Category: Market Action

Holders of Lehman PPNs are getting 80% of their principal back:

Most Hong Kong holders of structured financial notes linked to Lehman Brothers Holdings Inc. (LEHMQ) will get more than 80 percent of their investment in the latest settlement, receiver PricewaterhouseCoopers LLP said.

The agreement, which covers most issues of the minibonds, will offer holders “significant recoveries” on their investment, according to statements by PricewaterhouseCoopers and 16 banks involved issued at a Bank of China Ltd. (3988) briefing in the city today.

About 43,000 investors in Hong Kong bought an estimated $1.8 billion of Lehman minibonds that were sold by commercial lenders before the New York-based investment bank’s 2008 collapse.
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BOC Hong Kong (Holdings) Ltd., the Bank of China’s Hong Kong unit, and 15 other banks agreed to pay at least 60 cents on the dollar, for a total of HK$6.3 billion, in a settlement reached with the Securities and Futures Commission and the Hong Kong Monetary Authority.

BOC, the biggest seller of the notes in the city, offered in July 2009 to pay HK$3.11 billion ($400 million) to the Lehman minibond investors, almost half the total compensation extended by the 16 banks, while two units of Dah Sing Financial Holdings Ltd. will pay HK$444 million.

The notes have been characterized as almost worthless, so this is just another case of regulatory extortion. For a good laugh, try a Google search of “Lehman structured Notes” – it’s a good way of getting a list of ambulance-chasing legal firms.

In other adventures of the BooHooHoo Brigade, interest rate swaps are in the news again:

Faced with shrinking income and growing expenses, Italian cities bought swaps that would typically offer lower interest expenses in the near-term, while exposing the buyers to the risk of increased interest costs in later years. Italian cities faced losses of at least 1.2 billion euros from the transactions as of June, data compiled by the central bank show.

Cassino entered a seven-year swap with Bear Stearns in 2003 to adjust payments on about 22 million euros of debt. The swap switched the city’s 4.7 percent fixed interest rate payment for a variable rate, according to a June 2009 report by Italy’s financial police.

The city paid a floating rate based on the U.S.-dollar London interbank offered rate, an “extremely risky” bet given that Libor was at a record low, the police said in testimony to the Italian Senate in 2009.

Who needs investment managers when you’ve got the police? Fortunately, there’s a good laugh later in the story:

Bloomberg News sued the European Central Bank in December to make it release documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis. The case is pending.

Why, I’m sure the ECB knew nothing about it! It was a complete surprise! It was all Goldman’s fault!

The New York Fed’s blog has a piece by Beverly Hirtle addressing the question How Were the Basel 3 Minimum Capital Requirements Calibrated?. The blog itself, newly inaugurated and titled Liberty Street Economics, has been added to the blogroll.

I can’t help talking about the Toronto Community Housing Corporation thing, because it’s so illustrative of bad government and politics by sound-bite. A Toronto Star piece titled TCHC fête featured chocolate fountain and crème brulee makes the startling revelation:

The 2008 party for TCHC staff featured a chocolate fountain, an Italian spumante and strawberries station, crème brulee and a deluxe antipasto bar that included hot grilled calamari, mussels and smoked salmon.

In attendance were 760 guests, and the final bill from the Montecassino banquet hall in North York came to $47,715. Throw in costs for entertainment and other items, and TCHC forked out $53,500.

It was a significant change from the year prior. The 2007 celebration was a smaller scale event — 420 TCHC guests attended — and featured a less elaborate menu. Guests ate from an antipasto bar with no seafood, while chicken and pasta dishes were served at their tables.

The bill from Montecassino was $22,368.

OK, so this shocking news means that in 2008 the TCHC spent $70/head, while in 2007 the tab was $53/head. Hands up everybody who works for a major corporation that spent less than $100/head on their Christmas party! Don’t be shy … well, I didn’t think so.

Don’t get me wrong. There’s a lot wrong with the civil service in general and the TCHC in particular – but my desire for the efficient provision of services does not extend to treating staff like dirt on a permanent basis. When you treat your employees like shit, guess what kind of employees you get? I want them fired for incompetence, sure – that alone will save enough money to fund a hundred Christmas parties annually – but when it comes to governance I’d much rather talk about the single-source contracts that never get talked about.

It was another good day on the Canadian preferred share market, with PerpetualDiscounts up 10bp, FixedResets gaining 17bp and DeemedRetractibles winning 3bp. Not much volatility, with only two entries on the Performance Highlights table. Volume exploded and was very heavy … window dressing for quarter end?

The quote for CM.PR.K listed in the Wide Spreads table is a disgrace. Readers will remember that the reported value is the Last Quote, which may be wider than the Close. I have attempted to purchase Trades and Quotes for the issue, but all I get are trades. The TMX has been queried regarding this apparent shortcoming in their software. [See Update, below]

Update, 2011-3-30: The TMX has sent me the Trades and Quotes report that I attempted to purchase. They are trying to determing why my attempt was unsuccessful and desperately clinging to the hope that it was somehow all my fault.

The last trade was at 15:56:27, for 100 shares at the offer price of 26.70. There were then 12 quotes prior to the close as algorithms jockeyed for position; the bid changed once, from 800@26.62 to 200@26.63; the offer bounced mainly lower, from 100@26.70 to 200@26.68. The closing quote was 26.63-68, 2×2. The offer was cancelled at 16:16:01 and the bid at 16:16:09, resulting in a Last Quote of 26.62-28.83, 800×400.

Portugal’s problems deepened:

Portugal doesn’t need a rescue, Prime Minister Jose Socrates said in Brussels, seeking to counter speculation of a bailout as talks began in Lisbon to end the political limbo after lawmakers rejected his budget cuts.

Portuguese bonds fell, driving their yield to a euro-era record as investors anticipated that the country would follow Ireland and Greece in seeking a financial lifeline. A bailout may total as much as 70 billion euros ($99 billion), two European officials with direct knowledge of the matter said yesterday.
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The political deadlock comes as downgrades to Portugal’s credit rating threaten to deepen its debt woes. Standard & Poor’s and Fitch Ratings both cut Portugal’s rating yesterday.
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Portugal’s 10-year yield advanced as much as 14 basis points to 7.80 percent. The difference in yield that investors demand to hold the securities instead of German bunds widened 10 basis points to 451 basis points, the most since November. The Portuguese two-year yield increased as much as 38 basis points to 7.09 percent.

Opposition parties united to reject additional cuts that were the equivalent of 4.5 percent of gross domestic product over three years. The package included a reduction in pensions of more than 1,500 euros a month and further decreases in tax benefits. The government said the extra measures were needed to trim the deficit to 4.6 percent of GDP this year and within the EU’s 3 percent limit in 2012.

The Invisible Man would like us to believe that he has finally grown a pair:

The second minority government of Stephen Harper has fallen.

Early Friday afternoon, 156 opposition MPs – all of the Liberals, New Democrats and Bloquistes present in the House of Commons – rose to support a motion of no-confidence.

It was also a motion that declared the government to be in contempt of Parliament for its refusal to share information that opposition members said they needed to properly assess legislation put before them.

… but they’re probably just tied on with string.

There was a slight upward trend in the Canadian preferred share market today, with PerpetualDiscounts exactly flat (!) and both FixedResets and DeemedRetractibles up 4bp. Volatility increased a little, but volume remains anemic.

Update, 2011-3-29: It took four days, but I was finally able to get Trades & Quotes data from the TMX – they had to recover it manually because their software isn’t working properly, as far as I can see.

Anyway, in the period from 15:47:31, when 400 shares traded at 26.80, until the close at 16:00:00, there were 214 different quotes, all with a bid for 300 shares at 26.75 as algorithms jockeyed for position on the offer side. In this period the lowest offer was at 27.03, the highest at 28.25. There were nine instances of the offer side being 28.25.

The Closing Quote was 26.75-16, 3×1. At 16:15:03 the offer of 100 shares at 27.16 was cancelled, resulting in a Last Quote of 26.75-28.25, 3×4.

Pressure on Spain is increasing:

Thirty of Spain’s smaller banks had their senior debt and deposit ratings downgraded, as Moody’s Investors Service reviews whether governments are willing to support all their lenders in a crisis.

Citing heightened financial pressure on the country’s sovereign rating and “many weak banks,” the New York-based ratings firm cut 15 lenders by two levels and five by three or four, according to a statement today. The outlook on most banks’ senior and deposit ratings remains negative, Moody’s said.
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In Denmark, where senior bondholders of Amagerbanken A/S were forced to take losses, the firm cut the grades of five lenders and may cut them again.
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Spain’s credit rating was cut to Aa2 on March 10 by Moody’s, which said the cost of shoring up the banking industry will eclipse government estimates. The ratings company said then that Spanish lenders may need as much as 50 billion euros ($70.3 billion) to meet new capital requirements, a figure that compares with the Bank of Spain’s estimate that 12 lenders will need 15.2 billion euros.

The Amagerbanken failure is causing some debate:

Denmark is trying to persuade the rest of Europe to match rules exposing bondholders to losses after the failure of a regional bank last month left lenders in the Nordic country risking higher funding costs.

The collapse of Amagerbanken A/S on Feb. 6 forced a 41 percent loss on unsecured senior bonds and prompted Moody’s Investors Service 10 days later to cut ratings on five Danish lenders, including Denmark’s biggest, Danske Bank A/S, as it factored out state protection. The insolvency was the first to test rules Denmark put in place in October and set a European Union precedent for senior creditor losses amid a region-wide debate on burden sharing.
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Denmark is arguing the financial crisis hasn’t adequately stemmed risk-taking amongst bond investors and wants the EU to enforce the “possibility of debt writedowns” to discipline markets, according to a March 4 letter sent to the European Commission. EU financial services chiefMichel Barnier in January said bank regulators should be able to write down lenders’ senior debt, though a final agreement has yet to be reached.

European leaders are trying to put in place measures to protect taxpayers from having to rescue failing banks after Ireland guaranteed six lenders in 2008.

There are already measures in place to protect taxpayers from having to rescue failing banks: it’s called bankruptcy. The problem only arises because governments are desperate to pretend that everything is normal, and to keep their failed banks lending merrily away – as long as it’s for socially uselful purposes, of course.

But the punchline of the story came, naturally enough, at the end:

Denmark, home to the world’s third-largest mortgage-backed bond market after the U.S. and Germany, is trying to persuade the EU that the debt deserves a higher liquidity grade than the Basel Committee for Banking Supervision agreed on in December.

The covered-bond market may also become more liquid as investors spooked by the threat of losses on other debt classes turn to bonds backed by collateral, according to Fitch Ratings Ltd.

“The growing use of covered bond funding by banks is a trend set to continue,” Fitch analysts Helene M. Heberlein, Bridget Gandy and Jan Seemann said in a March 10 note. Issuers are also adding surplus collateral to the pool backing the bonds to attract investors, leaving less behind to cover other debt classes, Fitch said.

“There must be no doubt that holders of covered bonds and junior covered bonds always will receive timely payment,” Denmark’s government said in the March 4 letter. “It should therefore be made clear that covered bonds and junior covered bonds should not be subject to debt write downs.”

Hey – if the rules can be changed retroactively for senior debt, why can’t they be changed retroactively for covered bonds? What has Denmark done to defend the primacy of the rule of law?

With all that, Europe is taking decisive action:

As speculation swirled that Portugal will be the next victim of the crisis, the leaders bowed to German Chancellor Angela Merkel’s call to pare the fund’s paid-in capital as of 2013 to 16 billion euros ($23 billion), less than the 40 billion euros foreseen in a March 21 accord.

“It was a difficult debate with Germany,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after the first session of an EU summit in Brussels early today. “Germany found that in the compromise agreed last Monday it would have to pay in too much. So we had to tackle that issue.”
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Standard & Poor’s might take struggling countries down another notch, since the future fund — known as the European Stability Mechanism — will outrank private bondholders, said Moritz Kraemer, managing director of European sovereign ratings in Frankfurt.

Ratings Reassessment
“We would reassess the ratings specifically of Greece and Portugal, which we think are the most likely potential customers of the ESM,” Kraemer said on Bloomberg Television today.

Portuguese bonds fell for a fourth day today, pushing the 10-year yield up 13 basis points to 7.79 percent. The extra yield over German bonds, a sign of the risk of investing in Portugal, rose 10 basis points to 452 basis points.

It’s a bit like problems with US Health Care:

Aetna Inc. (AET) is suing six New Jersey doctors over medical bills it calls “unconscionable,” including $56,980 for a bedside consultation and $59,490 for an ultrasound that typically costs $74.

The lawsuits could help determine what pricing limits insurers can impose on ”out-of-network” physicians who don’t have contracts with health plans that spell out how much a service or procedure can cost.

Shouldn’t be any limits on doctors at all. The limits should be on how much the insurer will reimburse the insuree … “If you need an ultrasound, we’ll reimburse you 100% of the amount under $75 and 50% of the amount between $75 and $125, and 0% of the amount over $125, and here’s a list of places where you can get it done for $74.” But then insurers, companies, doctors, patients and politicians wouldn’t be able to pretend everything was free.

It was another good day on the Canadian preferred share market with PerpetualDiscounts up 11bp, FixedResets gaining 8bp and DeemedRetractibles winning 7bp. Volatility was muted, with only two entries in the Performance Highlights table; volume was anemic. Is it Christmas, or what?

Crisis in Portugal:

Portuguese Prime Minister Jose Socrates tendered his resignation after plans to cut the budget were rejected by parliament, pushing the country closer to an international bailout.
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Portugal has already raised taxes and implemented the deepest spending cuts in more than three decades to convince investors it can reduce its budget shortfall. Additional cuts, announced on March 11, prompted a political backlash and failed to persuade investors.

The spread between Portuguese and German 10-year bond yields widened 16 basis points to 438 basis points yesterday after reaching a euro-era record of 484 on Nov. 11.

It was another positive day on the Canadian preferred share market,with PerpetualDiscounts up 17bp, FixedResets up 2bp and DeemedRetractibles winning 9bp. Volume was average.

PerpetualDiscounts now yiel 5.59%, equivalent to 7.27% interest at the now standard equivalency factor of 1.3x. Long corporates now yield about 5.5% (OK, maybe a little bit less) so the pre-tax interest-equivalent spread is now about 180bp, not much different from the 175bp reported on March 9.

Looks like an election is in the wind:

Opposition leaders have signalled they will not support the Conservative budget, making a spring election all but inevitable.

The budget’s debt management strategy was interesting:

The government said in the debt management strategy that it released with the federal budget that it’s taking the step to ensure that it always has enough cash to pay one month of bills, which incidentally is the same requirement that will be in place for banks under the new Basel rules. The money will be stashed in interest bearing accounts and foreign exchange reserves and shouldn’t add to the deficit in a “material” way.

Europe had a bad day:

Irish notes slid, leading bonds of Europe’s most indebted nations lower, and the euro fell on concern the region’s leaders are struggling to fix the government-finance crisis. Oil rallied, while U.S. and European stocks retreated following a rebound in Japanese shares.

Irish 2-year note yields surged 62 basis points to 9.87 percent and rose as high as 10.18 percent, the most since Bloomberg began collecting the data in 2003. Yields on similar- maturity Portuguese and Greek debt climbed at least 26 basis points.

UK inflation is on the rise:

U.K. inflation accelerated more than economists forecast in February to the fastest pace in more than two years, adding pressure on the Bank of England to increase its benchmark interest rate.

Consumer prices rose 4.4 percent from a year earlier after a 4 percent increase in January, the Office for National Statistics said today in London. That’s the most since October 2008. The median forecast of 32 economists in a Bloomberg News survey was 4.2 percent. A separate report showed the budget deficit unexpectedly widened as government revenue fell.

But I may have been wrong about the long term effects of Credit Crunch politics on the UK financial sector:

Goldman Sachs Group Inc. (GS) employs almost as many people in London today as it did in 2007, before Lehman Brothers Holdings Inc. (LEHMQ) filed for the biggest bankruptcy in history, sparking a global recession.

Goldman Sachs isn’t alone. Royal Bank of Scotland Group Plc (RBS), recipient of the world’s biggest bank bailout, has more workers in its securities unit than four years ago. Barclays Capital, under Robert Diamond, hired 1,800 in 2010.

Investment banks in Europe’s financial capital are adding jobs, helping to bolster headcounts at law and accounting firms across London, as the rest of Britain struggles to recover from the worst economic contraction since the 1930s. Chancellor of the Exchequer George Osborne, who delivers his budget today, has little alternative except to do all he can to keep companies such as Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) from leaving London.

“We want London to remain a global financial center, and one that will continue to flourish and grow because of the employment it brings,” Treasury minister Mark Hoban said at a conference in the City of London last week. “We want to see more employment in the U.K., not less and I think a blooming financial services sector can help deliver that.”

Nevertheless, DBRS is worried:

• • Some investors have expressed increasing concern about Euro zone countries suffering from high and rising debt burdens, uncertain bank recapitalization needs, low competitiveness or political instability.
• • In addition to low investor confidence, deterioration in global economic and political conditions – the Japanese nuclear crisis, popular unrest in Bahrain, energy supply disruptions in Libya – could slow Europe’s economic recovery and thereby delay fiscal adjustment and debt stabilization.
• • Greater clarity on European policies came on March 11, the first in a series of meetings through March 25, with a set of initiatives that if approved may help restore confidence and provide countries with time to implement fiscal austerity programs and return to growth.
• • However, DBRS believes that the final announcements may continue to leave doubts about Europe’s policy stance regarding debt restructuring. The unstable macroeconomic environment however increases the need for greater policy clarity.
• • DBRS would be encouraged by policies that address not only liquidity needs, but also reduce debt servicing costs. Clearer policies would further help to stabilize DBRS’s sovereign ratings in Europe.

One can’t help but wonder what will ultimately happen to Detroit:

The population in Detroit plunged 25 percent during the last decade, falling to the lowest level since 1910, according to 2010 Census figures.

The number of city residents fell to 713,777 last year, compared with 951,270 in 2000, the U.S. Census Bureau said today in Washington.
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Detroit’s overall population has fallen steadily since 1950, when it peaked at 1.8 million.

There’s a fascinating development in workplace computer privacy law:

A judgment on Tuesday from the Ontario Court of Appeal broke new ground on an issue that is exploding into the court system – the extent to which Internet information is private and beyond the reach of the law.

The case involved a Northern Ontario high school teacher charged with possessing child pornography. The judges said that police breached his Charter rights by viewing his computer files without a warrant.
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Toronto lawyer Scott Hutchison, a privacy expert, said that the court has given a sound answer to a vital question. “This case comes down firmly on the side of privacy and holds that employers cannot give police investigators access to a workplace computer,” he said.

“This case makes it clear that the employer may own the computer, but that doesn’t give them the power to waive the employee’s privacy rights,” Mr. Hutchison added.
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Writing on behalf of Chief Justice Warren Winkler and Mr. Justice Robert Sharpe, Madam Justice Andromache Karakatsanis said the board employee did not breach the Charter protection against unreasonable search and seizure because he was mandated to do so.

However, the police search was an entirely different matter.

DBRS has released six methodological updates. Of primary interest are Life Insurance companies and P&C Insurance companies.

The Globe’s John Heinzl had a good piece titled Getting a grip on the dividend gross-up.

It was another strong day in the Canadian preferred share market, with PerpetualDiscounts up 26bp, FixedResets winning 13bp and DeemedRetractibles gaining 9bp. Volume continued to be light.

No commentary today – sorry!

It was a strong day on the Canadian preferred share market, with PerpetualDiscounts gaining 16bp, FixedResets up 10bp and DeemedRetractibles winning 20bp. Volume was light – most investors (other than myself, of course) being too busy dancing naked in lascivious spring rites. Why don’t I ever get invited?

To my astonishment, not only did BMO.PR.J not crash heavily to earth after Friday’s fireworks, but it again topped the list of Performance Highlights! It now looks even more expensive and there is the possibility that there is more behind the story than a simple fat-finger or algo-gone-wild. A short squeeze, maybe? Unlikely, I know, but what else is there? A point against the short-squeeze story is that today’s buying – of 13,941 shares – was broadly based, with RBC taking the largest share with 4,005 shares. Friday’s buyer, Desjardins, bought 2,618 shares. It’s all very peculiar, but living in PreferredShareLand is a little like being the White Queen in Through the Looking Glass – one sometimes see six preposterous things before breakfast.

Teachers’ supports the TMX / LSE deal:

Specifically, we support the proposed merger for the following reasons:

• It is important to ensure that Teachers’ and other investors have access to an effective, low cost trading platform to execute both cash and derivative trades. The combined exchange operator should be able to achieve economies of scale, lowering the cost of capital and trading costs.
• …

What? Judging a company by what it does for its customers rather that the quality of jobs it provides its employees and suppliers? Why, that’s … that’s un-Canadian! The More-Subsidies government should revoke their citizenship, immediately and retroactively!

The Fed has relaxed dividend restrictions on large US bank holding companies:

The Federal Reserve on Friday announced it has completed the Comprehensive Capital Analysis and Review (CCAR), its cross-institution study of the capital plans of the 19 largest U.S. bank holding companies.

As a result of the CCAR, some firms are expected to increase or restart dividend payments, buy back shares, or repay government capital. The Federal Reserve on Friday will discuss the reviews and its decisions with firms that requested a capital action. All 19 firms will receive more detailed assessments of their capital planning processes next month.

In February 2009, the Federal Reserve advised bank holding companies that safety and soundness considerations required that dividends be substantially reduced or eliminated. Since that time, the Federal Reserve has indicated that increased capital distributions would generally not be considered prudent in the absence of a well-developed capital plan and a capital position that would remain strong even under adverse conditions.

There was immediate reaction:

JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) increased dividends and authorized share buybacks after the Federal Reserve reviewed the ability of the largest U.S. lenders to withstand another economic slump. Bank stocks rallied in New York trading.
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Goldman Sachs Group Inc. (GS) said it got permission to buy back $5 billion of preferred stock sold to Warren Buffett’s Berkshire Hathaway Inc. in 2008.

And some took advantage of the market’s reaction:

KeyCorp (KEY), Ohio’s second-biggest bank, raised $625 million selling shares as part of a plan to repay a U.S. bailout after a Federal Reserve review of the company’s capital strength.

KeyCorp, based in Cleveland, sold 70.6 million shares of common stock at $8.85 each, the bank said today in a statement.

The Federal Reserve told KeyCorp it didn’t object to a plan to sell stock and issue debt to help repurchase $2.5 billion of preferred shares sold to the U.S. Treasury in 2008 as part of the Troubled Asset Relief Program, the company said in a statement. KeyCorp paid about $282 million in dividends to Treasury during the investment period.

KeyCorp advanced 7 cents to $8.92 as of 4 p.m. today in New York Stock Exchange composite trading before the announcement.

… and so did SunTrust:

SunTrust Banks Inc. (STI) raised $1.04 billion selling shares as part of a plan to repay $4.85 billion in U.S. bailout funds.

The lender, based in Atlanta, sold 35.3 million shares of common stock for $29.50 each, data compiled by Bloomberg show.

The Federal Reserve, which reviewed the financial strength of the largest U.S. lenders, didn’t object to SunTrust’s capital plan to sell the stock and issue a further $1 billion of debt, the bank said today in a statement. Repayment to the Troubled Asset Relief Program, which will also draw on “other available funds,” is subject to approval by the U.S. Treasury Department, the bank said.

SunTrust advanced $1.34, or 4.7 percent, to $29.59 as of 4 p.m. today in New York Stock Exchange composite trading before the announcement.

Regulators world-wide are seeking to expand their empires:

Michael Oxley, the former congressman who co-wrote the Sarbanes-Oxley Act of 2002, has registered as a lobbyist for the Financial Industry Regulatory Authority to promote self-regulation of investment advisers.

Oxley, a partner at Baker Hostetler LLP in Washington, registered this week as a Finra lobbyist, saying he would work on securities regulation and the “harmonization of regulation of broker-dealers and investment advisers,” according to his registration form. Finra oversees about 4,560 brokerage firms and is interested in expanding to investment advisers.

Salesmen should not have the same regulator as asset managers.

Today’s embarrassing news release is:

GMP Capital Inc. (“GMP”) (TSX: GMP and GMP.PR.B) announced that it has re-filed its audited financial statements and accompanying management’s discussion and analysis for the year ended December 31, 2010 to correct a calculation error relating to earnings per common share for 2009.

The correction relates to amounts recorded in connection with the redemption of GMP’s Series A preferred shares in December 2009. The amounts were charged to retained earnings, as required, but were not deducted in computing net income available to common shareholders. The earnings per common share (“EPS”) for 2009 has accordingly been revised from $0.64 per basic EPS and $0.59 per diluted EPS, as originally reported, to $0.52 per basic EPS and $0.48 per diluted EPS. The correction and re-filing has no effect on EPS for 2010 and does not otherwise affect GMP’s financial statements for the years ended 2010 and 2009.

On the whole, I would say that’s on a par with the Toronto Society of Financial Analysts repeated problems with their financial statements! It was just yesterday that Harris Fricker, CEO of GMP Capital, wrote an incomprehensible essay in the Globe trying to tell the TMX how to manage its business.

It was quite the day for BMO.PR.J!

Click for big

BMO.PR.J was the best performing index-included preferred share for the day, trading 89,346 shares in a range of 23.78-26.25 (!) [It’s been a while seen we’ve seen $2+ ranges!] before closing at 24.20-43, 10×18. Thanks to Assiduous Reader GA for bringing this to my attention.

Was it Algos Gone Wild? Fat Finger? One way or another, Desjardins bought 19,500 shares at an average price of 24.60 in 24 pieces from 11:40:36 to 11:40:37 – the first piece executed at 23.81, the last at 26.23. Then two odd-lots traded at 26.25 (presumably the offering price, but I haven’t bought that data), indicating a separate order. The next batch of Desjardins’ buying was another 20,200 shares at an average price of 25.75 in 9 pieces from 11:40:37 to 11:40:48, starting at 24.20 (an algo coming in with a new offer?) and ending at 26.25. This sequence included 16,400 shares at the high for the day of 26.25. Kudos to Goldman Sachs, who – I’m guessing, but it’s a pretty confident kind of guess – has an algorithm trolling the alleyways just looking for this sort of thing and were the seller of the last four lots at 26.25, totalling 9,500 shares.

Or maybe it wasn’t a Goldman algorithm, but an iceberg, placed well off the market price some time every morning? Either way, they made about $20-grand.

Oh, and when I say “Desjardins” and “Goldman”, it might not have been their prop desks acting as principal – this might all have been client orders.

The Canadian preferred share market was strong today, with PerpetualDiscounts up 9bp, FixedResets gaining 14bp and DeemedRetractibles winning 37bp. Volume was light.

The Irish government is upset about its zombie banks:

Irish Prime Minister Enda Kenny said it’s “grossly unfair” that taxpayers alone should carry the cost of bailing out the country’s banks as he pushed for lower rates on a European-led rescue loan.

Kenny, on a visit to Washington where he says he’s trying to repair Ireland’s “damaged” reputation, called for changes to the rescue package by the European Union and the International Monetary Fund to avoid a situation where Ireland struggles to pay back its loan and can’t generate economic growth.

“It is grossly unfair to expect the taxpayer to have to pay 100 percent for the reckless lending practices of banks which caused this in the first instance,” Kenny said yesterday in an interview with Bloomberg Television’s “InBusiness With Margaret Brennan” that will be broadcast today. The 5.8 percent average rate Ireland pays for its loans is “too severe,” he said.
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Kenny stopped short of saying who should pay along with taxpayers. Asked about the treatment of senior bondholders, Kenny said that his government will put no additional cash into banks “until you see the scale of what the liability is, until there is an understanding of what might be here.”

There was cheering in B-Comm classes across Canada today as Harris Fricker, CEO of GMP Capital, demonstrated that you can achieve enormous success on Bay Street without the ability to construct a coherent argument. There’s really not much worth quoting, but here’s the conclusion:

We cannot help but feel that a major opportunity has been lost to preserve a distinctly Canadian success story. Will the acquisition by the LSEG imperil our markets or impede the formation of capital in Canada? Not at all likely. Is the loss of the standalone status of the TMX regrettable in the face of its success to date and its potential going forward? Undeniably.

There is no support for either concluding assertion in the preceeding mish-mash of unrelated statements.

Mr. Fricker’s effort demonstrates:

• that whatever the TMX debate is about, it has nothing to do with what’s being said in public
• the intellectual bankruptcy of public disourse in Canada.

We’re getting involved in another foreign war:

The United Nations Security Council voted today to ground Libyan leader Muammar Qaddafi’s air force and to grant military authority to the U.S. and its allies to protect civilians and population centers threatened by Qaddafi’s forces.

It seems quite clear to me that the Qaddafi regime is awful, both domestically and internationally, but I’m not sure why we think the alternatives are better. Nobody’s bothered to explain it to me. I’m with Haass:

“Why is anyone so sure that the people we’d be helping, that they would necessarily be dramatically better than Gadhafi?” said Richard Haass, president of the Council on Foreign Relations.

So we’ll happily support the Libyan rebels, giving them carte blanche to fight Quaddafi – just like we gave bin Laden carte blanche to fight the Soviets.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts down 13bp, FixedResets gaining 2bp and DeemedRetractibles up 16bp. Volume was on the light side.

There are rising doubts about UK growth:

The Organization for Economic Cooperation and Development cut its forecast for U.K. economic growth in 2011 and said the Bank of England should refrain from increasing interest rates until the second half of the year.

Gross domestic product will expand 1.5 percent instead of the 1.7 percent predicted in November, the Paris-based group said in its economic survey of the U.K. published today. It maintained its 2 percent growth forecast for next year.

“The recovery is likely to remain subdued in 2011, as the necessary fiscal tightening and a fading rebound in world trade create headwinds, before picking up again in 2012,” it said.

… and Moody’s downgraded Portugal:

The euro halted three days of gains versus the dollar after Moody’s Investors Service downgraded Portugal’s credit rating, reviving concern about Europe’s ability to solve its debt crisis.

The 17-nation common currency depreciated versus all but two its major counterparts after Portugal was cut two steps by Moody’s yesterday to A3, four steps from so-called junk status.

It was a good day overall for the Canadian preferred share market, with PerpetualDiscounts up 30bp, FixedResets losing 4bp and DeemedRetractibles up 6bp. Volume was average.

Japan’s problems just keep getting worse:

The steepest tumble in Japan’s stocks in a quarter-century threatens to worsen damage to the economy from last week’s earthquake and tsunami in a crisis policy makers have yet to contain.

The Nikkei 225 (NKY) Stock Average fell 16 percent the past two days, the most since 1987, as power outages forced companies to suspend output and officials warned of rising risk of radiation from a nuclear plant. Bank of America-Merrill Lynch further cut its forecasts for gross domestic product, which shrank last quarter, and JPMorgan Chase & Co. may do the same.

“The earthquake’s damage on the economy’s much, much larger than we originally thought,” said Masaaki Kanno, chief Japan economist at JPMorgan in Tokyo. “Continued stock turmoil and disruptions to production will drive the economy into an extremely severe state.”

The situation on the ground appears to be stabilizing although still very risky; but the financial markets are getting a dead cat bounce.

The FOMC statement was released today:

Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

There were two excellent columns in the Globe today regarding the TMX / LSE merger, by which I mean that I agree with them. Boyd Erman wrote LSE a weakling against TMX? Numbers don’t back it up:

That means that TMX will be contributing about 37 per cent of the revenue of the combined company in the next year.
…
So TMX will be contributing about 39 per cent of EBITDA. On a net income basis, TMX is expected to contribute 46 per cent.

David Milstead wrote In a TMX/LSE merger, whose rules apply?:

One of [Canadian Foundation for Advancement of Investor Rights executive director] Mr. [Ermanno] Pascutto’s concerns about the proposed merger is the current competitive situation in Canada, where the Alpha trading platform is applying to become a full-blown exchange. “Will Alpha’s listing standards for listed companies be lower than these of the TSX?” he asked last week in his testimony to the Select Committee of the Ontario Legislature. “If so, will this prompt a ‘race to the bottom’ and a lowering of investor protection?”

FAIR Canada suggests the best way forward may be to transfer the TSX’s regulatory functions to another regulator, such as the Investment Industry Regulatory Organization of Canada, which has already taken over the TSX’s trading rules. That will create a uniform set of Canadian listing standards, FAIR says.

FAIR’s position on the merger is:

And while FAIR Canada sees benefits to TMX shareholders, it does not believe that the merger will bring real benefits to Canadian listed issuers or investors.

However, if the proposed merger were to proceed, FAIR Canada submits that the conflicts of interest in the TSX’s management of its listing regulation responsibilities should be addressed as a condition to the approval of the proposed merger.

In July 2009 [sic], FAIR Canada released an expert report outlining how similar conflicts have been addressed in several important developed markets, including the US (both NYSE and NASDAQ), the UK, Australia and Hong Kong. The Report found that all of the other seven major exchanges reviewed have addressed their conflicts of interest by implementing one of three specific and sound approaches to conflict of interest management. The TSX was the only exchange among this group that has not implemented specific measures to manage its conflict of interest in regulating listed companies.

Mr. Pascutto noted, “FAIR Canada does not believe that the TSX is properly discharging its regulatory responsibilities, and this situation will only be exacerbated by a merger with the LSE Group. It is imperative that any structure that the TSX adopts to manage conflicts of interest be independent of the new Group’s commercial listings operations, and be subject to the oversight and supervision of Canadian regulators – primarily the OSC.”

FAIR Canada concluded its submission by noting that, in light of the proposed merger and the recent introduction of competition for listings from Alpha, the best way forward could be to transfer the TSX’s regulatory functions to another regulator (such as IIROC) and to have a uniform set of listing standards so that competition for listings will not be based on reduced investor protection.

The “expert report” was titled Managing Conflicts of Interest in TSX Listed Company Regulation and was prepared by John W. Carson of Compliax Consulting Inc., dated July 2010. The Financial Post had a contemporary article about it. But, you ask, who is John W. Carson?:

Before launching a consulting practice in 2001, John was head of all of the Toronto Stock Exchange’s SRO operations, including Listings, Market Regulation, Member Regulation and Enforcement.

What’s he done?:

•Strategic Advisor for development of Investment Industry Association of Canada’s (IIROC) new Rule Book
…
•Strategic review of IIROC’s member inspection programs

FAIR claims to be independent at all times, not just when recommending that IIROC extend its regulatory empire, but note:

The establishment of the Foundation was proposed by Ermanno Pascutto to the boards of directors of Market Regulation Services Inc. (“RS”) and the Investment Dealers Association (“IDA”) as a desirable use of the IDA and RS “restricted” or “discretionary” funds. Mr. Pascutto was then an independent director of Market Regulation Services Inc. and is a former senior securities regulator and lawyer in Canada and Hong Kong.
…
RS and IDA, which merged in June 2008 to form the Investment Industry Regulatory Organization of Canada (“IIROC”), agreed to provide $3.75 million funding from their restricted or discretionary funds. This funding is expected to be sufficient for the establishment of the Foundation and its operation for a three year period. The IDA and RS (now IIROC) are the founding financial sponsors of the Foundation.

The IIROC funding to establish the Foundation is a one time event. There is no commitment on the part of IIROC to any future funding. After its launch the Foundation will look for other sources of funding for its ongoing work.

IIROC’s presentation did not address the concerns – when you buy a dog, it barks on your behalf. And that, boys and girls, is how the cosy little Canadian industry works – and why all those interested in advancing investor rights should support the merger.

Incidently, Torontonians will be aware of the kerfuffle over the project housing board of directors. I have a friend who retired from his executive position some time ago; a little while afterwards he applied for a post on the Toronto Hydro board of directors as a citizen representative. Now, I won’t claim – and neither will he! – that my friend’s career was worthy of a Harvard case study, or as many gallons of ink as Buffett gets … but it was much more successful than most and he spend many years managing a big chunk of a big organization, several layers of management and several hundred miles from the front-line guys actually doing the work.

He was told that they weren’t really looking for people with his experience, they were looking for people with neighborhood involvement. In other words, people whose experience of business consisted of an annual volunteer Fun Fair and could easily be cowed by management. And we’re surpised when we have problems with city appointed boards?

The Canadian preferred share market had a mixed day, with PerpetualDiscounts gaining 7bp, while FixedResets lost 14bp and DeemedRetractibles were down 21bp. Volume was average.