Category: Market Action

Spend-Every-Penny is urging Canadian investors to ignore banks’ capital ratios:

“We have said that we’ll do what’s necessary to protect the Canadian banking system,” Mr. Flaherty reiterated on Saturday from Davos during a conference call with reporters.

It seems like only a few months back he was saying that his government would no more run a deficit than a man could have a baby.

With a hat-tip to Econbrowser, a graph from Calculated Risk puts the current crash in perspective:

Click for big

Volume was off today – month-end window dressing is done for another three weeks? – and PerpetualDiscounts eased off slightly. Recent increases in the Canada 5-year yield have triggered legitimate expectations (subject to volatility!) of five-year calls in the Fixed-Reset market.

I’m very annoyed with DBRS. I had been hoping they would come to some resolution of their mass reviews of Split Corporations (two of them: October and December), but here we are at month-end and … nothing.

So we’ll go through February with, for instance, FBS.PR.B sporting an asset coverage just a hair over 1.0:1 and still rated Pfd-2(low). As a portfolio manager, of course, I couldn’t be happier – such a grossly mis-rated issue in the universe increases my chance to outperform – but as an index calculator, it’s very annoying. It will be in the Split-Share sub-index for at least another month.

The concept of incentive is under continued attack:

NYSE Euronext Chief Executive Officer Duncan Niederauer said today in Davos that “some compensation models need to be completely overhauled.” He added that this would be difficult to legislate and companies will have to take the lead.

“While a number of people clearly do create wealth by brain power, by use of the company’s balance sheet and by other resources, other people have been receiving incentives for basically turning up,” Barclays Plc Chairman Marcus Agius said at the World Economic Forum. “That I don’t think is very smart. An incentive system properly designed and fairly calibrated is absolutely fundamental.”

Interesting charge/countercharge in the Money Market Fund world:

James “Jes” Staley, head of JPMorgan Chase & Co.’s investment unit, said the $4 trillion money-market fund industry is the “greatest systemic risk” to the financial system that hasn’t been adequately addressed.
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JPMorgan’s Staley blamed money funds for Lehman’s collapse and the near bankruptcy of Bear Stearns Cos. last year. The funds, which typically hold highly rated, short-term debt instruments, were forced to pull their money from the firms when they saw signs of trouble, he said.

“The people who brought down Lehman and almost Bear Stearns weren’t the banks, they were the money funds,” Staley said.

David Glocke, head of taxable money-market investments at Valley Forge, Pennsylvania-based Vanguard Group defended the industry.

“I’m aware there are those who want to blame the money- market industry for taking away the punch bowl,” he said. “But issuers need to maintain diverse sources of funding.”

The G-30 report on MMFs has been discussed on PrefBlog. The interesting thing about Mr. Glocke’s remark is that – taken at face value – it appears to accept that MMFs are a portfolio management monoculture; it would be highly surprising is the same thing were to be said, for instance, about an equity issue … but, of course, equities only go down due to short selling, so the short-seller can get one of them bonus thingies, right?

PerpetualDiscounts closed the month with a marginal loss, closing to yield 6.85%, equivalent to 9.59% at the standard 1.4x equivalency factor. Long corporates now yield about 7.6%, so the pre-tax interest-equivalent spread is now at about 200bp.

There’s a draft bill in Congress that will kill the CDS market:

House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The document, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse.

Presumably, the requirement to own the underlying bonds would apply only to buyers. The industry response notes the obvious:

The standardization necessary to process a contract in a clearinghouse may harm the market and drive the trading overseas, Weber said.

“It’s a big deal because the OTC market has developed almost as an alternative to the exchange market with its clearinghouses,” he said. “It would be advantageous for places like London, Hong Kong or Singapore where OTC trading wouldn’t have that kind of restriction.”

Menzie Chinn of Econbrowser provides an an update on multipliers from a credible source:

Accrued Interest points out that absolute yields on US corporates are nowhere near as interesting as the spreads imply:

Click for big

… although, mind you, that’s a four year issue he’s talking about. He concludes:

So what does the corporate bond market offer? For those who want to just collect income, corporates are a much better choice than either Treasuries or Agency bonds. There are enough solid names to build a diversified portfolio. But this trade is all about the income collection, or the carry. It isn’t about making a great trade.

Or its about making the right credit call at the right time. Picking the beaten up name than can recover. But in that case, it isn’t an easy trade, its a gutsy call that could wind up with a big capital gain or else a large loss in bankruptcy.

I will suggest that fixed income investing in general is all about income collection. Those wishing to make a “great trade” should stick to a more appropriate asset class. I get a lot of calls asking for my ONE GREAT IDEA that will MAKE A FORTUNE!!!! Guys, guys, guys … that’s not what fixed-income is all about.

Treasury will write a global liquidity guarantee on a SIV, a move that has interesting implications. Clearly, there is huge demand for maturity transformation that is traditionally intermediated by banks, but in the glory days saw some intermediation by SIVs, among other vehicles. Clearly, these are unusual times and no conclusions for the future can be drawn; but it will be interesting to see how the eternal struggle between lenders wanting short-term and borrowers seeking long-term plays out over the next few years.

Vancouverites wondering about funding the Olympic Village will be unsurprised to hear that Fortress Investment Group really, really needs more cash. Hat tips: Zero Hedge and Dealbreaker, although I suspect they’re a little over-excited.

Treasuries got whacked today, with the long bond yield up 17bp to 3.59%. Mortgage paper is worse. Long Canadas did relatively well, yield up 8bp to 3.71%. Long Corporates have returned -2.05% month-to-date and now yield 7.6%.

However, PerpetualDiscounts – along with every other sector – was up today and now yield 6.88%, equivalent to 9.63% interest at the standard 1.4x equivalency factor, implying a pre-tax interest-equivalent spread of ~200bp.

Tomorrow will be an interesting day – there are no less than three new issues settling. The BNS 6.25%+446 will trade as BNS.PR.X; the TD 6.25%+438 will trade as TD.PR.G; and the NA 6.60%+479 will trade as NA.PR.P.

And who knows? If they trade nicely, maybe we’ll see some more!

Pussycat, in a desperate attempt to sound tough, is putting What-Debt? on “probation”:

[Pussycat] said his party is prepared to “swallow hard” and support the Conservative government, provided they agree to table regular updates outlining how they are living up to their commitments outlined in the federal budget.

We have now officially forgotten the lesson of hitting the wall in 1994 – I confidently predict twenty years of deficits until we hit the wall again.

Rubin has spoken out against fair-value accounting:

“I spent my whole life at Goldman Sachs believing in mark- to-market accounting, and having said that, if you look at the experience from the last two years, I think mark-to-market accounting has led to terrible vicious cycles in asset prices,” Rubin, the former U.S. Treasury secretary, said during a discussion at the 92nd St. YMCA late yesterday.

Companies including Citigroup and American International Group Inc. say mark-to-market, also known as fair-value accounting, doesn’t work when few buyers are willing to trade assets like subprime mortgages. Proponents such as the U.S. Financial Accounting Standards Board say the rule adds to transparency and gives investors information about companies.
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Under reserve accounting, assets like loans are carried at cost, offset by reserves for potential losses.

I have stated many times that the regulatory regime should differentiate between banks and investment firms. Fair value accounting is appropriate for investment firms, at which the default assumption is that they hold assets for a short period, then sell them. Reserve accounting is often (though not always) more appropriate for banks, at which the default assumption is that they hold assets until maturity.

The FOMC released its monetary policy statement today – no real surprises.

The BoC has released an analysis of bond auction formats by Olivier Armantier and Nourredine Lafhel, examining the methods by which bonds can be auctioned. Three systems are considered:

• discriminatory auctions: the highest bids are filled at the price bid until supply is exhausted
• at uniform-price auctions, bidders pay the stop-out price for all units they requested at prices exceeding the stop-out price.
• At Spanish auctions, bidders pay the average price of the bids for all their bids above the average and their bid price if it below the accepted average

it appears that the ranking of the two auction formats may only be established on a case-by-case basis.3 As demonstrated by A&S (2005), the presence of asymmetries across participants is an important factor in ranking auction formats in terms of the revenues they generate. Indeed, A&S show that risk averse and/or less-informed bidders may become relatively more aggressive at uniform-price auctions, since they do not have to pay their bids.
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Table 7 also indicates that, had the Canadian government conducted the 100 auctions in our sample under the Spanish format instead of the discriminatory format, it would have significantly increased its revenues by an average of 2:34%; or close to 52:71 million dollars, per auction. Furthermore, we can see in Table 8 that, given the assumptions underlying the model, Canadian government revenues would have been higher in roughly 62% of the auctions if it had conducted them under the Spanish format. Observe also that the Spanish format dominates in an additional dimension. Indeed, we can see in Table 7 that the standard deviation of the revenues generated across the 100 auctions is the smallest under the Spanish format. In other words, the stream of revenues generated by the Canadian government from one auction to the next would have been more stable than under the current pricing rule. Finally, Table 7 indicates that the additional revenues the Canadian government would generate by switching from the discriminatory to the Spanish format, would be almost equally spread across maturities. Indeed, we are unable to detect any clear pattern in the additional revenues generated at auctions for 30, 10, 5 or 2 years bonds.
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In other words, as found by Armantier and Sbaï (2006), the Spanish format appears to provide an appropriate compromise between asking bidders to pay up to their bids, and promoting aggressive behaviour by o¤ering participants the guarantee that they will not have to pay more than the average winning bid.

SplitShares did well today, presumably on hopes that the bad-bank bailout plan will lead to a world of smiling bankers and bonuses for everybody. Well … I wouldn’t want to say it’s a completely insane hope. I’ll just say that every effort yet to persuade banks to sell their so-called toxic assets in bulk and at a politically acceptable price has failed. I think that Caballero’s plan has a better chance of success.

Fixed-Resets were down again today while PerpetualDiscounts were up, in a continuing fine reversal of their standard form in 2008. Volume continued high. The new RY Fixed-Reset 6.25%+450 will commence trading tomorrow with the symbol RY.PR.R.

There will be a chance to see a milestone in the recovery of the credit market this week – commercial paper held by the Fed will mature:

About $245 billion of 90-day commercial paper that companies sold to the Federal Reserve starting in October will mature this week and next, central bank data show. As much as $50 billion to $70 billion of the debt may be rolled over and bought by investors, according to Barclays Capital in New York.
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Rates on AA ranked financial commercial paper due in 90 days fell to a record low of 0.28 percent on Jan. 8, or 21 basis points more than the U.S. borrowing rate, Fed data show. They have since jumped to 1.04 percent, or 94 basis points more than the government yield on 90-day Treasury bills, as investors prepared to absorb at least $486 billion of overall paper coming due this week, according to Fed data. The gap peaked at 374 basis points on Oct. 15.

The Fed demands 2.24 percent to own unsecured debt, including a one percentage point fee, under its Commercial Paper Funding Facility.
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Fed purchases declined in the first two weeks of the year as investors picked up the slack, reducing government buying to $179 million. First-tier commercial paper assets in prime money- market funds increased 26 percent to $790.6 billion as of Jan. 13, iMoneyNet data show.

Purchases jumped last week to $15.7 billion, the most since November, as some companies remained unable to sell 90-day commercial paper to investors at rates below the cost of issuing to the Fed.
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Policy makers also may force companies to wean themselves from federal help by making it “increasingly expensive” to use the CPFF, said Louis Crandall, the chief economist at Jersey City, New Jersey-based Wrightson ICAP, a research unit of ICAP Plc, the world’s largest inter-dealer broker.

The Fed should indeed be increasing its spread to get the banks inter alia to pick up the slack. This would be an important step in removing the Fed from routine intermediation and shrinking the balance sheet. Across the Curve, however, cites some street chatter to the effect that the rollover will be a non-event. But … that’s what we like. Non-events. Aren’t they lovely?

There is an encouraging sign! $150-billion in 84-day TAF money attracted only $136-billion bids and went at 0.25%. This follows a bid-to-cover of 0.72 on January 12, 0.69 on Dec 29, 0.42 on Dec 15 and 0.44 on Dec 2. So this is good. Unfortunately, the Fed is having to purchase agencies in size so don’t celebrate too soon! On the other hand – any more hands and I’ll become an economist – today’s $40-billion 2-Year auction went well and lit up the Treasury market.

I will admit though, that I am becoming a little concerned. Across the Curve contains several ecstatic references to positive carry today – for example, here and here. I heard a lot of remarks about positive carry in 1993 … and we all know what happened in 1994, don’t we?

Carney gave a speech on deflation:

It is worth noting that our lower overnight rates have largely been passed through at shorter maturities. Since the easing cycle began in December 2007, we have lowered the overnight rate by 350 basis points. The prime rate has fallen by 325 basis points, Bankers Acceptance rates (key short-term financing instruments for corporations) have fallen by about 380 basis points, and variable rate mortgages by about 185 basis points.

At longer maturities, the declines have been more modest. In part, this reflects the typical pattern, as long-term rates tend to be less volatile than short-term rates over the business cycle. For example, five-year fixed-rate mortgages have fallen by just over one and a half percentage points. Corporate bond yields have been virtually flat, as a substantial increase in the risk premium charged by investors has offset the decline in government bond yields. While the widening of spreads at longer maturities is larger than usual, this partly reflects the fact that these spreads were unusually narrow to begin with.

The Bank has taken into consideration the higher risk premiums demanded in today’s markets in setting its overnight rate. As well, it has taken into account the effect on future Canadian inflation of the lower level of foreign demand that has resulted, in part, from financial difficulties in other countries. The policy rate is lower than it otherwise would be in the absence of these difficulties.
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To conclude, let me say that the inflation target that has served Canada so well when inflation was above the 1 to 3 per cent control range, will also serve it well when inflation falls temporarily below that range. So let me leave no doubt, no uncertainty about the Bank’s commitment. Our focus is clear, our actions consistent, and our objective explicit: 2 per cent CPI inflation.

And the Bank published another working paper, What Accounts for the U.S.-Canada Education-Premium Difference?:

This paper analyzes the differences in wage ratios of university graduates to less than university graduates, the education premium, in Canada and the United States from 1980 to 2000. Both countries experienced a similar increase in the fraction of university graduates and a similar increase in skill biased technological change based on capital-embodied technological progress, but only the United States had a large increase in the education premium. Using a calibrated Krussel et al. (2000) model, the paper finds that the cross country difference is in equal proportion due to the effective stock of capital equipment, the growth in skilled labor supply relative to unskilled labor and the relative abundance of skilled population in 1980. Growth in the working age population is unimportant for the difference.

In other words, we don’t really need a lot more graduates; what we need is money to buy equipment for existing graduates to put their skills to use. I confidently predict that this nuance will be ignored in all future political debates.

Spend-Every-Penny introduced his pre-election budget today. There are some good things … some bad things. In summary:

After taking into account the cost of the measures proposed in Budget 2009 to support the economy, the Government is projecting deficits of $1.1 billion in 2008–09, $33.7 billion in 2009–10, $29.8 billion in 2010–11, $13.0 billion in 2011–12, $7.3 billion in 2012–13 and a surplus of $0.7 billion in 2013–14.

It will take many years of $0.7-billion surpluses to pay for the planned spending, but it didn’t stop him from cutting taxes, just like Mr. Bush:

Taxpayers will begin to benefit from the proposed personal income tax reductions as soon as the Canada Revenue Agency revises its tax withholding tables, in spring 2009.

It is estimated that, together, these measures will cost $470 million in 2008–09, $1,885 million in 2009–10 and $1,950 million in 2010–11.

There is funding for new infrastructure, but no indication that recipients must have a credible plan to pay for maintenance. The word “dividend” does not appear in the document, so I will assume that implications for preferred share investment are minor.

I will reserve special scorn for the “Extraordinary Financing Framework”, partially because it is doomed to be ignored by most. Essentially, the government will provide up to $200-billion worth of intermediation, taking assets onto its books financed by sale of Canada bonds. There’s nothing wrong with that, in principle. However:

To help manage the EFF, the Government will form the Advisory Committee on Financing. This committee will include users and suppliers of financing, along with other experts. The committee will advise on financing conditions and the design, scope and scale of initiatives under the EFF.

There’s already a competent body to administer the programme: it’s called the Bank of Canada. What-Debt’s politicization of monetary policy is absurd – but, after all, he’s the guy who went out of his way to politicize nuclear power regulation.

PerpetualDiscounts managed to eke out a marginal gain today, while FixedResets continued their recent decline.

I complained on January 19 that the political leverage given to politicians by the TARP funds would lead to calls to expand non-economic but politically attractive business methodologies. Dealbreaker passes along more commentary on this subject:

Surprise! Now anyone with public money is bathing in the gelatinous “squish” of a million squirming appetites, forced to submit to a literal morass of legislative tentacle sex with hundreds of pet projects, social theory experiments and personal causes (from the left and the right), not to mention the utter chaos and unpredictability of having every idiot in the House pop off about what new rule you should be following this week. Predicting what is or will be expected of you (or what you may or may not be paid) is a nightmarish prospect.

Dealbreaker also comments on the Caballero Insurance Plan that I have previously written about:

Typically when Congress can’t get the political backing to actually pass a bill to pay for something, they do the next best thing: get the political backing to guarantee something, or insure any losses. At the very least this reduces the cost of capital for the activity. Throw some tax benefits in and you go a long way to encouraging the behavior you are trying to stimulate. So potent can the effect be that you don’t even necessarily need a direct guarantee. (The “too big to fail” condition and the “implicit guarantee” of a Fannie Mae is a good example here).
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The problem with this level of insurance is that while it preserves public capital (and prevents dilution) you can write a lot of insurance before anyone starts to notice that you are on the hook for, well, a lot of insurance. (See e.g., Fannie and Freddie).

An interesting day in the preferred market! Split shares got hurt, presumably due to continued equity weakness – a lot of the January 22 NAVs are coming out and don’t look very pretty. FBS.PR.B is now valued below the preferred par value, but is still rated Pfd-2(low) by DBRS, and has been under review negative for three months now.

Fixed-Resets got hurt, presumably due to continued heavy issuance: a new CIBC fixed-reset 650+447 was announced today, bringing the total number of pending issues to five. Amidst all this, PerpetualDiscounts were up on the day, albeit marginally and with a certain sloppiness.

TD went into a frenzy of activity, trading a huge number of blocks after the close – remember that after hours trading is fine, but it all has to occur at the same price as the last trade of a board lot.

Inflation is down, according to Statistics Canada:

The Bank of Canada’s core index advanced 2.4% over the 12 months to December, identical to the rise in November. The main contributors to the increase in the core index were higher prices for bread, cereal products and meat products. Price declines for purchasing and leasing passenger vehicles remained the primary downward contributor.

The seasonally adjusted monthly core index posted no change from November to December, after rising 0.6% from October to November.

PerpetualDiscounts were off again today, reducing their month-to-date return to +5.65%, having peaked on January 13 at +7.51%. The median pre-tax bid-YTW is now 6.95%, equivalent to 9.73% interest at the standard conversion factor of 1.4x, compared to long corporates, still steady at 7.5%. The pre-tax interest-equivalent spread is thus 223bp.

I went to a seminar on Risk Management today, presented as part of the Finance Experts Discussion Series @ Rotman.

Rather disappointing, really. Panelists were:

• Derrell Hendrix, CEO, RISConsulting and Founding Partner and CEO, Karson Management (Bermuda) Limited
• John Hull, Maple Financial Group Chair in Derivatives and Risk Management, Professor of Finance and Co-Director, Master of Finance Program, Rotman School of Management, U of Toronto
• Robert (Bob) Tapscott, interim CEO, RISConsulting

One of the RISConsulting guys – I forget which one – was of the view that transparency will save the world and drew comparisons to nuclear reactor design and operation. He did not address the problems inherent in forecasting financial markets – rather than designing and operating physical technology – nor did he explain whereby investors are presumed to be able to find the time to utilize such transparency. Hands up everybody who’s read through the entire annual report of every company in which they’ve invested!

Dr. Hull claimed that the world would be saved through reduction of perverse incentives, by which he means he wants deferred bonuses rather than immediate ones. He did not address the question of who in their right mind would willingly work for a deferred bonus, or what discounting rate a rational participant should apply to the deferred portion since eventual payment of the amount due is basically discretionary. I’d suggest 50%+. Counterparty risk is pretty extreme in such circumstances.

Limited / Deferred / Regulated compensation is getting a lot of ink nowadays. Econbrowser‘s James Hamilton is also beating that drum. Sigh. Time to move to Dubai, ’cause that’s where all the action’s going to be in ten years, at this rate.

Credit crunch commentary has now reached its most tiresome phase: it’s just being used as a vehicle to push along various long-standing agendas. The crisis itself is merely a tired rehash of the panic of 1825 and it’s BORING.

Good volume today, but the market was off a good bit, probably due – as much as anything in the markets is ever due – to a combination of rotten equities and heavy issuance.

Nice to see that Banco Santander has imported North American financial advisory practices to Europe:

Branch managers channeled customers with money from property sales or inheritances to private banking salespeople, lawyers for the investors said. A retired school teacher put 300,000 euros ($388,000), half her savings, in a structured product linked to Madoff, said Jordi Ruiz de Villa, an attorney at the Barcelona law firm Jausas. The vendor invested 325,000 euros of lottery winnings in a similar product and may have to return to street sales, according to lawyers at Cremades & Calvo-Sotelo in Madrid.
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Spanish securities law requires anyone offering investment services to “suitably evaluate” a customer’s experience and market knowledge and ensure that he or she understands the risks.

A decent day, with PerpetualDiscounts up a bit. Fixed-Resets were also up a bit, until the announcement of two new issues in the late afternoon obviated the need to buy them in the secondary market.

Econbrowser‘s James Hamilton is advocating executive compensation laws:

Lehman Brothers: $27 million for CEO Richard Fuld. The financial freeze that followed the collapse of Lehman is seen by many as the key event that turned the recession of 2007-08 into the frightening freefall currently under way
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What caused that principle to go so badly awry in the present instance? I believe there was an unfortunate interaction between financial innovations and lack of regulatory oversight, which allowed the construction of new financial instruments with essentially any risk-reward profile desired and the ability to leverage one’s way into an arbitrarily large position in such an instrument. The underlying instrument of choice was a security with a high probability of doing slightly better than the market and a small probability of a big loss. For example, a subprime loan extended in 2005 would earn the lender a higher yield in the event that house prices continued to rise, but perform quite badly when the housing market turned down. By taking a leveraged position in such assets, the slightly higher yield became an enormously higher yield, and while the game was on, the short-term performance looked wonderful. If the agent is compensated on the basis of current performance alone, and the principal lacks good information on the exact nature of the risks, the result is a tragically toxic incentive structure.
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My interest in this issue is not so much to exact revenge on those who created our current problems, but instead to ask, how can we change the incentives so that this kind of problem is not repeated again? And that in turn leads me to wonder, why limit the proposals above only to a handful of companies?

Despite Prof. Hamilton’s protestations, I consider this a classic example of American vindictiveness.

In the first place, it was not Fuld’s compensation that caused the credit freeze of 4Q08: it was the sudden withdrawal of $400-billion from money market funds that accomplished that little trick. No individual, no company and not even any industry is able – or willing – to withstand the cumulative effect of uninformed decisions by millions of retail customers.

To ascribe blame for the Credit Crunch on Wall Street policies is as superficial as blaming the Tech Boom and subsequent wreck on IPO specialists and Tech Funds. Retail was coming to them, insisting on get-rich-quick internet investments – and got them. End of story.

Our reaction to the Credit Crunch should be informed by our reaction to, say, a horrific and avoidable traffic accident. We can throw the book at the driver, if it makes us feel better. It won’t stop future accidents. We can improve the regulation of that particular intersection, with improved sightlines and signage; it might cut accidents at that corner, but won’t do a thing for the next block down the street. If we’re really serious about banning accidents, we have to ban cars; we will probably find that the cure is worse than the disease.

There are definitely some aspects of regulation that can be improved – removing the right of directors and shareholders to hire whoever they like at whatever it costs is not one of them – but to try and tame the business cycle with regulation is a fool’s game. As with the Great Moderation, as with the Soviet Union, that’s the sort of thing that works very, very well … until one day, quite suddenly, it doesn’t.

I will also note Dealbreaker‘s estimate of $1-trillion in fees paid in the course of the mortgage boom … so, in defense of the executives:

• if they’d turned down that kind of money, investors would have hired a pig more aggressive in getting to the trough
• what killed the investment banks was not so much their horrific losses, but risk-aversion by their lenders

Am I giving Wall Street a free pass? No. I pointed out in the post SEC & BSC that Wall Street covered its need to tick the “risk management” box by hiring people who didn’t know what they were doing and then ignoring what they said. But the way to get ahead in any large organization – whether it’s an investment bank, a regulator, government, or Honest Bob’s Financial Planning Boutique – is to figure out what your boss (and your clients) want to hear and telling it to them. No amount of well-intentioned regulation will ever change that.

On a related topic, US & International financials got cremated today:

Banks fell after the U.K.’s second bank-bailout plan in three months raised concern the financial crisis is deepening. The government of Prime Minister Gordon Brown said it will spend an extra 100 billion pounds ($142 billion) to support banks and increase its stake in Royal Bank of Scotland Group Plc (RBS:LN).

Royal Bank of Scotland American depositary receipts (RBS:US) plunged 69 percent to $3.33. ADRs of Lloyds Banking Group Plc (LYG:US), the U.K.’s biggest mortgage lender, tumbled 58 percent to $2.61.

JPMorgan Chase & Co. (JPM:US) retreated 21 percent to $18.09. Citigroup Inc. (C:US) lost 20 percent to $2.80. Wells Fargo & Co. (WFC:US), which Friedman Billings Ramsey Group Inc. said will probably cut its dividend during the first half of this year, sank 24 percent to $14.23.
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Bank of America Corp. (BAC:US) dropped the most in the Dow Jones Industrial Average, slumping 29 percent to $5.10. The biggest U.S. lender by assets needs at least $80 billion to restore capital to minimum levels required by regulators, according to Friedman, Billings, Ramsey Group Inc. analyst Paul Miller.
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MGIC Investment Corp. (MTG:US) slid 24 percent, the most since Dec. 1, to $2.13. The largest U.S. mortgage insurer posted a sixth straight loss and predicted an unprofitable 2009 as the deepening U.S. recession will cause more homeowner defaults. The company’s fourth-quarter operating loss of $2.06 a share was worse than the expected deficit of $1.14, according to the average estimate of six analysts surveyed by Bloomberg.
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Regions Financial Corp. (RF:US) lost 24 percent to $4.60, the steepest decline since Sept. 29. The Alabama bank that expanded in Florida a year before the mortgage market collapsed posted a fourth-quarter loss of 35 cents a share, excluding a goodwill charge. Nineteen analysts surveyed by Bloomberg estimated Regions would post a 9-cent loss for the quarter.

Other regional banks also slipped. PNC Financial Services Group Inc. (PNC:US) sank 41 percent to $22. Sovereign Bancorp Inc. (SOV:US) fell 18 percent to $2.
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State Street Corp. (STT:US) had the biggest drop in the Standard & Poor’s 500 Index, sliding 59 percent to $14.89. The world’s largest money manager for institutions said 2009 operating profit will be little changed from last year after fourth quarter earnings fell 71 percent.

Other asset-management firms also declined. Bank of New York Mellon Corp. (BK:US) fell 17 percent to $19. Northern Trust Corp. (NTRS:US) slid 14 percent to $43.93. Legg Mason Inc. (LM:US) fell 18 percent to $17.34. American Capital Ltd. (ACAS:US) dropped 20 percent to $3.66. Calamos Asset Management Inc. (CLMS:US) slid 16 percent to $5.29.

Not a bad day, altogether. SplitShares got whacked, not surprisingly given their dependence on financial common stock. But if the decline in PerpetualDiscounts was credit-related, then why were Fixed-Resets up? Volume continues to be quite good. BNS.PR.T closes tomorrow … and then there will be no more new issues announced but not closed!