather attractive index numbers masked a fair bit of chopping and changing, with there being a fair number of losers on the Performance Highlights list.

Nice quote from Richard Fisher of the Dallas Fed:

Investors shouldn’t overreact to the central bank’s plans to reduce the pace of asset purchases, Fisher said in an interview with the Financial Times published today on its web site. Investors behaved like “feral hogs” after the June 19 comments by Bernanke, he said, according to the newspaper.

Nothing moves as quickly as retail:

According to TrimTabs Investment Research, investors are selling bond-related investments at a record pace, with $47.2-billion (U.S.) flowing out of U.S. bond mutual funds and exchange-traded funds so far in June, easily exceeding the record of $41.8-billion set in October, 2008, during the financial panic.

Meanwhile, at the Canadian preferred share investor convention:

The Canadian preferred share market was left a shambles after a day of slaughter, with PerpetualPremiums losing 158bp, FixedResets off 78bp and DeemedRetractibles down 123bp. The Performance Highlights table is suitably ridiculous with … um … LOTS! That’s right, LOTS of entries … and a solitary winner. Volume was gargantuan.

I noted on June 19 that James Bullard of the St. Louis Fed had dissented against the latest decision. He has taken the unusual – but certainly not unknown – step of explaining why:

Federal Reserve Bank of St. Louis President James Bullard dissented with the Federal Open Market Committee decision announced on June 19, 2013. In his view, the Committee should have more strongly signaled its willingness to defend its inflation target of 2 percent in light of recent low inflation readings. Inflation in the U.S. has surprised on the downside during 2013. Measured as the percent change from one year earlier, the personal consumption expenditures (PCE) headline inflation rate is running below 1 percent, and the PCE core inflation rate is close to 1 percent. President Bullard believes that to maintain credibility, the Committee must defend its inflation target when inflation is below target as well as when it is above target.

President Bullard also felt that the Committee’s decision to authorize the Chairman to lay out a more elaborate plan for reducing the pace of asset purchases was inappropriately timed. The Committee was, through the Summary of Economic Projections process, marking down its assessment of both real GDP growth and inflation for 2013, and yet simultaneously announcing that less accommodative policy may be in store. President Bullard felt that a more prudent approach would be to wait for more tangible signs that the economy was strengthening and that inflation was on a path to return toward target before making such an announcement.

In addition, President Bullard felt that the Committee’s decision to authorize the Chairman to make an announcement of an approximate timeline for reducing the pace of asset purchases to zero was a step away from state-contingent monetary policy. President Bullard feels strongly that state-contingent monetary policy is best central bank practice, with clear support both from academic theory and from central bank experience over the last several decades. Policy actions should be undertaken to meet policy objectives, not calendar objectives.

While President Bullard found much to disagree with in this decision, he does feel that the Committee can conduct an appropriate and effective monetary policy going forward, and he looks forward to working with his colleagues to achieve this outcome.

Sun Life Financial’s sale of its US annuities book met a small positive response from the Credit Rating Agencies. Now, SLF has announced:

On December 17, 2012, Sun Life Financial Inc. (TSX: SLF) (NYSE: SLF) entered into a definitive stock purchase agreement to sell its U.S. annuities business and certain of its U.S. life insurance businesses to Delaware Life Holdings, LLC, which was expected to close before the end of the second quarter of 2013, subject to regulatory approvals and other closing conditions. Approvals for the transaction have since been obtained from a number of regulators, including the Delaware Department of Insurance and the Financial Industry Regulatory Authority (FINRA). The approval process is also underway with the New York Department of Financial Services. The Department has recently undertaken a review of private investor groups as owners of annuity businesses, and we anticipate that the review will delay the close of the transaction beyond the end of the second quarter of 2013. We are continuing to work with Delaware Life Holdings, LLC, to obtain approval from the New York Department of Financial Services for the transaction and to close the transaction as soon as possible. Both parties have made substantial progress in preparing for the close and for the transition of employees and operations to support the business going forward.

The NY Dept. of Financial Services has made waves before:

The regulator, led by Superintendent Benjamin Lawsky, has expressed concern over whether the firms will be sufficiently careful with investments that back long-term obligations to retirement savers. Guggenheim, Apollo and Harbinger have announced deals to buy units that sell fixed annuities, which provide streams of payments to retirees and other customers.

“The risk that we’re concerned about at DFS is whether these private-equity firms are more short-term focused, when this is a business that’s all about the long haul,” Lawsky said in an April 18 speech. “Their short-term focus may result in an incentive to increase investment risk and leverage in order to boost short-term returns.”
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Lawsky is seeking e-mails, pitchbooks, memos, and information about investment allocations and return assumptions, the person said. Bloomberg reported last month that Wall Street firms have been acquiring life insurance companies and adding investments such as mortgage-backed securities that have drawn attention from regulators accustomed to simpler portfolios.

The regulator wants to understand the risks the companies are taking on and how they’re presenting the deals to investors, and the information may be used to craft new regulations, the person said. The Wall Street Journal reported on the subpoenas earlier today.

US regulators are considering a DSIB rule that actually means something:

U.S. regulators last year proposed implementing the 3 percent international requirement for what’s known as the simple leverage ratio. Now the Federal Reserve and Federal Deposit Insurance Corp., under pressure from lawmakers, are weighing increasing that figure for some of the biggest banks, according to the people, who asked not to be identified because the discussions are private.

“The 3 percent was clearly inadequate, nothing really,” said Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist for the International Monetary Fund. “Going up to five or six will make the rule be worth something. Having a lot of capital is crucial for banks to be sound. The leverage ratio is a good safety tool because risk-weighting can be gamed by banks so easily.”
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By going above the figure adopted in 2010 by the Basel Committee on Banking Supervision, the U.S. also could put pressure on Europe to affirm its commitment to the standard, which is seen as a tool to rein in risk in the financial system. Regulators in the U.K. and Switzerland told banks yesterday to increase their ratios of capital to total assets.

U.S. banks have had to comply with a simple leverage requirement of 4 percent for two decades. The new version, proposed last June, expands the definition of what counts as assets in calculating the ratio, incorporating some commitments such as lines of credit kept off balance sheets under current accounting rules. The draft is an attempt to bridge U.S. and international accounting standards.
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FDIC Vice Chairman Thomas Hoenig has called for scrapping risk-based rules entirely in favor of a 10 percent leverage ratio, calculated to include even more off-balance-sheet assets than allowed under Basel and define capital more narrowly. To reach Hoenig’s requirements, the three largest U.S. banks — JPMorgan, Bank of America and Citigroup (C) — would have to stop distributing dividends for about five years, according to FDIC data and analysts’ earnings expectations compiled by Bloomberg.

The Systemic Risk Council, an advisory group led by former FDIC Chairman Sheila Bair, has called for 8 percent. Bair fought for a global leverage ratio in Basel committee meetings when she led the U.S. agency.

A bipartisan Senate bill introduced in April by David Vitter, a Louisiana Republican, and Ohio Democrat Sherrod Brown would set the leverage ratio at 15 percent. Banks have assailed the proposal. It “would limit an institution’s ability to lend to businesses, hampering economic growth and job creation,” the Securities Industry & Financial Markets Association, a Washington-based lobbying group, said at the time.

A modest upward move in the overall index (TXPR up 10bp) masked a great deal of internal movement for the Canadian preferred share market today, with PerpetualPremiums down 19bp (a lot of these are actually ‘PendingPerpetualDiscounts’ at this time, of course), FixedResets gaining 4bp (despite poor performance from the new issue, which was just a catch-up) and DeemedRetractibles winning 43bp. There is another very lengthy Performance Highlights table as the market readjusts to new levels; there’s no readily discernable pattern in these returns. Volume remained very high, but well off yesterday’s peak.

The OSC has approved a new investment platform. As one might expect when government agencies agree on something really, really good, it’s over-regulated, vomit-inducingly precious and has little to do with either innovation or capital-raising:

The portal is called MaRS VX, and it works like an online dating site, matching as it does investors with companies in Ontario that meet MaRS’s financial, social-impact and governance standards. The platform caters to both for- and non-profit organizations tackling problems such as climate change, persons with disabilities or poverty. Issuers must also have less than $25-million in revenue.
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Joining the program is free to investors once they are verified by MaRS as “patient capitalists” with an interest in having an impact as well as the potential for financial return. Companies pay a fee that covers some of MaRS’s costs.

Once issuers secure investments, they’re required to report biannually to investors on their finances and their impact, said Mr. Spence. “Having that kind of ongoing reporting requirement means these folks are engaged in good governance practices and using their money for the purposes indicated.”

Should a company require more financing for additional projects, they must reapply and undergo another review.

A day of thrills and chills!

Gold futures sank to $1,283.50 an ounce, after tumbling 6.4 percent yesterday. Holdings (GDTRGOLD) in the SPDR Gold Trust, the world’s largest exchange-traded product backed by bullion, fell below 1,000 metric tons for the first time in four years.
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The S&P 500 (SPX) extended June 19’s 1.4 percent slump and fell to the lowest level since May 1 as all 10 of its main industry groups retreated at least 2.2 percent. The benchmark index extended its decline from its last record reached May 21 to 4.9 percent, trimming its 2013 advance to 11 percent and its rally from its bear-market low in 2009 to 135 percent.
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The stock sell off pushed the MSCI all-country gauge down more than 7 percent from a five-year high reached May 21, the day before Bernanke raised the possibility of reducing stimulus should U.S. economic indicators improve. About $2.4 trillion was erased from global equity values over that stretch, with indexes in Hong Kong and Japan sliding more than 20 percent into bear markets.
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Yields on 10-year Treasuries touched 2.47 percent, the highest level since August 2011, before closing six basis points, or 0.06 percentage point, higher at 2.42 percent. Thirty-year U.S. bond yields jumped 11 basis points to 3.52 percent, the highest level since August 2011, and two-year rates increased two basis points to 0.33 percent.
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The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 5.7 basis points to a mid-price of 91.4 basis points in New York, after climbing 3.9 basis points June 19, according to prices compiled by Bloomberg. That’s the biggest two-day jump on a closing basis since the measure rose 8.8 in the period ended May 14, 2012, excluding rolls into new series of the benchmark.

I have the feeling that tomorrow’s going to be a long day.

As for today, there was total carnage on the Canadian preferred share market with PerpetualPremiums down 176bp, FixedResets off 59bp and DeemedRetractibles losing 194bp. As might well be expected, the Performance Highlights table is ridiculously long. Volume was enormous. Super-colossal. Gigantic. Brobdingnagian.