PrefBlog

This looks better than a government programme as a way to address delinquent underwater mortgages:

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

What’s more, it seems like there is a direct connection with auto loans:

Three years ago, credit was so tight that the owner of a legal firm with a $400,000 salary and a very good credit score of more than 700 couldn’t get financed to buy the car he wanted from Michael Mosser’s dealership.

“The world is upside-down compared to then,” said Mosser, general manager of Chevrolet and Cadillac stores in Ann Arbor, Michigan. “Today, somebody with a 500 credit score, I can get approved and in a Malibu,” which starts at $22,110.

Lenders resisted extending credit to car buyers when the mortgage market collapsed in 2008, helping push General Motors Corp. and Chrysler LLC into bankruptcy and sending U.S. sales to the lowest point in almost three decades. Amid a slow housing market, auto demand is rebounding, spurring lenders from Bank of America Corp. to Capital One Financial Corp. to approve buyers faster and at better rates to compete for a piece of an expanding market.

Amazingly, another Greek deadline has been missed:

Greek political parties delayed yet again on Tuesday making the tough choice of accepting painful reforms in return for a new international bailout to avoid a chaotic default, seemingly deaf to EU warnings that the eurozone can live without Athens.

With a series of deadlines come and gone, leaders of the three parties in the coalition of Prime Minister Lucas Papademos postponed what was supposed to be a crunch meeting until Wednesday.

S&P affirmed AltaGas, proud issuer of ALA.PR.A:

• AltaGas Ltd. has announced it is acquiring SEMCO Holding Corp., the sole shareholder of SEMCO Holding Corp. from Continental Energy Systems LLC for about C$1.1 billion.
• We are affirming our ratings, including our ‘BBB’ long-term corporate credit rating, on AltaGas.
• In our view, SEMCO has an excellent business risk profile and a highly leveraged financial risk profile.
• We have revised AltaGas’ business risk profile to strong from satisfactory and financial risk profile to significant from aggressive, assuming the transaction closes as expected. The stable outlook reflects our assessment of the company’s business mix, which is increasingly diverse with a greater contribution from fee-based and regulated utility cash flows.

It was another down day for the Canadian preferred share market, with PerpetualPremiums off 16bp, FixedResets down 14bp and DeemedRetractibles losing 18bp. Volatility was minor. Volume was a little below average.

Bloomberg has an interesting story about the legal snarl of an effective Greek default:

Hedge funds seeking to wring profits from a Greek debt restructuring are underestimating the will of policy makers to impose losses on them, according to investors who say trying to beat the politicians is too risky.
…
European banks own most of the 200 billion euros ($263 billion) of Greek debt held by non-government investors. Hedge funds, pension funds, sovereign wealth funds and other “non- regulated investors,” own a further 60 billion euros, according to estimates by Pavan Wadhwa, JPMorgan Chase & Co.’s head of global interest-rate strategy.
…
Because hedge funds and other holders could collectively keep the participation rate below that level, Greece has said it may approve legislation that imposes losses on investors who don’t support the voluntary swap by adding a retroactive collective action clause into its bond documentation. Such a provision would give a majority of bondholders the ability to force holdouts to accept the same terms as everyone else.
…
It will be difficult for holdouts to assemble enough votes to block any collective action clause, because European banks have an incentive to support the provision, fund managers said.

A lawsuit against a collective-action clause legislated by the Greek government may also be difficult to win, because it would probably have to be filed in Greece, said a hedge-fund executive whose firm holds the country’s debt and has examined the legal options.

Never play poker with somebody who can change the rules! The question is: will anybody in their right minds ever buy Greek debt again? Or any European’s?

DBRS confirmed GMP.PR.B at Pfd-3(low):

DBRS has confirmed the Pfd-3 (low) rating on the Preferred Share obligations of GMP Capital Inc. (GMP or the Company) with a Stable trend. The rating reflects the strength of the Company’s business franchise as a premier provider of investment banking and capital markets products and services to its targeted market of mid-sized Canadian companies, most of whom operate in the resource and energy sectors. Following the issue of preferred shares in early 2011, the Company’s capitalization has become relatively more aggressive as a result of $66 million in share buybacks completed during the first nine months of 2011. At current levels of financial leverage, the Company’s financial flexibility is somewhat impaired. A continued slump in underwriting and trading activities, which DBRS does not expect to recover in the short to medium term given the weak global economic outlook and continued absence of investor confidence, will prevent a material improvement in this condition in the medium term. Nevertheless, DBRS remains comfortable with the Pfd-3 (low) rating, given the Company’s flexible cost base and its excess regulatory capital at its operating subsidiaries.

The recent run-up in the Canadian preferred share market took a pause today, with PerpetualPremiums down 7bp, FixedResets off 2bp and DeemedRetractibles losing 13bp. Volatility was significant and fairly evenly distributed between asset classes, winners and losers. Volume was average.

Very nice US jobs number today:

The U.S. jobless rate unexpectedly fell in January to the lowest in three years as payrolls climbed more than forecast, casting doubt on the Federal Reserve’s plan to keep interest rates low until late 2014.

The unemployment rate dropped to 8.3 percent, the lowest since February 2009, Labor Department figures showed today in Washington. The 243,000 increase in jobs was the biggest in nine months and exceeded the most optimistic forecast in a Bloomberg News survey. Service industries grew by the most in a year, according to a separate report.
…
The Standard & Poor’s 500 Index rose 1.5 percent to 1,344.90 at the close of trading in New York, extending the best start to a year since 1987. The index is up 6.9 percent in 2012. The yield on the benchmark 10-year Treasury note climbed to 1.92 percent from 1.82 percent late yesterday.

The median projection in the Bloomberg survey called for payrolls to rise by 140,000. Estimates of the 89 economists ranged from increases of 95,000 to 225,000. Revisions added a total of 60,000 jobs to payrolls in November and December.

The most left wing PM since Trudeau just can’t stop meddling with the economy:

Prime Minister Stephen Harper drew an apparent line in the sand on foreign takeovers on Friday, saying he wanted to see BlackBerry-maker Research In Motion grow “as a Canadian company” and questioning whether hostile takeovers of key domestic firms are in the country’s best interests.
…
“Takeovers of critical technology that the government’s invested in, or … hostile takeovers of key Canadian businesses, are obviously something that I think is widely understood is not in this country’s interest,” Mr. Harper said.

Well, it’s been a week and I still don’t see OSFI doing the decent thing and releasing the documents obtained by Bloomberg with a Freedom of Information request:

Bank of Canada Governor Mark Carney talks about the potential impact of the so-called Volcker rule on the trading of government bonds, the European Central Bank’s efforts to ease the region’s debt crisis and bank capital regulations. He speaks with Bloomberg’s Erik Schatzker on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland. (Source: Bloomberg)
Attachment: Documents Obtained by Bloomberg. .Canadian lenders are loosening standards, offering mortgages similar to U.S. subprime loans that pose an “emerging risk” to financial institutions, according to the country’s banking regulator.

Banks and other lenders are becoming “increasingly liberal” with mortgages and home-equity credit lines that don’t require individuals to prove their income, according to 152 pages of documents obtained by Bloomberg News under freedom of information law from the Office of the Superintendent of Financial Institutions. The mortgages, typically granted to the self-employed and recent immigrants, “have some similarities to non-prime loans in the U.S. retail lending market,” the documents show.

But then, you don’t often see OSFI doing the decent thing.

Another very strong day for the Canadian preferred share market, with PerpetualPremiums winning 33bp (taking the median YTW down to -8.58%), FixedResets gaining 28bp and DeemedRetractibles up 36bp. All fourteen entries on the Performance Highlights table wer winners. Volume continued to be extremely heavy.

Nothing happened today.

It was a good day for the Canadian preferred share market, helped along by my decision to stop commenting daily on the four issue PerpetualDiscount index. FixedResets were up 14bp and DeemedRetractibles wone 32bp. Volatility was average. Volume was huge.

Greece is a problem. Portugal, not so much:

Portugal doesn’t present the risk of default that Greece does to the rest of the European Union because officials there are seeking to contain the nation’s financial crisis, according to Fitch Ratings.

“The government there is committed and credible. The economy is highly indebted, but they are working on organizing a debt-for-equity swap,” David Riley, head of the sovereign-debt unit at Fitch Ratings, said at a conference in New York today. “That is the right strategy and in the near term we don’t see them as a significant risk to the rest of the euro zone.”

Banks in Germany, France, Belgium and the U.K. have the least periphery exposure to Portugal, excluding Ireland, among the debtor nations at the heart of the region’s financial crisis, according to data provided by Fitch at a presentation today. Riley wasn’t immediately available to elaborate on a possible debt-to-equity exchange.

Here in Soviet Canuckistan, we know what to do when demand exceeds supply – we allocate the supply:

Canada Mortgage & Housing Corp. said it is rationing mortgage insurance for lenders as the country’s housing agency approaches the legal limit of its ability to backstop the loans.

“CMHC has recently received an unexpected level of requests for large amounts of CMHC portfolio insurance,” Charles Sauriol, a spokesman for the Ottawa-based agency, said in an e-mailed statement. “To ensure equitable access to portfolio insurance within CMHC’s annual limits, an allocation process is being established which has caused some delays.”

The agency said that lenders have increased their demand for insurance of their mortgages amid “liquidity needs” since the 2007 financial crisis.

“This does not affect the availability of CMHC’s mortgage loan insurance for qualified home buyers and will not impact the cost of buying a house,” Sauriol said in the statement.

Portfolio insurance allows lenders to insure mortgages that aren’t already backstopped by the housing agency. Under Canadian law, homebuyers who put down less than 20 percent of the cost must insure the mortgage. Banks also buy insurance for other home loans before securitizing them.

CMHC said it had C$541 billion ($539 billion) of insurance in force as of Sept. 30. The organization’s legislated limit is C$600 billion, it said.

This comes after news of OSFI micro-management of the banking business:

Canada’s banking regulator is stepping up its scrutiny of the housing sector, concerned about speculators in Toronto and Vancouver as well as riskier lending practices.

In a series of documents made public on Monday, the Office of the Superintendent of Financial Institutions says existing market analysis does not capture the degree of speculation in the condo markets of the two cities. The regulator is also concerned about the long-term risks home equity lines of credit (HELOCs) could pose to the banking sector in a downturn.

As a result, OSFI has told the banks it will now monitor on a quarterly basis what steps the lenders are taking to avoid problems in the HELOC market. It also wants to spend more time compiling data on speculators in the real estate market, and the impact they are having on prices.

The basic problem – such as there is one – is that 40%+ of Canadian banks’ assets are now mortgage related, compared to 30% historically. But it doesn’t occur to the useless twerps at OSFI that they should simply apply a surcharge on the capital required when proportions get massively and quickly out of whack. It’s much more fun to play ‘Let’s pretend we’re bankers!’.

BNS is raising equity capital:

It has long been assumed that Bank of Nova Scotia (BNS-T51.840.310.60%) would need to issue common equity to boost its capital ratios after acquiring abroad. No surprise, then, that the bank is in the market with a new bought deal this afternoon.

But no one was quite sure of when exactly the equity raise would come, and how much it would be worth — especially after it was revealed that the bank is looking to sell its flagship office tower in downtown Toronto for around $1-billion. That money, many believed, could supplant some of the much-needed common equity

For that reason, it is a bit surprising that the bank has gone so big with its capital raise, opting to selling $1.5-billion of new common shares at $50.25 each. And the timing is a little odd considering that the office tower sale is just getting under way.

DBRS confirmed ALA.PR.A at Pfd-3:

DBRS has today confirmed the ratings on the Medium-Term Notes (MTNs) and Preferred Shares – Cumulative of AltaGas Ltd. (AltaGas or the Company) at BBB and Pfd-3, respectively, both with Stable trends.

The rating actions follow the announcement that AltaGas has agreed to acquire SEMCO Holding Corporation (SEMCO). SEMCO is the sole shareholder of SEMCO Energy, Inc., a regulated public utility company with natural gas distribution and storage operations in Michigan and Alaska. The proposed purchase price of approximately US$1.135 billion, including assumed debt of approximately US$355 million, represents about 1.5 times the combined regulated rate base of US$725 million. The transaction value equates to approximately 8.7 times SEMCO’s expected EBITDA of approximately US$130 million in the first full year of ownership in 2013, which is reasonable.

Trading in ALA.PR.A was halted for the last 50 minutes of the day:

TORONTO, Feb. 1, 2012 /CNW/ – The following issues have been halted by IIROC:

Company: AltaGas Ltd.

TSX Symbol: ALA (all issues)

Reason: Pending News

Halt Time (ET): 3:09 PM ET

It was a good strong day for the Canadian preferred share market,with PerpetualDiscounts (all four of them! Both issuers!) up 28bp, FixedResets gaining 22bp and DeemedRetractibles winning 37bp. There was a good long list of Performance Highlights, all winners. Volume was high.

PerpetualDiscounts now yield 4.93%, equivalent to 6.41% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread is now about 190bp, an interesting, but possibly spurious widening from the 180bp reported January 31.