Category: Market Action

Italy sold some debt – possibly with some assistance:

Italy auctioned 7 billion euros ($9 billion) of debt to bring the total raised this week to almost 20 billion euros, underscoring how the European Central Bank is helping the world’s fourth-biggest borrower tap markets.

Today’s sale by the Treasury in Rome fell short of the 8.5 billion-euro target even as borrowing costs declined from last month. Italy sold 9 billion euros in bills yesterday at about half the rate of the previous sale last month in its first auction since the ECB loaned 489 billion euros to banks to ease credit amid the region’s debt crisis.
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The euro fell to its lowest against the dollar since September 2010 and 10-year Italian notes slid after today’s sale, keeping their yield above 7 percent, the level that led Greece, Ireland and Portugal to seek bailouts. Short-term securities rose.

The Frankfurt-based central bank bought Italian bonds today, according to two people with knowledge of the transactions who declined to be identified because the trades are confidential. An ECB spokesman declined to comment when contacted by phone.

Italian 10-year bonds (.IT10) stayed lower after the auction. The 10-year yield was 7.01 percent at 3:41 p.m. Rome time, pushing the difference with German bunds to 514 basis points. The five- year yield was down seven basis points at 6.16 percent, as investors pointed to the ECB as buoying the shorter-term debt.

The Treasury sold today 2.5 billion euros of securities due in 2014, less than the 3 billion euro maximum for the sale, to yield 5.62 percent. That was down from 7.89 percent at the previous sale on Nov. 29. The Treasury priced 2.5 billion euros of its 5 percent 2022 bond to yield 6.98 percent, compared with 7.56 percent on Nov. 29. Italy also sold about 2 billion euros of bonds due 2021 and a floating-rate security due 2018.

Thailand is contemplating monetizing its bank bail-out debt:

Thailand’s government will today press the central bank chief to take on $35 billion of legacy debt from bank bailouts as Prime Minister Yingluck Shinawatra looks for fiscal scope to finance flood defenses.

Bank of Thailand Governor Prasarn Trairatvorakul meets with cabinet members in Bangkok over the proposal to shift the debt to the BOT’s balance sheet. Deputy Prime Minister Kittiratt Na- Ranong said yesterday the step would save the government as much as 65 billion baht ($2 billion) in annual interest costs that could be used to fund anti-flood measures.

Japan is being more sensible:

Japan’s ruling party compromised on a plan to double the sales tax by 2015 to help reduce the world’s largest public debt, delaying implementation by six months to help lawmakers meet a campaign pledge.

The proposal by Prime Minister Yoshihiko Noda would raise the sales tax from 5 percent to 8 percent in April 2014 and to 10 percent in October 2015. The agreement, reached late yesterday, must be approved by a government panel led by Finance Minister Jun Azumi before discussion with the opposition.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 11bp, FixedResets winning 13bp and DeemedRetractibles down 12bp. Volatility was good. Volume continued to be lousy – not surprisingly, given the time of year.

Fairfax isn’t having much luck with its lawsuit:

James Chanos’s Kynikos Associates LP and Daniel Loeb’s Third Point LLC won dismissal from an $8 billion lawsuit accusing the two hedge funds of spreading negative information to drive down Fairfax Financial Holdings Ltd. (FFH)’s stock price.
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In September, Hansbury dismissed billionaire Steven A. Cohen and his Stamford, Connecticut-based SAC Capital Advisors LP from the case.

“One must establish that the defendants purposely availed themselves of the State of New Jersey and that the alleged improper conduct was expected or intended to be felt within the State of New Jersey,” Hansbury wrote. He said Fairfax didn’t do that.
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Fairfax said the funds coaxed John Gwynn, a former insurance analyst at Morgan Keegan & Co. in Memphis, Tennessee, into giving them his negative Fairfax reports before they were published. It also said they hired an outside analyst, Spyro Contogouris, to spread false Fairfax information.

I don’t know. Obviously, there needs to be some way to get legal redress for libel, if libel has occured. But mainly, my reaction to this is the same as my reaction to things like criminalizing Armenian genocide denial, criminalizing criticism of the Egyptian armed forces and criminalizing criticism of the Thai monarchy, to name but a few: if you need to go to law, it implies you don’t believe your facts and arguments are sufficient.

How about that ECB balance sheet, eh?:

The European Central Bank’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis.

Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement today. The balance sheet increased by 239 billion euros in the week and was 553 billion euros higher than three months ago.

Those keeping score may wish to compare this number to the evolution of the Fed balance sheet.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts losing 14bp, FixedResets up 12bp and DeemedRetractibles winning 18bp. Volatility was quite good, with a lot of variety in terms of both issuers and preferred share types. Volume was pathetic, as might be expected for the Christmas-New Year’s period.

PerpetualDiscounts now yield 5.11%, equivalent to 6.64% at the standard equivalency factor of 1.3x. Long corporates now yield about 4.60%, so the pre-tax interest-equivalent spread (also called the Seniority spread) is now about 205bp, unchanged from December 21.

John Paulson, the hedgie whose incisive analysis of the economy and uncanny ability to lay his finger on the pulse of the market made him and his clients billions during the subprime episode, has run out of luck:

John Paulson, the billionaire money manager mired in the worst slump of his career, lost 10.5 percent in his Gold Fund this year even as the metal heads for its 11th straight annual gain, according to people familiar with the fund’s performance.

The fund, which invests in mining stocks and other gold- related securities, remains the best performer in Paulson’s $28 billion fund family this year. His Paulson Advantage Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, has fallen about 35 percent.

DBRS has confirmed Fairfax at Pfd-3:

DBRS has today confirmed the Senior Unsecured Debt rating of Fairfax Financial Holdings Limited (Fairfax or the Company) at BBB and its Preferred Shares rating at Pfd-3. The trends are Stable. The confirmation reflects the fact that the Company has continued to enjoy strong earnings despite negative underwriting results stemming from ongoing competitive market conditions in commercial insurance markets and adverse catastrophic claims from the tsunami in Japan, earthquakes and storm activity. Strong investment results, including both interest and dividends and gains on investments, continue to distinguish Fairfax’s unique in-house investment management operation, funded through premiums taken in by its insurance operating subsidiaries, although maintaining underwriting profitability is a strategic priority. With an investment bias, Fairfax is able to avoid the worst of the cyclicality inherent in the property and casualty (P&C) insurance industry by choosing not to write policies where inadequate pricing would only give rise to additional underwriting losses.
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Financial leverage is increasingly taking the form of more tax-efficient preferred share capital and borrowings at the holding company rather than at the operating subsidiaries. With 100% control of its major operating subsidiaries, the holding company’s cash position is more secure since the upstream dividend flow from its operating subsidiaries has become more predictable, albeit subject to regulatory approvals, especially given excess regulatory capital at all its major operating subsidiaries. Financial leverage, given the Company’s cash position, excellent liquidity and underlying strong regulatory capital ratios, is well within the limits of the assigned rating category.
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Nevertheless, despite the strong investment management track record of the Company, accompanied by growing sophistication around enterprise risk management, the underlying competitive and volatile nature of the underlying insurance business, including the increasing risk of catastrophic claims, suggests that the upside potential for Fairfax’s ratings remains limited.

Fairfax is the proud issuer of FFH.PR.C, FFH.PR.E, FFH.PR.G and FFH.PR.I, all FixedResets.

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts up 23bp, FixedResets gaining 11bp and DeemedRetractibles winning 29bp. Volatility was quite good, well-skewed to the upside. Volume was light.

I’ve been taking a correspondence course in Conversational Furrin for the past while so here goes! Police nab your dad! And Poppa swears anew when your niece is bad!*

* That’s furrin for Merry Christmas and Happy New Year!

The national securities regulation pipe-dream is over:

The Supreme Court of Canada has stopped the federal government’s initiative for a single national securities regulator in its tracks. While the court suggested that the door remained open to a single national regulator achieved through federal-provincial co-operation, the near-total victory achieved by the provinces gives the scheme’s provincial opponents no incentive to participate.

A national securities regulator would be nice. It would also be nice if it rained soup and snowed marshmallows.

Part of the problem – as far as I’m concerned – is that the idea was oversold. Various idiots claimed that things like the ABCP market freeze would never have happened if only we had a national regulator, which is egregious nonsense. A national regulator would make the system more efficient, by making it possible for issuers and other market participants (such as myself) to get national clearance with one filing and one fee. Full stop.

Long ago, I suggested it would make far more sense for interested provinces to combine their regulatory activities – a modest goal, but one with the potential for actually happening. If the OSC were to merge with, say, the PEI Securities Commission then I would be better off. Marginally, yes, but measurably, also yes.

Leaks from the talks on the voluntary-ha-ha Greek debt writedown are getting interesting:

Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the indebted nation’s government bonds, said three people with direct knowledge of the discussions.

Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said the people, who declined to be identified because the negotiations are private.

The IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio to 120 percent by 2020, a key element of the Oct. 27 agreement by European Union leaders, the people said.
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As part of Greece’s 130 billion-euro second bailout, investors would take a 50 percent hit on the nominal value of 206 billion euros of privately owned debt. Exchanging bonds for securities with a 5 percent coupon would leave investors with a 65 percent loss in the net present value of their holdings of Greek government debt, the people said.
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The sides have also agreed that the deal should include collective action clauses that would ensure lenders participate in the swap, the people said.

Vega Asset Management LLC resigned this month from a committee of Greek creditors negotiating the debt swap with European authorities, because the Madrid-based hedge fund refused to accept a net present value loss exceeding 50 percent, according to a Dec. 7 e-mail sent to other panel members, which was obtained by Bloomberg News.

It will be interesting to see how a collective action clause will be worded in order to preserve the fiction that the participants are volunteers!

Someone at the Financial Times points out:

The European Central Bank’s lending of €489-billion to more than 500 banks was nothing short of a feeding frenzy.
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The money — and there is another three-year loan offer in February — should ease the pressure on banks to dump assets at firesale prices to raise cash.

But the hoarding suggests the funds will instead flow to that traditional parking space for spare cash; euro zone government bonds.
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There is of course an irony in the fact that banks’ ditching of their sovereign holdings in the last year is partly to blame for the rise in government borrowing costs. There is then further irony in that the market freeze which produced Thursday’s feeding frenzy was in part the result of worries about banks’ exposure to sovereign debt. Buying more government bonds does nothing to square this vicious circle, it just buys some breathing space to repair balance sheets and restore public finances. Investors and taxpayers can only hope politicians and bankers use the time wisely.

Fed action on mortgage bonds is showing some benefits:

Mortgage rates for 30-year U.S. loans dropped to the lowest level on record amid signs the housing market may be set for a turnaround.

The average rate for a 30-year fixed loan fell to 3.91 percent in the week ended today, the lowest in data dating to 1971, from 3.94 percent, Freddie Mac said in a statement. The average 15-year rate matched last week’s previous all-time low of 3.21 percent, according to the McLean, Virginia-based mortgage-finance company.

The U.S. housing market, under pressure from tight lending standards and foreclosures that depress values, is showing signs of improvement. Purchases of previously owned homes rose to a 10-month high in November as the inventory of unsold properties shrank to the lowest level in six years, the National Association of Realtors reported yesterday.

Whether those benefits are worth the cost is, of course, a matter for debate, but at least there are some benefits!

It was another strong day for the Canadian preferred share market, with PerpetualDiscounts up 6bp, FixedResets winning 29bp and DeemedRetractibles gaining 20bp. Good volatility – all winners, including a healthy contingent from the insurance sector, which has been badly beaten down lately. Volume was on the high side of average.

The ECB is bailing out Europe:

The European Central Bank will lend euro-area banks a record amount for three years in its latest attempt to keep credit flowing to the economy during the sovereign debt crisis.

The Frankfurt-based ECB awarded 489 billion euros ($645 billion) in 1,134-day loans today, the most ever in a single operation and more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark interest rate — currently 1 percent — over the period of the loans. They start tomorrow.
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Yields on government bonds in Italy and Spain fell in the days after the ECB announced the loans on Dec. 8 as banks bought the securities to use them as collateral in today’s tender. French President Nicolas Sarkozy has suggested banks could use the loans to buy even more government debt.

Simon Derrick, chief currency strategist at Bank of New York Mellon Corp, said the loans amount to quantitative easing “through the backdoor.”

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts up 13bp, FixedResets gaining 11bp and DeemedRetractibles winning 30bp. Volatility was good. Volume was average.

PerpetualDiscounts now yield 5.11%, equivalent to 6.64% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.6% so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 205bp, a slight tightening from the 210bp reported December 14.

Nothing happened today, folks!

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 27bp, FixedResets gaining 13bp and DeemedRetractibles up 8bp. Volatility was high, with SLF issues getting whacked – again. SLF Straights are down between 1.3% and 2.75% on the month to date, while the FixedResetDiscounts have been hammered, down between 4.9% and 6.2%. Only SLF.PR.G SLF.PR.F, a FixedResetPremium, has done well, up 1.91%. Floating Rate issues did well, probably on inflation fears. Volume was on the light side of average.

The Bank of England has released the 11Q4 Quarterly Bulletin with articles:

• Markets and operations
• Understanding recent developments in UK external trade
• The financial position of British households: evidence from the 2011 NMG Consulting survey
• Going public: UK companies’ use of capital markets
• Trading models and liquidity provision in OTC derivatives markets
• Summaries of recent Bank of England working papers
  • Systemic capital requirements
  • Estimating the impact of the volatility of shocks: a structural VAR approach
  • How do individual UK consumer prices behave?
  • An efficient minimum distance estimator for DSGE models
  • Time-varying volatility, precautionary saving and monetary policy

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts losing 15bp, FixedResets down 8bp and DeemedRetractibles gaining 10bp. Volatility was good. Volume was on the high side of average.

BMO will be exiting the annuity business:

Ottawa is wading into a high-stakes battle between banks and life insurers, ordering the banks to stop selling products that resemble annuities.

The decision is a win for the country’s life insurers and a blow to Bank of Montreal … which kicked off this battle in January when it began selling a product called BMO Lifetime Cash Flow, which provided buyers 55 and older with guaranteed payments for life.
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Finance Minister Jim Flaherty said Friday that the Conservative government will introduce legislation to prevent banks from offering financial products that function like life annuities.

Some of the best investment advice I’ve ever recieved was given to me before I was ten years old. My Dad always said: When the little guys get in …:

Royal Canadian Mint’s retail gold fund is an unheralded success.

Since the books opened three weeks ago, the initial public offering has raised $600-million. That technically makes it the largest IPO of the year.

… it’s time to get out:

While bullion’s slide of as much as 9 percent this week took its drop from the record $1,923.70 an ounce reached in September to almost 20 percent, the common definition of a bear market, investors are still holding the most metal ever in exchange-traded products, a wager now valued at $119.2 billion.

We’re starting to get a little clarity on the MF Global situation. It seems that after six weeks of very costly forensic analysis, the CME looked at its notes from an October 31 meeting:

CME Group detailed its dealings with MF Global in documents released yesterday by the oversight panel of the House Financial Services Committee. Christine Serwinski, chief financial officer for North America at MF Global, and Edith O’Brien, a treasurer, told Mike Procajlo, an exchange auditor, at around 1 a.m. on Oct. 31 in Serwinski’s Chicago office that the customer money was transferred on Oct. 27 and Oct. 28 and possibly Oct. 26, according to a CME Group timeline.
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MF Global had its credit rating cut to junk on Oct. 27 by Moody’s Investors Service and Fitch Ratings as its shares plunged and bonds began trading at distressed levels amid a crisis of investor confidence over the Europe trades.

The downgrades “sparked an increase in margin calls” that were “threatening overall liquidity,” Bradley Abelow, MF Global’s president and chief operating officer, said in the company’s bankruptcy filing.

Customer funds were also used to make a $175 million loan to MF Global’s U.K. subsidiary, Duffy said yesterday.
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A revised MF Global customer segregation report was sent to CME Group on Oct. 31 that showed $891.5 million in missing customer money as of Oct. 28, the CME Group chronology shows.

This has not been previously disclosed because muttering darkly about “missing” funds is a better regulatory career move. Assiduous Readers will doubtless remember that on November 2 I wrote:

Experience suggests to me that the actual players know very well what the answer to the segregated account mystery is, but are posturing for political purposes.

Fitch is gloomy on Europe:

The euro declined against the dollar after Fitch Ratings said it may downgrade Belgium, Spain, Slovenia, Italy, Ireland and Cyprus, adding to concern the region’s debt crisis hasn’t been contained.
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The euro fell 0.1 percent to $1.3004 per euro at 12:53 p.m. in New York. It dropped 0.2 percent to 101.17 yen.

Fitch said a “comprehensive solution” to the euro-zone crisis is “technically and politically beyond reach.”

After years of government waffling, the Belgians have been cut:

Belgium’s credit rating was cut two levels to Aa3 by Moody’s Investors Service, which said rising borrowing costs, slowing growth and liabilities arising from Dexia SA’s breakup threaten to inflate the euro area’s fifth- highest debt load.

Moody’s lowered Belgium’s debt rating to the fourth-highest investment grade, from Aa1, with a negative outlook, the ratings company said today in a statement. The action follows Standard & Poor’s one-step downgrade of Belgium to AA on Nov. 25. Fitch Ratings put Belgium’s AA+ on review for a downgrade today.
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Belgian borrowing costs touched the highest level in 11 years in November, with the yield on the benchmark 10-year bond closing at 5.86 percent before S&P’s downgrade on Nov. 25. They started surging almost two months earlier as the caretaker government bought Dexia SA (DEXB)’s Belgian banking unit for 4 billion euros ($5.2 billion) and agreed to guarantee as much as 54.5 billion euros of the crisis-hit lender’s liabilities for as long as 10 years.

The yield on the 4.25 percent securities due September 2021 was little changed today at 4.26 percent. That’s 240 basis points, or 2.4 percentage points, more than German Bunds of similar maturity.

And Dealbreaker has a very interesting piece on the difficulties of making money on a bet against Greece: It’s Not So Easy To Get Away From This Voluntary Greek Bond Swap. Which will be fine for the politicians – the last thing they want is honest price discovery!

Rob Carrick has a good piece in the Globe: Bond ETFs confuse you? Here’s a simple guide. [Update: Assidiuous Reader prefhound points out in the comments that the article does not mention the horrific effects of taxation on returns when bond ETFs are held in taxable accounts]

But there was some good news today:

The 100-watt incandescent light bulb has been spared from a U.S. phaseout in a spending deal reached by Republican and Democratic leaders in Congress.

Legislation debated today will prohibit the Energy Department from enforcing elimination of the traditional, pear- shaped bulb. Tea Party activists and their Republican allies campaigned against the energy efficiency requirement as an example of government overreach.

The federal standards limited the “freedom of average Americans” to buy whatever type of bulb they wanted, Representative Michael Burgess, a Texas Republican, said today in an interview. The House passed the bill today 296-121.

Never mind petty details like the mercury in fluorescent bulbs … if you want people to use less electricity, just raise the price. What’s so hard about that?

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 9bp, FixedResets gaining 6bp and DeemedRetractibles winning 13bp. There was continued good volatility skewed to the downside, with the SLF FixedResets being prominent on the loser list. Volume was average.

Ontario is on Outlook-Negative by Moody’s:

Ontario’s rating outlook was cut to negative from stable by Moody’s Investors Service on concern Canada’s most populous province faces a higher risk in meeting fiscal targets given a recent slowdown in economic growth.
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The province in November revised its forecasts down for provincial growth in 2011 and 2012 to 1.8 percent and 1.8 percent, from 2.4 percent and 2.7 percent, Moody’s said. The provincial economy is affected by the moderation in U.S. growth, given its higher export share relative to other Canadian provinces and the estimated 80 percent of international exports destined for the nation’s largest trading partner.

“The negative outlook on the province reflects the softening economic outlook, Ontario’s growing debt burden, and the extended timeframe to achieving a balanced budget,” Moody’s Assistant Vice President Jennifer Wong, lead analyst for the Province of Ontario, said in the statement.

Thank you, Premier Dad! Thank you, green energy lobbyists!

Fitch downgraded GS and BAC among others:

The downgrades “reflected challenges faced by the sector as a whole,” Fitch said. “These challenges result from both economic developments as well as a myriad of regulatory changes.”

Credit ratings of the world’s biggest lenders have come under pressure amid weak economic growth and doubts about whether European regulators have done enough to end the continent’s debt crisis. Lenders in the European Union must raise about $149 billion in fresh capital to help address the sovereign-debt turmoil, the European Banking Authority said on Dec. 9.

Long-term issuer default ratings for Bank of America, Citigroup and Goldman Sachs were cut to A from A+, according to the statement. Barclays and Credit Suisse were downgraded to A from AA-, while BNP Paribas (BNP) and Deutsche Bank fell to A+ from AA-. Morgan Stanley’s long-term issuer default rating was affirmed at A.

First Asset has decided there aren’t enough index providers:

Toronto-based First Asset Investment Management Inc. has licensed seven Morningstar indexes to serve as benchmarks for exchange-traded funds that it expects to launch early in the new year on the Toronto Stock Exchange.

… the Morningstar Canada Momentum Index, Morningstar Canada Dividend Income Index, Morningstar Canada Value Index and Morningstar U.S. Dividend Target 50 Index. … Morningstar Canada Liquid Bond Index and the Morningstar Emerging Market Composite Bond Index … the Morningstar Diversified Futures Index
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First Asset Investment Management, a subsidiary of First Asset Capital Corp., entered the ETF business in June and currently manages six ETFs with combined assets of $50 million.

There is well-founded speculation on European bank runs:

Kyle Bass, the Dallas-based hedge fund manager who said in 2009 that governments would default within three years, said Greek, Portuguese and Spanish depositors will withdraw money from banks in the coming months.
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In Greece, business and household bank deposits have slumped 26 percent in the past two years to 176 billion euros ($229 billion), and fell in October by the most since the nation joined the euro, according to the Bank of Greece. There were 2.24 trillion euros of overnight deposits with euro-region financial institutions at the end of September, down from 2.26 trillion in July, according to data compiled by Bloomberg.

Latvians pulled about $54 million from local Swedbank AB automatic teller machines on Dec. 11 and 12 on speculation customers wouldn’t be able to access their funds. “The rumors were knowingly distributed with the goal of destabilizing the situation in Latvia,” Prime Minister Valdis Dombrovskis said, according to the Leta newswire. Clients withdrew about 1.5 percent of total deposits on Dec. 12, the Swedish bank said in an e-mailed statement.

The IMF managing director says the Europeans have to call in the IMF:

The European debt crisis is growing to the point that it won’t be solved by one group of countries, Christine Lagarde, the managing director of the International Monetary Fund said today.

Lagarde said that if countries don’t work together, the world will face a situation similar to the 1930s, before the world slid into World War II.
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Lagarde said international support would probably be channeled through the IMF for “organizing a collective financial responsibility, a fiscal solidarity and that element of risk-sharing that is expected, pretty much, around the globe.”

Let us all give thanks that we will be saved by the heroic bureaucrats of the IMF!

The SEC has released a statement whining that regulatory extortion is getting more difficult:

Last month, a federal district court declined to approve a consent judgment because, in its view, the underlying allegations were ‘unsupported by any proven or acknowledged facts.’ As a result, the court rejected a $285 million settlement between the SEC and Citigroup that reasonably reflected the relief the SEC would likely have obtained if it prevailed at trial.
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We believe the court was incorrect in requiring an admission of facts — or a trial — as a condition of approving a proposed consent judgment, particularly where the agency provided the court with information laying out the reasoned basis for its conclusions.
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The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country. In fact, courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.

In cases such as this, a settlement puts money back in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount – risks that always exist no matter how strong the evidence is in a particular case.

What has happened to ethics? What has happened to respect for the rule of law? If the court system has become so grossly inefficient that trials take too long, then the solution is to reform the court system – not to tell the accused that since a trial would take too long, we’re going to string you up.

Meanwhile, we may finally be getting some clarity on the MF Global fiasco:

Corzine suggested Terrence Duffy, CME Group executive chairman, may have been referring to some funds transfers that occurred as MF Global was selling billions of dollars in securities. JPMorgan Chase & Co. (JPM), which was involved in the transactions, told MF Global the sale could not be completed until overdrafts in some accounts in London were corrected.

“I contacted the firm’s back office in Chicago and asked them to resolve the issues, which I understood they did,” Corzine said. He didn’t say explicitly whether he was aware at the time that the loan may have included funds from customer accounts.
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“The back office in Chicago explicitly confirmed to me that the funds were appropriately transferred,” Corzine said.
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Texas Republican Randy Neugebauer, chairman of the oversight subcommittee, said he was uncomfortable with the amount of power Corzine held at MF Global before he stepped down.

“What we saw was one person had an extreme amount of authority, Mr. Corzine, as the chair of the board and the CEO of the company,” Neugebauer said in his opening statement. “And, according to people we have interviewed, one of the principal traders of this company. There was no real barrier or firewall for protecting the investors of the company.”

Three cheers for Randy Neugebauer, who appears to have a good head on his shoulders! All kinds of criminal instructions are issued with plausible denial by the big boss saying ‘Get it done’.

Ed Clark wants his mummy to look after him:

Ed Clark, the chief executive officer of Toronto-Dominion Bank (TD-T71.85-0.55-0.76%), said in an interview that he believes Ottawa could tighten the rules on housing loans more than it already has, without hurting the economy or putting the housing market at risk.
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The banks prefer that the government direct the industry on mortgage lending, concerned that if one lender were to stop offering 30-year mortgages, another would likely swoop in and try to steal that market share. Last December, Mr. Clark warned that if a bank tried to cut back on longer mortgages on its own, it would be “carved up” by its rivals.

Well, we wouldn’t want to lose any of our likely-to-default customers, would we? Then we might be left only with good customers.

As I have said so many times this year (*sigh*) I can’t figure out what’s going on with YLO. The common is trading at $0.20. YLO.PR.A can be converted by the company into 12.5 common shares at the end of March, after paying one more dividend of $0.26563, and it’s prudent to assume that this will happen. If the company doesn’t convert prior to December 2012, then holders will get $25, which will be highly inconvenient for the company, to say the least, so it will (almost) certainly happen next year, probably sooner rather than later (to avoid either paying a dividend or skipping it).

So here’s my question: why is YLO.PR.A trading for $1.60? That’s an implied conversion price of about $0.10 for the common, half the market price.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 14bp, FixedResets up 1bp, and DeemedRetractibles losing 13bp. The Bozo Spread (Current Yield PerpetualDiscounts less Current Yield FixedResets) is now only 10bp! MFC issues got hammered again today, amid more than usual volatility skewed to the downside. Volume was average.

A sign of things to come?

Credit Agricole SA (ACA), France’s second- largest bank by assets, said it expects to report a loss for 2011 and will eliminate 2,350 jobs at its investment-banking and consumer finance units.

Credit Agricole will book about 2.5 billion euros ($3.24 billion) in writedowns on investments, including its stake in Spain’s Bankinter SA and Banco Espirito Santo SA of Portugal, the bank, based outside Paris, said in an e-mailed statement today.

The company scrapped its dividend for 2011 and said it can’t confirm its 2014 goals because of “the lack of visibility on the economic and financial climate.” The lender joins BNP Paribas SA and Societe Generale SA in reducing corporate- and investment-banking staff.

The overall picture is dire:

Italy had to pay the most in 14 years to sell five-year bonds as Parliament rushes to pass a 30 billion-euro ($39 billion) budget plan that Prime Minister Mario Monti says will bring down record borrowing costs.

The Rome-based Treasury sold 3 billion euros of the bonds, the maximum for the sale, to yield 6.47 percent, the most since May 1997 and up from 6.29 percent at the last auction on Nov. 14.
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The euro region’s third-largest economy has to repay about 53 billion euros in debt in the first quarter from the region’s total maturing debt of 157 billion euros, according to UBS AG. It owes a further 3.2 billion euros in interest payments based on the average five-year yield of the past three months.

The yield on the benchmark 10-year bond was 6.69 percent after the auction at 12:46 p.m. in Rome, up one basis point from yesterday. That pushed the difference with German bonds to 4.69 percentage points. The euro extended its decline against the dollar, trading below $1.30 for the first time since Jan. 12.

On a brighter note, DBRS confirmed the UK:

DBRS Ratings Limited (DBRS) has today confirmed the AAA ratings on the foreign and local currency securities of the United Kingdom (the U.K. or Britain). The ratings are underpinned by the size, openness and diversity of the British economy, its fiscal and monetary policy flexibility, a historical track record of fiscal consolidation, and relatively flexible product and labour markets. In addition, the U.K. benefits from having deep, efficient domestic capital markets and the sterling’s status as a secondary reserve currency.

All this is having an effect:

U.S. stocks retreated, sending the Standard & Poor’s 500 Index lower for a third straight day, as growing funding stress in Europe fueled concern the region is struggling to contain its sovereign debt crisis.
…
First Solar Inc. (FSLR), the world’s largest maker of thin-film solar panels, plunged 22 percent after reducing profit estimates and saying it will cut about 100 jobs.

The S&P 500 declined 0.9 percent to 1,214.16 at 3:14 p.m. New York time. The benchmark measure for American equities has fallen 3.3 percent in three days. The Dow Jones Industrial Average decreased 123.82 points, or 1 percent, to 11,831.12. The Nasdaq Composite Index (CCMP) slumped 1.5 percent to 2,541.56 as Apple Inc. (AAPL), the largest technology company, lost 2.3 percent.

Still, it’s nice to see a solar energy company get into trouble. Perhaps those hundred guys laid off can find work doing something useful.

Here’s another chapter about excitable bond markets:

Investors, spooked by bank analyst Meredith Whitney’s prediction of “hundreds of billions of dollars” of municipal defaults in 2011, started fleeing the market in record numbers, sending interest rates soaring, according to Craig Sheagren, the hospital’s chief financial officer. As bond buyers ran, JPMorgan Chase & Co. (JPM) and other underwriters stepped up with offers of loans, letting the institution bypass the public markets.
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Refuting Whitney’s forecast, which helped send borrowing costs to two-year highs in January, the $3.7 trillion municipal- bond market rebounded this year, generating an average total return of 10 percent through Dec. 12, better than U.S. Treasuries and corporate bonds, Bank of America Merrill Lynch indexes show. Munis also trounced equities as the Standard & Poor’s 500 Index lost (SPX) 0.6 percent in the same period.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 10bp, FixedResets losing 21bp and DeemedRetractibles down 20bp. There was quite a bit of volatility, mostly to the downside, with MFC and SLF getting hammered. Volume was below average.

PerpetualDiscounts now yield 5.18%, equivalent to 6.73% at the standard equivalency factor of 1.3x. Long corporates are now at about 4.65%, so the pre-tax interest-equivalent spread is now about 210bp, a significant widening from the 195bp reported December 7.