Category: Market Action

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 3bp, FixedResets up 6bp and DeemedRetractibles off 1bp. Volatility was minimal. Volume was lousy, albeit with one very bright spot.

PerpetualDiscounts (all three of them!) now yield 4.97%, equivalent to 6.46% at the standard equivalency factor of 1.3x. Long corporates now yield about 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 205bp, a slight (and quite possibly spurious) narrowing from the the 210bp reported August 9.

The latest regulatory extortion attempt worked:

A New York regulator settled a money laundering probe of Standard Chartered Plc (STAN) for $340 million a day before the U.K.-based bank was to appear at a hearing to defend its right to continue operating in the state.

Do I see the beginnings of a backlash?

Add it all up and it’s hard to avoid the impression Mr. Lawsky just carried out an effective old-fashioned shakedown, and one that also happens to be good politics in a bank-bashing era. Either way, he has just served notice that yet another regulator has its eye on Wall Street – and that banking in New York may now carry even more frictional costs than the industry bargained for.

William C. Dudley, president of the Federal Reserve Bank of New York, writes an excellent piece on Money Market Fund reform:

Contrary to what some in the industry suggest, run risk didn’t end when the SEC sensibly tightened rules on money-fund holdings in 2010. Analysis by the U.S. Treasury’s Office of Financial Research showed that, as of April this year, no fewer than 105 money-market funds with more than $1 trillion in assets were at risk of breaking the buck if any one of their top 20 borrowers were to default.

The SEC’s Schapiro would address run risk by requiring money funds to move to floating net-asset values (like most other mutual funds) or to adopt capital buffers, possibly along with redemption restrictions.

Floating net-asset values would be a significant improvement over stable net-asset values. It would reduce the incentive for shareholders to get out early in times of stress. But it wouldn’t eliminate the incentive to run altogether. Fund managers faced with large redemption requests typically sell their most liquid assets first, leaving the remaining investors with a riskier, less-liquid portfolio and a greater risk of loss.

As explained in a recent paper by Federal Reserve economists, combining small capital buffers with a requirement that investors who withdraw funds must maintain a small balance for a short period to absorb near-term losses would make the system safer by creating a disincentive to run. The modest withdrawal restrictions, which create a “minimum balance at risk,” might be set at 5 cents on the dollar, based on the high- water mark of recent holdings.

Crucially, the minimum balance retained by those who had pulled money out would be put in the first-loss position for about 30 days. This would protect those who remain in the fund from losses caused by others’ redemptions. Exemptions for small investors, who are least likely to run, could be considered. For instance, the first $50,000 of an investor’s redemptions could be exempt from first loss. Small investors would share proportionately in any fund losses instead.

He references the Treasury’s Office of Financial Research Annual Report (didn’t know there was one of those):

Chart 3.3.11 illustrates counterparty concentration among money market funds. The chart shows the vulnerability of funds to a default of their counterparties. The most vulnerable funds would break the buck—fall below the $1 net asset value by more than half a cent—if any one of 30 or more counterparties defaulted; the less vulnerable funds would break the buck if any one of 10 to 19 counterparties defaulted. The analysis assumes 40 percent recovery on all unsecured lending by the funds and full recovery on all repo transactions.

Click for Big

The other paper highlighted is by Patrick E. McCabe, Marco Cipriani, Michael Holscher, and Antoine Martin, titled The Minimum Balance at Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds:

This paper introduces a proposal for money market fund (MMF) reform that could mitigate systemic risks arising from these funds by protecting shareholders, such as retail investors, who do not redeem quickly from distressed funds. Our proposal would require that a small fraction of each MMF investor’s recent balances, called the “minimum balance at risk” (MBR), be demarcated to absorb losses if the fund is liquidated. Most regular transactions in the fund would be unaffected, but redemptions of the MBR would be delayed for thirty days. A key feature of the proposal is that large redemptions would subordinate a portion of an investor’s MBR, creating a disincentive to redeem if the fund is likely to have losses. In normal times, when the risk of MMF losses is remote, subordination would have little effect on incentives. We use empirical evidence, including new data on MMF losses from the U.S. Treasury and the Securities and Exchange Commission, to calibrate an MBR rule that would reduce the vulnerability of MMFs to runs and protect investors who do not redeem quickly in crises.

Wells Fargo issued some preferreds in the States (no dividend tax credit!) rated A by DBRS:

DBRS has today assigned a rating of ‘A’ with a Stable trend to Wells Fargo & Company’s (Wells Fargo or the Company) $675 million issuance (with a $75 million over-allotment option) of Non-cumulative Perpetual Preferred Stock. The ratings are positioned three notches below Wells Fargo’s Issuer & Senior Debt rating of AA, which also carries a Stable trend. This notching is consistent with DBRS’s base notching policy for preferred shares issued for AA rated entities.

They’re financing at 5.25% to redeem at 8.25%.

State Street Corporation (NYSE: STT) today announced the pricing of its previously announced offering of 20,000,000 depositary shares each representing a 1/4,000th ownership interest in a share of Non-Cumulative Perpetual Preferred Stock, Series C, without par value per share, with a liquidation preference of $100,000 per share (equivalent to $25 per depositary share). The aggregate dollar amount of the depositary shares offered is $500,000,000. The offering is being conducted pursuant to an effective registration statement under the Securities Act of 1933.

The depositary shares will be offered to the public at a price of $25 per depositary share and with a dividend rate of 5.25% per annum on the liquidation preference of $100,000 per Series C share.
…
Subject to approval by the Federal Reserve, State Street intends to use the net proceeds of the offering to redeem all of the outstanding shares of State Street’s Non-Cumulative Perpetual Preferred Stock, Series A, all of which are held by State Street Capital Trust III, at a cash redemption price of $100,000 per share, together with an amount equal to any dividends that have been declared but not paid prior to the redemption date, on such redemption date as may be established by State Street in accordance with the Certificate of Designation of the Series A Preferred Stock. Upon the completion of the redemption of the Series A Preferred Stock, State Street Capital Trust III will redeem all of State Street’s outstanding 8.250% Fixed-to-Floating Rate Normal Automatic Preferred Enhanced Capital Securities and all of the outstanding common securities issued by State Street Capital Trust III. If State Street is not permitted to redeem the Series A Preferred Stock, then State Street expects to use the net proceeds for general corporate purposes.

Redemption provisions aren’t all that good according to the prospectus:

The Series N Preferred Stock may be redeemed by us at our option in whole, or in part, on September 15, 2017, or any dividend payment date thereafter, at a redemption price equal to $25,000 per share of Series N Preferred Stock (equivalent to $25 per depositary share), plus an amount equal to any declared and unpaid dividends, without accumulation of any undeclared dividends. The Series N Preferred Stock may also be redeemed by us at our option in whole, but not in part, prior to September 15, 2017, upon the occurrence of a “regulatory capital treatment event,” as described herein, at a redemption price equal to $25,000 per share of Series N Preferred Stock (equivalent to $25 per depositary share), plus an amount equal to any declared and unpaid dividends, without accumulation of any undeclared dividends.

I do like linking to public documents on public file as filed with the regulator of record! So much better than what we have here in Canada.

Atlantic Power, proud ultimate parent of AZP.PR.A and AZP.PR.B, was confirmed at Pfd-4 by DBRS:

DBRS has today confirmed the ratings of Senior Unsecured Debt and Medium-Term Notes (the Notes) of Atlantic Power Limited Partnership (APLP; formerly Capital Power Income L.P.) and the Cumulative Preferred Shares of Atlantic Power Preferred Equity Ltd. (formerly CPI Preferred Equity Ltd.) at BB and Pdf-4, respectively, both with Stable trends. The rating of APLP is based on the credit quality of Atlantic Power Corporation (ATP or the Company; not rated by DBRS) given that APLP guarantees the majority of ATP’s debt at the holding company level (total holding company debt at ATP accounted for 36% of consolidated debt, June 30, 2012). The recovery rating of the Notes is RR4 (indicating an expected recovery of 30% to 50%).

The credit profile of ATP reflects its moderate business risk profile, which benefits from a diversified portfolio of generation assets (2,141 megawatts of net generating capacity) located in 11 states in the U.S. and two provinces in Canada. Over 95% of its net generating capacity is under power contracts (PPAs), with a significant portion of contracted capacity having capacity payments and fuel cost pass-through. PPAs substantially reduce ATP’s exposure to wholesale power price volatility and support cash flow stability. In addition, ATP has above-average operational efficiency with a capacity factor of over 90% (five-year average), which is key to maintaining steady capacity payments.

Following the acquisition of APLP, ATP’s financial profile weakened significantly, predominately due to higher leverage and weaker cash flow ratios. ATP’s balance sheet is expected to continue to be pressured by the ongoing high level of capex associated with the Canadian Hills and Piedmont Green Power projects in 2012. In the medium to long term, APT’s financing strategy is to reduce the consolidated debt-to-capital ratio (currently at 67%) to 50%. Should the Company successfully execute its deleveraging strategy and build a strong track record of maintaining a good financial profile, this will have a positive credit implication.

It was a good, if uneven, day for the Canadian preferred share market, as PerpetualPremiums won 11bp, FixedResets were flat and DeemedRetractibles gained 8bp. Volatility was negligible. Volume continued to be awful.

Here’s some corporate activism that doesn’t induce nausea:

Caterpillar Inc. (CAT) Chief Executive Officer Doug Oberhelman said he will campaign later this year for a cut in U.S. government debt because the issue affects customers of the largest maker of construction and mining machinery.

“It’s starting to hold us back,” Oberhelman said in an interview yesterday with Bloomberg Television’s “Street Smart” at the company’s demonstration and learning center in Edwards, Illinois. “For the contractor base and customers in this country, it’s worrisome. It has a chill in the air.”

Customers of Caterpillar are “scared to death” that tax rates will rise as public expenditure stalls, he said. Higher taxes and cuts in spending on government programs amounting to $607 billion as measured by the Congressional Budget Office will take effect at year-end without congressional action.

In a continuation of the insane stampede towards central counterparties and single-point failure BIS has proposed:

Where a bank acts as a clearing member of a CCP for its own purposes, a risk weight of 2% must be applied to the bank’s trade exposure to the CCP in respect of OTC derivatives, exchange traded derivative transactions and SFTs. Where the clearing member offers clearing services to clients, the 2% risk weight also applies to the clearing member’s trade exposure to the CCP that arises when the clearing member is obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the CCP defaults

Capital is charged harshly … but subject to a cap!

Clearing member banks may apply a risk-weight of 1250% to its default fund exposures to the CCP, subject to an overall cap on the risk-weighted assets from all its exposures to the CCP (ie including trade exposures) equal to 20% times the trade exposures to the CCP. More specifically, under this approach, the Risk Weighted Assets (RWA) for both bank i’s trade and default fund exposures to each CCP are equal to:16
Min {(2% * TEi + 1250% * DFi); (20% * TEi)}
where
• TEi is bank i’s trade exposure to the CCP, as measured by the bank according to paragraphs 110 to 112 of this Annex; and
• DFi is bank i’s pre-funded contribution to the CCP’s default fund.

When calculating the required capital of the CCP, its exposures are risk-weighted at 20%, a figure which is far too low. Interconnectedness of banks should be discouraged through the capital rules, not encouraged! Note that under Canadian rules:

• the risk weight of bank exposure is dependent upon the credit quality of the sovereign (i.e., an implicit assumption of cross-border state aid)
• The highest rank for sovereigns is the AA- to AAA category
• The risk weight for exposure banks domiciled in these credit-worthy sovereigns is 20%
• The credit quality scale for these exposures is the same as for corporates

So in other words, if a bank has a choice between lending to a non-financial company or another bank, the risk weighting will generally favour the bank loan, because then they can use the sovereign’s creditworthiness rather than that of the actual borrowing entity. Am I the only person in the world who thinks this is nuts?

It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums winning 7bp, FixedResets up 6bp and DeemedRetractibles gaining 4bp. Volatility was minimal. There were a few pockets of volume … but basically? Yech.

No great joy in the Canadian jobs number:

Canadian job creation hit a stumbling block in July after two months of modest gains and following an impressive number of new jobs added earlier in the year.

A hefty 51,600 part-time positions were eliminated over the month, with women over 55 feeling the brunt of the job losses, according to Statistics Canada data released Friday. Employment for all other age groups remained roughly the same as the month before, and full-time employment increased by 21,300 jobs in July, compared with 29,300 new full-time jobs in June.

Some are calling for rate cuts; others aren’t:

“All things considered,” David Madani of Capital Economics told clients in a note, “this jobs report provides further support to our long-held view that the Bank of Canada may eventually be forced to cut interest rates.”

Mr. Madani’s analysis assumes policy makers will focus on the headline number, which suggests that Canada’s economy has slid into a soft patch, as job creation was paltry in May and June. The unemployment rate rose to 7.3 per cent in July from 7.2 per cent the previous. Canada now has lost an average of about 5,000 jobs over the past three months.
…
Policy makers keep an eye on changes in the average hourly wage rate of permanent employees to gauge whether inflation pressure is building. That number jumped 3.9 per cent in July from a year ago, to $24.49, the fastest since April, 2009.

Bigger wages will support consumer demand. But all things equal, any increase in purchases will put upward pressure on prices. “This…could be a source of concerns for the Bank of Canada if it proves persistent,” Nomura’s Charles St-Arnaud, a former Bank of Canada economist, said in his analysis of Friday’s jobs report.

It was a mildly negative day for the Canadian preferred share market, with PerpetualPremiums down 4bp, FixedResets off 1bp and DeemedRetractibles losing 6bp. Volatility was negligible. Volume was DEAD. You hear me? DEAD! I’ve seen more life in a regulator’s office!

Nothing happened today.

It was a positive day for the Canadian preferred share market, with PerpetualPremiums up 2bp, FixedResets gaining 7bp and DeemedRetractibles winning 11bp. Volatility was almost non-existant. Volume was very low.

PerpetualDiscounts (all three of them!) now yield 4.96%, equivalent to 6.45% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.35%, so the pre-tax interest equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, a decent-enough narrowing from the 220bp reported August 1.

Fisher says that central banks are pushing on a string:

Federal Reserve Bank of Dallas President Richard Fisher said adequate economic stimulus is in place and that global central banks may not have the capacity to undertake additional measures.

“We’re at the risk of overburdening the central banks,” Fisher said in an interview today on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. “We keep applying what I call monetary Ritalin to the system. We all know there’s a risk of over-prescribing.”

Fisher said the largest banks have $1.5 trillion in excess reserves that they would like to put to work and that the private sector now must take the next steps to boost growth. Lawmakers also must act to eliminate uncertainty about government spending and tax rates, Fisher said.

“We have done our job,” Fisher said of the Fed. “We have done enough. Just doing more doesn’t solve the problem. The problem is engaging the transmission. We provided the gas, the gas tank is full.”

Today’s report will be late. Today’s nightmare is a router upgrade at the server farm that hosts HIMIPref™ (and all my websites) – I get an intermittent and randomly timed error caused by the host programme’s being “Unable to connect to the remote server” when performing one of the myriad Web Service accesses in the course of its run.

I am working to make the programme more robust by repeating attempts to contact the server when this error is reported and confidently expect to complete the process at about the same time as the server farm management fixes the routing problem.

Update:

The Bloomberg editorial board wants more paperwork:

The Securities and Exchange Commission last month took a half-step by requiring markets to build a $4.1 billion system that can generate audit trails of all transactions. The trouble with this system is that trading data won’t be generated until the next day, a feature the industry insisted on. Day-old data might not help regulators much when they are called upon the instant a market blows up. (It took five months to confirm the cause of the flash crash.) Nor is it clear that the system will be able to pinpoint the identity of every party in a transaction.
…
The SEC and stock exchanges should also require major trading firms to demonstrate that their software programs are reliable before letting them go live. Now, firms are simply urged to adhere to an industry-recommended set of best practices. Unleashing a flawed program, as Knight seems to have done, is unacceptable.

Market apologists have said Knight’s errant trades caused no harm to anyone other than Knight and its shareholders, who saw the value of their investment shrink by about $600 million in a few hours. Yet who can be so certain the next bug-infested program won’t inflict much more damage? And what might have happened if Knight, which handled about 11 percent of all U.S. stock trading before the errors, had shut down?

Plus, the argument that Knight only hurt itself is bogus: Investors withdrew $127 billion from stock mutual funds in the 12 months ended in June. Repeated computer-trading misfires — not to mention the financial crisis of 2008 — erode confidence in U.S. markets. At some point, regulators and Wall Street have to decide whether the quest for speed is worth the chaos that can result.

$4.1-billion for a trade tracking system. You can put a Mars buggy on Mars for less than that. Has anybody, anywhere, ever seen a cost-benefit analysis for increased regulation? As far as I can tell, the attitude is – this might be worth something, so we should build it no matter what the cost.

As are most calls for increased regulation, Bloomberg’s argument depends upon dizzying leaps of logic and extremely vague fear-mongering:

• Yet who can be so certain the next bug-infested program won’t inflict much more damage?: Just, what, exactly, are you afraid of?
• And what might have happened if Knight, which handled about 11 percent of all U.S. stock trading before the errors, had shut down?: Golly, I don’t know. The end of the universe, maybe?
• Investors withdrew $127 billion from stock mutual funds in the 12 months ended in June. Repeated computer-trading misfires — not to mention the financial crisis of 2008 — erode confidence in U.S. markets.: Just what, if any, connection is there between these two sentences? How is confidence in US markets eroded? What is the effect of this loss of confidence?

Assiduous Reader beluga alleges:

I placed a limit order for YLO.PR.C at 43 cents today at 10am. Got two partial fills with a 100 shares left at the end of the day. I then noticed YLO.PR.C closed at 40 cents and there were trades at 0.425 and 0.40 just before 3pm.

Called to find out what happened. My order was routed to Alpha and after the partial fills didn’t go back to TSX.

This is contrary to my understanding of the National Best-Bid-and-Offer rules. Does anybody have any other ideas?

Interesting staffing kerfuffle at AGF:

AGF Management Ltd. is suing a former star manager and a U.S. investment firm, alleging they engineered the departure of most of AGF’s emerging markets team and cost the Canadian firm millions in lost business.

Patricia Perez-Coutts, who oversaw the top-performing AGF Emerging Markets mutual fund and related institutional accounts, left AGF with four members of her team in May to run money for Dallas-based Westwood Holdings Inc.

Two lessons there:

• That’s why you’ve got to give your star managers a piece of the action
• That’s why fundcos don’t promote star managers any more

I liked the Michael Osborne’s op-ed on TMX / Maple:

The approval of the Maple deal bears all the hallmarks of the creation of a “Canadian champion.” Proponents argue that we should accept reduced competition at home, in order to create Canadian champions that have the resources to take on the world. The problem is that monopolies become bloated and inefficient, and unable to compete in world markets. Instead of a Canadian champion, we get an uncompetitive Canadian backwater ripe for foreign takeover.

Ripe for foreign takeover indeed, unless the feds decide it is in the national interest for one group of Canadians to stick it to another group of Canadians. As they have done.

It was a mildly negative day for the Canadian preferred share market, with PerpetualPremiums losing 5bp, FixedResets off 3bp and DeemedRetractibles down 2bp. Volatility was mild. Volume was low.

Good news! The CEO of RBS says LIBOR rigging isn’t his fault:

Royal Bank of Scotland confirmed for the first time on Friday it had dismissed staff over an interest rate rigging scandal but the bank gave no indication whether it might settle soon with investigators.

Reporting a drop in first-half operating profit, RBS said it was co-operating with governments and regulators which are investigating the role of a number of banks in the setting of Libor and other inter-bank lending rates.

“I think that the regulators must decide how they want to deal with the situation. We will stand up and take any punishment that comes our way,” Chief Executive Stephen Hester said. He said he believed the Libor issue had been a result of “wrongdoing by individuals” rather than a “systemic problem” within the industry.

“The Libor situation is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact.”

The inadequate systems and controls aren’t his fault, either. Me, I blame society.

There’s an interesting piece in the Globe about corporate cash in Canada:

“Corporate businesses are flush with cash, which they still seem hesitant to deploy, presumably due to the uncertain economic outlook,” said David Madani, Canadian economist for the London-based research firm [Capital Economics]. “This obviously leaves scope for firms to increase dividends, which could boost personal income and consumption significantly.”

In a recent research note, Mr. Madani said Canada’s non-financial-sector corporate cash balances stood at $526-billion at the beginning of 2012 – up 42 per cent since the recession ended in mid-2009. Since the Canadian economy is roughly one-tenth the size of our U.S. neighbour, this Canadian cash pile, in relative terms, dwarfs the roughly $1.3-trillion (U.S.) in cash held by U.S. corporations.

The US had a better than expected jobs number, albeit not “good”:

The payrolls increase of 163,000 followed a revised 64,000 gain in June, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg called for a gain of 100,000. The jobless rate, based on a separate survey of households, climbed to a five-month high of 8.3 percent

I don’t understand all this anger management stuff:

A survey published in American Journal of Nursing in 2002, reported that 90 percent of hospital workers, including doctors and nurses, reported “yelling,” “abusive language” as well as “condescension” and “berating colleagues.” A quarter of the 1,200 people surveyed said they witnessed such behavior weekly.

“There isn’t a doctor alive who hasn’t seen it,” says William Norcross, executive director of a program at the University of California at San Diego that uses anger management to treat irascible physicians.

Medical professionals present [anger management guru George] Anderson with unique challenges. Their hours are brutal, the stakes are high, and the threat of malpractice suits is ever-present. The life-or-death nature of the work wears at steely nerves even on the best days, Anderson says.

If things have got to the point where you have to yell at your staff, the sensible thing to do is fire them instead. If you don’t have the authority to fire them … well, then you don’t have the authority to yell at them either, do you?

This sort of prima-donna behaviour was one of the things that took down RT Capital Management back in about 2000 – big-shot portfolio managers yelling at the back-office. Why is there “a program at the University of California at San Diego that uses anger management to treat irascible physicians”?

I’ve got a better idea: you yell at my staff, you’re fired. No matter how good you are at your tiny little specialty, you’re no good at all without good support staff … right down to the janitor who keeps the washroom clean, and if the support staff hates their jobs, they’re not going to do them very well. Sorry, buddy, but your hospital privileges are withdrawn. These guys indulge in their temper tantrums for the same reason bratty five-year-olds do: because there are no repercussions.

So, I finally got everything working again, with the proviso that I’m back to where I started and the conversion of the HIMIPref™ Web Services from Visual C++ 2002 to Visual C++ 2010 has been delayed. What a total nightmare. Everything worked just fine under VC 2002 … but VC 2002 won’t run under Windows 7.

Like everybody else, I have a love-hate relationship with Microsoft … some of their design decisions drive me nuts, but whenever I compare one of their products to its competitor, they almost always come out on top. Spreadsheets … C++ compilers … operating systems … the only exception I can remember is Rapid Application Development software, in which I consider Visual Basic to be pretty horrible – and that’s almost certainly because they insist that it be usuable throughout their entire suite of software.

So their tools are first class, but they’ve got a problem: there is, as far as I can tell, an institutional culture that supposes that because they do development in teams numbering in the hundreds – and because they guys they talk to also have huge development teams – that’s the way it works everywhere. It doesn’t. Lots of programming gets done in small shops (like mine!). I don’t need ultra-finicky version control! I can do all my version control on the back of an envelope! I don’t have a full time staff member in charge of compiling, who has daily meetings with the guy who does version control! But they think I do, so there are all kinds of finicky adjustments to be made to compiler settings and version control that all have to agree with each other or the damn thing blows up. And there’s no “Turn Off Version Control” setting on the damn compiler.

Such is life.

It was a slightly negative day for the Canadian preferred share market, with PerpetualPremiums down 4bp, and both FixedResets and DeemedRetractibles off 2bp. Volatility was muted. Volume was ridiculously low – there’s usually more volume on Christmas Eve!

There’s some jostling over the YLO reorg:

Law firm McMillan, counsel for the company’s lenders, said Wednesday the lenders, who weren’t specified, are owed a principal amount of $369-million by Yellow Media as of Sept. 28, 2011.
…
“The company put forward the proposed CBCA plan without notice to or prior consultation with the lenders or most of its other stakeholders,” McMillan said in a news release.

“The lenders have invited the company to withdraw the proposed CBCA plan forthwith and to engage in a more open and transparent consultation process with its stakeholders to see if an acceptable plan can be achieved.”

The lenders intend to bring a motion on Aug. 6 to protect their legal rights in the reorganization proceeding initiated by Yellow Media under the CBCA.

Goldman Sachs has developed a new kind of investment:

Under the Goldman Sachs-funded initiative, inmates aged 16 to 18 will receive education, training and counseling intended to reduce the likelihood of them reoffending after their release.
…
City officials said Goldman would provide a $9.6-million loan to pay for the program at the Rikers Island jail complex. If recidivism drops by 10 per cent, the firm will get back the $9.6-million. If it drops even more, Goldman could make as much as $2.1-million in profit. If recidivism doesn’t drop by at least 10 percent, Goldman will lose as much as $2.4-million.

Nearly half of the adolescents who leave city jails currently return within one year.

Social impact bonds, also called pay-for-success bonds, were first used in Britain and are being explored in Australia and in the U.S.

Massachusetts is negotiating with two nonprofit groups to finance juvenile justice and homelessness programs with the promise of repayment only if the programs work.

I don’t know why it’s called a “bond” rather than “an investment in a micro-cap that has a government contract”, but I suppose it helps sell the things.

As of September 28, 2011? That was the date the banks tightened the screws and DBRS slashed the rating. But why it’s being used as a reference date for the challengers’ holdings is something I don’t know.

Testing software is boring:

Knight Capital Group Inc. (KCG) said losses from yesterday’s trading breakdown are $440 million, almost quadruple its 2011 net income and more than some analysts had estimated, and the firm is exploring strategic and financial alternatives. Its stock has lost 66 percent in two days.

Knight said it will continue its trading and market-making today as it considers its options. Yesterday’s issue was related to the installation of trading software and resulted in the company sending “numerous erroneous orders,” the Jersey City, New Jersey-based firm said today. The stock tumbled 50 percent to $3.46 at 9:36 a.m. New York time today.
…
The errors were caused by a malfunction in a trading algorithm, according to a person at Knight who asked to remain anonymous because the matter hasn’t been publicized.

Apparently there’s some regulatory concern over the problem:

Yesterday’s problem shows regulation is “broken” and a study group should be convened to review technology and market structure, Arthur Levitt, former chairman of the Securities and Exchange Commission, said in an interview. Regulators would have been able to stop incidents such as yesterday’s breakdown if they didn’t face a lack of resources, he said.

“The ability of regulators to do their job has never been weaker than it is today because of the failure of the oversight process,” Levitt, 81, said today in an interview. “Congress has a greater responsibility for what we’re seeing today than any regulator or any particular part of the industry. They’ve allowed this to happen.”

Kevin Callahan, a spokesman with the SEC, said in an e-mail that regulators are “closely monitoring the situation and in continuous contact with the NYSE and other market participants.”

I don’t understand this. A poorly-run company gave a $440-million gift to investors. Why is this a problem?

In related news, a bug was discovered at Hymas Investment Management today:

Click for big

Company officials were quoted as saying “Now stop screwing around and do some damn work.”

ING Bank Canada is for sale:

The sale process for ING Bank Canada has already kicked into high gear, and rival Canadian banks are heavily interested in scooping up their online-focused competitor.

I understand that central banks are using Google searches as indicators:

The Federal Reserve and the central banks of England, Italy, Spain and Chile have followed up with their own studies to see if search volumes track trends in the economies they oversee.
…
It all started with a hunch in Mountain View, California. On the heels of developing a new website reporting how often users searched for certain keywords, Hal Varian, Google Inc.’s chief economist, said he wondered whether this data could foreshadow what traditional economic reports would show later. So he ran the numbers.

“The ‘aha moment’ was, gee, this actually works,” Varian said in an interview.

The result was a 23-page paper he co-wrote in April 2009, demonstrating how data reported on the Google Trends service improved forecasts of auto and home sales and retail spending in the U.S.

If they’re paying attention to my Google searches, banknotes will soon feature “scarlett johansson nude” in place of dead politicians. But other pornography is good too!

***********************
Sorry, folks, the daily report will be delayed.

I have been in Microsoft Version Hell for about ten-and-a-half hours now … and ain’t nuthin’ workin’.

Update, 2012-8-3: Finally!

Soon!

It was a black day for Canadian capital markets:

Maple Group Acquisition Corp. has won control of TMX Group Inc., with 91 per cent of shares tendered to its takeover offer worth about $3.8 billion.

A new Maple board of directors has already been appointed.

And along similar lines … when is a bank not a bank? When it’s a money-market mutual fund:

The 10 biggest money-fund managers and the Investment Company Institute trade group reported combined lobbying spending of $16 million in the first half of 2012 and $31.6 million last year in disclosures that reference money-market mutual funds, according to a review of documents by Bloomberg News. That compares with $16.7 million in all of 2010.

The companies are seeking to block new rules championed by Securities and Exchange Commission Chairman Mary Schapiro that are headed for a vote before a divided commission as soon as this month. The proposal would force funds to abandon their fixed $1 share price or introduce withdrawal limits and capital buffers. Schapiro can count on only one supporting vote from the other four commissioners, even as Federal Reserve officials have said that failure to enact tougher rules will leave the $2.5 trillion industry vulnerable to investor runs and threaten global credit markets.

The FOMC statement was gloomy:

Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

This libel suit amuses me:

Daniels repeatedly questioned Molo about statements from the book that are alleged to be libelous, including Lewis’s comments that Chau had worked for “sleepy” insurance companies for much of his career before managing CDOs and that CDO managers didn’t work hard.

“Most of your argument is based on the implications of certain statements, not on the actual statements,” the judge told Molo. “There’s no proof you can offer to a jury whether an insurance company is ‘sleepy.’ That is hyperbole. That is opinion.”
…
Chau’s firm managed about $20 billion worth of CDOs in 2007, making it the fourth largest in that category, according to court papers. Investors in Harding’s CDOs included UBS AG and Deutsche Bank AG, according court filings. CDO sales collapsed in 2007 along with the subprime-mortgage market.

There are certainly very many portfolio managers out there who are totally unqualified. Usually they just underperform. Sometimes they get hired by enormous companies with equally incompetent advisors.

It was another good, solid day for the Canadian preferred share market, with PerpetualPremiums winning 12bp, FixedResets up 5bp and DeemedRetractibles gaining 9bp. Volatility was muted. Volume was pathetically low.

The PerpetualDiscount sub-index got cut in half with the July month-end rebalancing, losing CIU.PR.A to Scraps on volume concerns, while ELF.PR.F and PWF.PR.K migrated to the PerpetualPremium index. The remaining constituents are BAM.PR.M, BAM.PR.N and ELF.PR.G.

PerpetualDiscounts, all three of them, now yield 4.96%, equivalent to 6.45% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.25% (maybe a little more) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, unchanged from July 25.