PrefBlog

Here’s another fascinating unintended consequence:

China’s one-child policy has produced adults that tend to have personality traits unsuited for starting businesses or managing companies, according to a study that adds to economic concerns surrounding the rule.

Using surveys of 421 men and women in Beijing and testing their skills in economic games, researchers in Australia found those born after the 1979 policy were more pessimistic, nervous, less conscientious, less competitive and more risk averse. They also found them to be 23 percent less prone to choose an occupation that entails business risk, such as becoming a stockbroker, entrepreneur or private firm manager.

Of course, criticizing the government is a form of risk – especially in China! – so perhaps the consequence was actually intended!

Penson Worldwide has filed for bankruptcy:

Penson Worldwide Inc. (PNSN), a provider of financial clearing services and related operational and technology products, filed for bankruptcy in Delaware with a plan to liquidate its business.

The Plano, Texas-based company listed both assets and debt of $100 million to $500 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Chapter 11 is the section of the U.S. Bankruptcy Code used by companies to reorganize. In 2011, Penson had revenue of $217.3 million, court papers show.

“Average daily trading volume in equities fell by 5 percent in 2010 and 8 percent in 2011, and short selling continued to fall in each of the years from 2009 through 2011,” Bryce B. Engel, chief operating officer of Penson Worldwide, said in court papers.

The fall of Penson had implications for Northern Securities’ retail operations as discussed on December 14:

A subsidiary of Northern Financial Corp. is assigning client accounts to two unnamed brokerage firms under a consent order with IIROC.

The move by the subsidiary, Northern Investment Securities, will see investment advisers responsible for the accounts transferred to the new firms as well, Northern said in a release Monday.

The order was issued as a result of NSI being unable to obtain an alternative carrying broker or other alternative arrangement to replace Penson Financial Services Canada Inc., which is discontinuing its carrying broker business as of Dec. 31.

During a question-and-answer session at the KPMG 21st Annual Insurance Issues Conference, Julie Dickson of OSFI made an oblique defence of the 2008 Manulife Rule Change:

Well, in terms of capital, it’s a reality because all risk-based capital rules are, to some extent, pro-cyclical. And when risk goes up, required capital goes up. So it is part and parcel of the pro-cyclicality phenomenon. 2008 I think was a good example, where we noticed that capital was spiking. It’s OK for capital to rise as you enter a recession, but it was spiking with the decline in equity markets. And when we looked at how the rules worked, we realized that that was inappropriate because the formulas were requiring a lot of extra capital for obligations which were many, many years off. And that was felt to be, too risk sensitive. We didn’t think it appropriately reflected the risk, and made a change.

Bombardier – proud issuer of BBD.PR.B, BBD.PR.C and BBD.PR.D – has issued ten year notes at 6.125%.

Meanwhile, I see that HSBC Bank Canada – proud issuer of HSB.PR.C, HSB.PR.D and HSB.PR.E – has issued eight year deposit notes at 2.938%.

It was another mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets up 15bp and DeemedRetractibles off 6bp. Volatility was low. Volume was well above average.

Work sharing is becoming more common in the US:

Instead of dismissal notices, employees get a shortened work week, with unemployment benefits partially compensating for lost wages. Popularly known as work sharing, the program holds out the promise of fewer layoffs and less painful economic downturns.
…
While work share can be useful, policymakers and businesses need to proceed with caution, said Douglas Holmes, president of UWC-Strategic Services on Unemployment & Workers’ Compensation, a Washington-based business group that lobbies on unemployment insurance issues. The programs could drain already stressed unemployment insurance funds and, if used inappropriately, could delay inevitable economic disruptions, he said.

One reason Blue Crown cites for the drop in orders, for example, is that more dentists are sending work to China.

“If an individual continues to do the same job because this policy permits them to, when they would be better off spending time improving their skills doing the next job, that’s a factor that has to be taken into consideration,” Holmes said. “That turns the program from being a temporary measure to address a fluctuation in demand into one that becomes a long- term wage subsidy.”

At Blue Crown, where the least-experienced dental technician makes $17.50 an hour, orders still haven’t bounced back and co-owner Roberts is applying for her third year of work share.

Liquidity is becoming more important in US corporate bond pricing:

Investors’ preference for the most- liquid corporate debt is running higher than any time since the credit crisis, a signal they’re preparing for the four-year rally to end.

The expense incurred by credit traders to complete bond transactions was the lowest last year relative to costs implied by the market’s average bid-ask spread since 2009, according to Barclays Plc. The shift, a sign that buyers are favoring securities that are easiest to trade, has helped financial bonds beat industrial debt by the biggest margin on record, Bank of America Merrill Lynch index data show.
…
Buyers are seeking flexibility as a 6 percent increase in trading volumes fails to keep up with a 13 percent rise in the size of the dollar-denominated market, data from Bloomberg and Bank of America Merrill Lynch show.

The average daily volume of bonds changing hands last year accounted for 0.29 percent of outstanding debt, the lowest proportion since at least 2005, according to data compiled by Bloomberg and Trace.

The 21 primary dealers with the Federal Reserve, which traditionally used their own money to facilitate trading, have reduced their corporate-bond inventories 76 percent since October 2007 to $57.49 billion, Bloomberg data show.

US housing horror stories never seem to end:

Six years in, thousands of homeowners are finding themselves legally liable for houses they didn’t know they still owned after banks decided it wasn’t worth their while to complete foreclosures on them. With impunity, banks have been walking away from foreclosures much the way some homeowners walked away from their mortgages when the housing market first crashed.

“The banks are just deciding not to foreclose, even though the homeowners never caught up with their payments,” says Daren Blomquist, vice-president at RealtyTrac, a real-estate information company in Irvine, California.

FTN.PR.A was confirmed at Pfd-4(high) by DBRS:

Over the past year, the performance of the Portfolio experienced some volatility, with the month-end NAV of the Company fluctuating between $18.07 and $19.02 per unit. The current dividend coverage ratio is around 0.66, but the Company has also written covered call options in order to generate additional income for distributions. The rating of Pfd-4 (high) is sufficient based on the current level of downside protection available to the Preferred Shares. As a result, the rating has been confirmed at Pfd-4 (high).

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets off 1bp and DeemedRetractibles gaining 3bp. Volatility was low. Volume was significantly above average.

A Bank of Canada Working Paper by Katya Kartashova, Ben Tomlin examines House Prices, Consumption and the Role of Non-Mortgage Debt:

This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt. Using quantile regression, we find a positive and significant relationship between regional house prices and total household debt all along the conditional debt distribution. This suggests that the household-level relationship between house prices and debt goes beyond the purchase of real estate. We then find a positive relationship between house prices and non-mortgage debt (the sum of secured lines of credit, unsecured lines of credit, leases and other consumer loans, except for credit cards) for homeowners. Combining these results with the reported uses of non-mortgage debt allows us to connect house prices and nonhousing consumption – this connection is new to the literature on house prices and consumption. We conclude that the increases in house prices over the 1999-2007 period were, indeed, associated with an increase in non-mortgage debt and non-housing consumption. Our results can be thought of as the establishment of a conservative lower bound for the overall relationship between house prices and aggregate consumption.

It was a positive day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets up 3bp and DeemedRetractibles winning 11bp. Volume was average.

PerpetualDiscounts (all four of them! from both issuers!) now yield 4.82%, the equivalent of 6.27% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 195bp, a significant decline from the 210bp reported January 2.