Category: Market Action

European banks are frantically raising cash:

European banks, under pressure from regulators to bolster capital, are selling some of their fastest-growing businesses to competitors from outside the region — at the expense of future profit and economic growth.

Spain’s Banco Santander SA (SAN), Belgium’s KBC Groep NV (KBC) and Germany’s Deutsche Bank AG are accelerating plans to exit profitable operations outside their home markets. Santander, which said in October it needs to plug a 5.2 billion-euro ($6.9 billion) capital gap, sold its Colombian unit last week to Chile’s Corpbanca for $1.16 billion. Deutsche Bank is weighing options including a sale of most of its asset-management unit, while KBC may dispose of businesses in Poland.

The MF Global inquiry continues:

Henri Steenkamp, chief financial officer of MF Global, and Bradley Abelow, the firm’s president and chief operating officer, said in testimony prepared for a Senate Agriculture Committee hearing today that they still don’t know the location of the funds.

Jon S. Corzine, former chairman and chief executive officer of the broker, is scheduled to testify at the same witness table, after telling U.S. House lawmakers last week that he never intended to authorize any misuse of client money.

“I do not know why these funds cannot be accounted for, but based on the fact that no shortfalls had been reported to me previously, it appears that any irregularities were likely caused by events that occurred shortly before the bankruptcy filing,” Steenkamp said in the testimony.

I’ve expressed doubts about all this before, and continue to believe that if there actually were nefarious activities, then by now the trustee would be able to testify that “On November X there was a transfer from MF Account Y to a third party account Z instigated by Mr. A” … but that’s not happening. Instead, everybody’s muttering darkly about ‘missing funds’. I suspect that this is mostly, if not entirely, regulatory theatre.

Why do I suspect this? Because that’s what always happens. Nobody’s name will be cleared until nobody cares any more, and in three years we’ll just be left with a hazy memory of executive misconduct foiled by the heroic efforts of dedicated regulatory staff.

But now there’s a theory!

One working theory for the missing money is that it was taken from customer accounts and not replaced with equal collateral, as mandated by law, according to the people familiar with the investigation. Then, they said, after the funds were moved to the broker-dealer unit of MF Global they may have been used to pay margin on the repurchase agreements.

Unless the books are complete spaghetti, I don’t see how that could possibly take more than a day or two to confirm.

The FOMC statement was cheery:

Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.
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The Committee also decided 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 mid-2013.
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Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.

DBRS confirmed BNA at Pfd-2(low):

The downside protection available to the Class AA Preferred Shares is approximately 66.0%, based on the market value of the BAM Shares as of November 25, 2011. The dividend coverage ratio is approximately 1.1 times. As a result, the Company will initially be able to fund the Class AA Preferred Shares distributions without relying on other methods for generating income or reverting to the sale of common shares in the Portfolio. In the event of a shortfall, the Company will sell some of the BAM Shares or write covered call options to generate sufficient income to satisfy its obligations to pay the Class AA Preferred Shares dividends.

The Pfd-2 (low) ratings of the Class AA Preferred Shares are primarily based on the downside protection and dividend coverage available to the Class AA Preferred Shares.

S&P has applied revised methodology to North American banks, which has had an effect on TD, BMO, CM, BNS and RY. NA escaped unscathed.

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts winning 18bp, FixedResets up 12bp and DeemedRetractibles gaining 12bp. Volatility was good. Volume was a little below par.

The European governments need the banks, because the banks buy their debt. Guess who the banks depend on?

European banks turning to their governments to raise required capital could trigger a downward spiral of declining sovereign-debt prices and further losses for the lenders.

The European Banking Authority ordered the region’s banks on Dec. 8 to raise 115 billion euros ($154 billion) by June. Faced with dwindling profits and unable to tap capital markets to sell new shares, firms may be forced to seek government help. About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, countries struggling to convince the world they can pay their debts.

“If the Southern governments put money in their banks, their sovereign debt will go up, exacerbating their problems,” said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels. “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.”

Moody’s blue:

European leaders unveiled a blueprint after meetings on Dec. 8 and 9 for a closer fiscal accord to save the euro, adding 200 billion euros to their bailout fund and tightening rules to curb future debts. They also agreed to start a 500 billion-euro rescue fund next year.

The agreement offered few new measures and doesn’t diminish the risk of credit-ranking revisions, Moody’s said in its Weekly Credit Outlook. “In the absence of any decisive policy initiatives that stabilize credit-market conditions effectively, our intention as announced in November is to revisit the level and dispersion of ratings during the first quarter of 2012,” the company said.

Bad news from Sino-Forest:

The company won’t be able to publish the earnings within the 30-day period stated on Nov. 15, Hong Kong- and Mississauga, Ontario-based Sino-Forest said today in a statement. There’s no assurance if or when the results will be released, it said. Sino-Forest also said a report by an independent committee into the fraud allegations now won’t be issued until 2012, instead of the year-end as previously stated.

Sino-Forest said it decided it won’t make a $9.78 million interest payment on its 2016 convertible notes that’s due Dec. 15. The company said it retained Houlihan Lokey and Bennett Jones LLP as its financial and legal advisers to assist in the evaluation of its options.

“In these circumstances, the board has determined that it must consider all strategic options available,” the company said in the statement. “The company may consider obtaining other sources of capital, including through the recapitalization of the company or the sale of some or all of its business.”

A lot of the fuss could be – could! – simply hysteria. That’s just people talking. But not being able to produce financials, another delay in the special committee report and skipping an interest payment … that’s real.

The Republicans are going to love this:

China may use tax cuts to shore up expansion in the second-largest economy next year as export growth weakens and the threat of bad loans from stimulus spending narrows the government’s options.

Another thing that’s real is Sun Life retreating from the US:

Sun Life Financial Inc. (SLF), Canada’s third-largest insurer, plans to stop selling variable annuities and individual life insurance products in the U.S. and will cut 800 jobs there as it shifts focus to Canada and Asia. The stock had its biggest gain in more than two years.

Sun Life expects to record costs of about C$75 million ($73 million) to C$100 million from the changes, a portion of which will be in the fourth quarter, the Toronto-based company said today in a statement. The insurer will also take a writedown of about C$97 million.

Variable annuities, which provide guaranteed incomes to customers regardless of market performance, have led to losses at Sun Life and bigger rival Manulife Financial Corp. (MFC) after equities plunged. Sun Life’s U.S. insurance unit had losses of C$569 million in the third quarter, and C$279 million in the first nine months of 2011.

The common soared, but the preferreds were actually down on good volume!

DBRS commented:

Over the past several years, volatility has highlighted SLF’s economic exposure to the capital markets from guarantees written on variable annuities and embedded interest rate guarantees associated with life insurance products. However, the Company’s ability to mitigate these market fluctuations is limited by the disadvantageous accounting and regulatory capital treatment faced by Canadian life insurance companies, especially with regard to these long-tailed products. Since U.S.-based competitors have not faced the same disadvantage, the ability of Canadian companies to compete on a level playing field in these increasingly commoditized product lines has deteriorated. Despite recent efforts to de-risk, re-price and hedge these products, the cost to the Company in terms of capital allocation charges and earnings volatility, combined with cost and product disadvantages, has been deemed by the management team under new Sun Life CEO Dean Connor to be unsustainable. As of December 30, 2011, sales of these products will therefore cease.
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While reduced exposure to the U.S. variable annuity and individual life markets makes good sense from a capital and earnings perspective, DBRS recognizes that the Canadian life insurance industry continues to move away from its core and unique expertise in life underwriting in favour of more commoditized and more competitive wealth management products that require less regulatory capital.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets down 1bp and DeemedRetractibles losing 12bp. Volatility was good, mostly on the down side. Volume was low.

Moody’s downgraded some French banks:

BNP Paribas SA (BNP), Societe Generale SA and Credit Agricole SA (ACA) had their credit ratings cut by Moody’s Investors Service, which cited funding constraints and deteriorating economic conditions amid Europe’s debt crisis.

Moody’s cut the long-term debt ratings for BNP Paribas and Credit Agricole by one level to Aa3, the fourth-highest investment grade. Societe Generale’s rating was cut to A1, the fifth highest. Moody’s also cut the standalone assessments of financial strength of the three banks, while saying there’s a “very high” chance they will get state support if needed.

“Liquidity and funding conditions have deteriorated significantly,” the ratings company said in a statement. The likelihood that they “will face further funding pressures has risen in line with the worsening European debt crisis.”

The US MMFs have awesome influence:

The eight largest prime U.S. money- market mutual funds cut holdings in French banks by 68 percent in November, shifting investments to Swiss, Swedish, Canadian and Japanese banks.

French bank holdings declined by $11.7 billion to $5.56 billion, according to an analysis of fund disclosures by the Bloomberg Risk newsletter. The eight funds have reduced French bank debt by $76.8 billion in the past 12 months.

Senator Snowe is upset with Amazon:

Amazon.com Inc. (AMZN) should end its price- checking promotion because it gives consumers an incentive to gather price data from small retailers and leave stores without spending money, said Senator Olympia Snowe.

The world’s largest online retailer is offering a 5 percent discount to entice users to try a new mobile application that compares prices with physical retailers. The app, called Price Check, allows shoppers to look up Amazon’s prices by scanning products at a store using their phones.

“Amazon’s promotion — paying consumers to visit small businesses and leave empty-handed — is an attack on Main Street businesses that employ workers in our communities,” Snowe, a Maine Republican, said in a statement yesterday. “Small businesses are fighting everyday to compete with giant retailers, such as Amazon, and incentivizing consumers to spy on local shops is a bridge too far.”

That’s right, Senator, competition is un-American.

However, the issue highlights something I’ve been pondering for the past ten-odd years: what is the future of retail? I have a friend who retails computers: he pays more for his inventory than a retail customer can buy for at the big guys. And we’re seeing more and more of this type of thing all of the time.

My suspicion is that retail stores will eventually become show-rooms. For anything that’s not perishable, you’ll go into a store, look at the merchandise and if you like it – you’ll place an order. Then you pick it up a week later – or, perhaps, have it delivered for an extra five bucks.

There’s aways a possibility that retail will disappear completely – for non-perishable items – but I don’t think that will happen. You can’t covet what you don’t know about and people always want to see things. So manufacturers (like Apple) and distributors (like Amazon) will (i) obviously, pay a commission on sales, and (ii) pay a fee for shelf space (which has been the case for years in the grocery industry and, I’m sure, lots of other places). Maybe it’s a relatively low shelf-space fee, then a huge commission on the first sale or two, then the regular commission on more; just to keep the retailers honest.

Doesn’t this make sense? Why should I pay an extra $100 for a television, just so that Future Shop can keep fifty of each model stacked behind their enormous store on expensive urban land? Is it really worth that much to get same-day delivery of my television?

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 7bp, FixedResets down 3bp and DeemedRetractibles winning 8bp. Volatility was OK. Volume was very low.

Three cheers for BMO!

The consortium, known as Maple Group, wants to buy TMX for $3.8-billion. It also wants to buy privately-held Alpha, TMX’s biggest competitor in the stock market business in Canada, then combine Alpha and TMX into an entity that would be home to more than 80 per cent of all share trading in Canada.

However, the parties are nowhere close on a value for Alpha, according to people familiar with the situation. Maple is offering something in the range of $100-million to $200-million, while Alpha is looking for something in the range of $450-million to $600-million, the people said. The expectation is that the parties will likely have to go to binding arbitration to set a price.
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Should regulators block the Alpha deal, Maple has said it will drop plans to buy TMX. On the other side, if TMX thinks Maple is paying too much for Alpha, TMX can back out of the deal to merge with Maple.

What’s more, the Alpha situation is complicated by an interlocking web of conflicts of interest.
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Another Alpha shareholder, Bank of Montreal, is not a member of Maple but it is advising TMX on its plan to merge with Maple

DBRS downgraded Spain to AA(low) Trend Negative.

BSD.PR.A was confirmed at Pfd-4(low) by DBRS:

Despite a deterioration in the Portfolio metrics since the previous rating review, specifically with respect to the Preferred Security downside protection (currently at 23.9%, down from 30.6% since December 31, 2010) and dividend yield, DBRS remains comfortable with the current assessment of the Portfolio and the confirmation of the Pfd-4 (low) rating. DBRS will continue to monitor the performance of Brookfield Soundvest Split Trust to determine the required level of downside protection for the assigned rating, and take appropriate action as needed.

The redemption date for the Preferred Securities is March 31, 2015.

Due to collywobbles at TMX DataLinx, the preferred share report has been prepared using Yahoo! data again.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 14bp, FixedResets up 6bp and DeemedRetractible gaining 8bp. Volatility was muted, although Floaters bounced back from yesterday’s debacle. Volume was low.

FortisBC Energy (formerly Terasen; now owned by Fortis, proud issuer of FTS.PR.C & FTS.PR.E (OperatingRetractible), FTS.PR.F (PerpetualPremium), and FTS.PR.G & FTS.PR.H (FixedReset)) has issued 30-year paper at 4.25%.

DBRS has confirmed BIG.PR.B and BIG.PR.C at Pfd-2:

On December 9, 2010, DBRS confirmed the ratings on the Preferred Shares at Pfd-2. However since that time, the net asset value and downside protection available to the Preferred Shares has declined due to general market instability. This decline has affected several sectors, including the financial services industry, which is the primary investment sector for Big 8 Split Inc. Downside protection has decreased to 56.7% from 62.6% since December 2010 (the S&P/TSX Composite Bank Index declined 5.9% and the S&P/TSX Composite Insurance Index declined 18.8% over the same period). In addition, based on the current dividend yield on the Portfolio, the current Preferred Share dividend coverage ratio is approximately 1.5 times. Despite the recent downturn, DBRS remains comfortable confirming the current Pfd-2 ratings of the Preferred Shares, primarily because of the sufficient level of downside protection and dividend coverage available in the transaction, as well as the credit quality and consistency of dividend distributions of the Portfolio holdings.

The BoC maintained the overnight rate:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Uncertainty around the global economic outlook has increased in the weeks since the Bank released its October Monetary Policy Report (MPR). Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis. The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October, as a result of increased deleveraging and tighter financial conditions, as well as necessary fiscal austerity and structural reforms.
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On balance, recent economic indicators in Canada suggest that growth in the second half of this year is slightly stronger than the Bank projected in October. Household expenditures have more momentum than had been expected and business investment remains solid. Going forward, the weaker external outlook is expected to dampen GDP growth in Canada through financial, confidence and trade channels. The economy also continues to face competitiveness challenges, including the persistent strength of the Canadian dollar.

Although total CPI inflation has been slightly higher than projected, the Bank continues to expect the inflation rate to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy. Core inflation has also been slightly firmer than projected and is expected to ease as the output gap persists well into 2013.

Floaters didn’t do very well today – maybe a little bit of capitulation by the prophets of the inflation apocalypse?

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 15bp, FixedResets up 7bp and DeemedRetractibles gaining 9bp. Volatility was OK; volume was average.

PerpetualDiscounts now yield 5.19%, equivalent to 6.75% at the standard equivalency factor of 1.3x. Long corporates are now a little under 4.80%, so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now 195bp, a significant tightening from the 210bp reported November 30 as PerpetualDiscounts have come in.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 13bp, FixedResets up 5bp and DeemedRetractibles gaining 8bp. Volatility was quite good, with five winners and two losers. Volume was below average.

Barclays is buying back some Tier 1 Capital:

Barclays Plc (BARC), the U.K.’s second- largest bank by assets, offered to buy back as much as 2.5 billion pounds ($3.9 billion) of capital notes to improve the quality of the capital it holds.

The lender will offer to buy back the Tier 1 securities for a discount of as much as 30 percent to face value, London-based Barclays said in a statement today.
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The “offers will enable the issuer to enhance further the quality of its capital structure through the reduction of non- Basel III compliant tier one capital and subsequent generation of additional core tier one capital,” Barclays said in the statement.

There may be a mass downgrade of Europe brewing:

Standard & Poor’s said Germany and France may be stripped of their AAA credit ratings as the debt crisis prompts 15 euro nations to be put on review for possible downgrade.

The euro area’s six AAA rated countries are among the nations to be placed on a negative outlook, and their credit ratings may be cut depending on the result of a summit of European Union leaders on Dec. 9, S&P said today in a statement. The euro reversed its gains and U.S. Treasuries rose earlier today after the Financial Times reported that the credit-ranking firm planned to reduce six AAA outlooks.

“Systemic stress in the eurozone has risen in recent weeks and reached such a level that a review of all eurozone sovereign ratings is warranted,” S&P said in a statement.
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The firm said that ratings could be cut by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and by up to two notches for the other governments. The euro pared gains against the dollar, trading at $1.3401 per euro at 5:01 p.m. in New York after rising as high as $1.3487.

S&P said it maintained the negative outlook for Cyprus, and Greece wasn’t put on “creditwatch.”

Even Japan’s getting a little desperate:

Japanese Finance Minister Jun Azumi will be rewarding investors who buy more than 10 million yen ($129,000) in reconstruction bonds with gold in the government’s latest attempt to bolster demand for the debt.

Individual investors who hold the bonds for three years will be eligible for a gold commemorative coin valued at 10,000 yen, the Finance Ministry said in Tokyo today. At 15.6 grams, (0.55 ounces), it would be worth about $948 based on prices for the precious metal. Only a limited number of coins will be issued, the Finance Ministry said in a statement.

DBRS confirmed BPP at Pfd-3:

DBRS has today confirmed the Issuer Rating of Brookfield Office Properties Canada (BOPC or the Trust) at BBB with a Stable trend. DBRS has also confirmed the Issuer Rating of BPO Properties Ltd. (BPO or the Company) at BBB and its Cumulative Redeemable Preferred Shares ratings at Pfd-3. The trends are Stable.

The confirmations follow BOPC’s announcement of the acquisition of the Canadian Office Fund portfolio (the Acquisition) from BPO for approximately $362 million, including assumed mortgages totaling approximately $140 million. DBRS expects BOPC to fund the balance of the Acquisition primarily with cash on hand and a drawdown on the Trust’s revolving credit facility. The Acquisition includes an undivided 25% interest in nine Class AA and Class A office properties, including such high-quality office properties as First Canadian Place in downtown Toronto and Jean Edmonds Towers, Place de Ville I and Place de Ville II in Ottawa.

The financial impact of the Acquisition is expected to result in BOPC’s leverage increasing to approximately 44.7% (debt-to-capital ratio based on fair value) from 42.0%, while EBITDA interest coverage is expected to improve to 2.50 times, which DBRS considers appropriate for the current rating category

The confirmation of BPO’s ratings reflects its 83.3% equity interest in BOPC and strong ownership by Brookfield Office Properties, Inc.

BPP has three issues of shares outstanding: BPP.PR.G (1.8-million shares); BPP.PR.J (3.8-million) and BPP.PR.M (2.8-million). These are the Amazing Shares That Would Not Die, having been issued by Royal Trustco in 1985, 1986 and 1986, respectively, and changing their name from Gentra to BPO Properties effective 2001-5-7, following a name change from Royal Trustco 1993-6-18.

It was an uneventful day for the Canadian preferred share market, with PerpetualDiscounts down 6bp, FixedResets off 2bp and DeemedRetractibles gaining 9bp. Volatility was muted, but positive. Volume was above average.

There was a decent US jobs number:

Treasuries pared losses after the U.S. jobless rate unexpectedly fell to 8.6 percent as the workforce shrank, indicating moderate economic growth.

U.S. debt extended the first weekly loss in three weeks as employers added 120,000 jobs in November after an increase of 100,000 positions in the previous month, the Labor Department reported today in Washington. A European proposal to channel central-bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis, two people familiar with the negotiations said.

There is some hope that the increase is understated:

American households may be signaling the job market is stronger than the payroll numbers indicate.

Employers said they took on 120,000 workers in November, bringing job gains over the past four months to 534,000, Labor Department data showed today in Washington. A separate survey of households showed 278,000 more people were employed last month, pushing the increase during the same period to 1.28 million.

At turning points in the economy, the latter may prove more accurate because it’s more likely to pick up hiring at small companies and new firms that may be under the government’s radar. In another sign of recovery, the payroll figures the last three reports have been revised up by a combined 91,000 on average for the prior two months.

Rotman B-School is discussing the Coventree decision:

Monday, December 19, 2011
Capital Markets Institute @ Rotman Roundtable Discussion

3:00pm to 5:00pm Roundtable Discussion
TOPIC: Disclosure and Materiality: The Coventree Decision
SYNOPSIS: In looking at the Coventree Decision by the OSC our panelists will go through the following questions:
What is materiality? What is a material change? When to disclose? Risks of disclosing too early OR too late; insights from the Coventree decision, securities law, issuers and investors; What does the Coventree decision signal regarding disclosure going forward?
PANELISTS:
Jeremy Fraiberg, Partner, Osler, Hoskin & Harcourt LLP
Paul Halpern, Director, Capital Markets Institute, Professor Emeritus of Finance, Rotman School of Management
Christopher C. Nicholls, Stephen Dattels Chair in Corporate Finance Law at the University of Western Ontario
Sean Vanderpol, Partner, Stikeman Elliott
G. Wesley Voorheis, Partner, Voorheis & Co. LLP and member of the Special Committee established by the Coventree Board of Directors
PLACE: Rotman School (South) Room 209 – 149 College Street, Toronto (ON)
TO REGISTER: www.rotman.utoronto.ca/cmi-dec19
QUESTIONS: 416.978.5654 or email Kathleen.Coulson@Rotman.Utoronto.Ca

Greece is engaged in talkes regarding how to default without defaulting. No doubt they are hoping that Pythagorus will come back to square the circle:

Greece and its private creditors are involved in “complicated” negotiations on a debt-swap agreement and scenarios coming to light shouldn’t be seen as indicative of the final result, said Prime Minister Lucas Papademos.

“Each side has its strategies and has starting positions,” Papademos said today in comments to lawmakers televised live on Vouli TV. “Greece’s national interest is our basic goal and the basis supporting our position. That’s self- evident and a given.”
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Greece’s 206 billion euros of privately held debt would be reduced by 50 percent under an agreement announced at an Oct. 26 summit of European leaders in Brussels. The accord didn’t resolve details of the swap, such as the reduction in net present value investors would face.
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Greece and its private creditors are in disagreement over the interest rate on new bonds and how 30 billion euros intended to sweeten the deal will be used, said a person who is on the lenders’ negotiating committee. Greece is pushing for a coupon of 4.5 percent on new 20-year to 30-year bonds, while the banks are seeking a rate of 7 percent to 8 percent, said the person, who declined to be identified because the discussions are private.

The TMX DataLinx service has collywobbles again, so today’s data have been prepared using unofficial data from Yahoo!

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 29bp, FixedResets up 3bp and DeemedRetractibles gaining 17bp. Volatility was reasonable. Volume was average.

Sorry this is so late, folks!

The Competition Bureau is leaning against TMX / Maple:

Dealing a major blow to the proposed acquisition of TMX Group, Canada’s Competition Bureau has informed the 13 financial institutions behind the takeover that it has “serious concerns” with their plan.

On Tuesday competition commissioner Melanie Aitken privately informed the consortium, named Maple Group Acquisition Corp., that she has concerns “about the likely competitive effects of the proposed transactions in the current environment, primarily in connection with equities trading and clearing and settlement services in Canada,” according to a statement from Maple Group.

The central banks are mitigating market discipline:

Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis.

Stocks rallied worldwide, commodities surged and yields on most European debt fell on the show of force from central banks aimed at easing strains in financial markets. The cost for European banks to borrow dollars dropped from the highest in three years, tempering concerns about the euro’s worsening crisis after leaders said they’d failed to boost the region’s bailout fund as much as planned.
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The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said today in a statement in Washington. The so- called dollar swap lines will be extended by six months to Feb. 1, 2013. The Fed coordinated the move with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K.

The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.

I won’t go so far as to say I don’t like it, but I will say that I’m deeply suspicious. Central Bank financing should be available, certainly, for solvent but illiquid banks, but these loans should be at punitive, not concessionary rates.

With overnight money so cheap, the cost of failing a trade is derisory, so the Fed’s Treasury Market Practice Group has suggested a surcharge that effectively puts a floor of 3% on fail money. It is strictly voluntary, of course, BUT THE FED WOULD REALLY, REALLY LIKE YOU TO DO THIS!

It was a modestly down day for the Canadian preferred share market, with PerpetualDiscounts losing 12bp, FixedResets off 3bp and DeemedRetractibles down 8bp. Volatility was good. Volume was above average.

PerpetualDiscounts now yield 5.32%, equivalent to 6.92% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.8% so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 210bp, a significant widening from the 195bp reported November 23 as PerpetualDiscounts got smacked for 17bp dividend yield on the week, while long corporates edged up only 5bp.