PrefBlog

Lapdog Carney got a better job:

Bank of Canada Governor Mark Carney was unexpectedly named head of the Bank of England as the U.K. government looked abroad for a candidate untainted by financial turmoil to lead the beefed-up central bank.

Carney, a 47-year old former Goldman Sachs Group Inc. managing director, will become the first foreigner to run the 318-year-old institution as it absorbs new powers to oversee banks. He’ll replace Mervyn King from July as policy makers pursue record-low interest rates and asset-buying to propel the economy from its first double-dip recession since the 1970s.
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“Carney is a surprise choice but he is a highly respected central banker,” said Philip Shaw, an economist at Investec Securities in London. “The Canadian banking system is widely regarded to be in good shape because of the Bank of Canada’s approach to regulation ahead of the credit crisis, and this may have been a factor in his appointment.”

In announcing his selection and seeking to get ahead of any criticism about his decision to look overseas for talent, Chancellor of the Exchequer George Osborne described Carney as “quite simply the best, most experienced and most qualified person in the world to do the job.”

Mr. Shaw will doubtless be surprised to learn that the BoC does not, in fact, regulate banks in Canada – that’s what OSFI pretends to do – as Dickson was very quick to point out:

“Mr. Carney brings tremendous credibility in this new role and I will miss his counsel as a member of the team of government agencies in Canada that work together in support of a sound and stable financial system.”

Now we are all on tenterhooks: will Carney be able to read Osborne’s handwriting properly when drafting speeches? Osborne & Cameron remind me of another political pair:

David Cameron has ruled out George Osborne giving up his political strategy role to focus on being Chancellor.

Despite fierce criticism of Mr Osborne for grim economic figures, the Prime Minister told colleagues that Downing Street and the Treasury working hand in hand was a ‘strength, not a weakness’.

But Lord Ryder, a former Tory chief whip, has claimed both men are ‘obsessed with management of 24-hour news’ and called for there to be a ‘full-time’ Chancellor.

Revenge of the nerds?:

Having left the heavy-lifting to technology companies until early this year, San Francisco’s non-tech employers are playing a growing role in the city’s labor recovery. Positions in everything from retail to construction to hospitality now comprise about 75 percent of the city’s job growth, helping the Northern Californian hub add jobs at among the fastest rates in the nation and reduce its unemployment rate to 6.5 percent.

San Francisco’s experience is also seen in broadening expansions in other U.S. technology centers such as Seattle and Boston, easing concerns that innovation would create work for only the most highly-skilled and highly-paid while others get left behind. Every new technology job in a city creates five additional local jobs outside the sector over time, according to an analysis by Enrico Moretti, an economics professor at the University of California, Berkeley.

“People were missing the big picture,” said Moretti, author of “The New Geography of Jobs” published in May. “Tech cannot offer jobs to the average worker, but every software engineer attracted to Twitter will indirectly support many more service jobs. My research suggests that this multiplier effect is particularly large for high-tech jobs.”

The OSC has released OSC Staff Notice 33-738: 2012 OSC Annual Summary Report for Dealers, Advisers and Investment Fund Managers. The associated NOTICE AND REQUEST FOR COMMENT ON PROPOSED AMENDMENTS TO NATIONAL INSTRUMENT 31-103
REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS AND TO COMPANION POLICY 31-103CP REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS June 14, 2012 (2nd Publication) Cost Disclosure, Performance Reporting and Client Statements states:

(v) Percentage return calculation method

We are proposing to mandate that registrants use the dollar-weighted method in calculating the percentage return on a client’s account or portfolio, in order to promote consistency and comparability in investor reporting from one registrant to another.

We had previously considered permitting registrants to choose between a time-weighted and dollar-weighted performance calculation method. We have decided to mandate the dollar-weighted method because it most accurately reflects the actual return of the client’s investments. This is in keeping with one of the main themes of the project — allowing investors to measure how their investments have performed.

Time-weighted methods are generally used to evaluate the registrant’s performance in managing an account, as the returns are calculated without taking into consideration any external cash flows. These methods isolate the portion of an account’s return that is attributable solely to the registrant’s actions. The philosophy behind time-weighted methods is that a registrant’s performance should be measured independently of external cash flows, because contributions and withdrawals by an investor are out of the registrant’s control.

– – – – – – – – – – – – – – – – – – – –

Issue for comment

We invite comments on the benefits and constraints of the proposal to mandate the use of the dollar-weighted method, in particular as they relate to providing meaningful information to investors.

We are not prohibiting the use of the time-weighted method, but if a registered firm uses such a method, it must be in addition to the dollar-weighted calculation.

Given the very well known tendency of investors to make bad timing decisions , this will probably result in a decline of most honestly reported performance figures. There is no indication as yet as to whether mutual funds will be bound by the same rules.

Some Ontario lawyers are saying there are too many lawyers:

In another vote Thursday, the council responded to a critical shortage of articling positions by creating an alternative path to the profession. It calls for four months of extra classroom education as well as an unpaid, co-op work placement.

During debate, some council members expressed misgivings about the competency of many students flocking to a legal career.

“The law schools are now sending us flood upon flood of students,” said lawyer Bradley Wright. “Because no one fails any more, being accepted into first-year law school guarantees you a call to the bar. … Just show up at the door and you will be accepted into our profession.”

I’ll believe it when prices come down.

The Canadian preferred share market suffered a small decline today, with PerpetualPremiums and FixedResets down 7bp and DeemedRetractibles off 2bp. Volatility was non-existent. Volume was average and dominated by ENB issues in the wake of the new issue announcement.

Richard W. Fisher gave a rather provocative speech last week titled The State of the West (With Reference to George Shultz, Eisenhower, Buzz Lightyear, George Strait, the San Francisco Fed and Adam and Eve) :

I’ll just say this: Our Congress—past and present—has behaved disgracefully in discharging its fiscal duty. Its members have not shown themselves to be true born leaders.
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The jig is up. Our fiscal authorities have mortgaged the material assets of our grandchildren to the nth degree. We are at risk of losing our political heritage of reaching across the aisle to work for the common good. In the minds of many, our government’s fiscal misfeasance threatens the world’s respect for America as the beacon of democracy.

Only the Congress of the United States can now save us from fiscal perdition. The Federal Reserve cannot. The Federal Reserve has been carrying the ball for the fiscal authorities by holding down interest rates in an attempt to stoke the recovery while the fiscal authorities wrestle themselves off the mat. But there are limits to what a monetary authority can do. For the central bank also plays a fiduciary role for the American people and, given our franchise as the globe’s premier reserve currency, the world. We dare not become the central bank counterpart to Congress by adopting a Buzz Lightyear approach of “To infinity and beyond!” by endlessly purchasing U.S. Treasuries and agency debt so as to encumber future generations of central bankers with Hobson’s choices when it comes to undoing what seems contemporarily appropriate.

So my only comment today regarding the recent federal elections is this: Pray that the president and the Congress will at last tackle the fiscal imbroglio they and their predecessors created and only they can undo.

This speech has been energetically attacked by Tim Duy, but only on the basis of timing:

What is it about fiscal policy that brings out the crazy?  Because it all seems pretty simple.  Joe Weisenthal hits the nail on the head:

The U.S. recovery has been remarkable on a comparative basis precisely for one reason: Because despite all of the rhetoric, the U.S. has completely avoided the austerity madness that's gripped much of the world.

Weisenthal points us to Ryan Avent and Josh Lehner, both showing in different ways the better post-recession outcomes experienced by the US compared to other economies.  Paul Krugman extends the argument by comparing the divergent path of Eurozone and US unemployment rates.  The key difference in policy – the US pursued a more aggressive fiscal policy and didn't pull back too quickly.  I don't think you can emphasize this point enough.   

Which brings us to the fiscal cliff (or slope, which is more accurate and avoids creating the false impression that all is lost come January 1).  The tax increases and spending cuts in place promise to repeat the mistakes of the UK and the Eurozone by pivoting too fast and too hard into the realm of fiscal austerity.  A solution to the fiscal cliff means smoothing the path to fiscal consolidation (optimally, with no austerity in the near term, but I don't see that as an outcome).

What I want to see from the politicians is sufficient changes to put the US into a structural surplus. Note the word “structural” – it does not mean diving off the fiscal cliff, although according to the Congressional Budget Office, even giving full effect to the fiscal cliff does not lead to a structural surplus; there is a projected deficit every year through 2022, the end of their horizon. Thus, while I would not like to see a sudden dive of the fiscal cliff, I feel that a path must be taken that goes beyond those projected measures (or equivalent) over the medium term.

Click for Big

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 12bp, FixedResets gaining 5bp and DeemedRetractibles off 1bp. Volatility continued to be low. FixedResets dominated a day of relatively low volume, perhaps influenced by a move towards the new FixedReset ETF, ZPR, which now claims to have $5.2-million under management and traded slightly under 40,000 shares today (at about $15 each, or a total of $0.6-million).

The intermediators are being disintermediated!

When PPR SA, the French owner of Gucci, sold a stake in its African distributor CFAO in August, it didn’t use an investment bank to handle the transaction.

Instead, the company turned to an in-house mergers and acquisitions team led by Charles de Fleurieu, 39, a former France Telecom SA M&A executive. “When we can, we do it on our own,” said group managing director Jean-Francois Palus, 51.
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Almost a third of completed European and U.S. M&A transactions this year were done in-house, according to data provided by Freeman Consulting, a New York-based research firm. For the U.S., that represents the largest adviser-free proportion of deals since 2003; for Europe, it’s the most since 2004.
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Big global investment banks have seen their revenue from advisory work fall 48 percent, to $6.48 billion, in the first nine months of 2012, compared with the same period in 2007, according to data compiled by Bloomberg.

Distrust may be a factor as companies grow increasingly skeptical about banks, said John Longworth, director general of the British Chambers of Commerce, which in an October report found that half of U.K. companies are leery of doing business with financial institutions.
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Siemens, Germany’s most acquisitive company during the past decade, used its own M&A staff for an agreement in July 2011 to acquire NEM and Nem Energy Services, Dutch makers of gas and steam power-plant parts, for 170 million euros ($218 million).

Banks might have earned almost 3 million euros in fees to advise Siemens on the deal, estimates Freeman based on transactions roughly that size. They may have missed out on as much as $55.5 million when BP, Europe’s second-largest oil company, used its 30-member in-house advisory team to sell Gulf of Mexico oil and gas properties to Plains Exploration & Production for $5.55 billion, announced in September.

DBRS confirmed BRN.PR.A at Pfd-2(low) – an issue which is not followed by HIMIPref™:

DBRS has today confirmed the rating of Pfd-2 (low) with a Stable trend for the Senior Preferred Shares of Brookfield Investments Corporation (Brookfield Investments or the Company).
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As a result of higher market values and the aforementioned new investments, the Company’s exposure to real estate investments decreased to 69.6% (on a market value basis as at September 30, 2012) from 83.5% in Q1 2011. Specifically, Brookfield Office Properties Inc. represents 41% of the Company’s investment portfolio on a market value basis.
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The rating also continues to be supported by the fact that: (1) Brookfield Investments’ senior debt does not exceed 10% of the market value of its portfolio, and (2) no dividends are paid to Brookfield Investments common shareholders, unless, after giving effect to such dividend, the asset coverage for the Brookfield Investments Senior Preferred Shares would be at least three times. Excess cash flows beyond the Senior Preferred Shares are available to Brookfield Investments as sole holder of the Junior Preferred Shares and as sole common shareholder. The Junior Preferred Shares rank subordinate to the Senior Preferred Shares with respect to the payment of dividends.

The rating also reflects the following challenges: (a) The principal amount of the Senior Preferred Shares may be repaid by liquidating the assets upon retraction by the holder. Since 29.9% of investments are in shares that are not publicly listed, the illiquidity of such investments could have negative implications for the value realized by the preferred shareholders. (b) As there are no restrictions on the contents of the underlying portfolio, volatile market conditions could cause significant reductions in the net asset value of the Portfolio Shares (especially common shares).

DBRS confirmed TRP and TCA at Pfd-2(low):

DBRS has today confirmed the ratings of TransCanada PipeLines Limited (TCPL or the Company) as listed below. DBRS has also confirmed the rating of the Preferred Shares of TransCanada Corporation (TCC) at Pfd-2 (low). The rating of TCC, which owns 100% of TCPL and holds no other material assets, is based on the credit strength of TCPL.
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The ratings and trends reflect the following DBRS expectations: (1) The decision with respect to the Company’s Canadian Mainline 2012 Tolls Application and Restructuring Proposal (the Restructuring Proposal) that is currently before the National Energy Board (NEB) will be such that the Company is allowed to continue to recover, and earn a reasonable rate of return on, all of the costs that were incurred in the construction of the Canadian Mainline. A decision is currently expected in late Q1 2013. (2) The Keystone XL Pipeline, approval of which has been repeatedly delayed, is approved by the United States Department of State in 2013 and construction is allowed to proceed, with an expected in-service date in late 2014 or early 2015. A decision is currently expected in Q1 2013. Should a negative decision result, DBRS expects TCC to mitigate the result with incremental projects of similar quality to support its overall business risk profile. (3) Despite an expected moderate weakening in 2013, TCPL maintains reasonably strong credit metrics in line with its targeted cash flow-to-debt ratio of at least 15% and cash flow-to-interest of at least three times (15.8% and 3.6 times on a DBRS-adjusted basis at September 30, 2012). DBRS expects increased diversification and reduced proportional exposure to the currently challenging natural gas pipeline segment, with major capital projects placed in service by 2015 as expected.

It was another day of gains for the Canadian preferred share market, with PerpetualPremiums and DeemedRetractibles both up 6bp, with FixedResets winning 15bp. Volatility was minimal, with two IAG issues bouncing back after going ex-dividend yesterday. Volume was low.

Olam is fighting back against Muddy Waters:

Olam International Ltd. (OLMIF), the world’s second-largest rice trader, filed a lawsuit against investment firm Muddy Waters LLC and its founder Carson Block after he questioned the commodity trader’s accounting methods.

The legal action was initiated in the High Court of Singapore following Block’s statements against the company at a conference in London on Nov. 19, Olam said yesterday in a regulatory filing. The suit, which couldn’t immediately be confirmed in the court, is for slander, libel and/or malicious falsehood, Olam’s spokesman Aditya Renjen said. He declined to comment on the size of the damages sought.

A war of words between Olam and Block began when the Muddy Waters research director accused the Singapore-based company of booking profits on transactions before it’s clear how they would work out over time. Olam Chief Executive Officer Sunny Verghese said on Nov. 20 the statements were designed to panic shareholders of the company.

I see that Joe Fontana has been charged with fraud:

Mayor Joe Fontana is facing three criminal charges relating to a federal cheque that paid the deposit on the 2005 wedding reception for his son Michael, his lawyer says.

The charges of fraud, breach of trust by a public official and uttering forged documents were filed against him Wednesday by the Royal Canadian Mounted Police following an investigation of more than two months.

They relate to a $1,700 cheque issued by Public Works Canada that was used to pay the Marconi Club — a London social club. A copy of the stub from that cheque was obtained by QMI Agency and published five weeks ago. The invoice number on the cheque stub, dated April 6, 2005, matched that of the Marconi Club invoice issued about six months earlier.

A former Marconi Club manager told QMI Agency Fontana later produced a similar cheque for the $18,900 balance owing. He said he remembered the payment clearly because he had to chase Fontana six months to get it.

At the time, Fontana was a Liberal mMember of Parliament for London North Centre and federal minister of labour and housing. He was elected mayor here in late 2010 and is midway through his four-year term.

Fontana was my MP when I lived in London. I called him once to express my irritation with a call received from a federal agency that was trying to track down some other Hymas (not even a relation. They had no reason other than my name to call me) … I told him that I resented being considered an informer by government agencies on fishing expeditions. He got angry with me – perhaps he’d just returned from a ‘Bring the STASI to Canada’ meeting – and told me that I had a duty to help out my government.

Have a nice time with your defence, Joe! Remember your duty to help out your government!

It was a good day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets up 9bp and DeemedRetractibles winning 27bp. Volatility was average. Volume was quite good and all the highlighted issues are FixedResets.

PerpetualDiscounts now yield 4.89%, equivalent to 6.36% interest at the standard equivalency factor of 1.3x. Long Corporates now yield a little over 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, a narrowing from the 220bp reported November 14 and equal to the spread paid by CIU with their recent 40-year deal.

Bernanke upped the stakes in the fiscal cliff negotiations:

Federal Reserve Chairman Ben S. Bernanke said that an agreement on ways to reduce long-term federal budget deficits could remove an impediment to growth, while failure to avoid the so-called fiscal cliff would pose a “substantial threat” to the recovery.

“Cooperation and creativity to deliver fiscal clarity — in particular, a plan for resolving the nation’s longer-term budgetary issues without harming the recovery — could help make the new year a very good one for the American economy,” Bernanke said today in a speech in New York. “The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery.”

One of the guys caught up in the SEC’s war against capital markets has come out OK:

Brian Stoker, who fended off regulators’ claims that he helped Citigroup Inc. (C) mislead investors in a $1 billion deal, has joined StormHarbour Securities LP in a sales position.

Stoker, 41, will focus on the sale of structured products such as collateralized debt obligations, or CDOs, and mortgage- backed securities, according to Sohail Khan, a StormHarbour managing principal and former Citigroup executive. Stoker started yesterday as a managing director and will have more responsibilities “over time,” Khan said.

The hire comes three months after a jury cleared Stoker of any wrongdoing in a $1 billion CDO offering Citigroup sold in 2007. The U.S. Securities and Exchanges Commission alleged that the New York-based bank failed to tell investors that it had picked about half of the CDO’s underlying assets and was betting they’d decline. Stoker, who helped to structure the deal, argued that he wasn’t responsible for the way the deal was pitched to investors.

As I have noted several times before, perhaps it would help if all future prospectuses contained twenty pages of legalese to the effect that all of a fund’s assets have been sold to it by somebody else.

Fabulous Fab is still awaiting vindication:

U.S. District Judge Katherine Forrest in Manhattan, who took over the case from her colleague Barbara Jones last month, rejected the SEC’s argument that a recent court decision made a $150 million note sale to Germany’s IKB Deutsche Industriebank AG sufficiently “domestic” to give her jurisdiction.

Monday’s decision does not affect the rest of the SEC’s lawsuit against Tourre, which arose from charges filed against him and Goldman in April 2010.

In an astonishing developement, it appears Greece will need more debt write-offs before it stabilizes:

Greece’s debt cannot be cut to 120 per cent of GDP by 2020, the level deemed sustainable by the IMF, unless euro-zone member states write off a portion of their loans to Greece, a document prepared for finance ministers shows.

The 15-page document, circulated among ministers, the European Central Bank and the International Monetary Fund for a meeting that began on Tuesday and took more than 10 hours, sets out in black-and-white how far off-track Greece is in reducing its debt to the IMF-imposed target, from the current level of around 170 per cent of GDP.

Even more surprisingly, this resulted in the scheduling of an emergency meeting:

European finance ministers failed to agree on a debt-reduction package for Greece after battling with the International Monetary Fund over how to nurse the recession- wracked country back to fiscal health.

With creditors led by Germany refusing to put up fresh money or offer debt relief, the finance chiefs were unable to scrounge together enough funds from other sources to help alleviate Greece’s debt burden, set to hit 190 percent of gross domestic product in 2014.

More than 11 hours of talks broke up early today in Brussels with praise for the Athens government’s economic overhaul and a declaration that an accord on the financing package will wait at least until a hastily arranged meeting of the ministers on Nov. 26.

In today’s laugh from Ottawa, the Junior Republicans are accusing the Dippers of having sound economic policy, which they deny:

The Conservatives have a new line of attack when it comes to the NDP, using television panels and Question Period exchanges to claim the Official Opposition is advocating a GST hike.

The NDP say the Conservatives are lying.

It was a suddenly negative day for the Canadian preferred share market as it welcomed the new ETF (ZPR), with PerpetualPremiums losing 26bp, FixedResets down 21bp and DeemedRetractibles off 16bp. Volatility was average. Volume was a little above average.