Category: Market Action

AIG bonuses are all over the news; I haven’t commented on them (specifically) due to the total absence of facts. But some people like to talk about it. Econbrowser‘s James Hamilton labels them “outrageous” and “one of the very factors that caused our current problems” without, as far as I can tell, having any more idea about what is going on than I do.

I have no idea what the functions of these exectuives are, what decisions they made, and how much responsibility they should take for decisions made by their boss’ boss’ boss.

There’s a bit more news today:

The head of battered insurance giant AIG told Congress on Wednesday that “we’ve heard the American people loudly and clearly” in their rage over executive bonuses and appealed to employees to voluntarily return at least half of the money.

Voluntarily, eh?

This is a very simple problem to solve, if you feel the game is worth the candle (Matthew, 16:26). All you need to do is threaten each executive with an army of accountants and lawyers, going over everything they’ve ever done in the course of their employment looking for an undotted “i” or an uncrossed “t”. Anything that’s found becomes fodder for just-cause dismissal, lawsuits, regulatory action and/or criminal charges.

Easy. All it takes is a total absence of business ethics.

Another day of solid across-the-board gains, on decent volume. PerpetualDiscounts now yield 7.41%, equivalent to 10.37% interest at the standard equivalency factor of 1.4x. Long Corporates still yield 7.5% (bor-ring!) so the pre-tax interest-equivalent spread has come in a bit to a “mere” 287bp.

Also of interest was the fact that Five-Year Canadas came in 18bp today and now yield 1.55%; this is presumably an arbitrage-thing against Treasuries on the back of the Fed quantitative easing. And rate resets went up anyway. I guess investors are discounting the current turmoil as transient … or something.

PrefBlog’s SEDAR-watching Department, otherwise known as Assiduous Reader MP, points out that Sun Life Financial has issued a new $5-billion shelf prospectus. Of particular interest are the Class B Preferred Shares:

The Class B Shares of each series rank on a parity with the Class B Shares of each other series with respect to the payment of dividends and the return of capital on the liquidation, dissolution or winding-up of SLF. The Class B Shares are entitled to preference over the Common Shares and any other shares ranking junior to the Class B Shares with respect to the payment of dividends and the return of capital, but are subordinate to the Class A Shares and any other shares ranking senior to the Class B Shares with respect to the payment of dividends and return of capital.

However, there are no shares of this class currently outstanding (all the extant SLF preferreds are Series A) and the ability to issue Class Bs has been around for some time – see, for example, the shelf prospectus dated November 4, 2005.

Canadian equities continued their rally today and PerpetualDiscounts rose with them. SplitShares did quite well today – not surprisingly, what with asset coverage improving by leaps and bounds.

Monetary stimulus appears to be having an effect in the UK:

By buying government securities to increase the supply of money, Bank of England Governor King is taking a step that Federal Reserve Chairman Bernanke has only talked about. Early results have been encouraging: Yields on 10-year U.K. government bonds fell to 2.94 percent March 13, at least a 20-year low, from 3.64 percent before King announced the policy March 5.

“The BOE is providing an actual experiment in answering some of the concerns that the Fed has about the effectiveness” of using the strategy to effectively print more money, says former Fed Governor Laurence Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers LLC.
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King — whose office adjoined Bernanke’s when the two were visiting professors at MIT in Cambridge, Massachusetts, during the 1980s — is pursuing both approaches.

Gilt Purchases

He is aiming to expand reserves in the financial system through purchases of U.K. government bonds, known as gilts — a strategy he describes as “conventional unconventional” monetary policy. He will also buy private-sector assets as Bernanke is doing — an approach the Bank of England chief calls “unconventional unconventional.”

Nobody knows what to call things nowadays! I called it “monetary stimulus” because it is government securities that are being purchased; I would not call this “quantitative easing”. I presume that King refers to the process as “conventional unconventional” because “conventional conventional” would be buying government securities at issue time.

The crisis is going to re-write the economics textbooks all right! Especially the glossary!

Tempers are flaring about TARP’s populism and stress tests:

When the U.S. Treasury persuaded the nation’s nine biggest banks to accept capital investments in October, it signaled the whole industry was weak, Kovacevich, 65, said in a March 13 speech at Stanford University in California. Even though Wells Fargo didn’t want the money, it must comply with the same rules that the government placed on banks that did need it, he said.

“Is this America — when you do what your government asks you to do and then retroactively you also have additional conditions?” Kovacevich said. “If we were not forced to take the TARP money, we would have been able to raise private capital at that time” and not needed to cut the dividend to preserve cash, he said.
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Kovacevich said the government is still making mistakes as it tries to save the industry. The “stress test,” designed to determine which of the 19 largest U.S. banks need more capital, provides opportunities for short-sellers to drive down bank stocks and can hurt confidence in the system even more, he said.
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“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”

I noted on March 12 that CIBC had issued a collateral call to MAV Trust (the successor to non-bank ABCP) … it wasn’t met:

As noted in the DBRS press release dated March 12, 2009, the deadline for providing additional collateral was 5:00 p.m. on March 13, 2009. DBRS was advised that MAVII did not receive the funding of $19.3 million. Since no funding was advanced, CIBC had the option to terminate all or a portion of the leveraged credit default swap transactions collateralized by MAVII. The resulting reduction in collateral supporting the MAVII notes is capped at $107,742,597 (or approximately 1.1% of the assets of MAVII). DBRS was advised today that the entire notional amount of these credit default swap transactions was terminated.

As indicated in the DBRS press release dated March 6, 2009, confirming the ratings of the MAVI and MAVII Class A-1 and Class A-2 Notes (the Notes), the potential for transactions not subject to the 18-month moratorium to unwind was considered by DBRS when assigning the “A” rating to the Notes, and no rating action is warranted at this time.

Willem Buiter writes an interesting piece on VoxEU regarding resolution of the banking crisis – but it is crippled by his idea that markets are efficient. They’re not. There must be some way of cross-training academics & market practitioners such that the former could lose some their awe for the latter. Perhaps an in-depth study of some of the successful pension funds might be a good start?

Another good day for PerpetualDiscounts, which have now recovered 3.88% from their recent low on March 10 … but they’re still down 6.55% from their 2009 high reached on January 13.

Alas, no time for extensive commentary!

PerpetualDiscounts rocketted up, led by insurers, in a day of fairly light volume.

Jon Danielsson, Hyun Song Shin & Jean-Pierre Zigrand (there’s a multicultural author’s list for you!) write a piece in VoxEU, Modelling financial turmoil through endogenous risk, based on their Risk Appetite and Endogenous Risk, in which they show that regulating individual banks and trading institutions according to the same template leads to cliff risk:If the purpose of financial regulation is to shield the financial system from collapse, then basing regulation on individually optimal risk management may not be enough.

The bane of quants and the downfall of pseudo-quants is the fact that different things are important at different times; these effects are best minimized by ensuring that datasets are as homogeneous as meaningfully possible. But it’s particularly aggravating when the authorities change relationships on purpose:

Trichet is allowing the ECB’s deposit rate, which lenders earn on overnight deposits with the central bank, to usurp the benchmark refinancing rate and become the main driver of short- term borrowing costs. At just 0.5 percent, the deposit rate matches the Bank of England’s key setting and is only a step away from the zero-to-0.25-percent range the Federal Reserve uses.
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The deposit rate is “very, very low,” Trichet said three times in an hour at a press conference on March 5.

He “is implicitly admitting that the deposit rate has now become the key barometer of the ECB’s policy,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “The ECB has become more and more comfortable in pointing that out, not least because it’s been accused of keeping interest rates too high.”

There’s some excitement in ABCP-land! The Master Asset Vehicles (I & II) are the successors to Canadian Non-Bank ABCP … and now CIBC has delivered a collateral call:

DBRS has today commented on the recent series of trigger event notices delivered by Canadian Imperial Bank of Commerce (CIBC) to Master Asset Vehicle I (MAVI) and Master Asset Vehicle II (MAVII; collectively, the MAVs) requesting additional collateral.

As described in the DBRS Canadian Structured Finance Newsletter dated February 19, 2009, CIBC is the swap counterparty for four leveraged credit default swaps (CDS) collateralized by the MAVs that are not subject to the 18-month moratorium period applicable to all other CDS transactions entered into by the MAVs. The collateralization triggers on these transactions were breached on March 3, 2009, prompting CIBC to deliver trigger event notices to the MAVs requesting additional collateral. On March 6, 2009, and March 9, 2009, CIBC delivered subsequent trigger event notices to the MAVs with respect to subsequent trigger breaches. The additional collateral demanded under the March 9, 2009, trigger event notice was withdrawn on March 11, 2009. The total amount of additional collateral demanded by CIBC now stands at $95.4 million for MAVI and $19.3 million for MAVII. CIBC has stated that the deadline for providing additional collateral is 5:00 p.m. on March 13, 2009.

At the time of issuance of this press release, DBRS had not been informed of the posting of additional collateral. As noted in the March 3, 2009, Canadian Structured Finance Newsletter, the failure of the MAVs to post additional collateral will result in a partial or total unwind of the CIBC transactions with the MAVs. For MAVII, the resulting reduction in collateral supporting the notes is capped at $107,742,597 (or approximately 1.1% of the assets of MAVII).

Canadian equities had a great day, led by financials:

Canadian stocks notched their best three-day gain since November as financial and energy shares soared after better-than-estimated U.S. retail sales fanned speculation that the worst of the credit crisis may have passed.

Royal Bank of Canada climbed 4.3 percent, sending financial shares to their steepest three-day gain in 21 years after Bank of America Corp. became the latest U.S. bank to say it made a profit in the past two months. Suncor Energy Inc. rallied to the highest price since October as crude oil rose more than $4 a barrel.

The Standard & Poor’s/TSX Composite Index added 3.4 percent to 8,282.27 in Toronto, its highest close in three weeks, as six stocks rose for each that fell.
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Royal Bank, Canada’s biggest lender, added C$1.43 to C$35. Bank of Montreal, the fourth-largest, rose 6.1 percent to C$31.93. Canadian Imperial Bank of Commerce, the fifth-biggest, advanced 4.9 percent to C$43.96. Manulife Financial Corp., the country’s biggest insurance company, rose 13 percent to C$12.70. Sun Life Financial Inc. soared 11 percent to C$19.96.

U.S. stocks rallied, led by financial companies, after General Electric Co. said that the loss today of its top credit rating from Standard & Poor’s won’t hurt its business or that of its finance arm.

Financial shares in the S&P/TSX added 5.6 percent, pacing gains in eight of the index’s 10 industries. The gauge rose 20 percent in three days, the best such rally since at least 1987.

XFN, the capped financial index fund, is now back to where it was on February 13, but PerpetualDiscounts are down 7.56% from that date. So go figure.

Still, a few more days like this could be fun!

There is a report that the London Office of AIG’s now notorious Financial Products Group took on notional exposure of USD 500-billion in sub-prime CDSs … not bad leverage for one office of one division, considering AIG’s total equity was $104-billion in June 07, just before the fun started.

Econbrowser‘s James Hamilton advocates having AIG default on its CDSs:

But the issue for me has always been not to exact retribution or instill market discipline, but instead the very pragmatic question of how to use available resources to minimize collateral damage. I accept the argument that a complete failure of AIG would have unacceptable consequences. The relevant question then is, what combination of parties is going to absorb the loss?

The concern I wish to raise is that any reasonable answer to that question would include Goldman Sachs, Merrill Lynch, Societe Generale, and Calyon, to pick a few names at random, as major contributors to this particular collateral-damage-minimization relief fund.
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Then there’s the domino effect to consider. What do we do when this brings down the next player who can’t continue operations without those payments AIG (or the taxpayers) were supposedly going to deliver? I say, we implement the parallel operation there.

I can’t agree. This would have knock-on effects akin to another Lehman; the cure would be worse than the disease. The policy focus should not be on minimizing cost, but on minimizing harm.

I certainly agree that it is unfortunated that taxpayers are getting hurt and it is clear that regulation must be improved. However, pain is part of the game. Western economies in general and Amercian taxpayers in particular have been well served by the financial system.

Who wants to live in a country without a functional banking system, particularly the mortgage market? I don’t know what the system is like now, but I understand the Indian mortgage market was basically non-existent not too many years ago. So the middle class had to save all their lives to buy a place and maybe be able to look around by the time they were 55. Housing 55! There’s a good insurance slogan!

However, the drumbeat of retribution continues:

Debt investors are an attractive target because of the size of their holdings — more than $1 trillion just at the four largest U.S. banks — and because they’ve emerged almost unscathed so far. Since any reduction in debt at a bank helps boost capital ratios, members of Congress including U.S. Representative Brad Sherman, a California Democrat, say it’s time for bondholders to share the pain.

“These banks can go into receivership, shed their shareholders, shed or reduce the amount they owe to their bondholders and come back out much stronger institutions,” said Sherman, who sits on the House Financial Services Committee, in a statement to Bloomberg News. More U.S. capital might be offered as part of the package, he said.

Go for it, Sherman. Regardless of the situation a year ago, these institutions now have TARP money and bond-holders are senior to TARP money. You might find yourself on the wrong end of a cramdown.

With this kind of talk floating around, is it any wonder the US Corporate market is dysfunctional?:

I think the corporate bond market is still fractured. It is not as dysfunctional as it was in October and November but the realization that solid well established companies need to provide as much of a concession as these entities are here is a sign that there is a very long road to travel before the corporate bond market functions with a degree of normality.

Meanwhile, the GSEs are a continuing disaster:

Freddie Mac, the mortgage-finance company thrust into a leading role in President Barack Obama’s homeowner rescue plans, said it will tap $30.8 billion in federal aid as its loan holdings and other assets deteriorated.

The company, which owns or guarantees more than 20 percent of U.S. home loans, today posted a wider fourth-quarter net loss of $23.9 billion, or $7.37 a share. The results pushed the value of Freddie’s assets below its liabilities, the McLean, Virginia- based company said in a statement, and come as Chief Executive Officer David Moffett leaves after six months on the job.
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Freddie and larger competitor Fannie Mae have been pressured to carry out policy initiatives, including offering low-cost mortgage refinancings, since the government takeover. The often conflicting demands of appeasing regulators and pursuing profit may have led Moffett to resign, [F&R Capital Markets analyst Paul] Miller said.

“They want these guys to refi mortgages without new appraisals and to keep mortgage rates very low; those are not sound business decisions,” Miller said. “They are being used as a public policy tool to save the housing market. That is just going to make it more difficult for them to be floated out as public companies down the road.”

In what is almost certainly an orchestrated move, Bernanke’s proposed Financial Stability Regulator has attracted support:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said the U.S. needs a “systemic risk regulator” and should set up procedures to deal with potential failures of large financial institutions.

“Failure is fine as long as it’s orderly, controlled, leads to resolution and doesn’t cause systemic failure,” Dimon, 52, said at a conference hosted by the U.S. Chamber of Commerce in Washington.

Dimon said at a Feb. 3 conference that he believed the Federal Reserve should have the authority to regulate all companies within the banking system.

CDS junkies, by the way, may wish to read the Observations on Management of Recent Credit Default Swap Credit Events.

The Cleveland Fed has released its March Econotrends, with an interesting chart-pack on the impact of credit easing so far. The Fed’s balance sheet has begun to bloat again:

Annoyed at having been called insane, PerpetualDiscounts rose 90bp to yield 7.52%, equivalent to 10.53% interest at the standard equivalency factor of 1.4x. Long Corporates now yield 7.6%, so the pre-tax interest-equivalent spread is now about 290bp … certainly at the high end of its range, although nowhere near the November end-of-the-world levels.

Julia Dickson of OFSI made some remarks to the Commons Finance Committee, but there was nothing startling there. She emphasized the importance of having high quality capital in the banks (lots of common!) but neglected to highlight OSFI’s recent debasement of capital quality.

More and more, I am taking the view that OSFI made a very serious mistake when changing the MCCSR rules at Manulife’s behest. To preserve the integrity of the regulatory system, they should have insisted on seeing some pain – in the form of forced equity issuance – first. There’s no point in having rules if they’ll be relaxed at the first hint of trouble; that attitude is coming home to roost with the GM Pension Plan.

Pierre Duguay of the Bank of Canada also made some remarks.

The end of the world appears to have been postponed:

Manulife Financial Corp. shares rallied from their lowest level in nine years, climbing 18 percent after CEO Vikram Pandit said Citigroup was profitable in January and February. Royal Bank of Canada surged 14 percent.
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Canadian insurance companies, beaten down to the lowest in more than 11 years yesterday on concern that plunging equity markets will further erode their capital, led the rally in Toronto today.

Manulife, Canada’s largest insurer, advanced C$1.68 to C$10.88, rising from the lowest since March 2000. Smaller competitor Sun Life Financial Inc. gained 17 percent to C$17.53. Power Financial Corp. added 14 percent, the most more than 21 years.
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Also helping financial shares today were remarks from Federal Reserve Chairman Ben S. Bernanke urging an overhaul of financial regulations. Lawmakers and supervisors should rethink everything from the amounts firms set aside against potential trading losses and deposit-insurance fees to protections for money-market funds, Bernanke said in remarks prepared for an address to the Council on Foreign Relations in Washington.

The speech was important enough to merit its own post.

A very sloppy day today, with prices all over the map; PerpetualDiscounts were modestly lower once the dust had cleared.

Not a fun day for preferreds, with PerpetualDiscounts getting hammered … although not quite as badly as on March 5. They are now down 5.19% for March to date.

OSFI is busily cementing its reputation as a bastion of political expediency:

The Office of the Superintendent of Financial Institutions, or OSFI, Canada’s banking regulator, plans to delve into the way that pay packages are designed at a variety of levels throughout banks. The goal is to prevent excessive risk taking by bankers in search of big bonuses, a behaviour that has been fingered as a key contributor to the U.S. banking meltdown.

What a complete joke. OSFI is incapable of running the simplest of simulations – they were astonished that underprovisioning for explected losses had an effect on the Assets-to-Capital multiple calculation, despite years of testing beforehand – and now they’re going to micro-manage bonuses; well, it gets headlines, anyway, and extends the bureaucratic empire.

CEBS is running a consultation process on the topic (the public meeting should be a hoot!), but OSFI already knows everything, so can’t be bothered.

This micro-management will result in the continued growth of hedge funds and the shadow-banking sector (almost certainly outside Canada) and, while it may prevent the occasional small collapse, will end up the same way every other politically inspired feel-goodism project ends up: a lot of money for well-connected consultants, no effect on those who make hiring decisions regarding how many ex-regulators need to be hired to sit on the compensation committee, further stifling of creativity … and a much larger eventual collapse when the chickens finally come home to roost. As they will, since the regulatory capture inherent in micromanagement means that small errors will be papered over with rule changes, interpretations and exemptions until they become … large errors.

However, this will come after the next election, so who cares? Bonus control is simply a method of grandstanding.

Paul Volcker has made some remarks interpreted as nostalgia for Glass-Steagall:

“Maybe we ought to have a kind of two-tier financial system,” Volcker, who heads President Barack Obama’s Economic Recovery Advisory Board, said today at a conference at New York University’s Stern School of Business.

Commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, “relatively free of regulation,” Volcker said.

Volcker’s remarks indicated his preference for reinstating some of the divisions between commercial and investment banks that were removed by Congress’s repeal in 1999 of the Great Depression-era Glass-Steagall Act.

Volcker’s proposals, included in a January report he wrote with the Group of 30, would allow commercial banks to continue to do underwriting and provide merger advice, activities traditionally associated with investment banking, he said.

I couldn’t agree more; I have argued for some time that what we really need is a three-tier financial system, with a rock-solid banking core surrounded by a layer of investment banks and brokerages, surrounded in turn by a wild-n-wooly world of hedge-funds and shadow banks.

I would not support legislating the differences. I will support a regulatory regime that offers a choice between business models: traditional banking or traditional investment banking. The former (core) model would focus on long-term lending and impose a high capital charge for trading and investment operations; the latter model would impose capital charge penalties for long-term positions.

Bankers can’t trade. Bankers can barely manage to bank!

Another cruddy day for equities, particularly insurers:

Canadian stocks fell to a five-year low as the highest U.S. unemployment rate in a quarter century reinforced concern that the global recession will hurt profits and deplete financial companies’ capital.
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Manulife, the country’s biggest insurance company, dropped 3.5 percent to C$9.65, the lowest intraday price since March 2000. The stock fell 25 percent this week.

Sun Life, Canada’s third-largest insurer, fell 2.7 percent to C$15.68 after it had its credit rating cut to A+ from AA- by S&P, which said declining stock and bond prices may reduce earnings. Great-West Lifeco Inc., the nation’s second-biggest insurer, fell 6.7 percent to C$12.12, the lowest since May 2000.

Canadian insurance stocks have fallen 46 percent this year on speculation that losses on securities will force them to sell stock or cut dividends to bolster capital. Wells Fargo, the fourth-largest U.S. bank, cut its quarterly dividend by 85 percent in a move to save $5 billion a year.

And preferreds were not immune…

There is now quantitative easing in the UK:

Bank of England Governor Mervyn King will take the unprecedented step of printing money to buy assets after cutting the interest rate by a half point to almost zero, the latest move by officials to combat the recession.

The bank said it will pump money into the economy by purchasing as much as 150 billion pounds ($211 billion) in government and corporate bonds, sparking a rally across the debt market. The central bank’s nine-member panel also reduced the benchmark interest rate to 0.5 percent, the lowest since the bank was founded in 1694.

As has been previously noted, this is the first severe contraction the world has ever seen in the presence of a deep and functional CDS market. The large negative basis has also been noted. And now, Dr. Hu’s debt-decoupling (at issue in the Lyondell bankruptcy) is having further reaching effects:

Amusement-park operator Six Flags Inc. and automaker Ford Motor Co. may be pushed toward bankruptcy by bondholders trying to profit from credit-default swaps that protect against losses on their high-yield debt.

By employing a so-called negative-basis trade, investors could buy Six Flags bonds at 20.5 cents on the dollar and credit- default swaps at 71 cents. If the New York-based chain defaults, the creditors would receive the face value of the debt, minus costs. In a Feb. 27 note, Citigroup Inc.’s high-yield strategists put that profit at 6 percentage points, or $600,000 on a $10 million purchase.
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“Before, you really had to worry mostly about where you were in the” company’s capital structure, [Matthew Eagan, an investment manager at Boston-based Loomis Sayles & Co.] said. “Now, you have to consider the possibility that you might have this large holder of CDS incentivized to see it go into bankruptcy. It’s something that’s going to come up more and more.”

A rather odd research paper was published by the Boston Fed today:Another Hidden Cost of Incentives: The Detrimental Effect on Norm Enforcement:

Monetary incentives are often considered as a way to foster contributions to public goods in society and firms. This paper investigates experimentally the effect of monetary incentives in the presence of a norm enforcement mechanism. Norm enforcement through peer punishment has been shown to be effective in raising contributions by itself. We test whether and how monetary incentives interact with punishment and how this in turn affects contributions. Our main findings are that free riders are punished less harshly in the treatment with incentives, and as a consequence, average contributions to the public good are no higher than without incentives. This finding ties to and extends previous research on settings in which monetary incentives may fail to have the desired effect.

There is one slight problem with the paper: I don’t believe a word of it. The trouble is that there is perfect transparency regarding decisions made by each participant and perfect clarity regarding the group effect of these decisions. In the real world, I believe that Norm Enforcement will become a tool of random backbiting; although I will concede that for some people in some situations, it will work better than incentives. There’s also the matter of self selection: give me a choice between Firm A with its group hugs, and Firm B with its massive bonuses for performance and you won’t wait long for my decision!

However, this paper is destined to become a central part of the campaign against Evil Bonuses.

Equities got hammered again today, especially financials:

Canadian stocks fell to the lowest in five years, led by energy and financial shares, after China signaled it won’t increase stimulus spending and Moody’s Investors Service said it may downgrade the biggest U.S. banks.
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Manulife Financial Corp., Canada’s largest insurer, fell 8.3 percent as declining equities worldwide fanned concern that insurance companies’ investment losses will increase.
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The Standard & Poor’s/TSX Composite Index fell 185.58 points, or 2.4 percent, to 7,629.17 in Toronto, the lowest value since October 2003. The benchmark erased yesterday’s rally and has tumbled 15 percent in 2009.
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A gauge of financial shares plunged 4.9 percent, led by Royal Bank of Canada, the country’s largest lender. JPMorgan Chase & Co., the largest U.S. bank by market value, had its ratings outlook cut by Moody’s to negative from stable.

Moody’s said it will review the long-term debt ratings of Wells Fargo, the second-largest U.S. bank, and Bank of America, ranked third, on concern that higher credit costs may damage capital ratios.
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Canadian Imperial Bank of Commerce, the country’s fifth- biggest bank by assets, fell 4.5 percent to C$37.86, after saying it will sell C$1.6 billion in notes to bolster its balance sheet. Bank of Nova Scotia fell 4.7 percent to C$26.21. Royal Bank of Canada declined 4.5 percent to C$29.22.

Manulife dropped 91 cents to C$10. Sun Life Financial Inc. slumped 10 percent to C$16.12.

… and Preferreds were not immune, although volume was light ….