PrefBlog

The day started with rumours that some of the owners of Alpha Trading Systems don’t want big brother to get married:

Four of the country’s six largest banks are lining up to raise red flags about the planned merger of the parent companies of the Toronto Stock Exchange and the London Stock Exchange, saying the country risks losing clout as a financial centre.
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The banks plan to lay out their concerns this week in a public letter. The wording of the letter, tentatively titled “Let’s build on a Canadian success story,” has not been finalized, nor has the list of signatories, but sources said Tuesday that the banks that were on side as of then included Toronto-Dominion Bank, which is co-ordinating the effort, as well as Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada.

Hey, if you can’t compete, run home crying to mommy, that’s what I always say! Boyd Erman comments:

There’s no doubt that on some level, Alpha may be factoring into the calculations, but the web of conflicting behaviour suggests that Alpha is not the driving factor behind whether banks support or oppose the TMX-LSE deal.

The last argument is the old small-town one, that the banks would like to remain the big fish in a small pond. It may be that the banks are being parochial, and want to keep control of the TMX within walking distance of their own head offices. This one probably has the most weight.

How are you going to keep the boys on the farm, once they’ve seen the City? And the furrinners might not have the proper reverence for Canadian banks, or might send in their resumes once their regulatory stint is over. Another mouth to feed!

As it turns out the Financial Post has published the letter. It’s vagueness, incoherence and prediliction for sweeping fearmongery make it clear to me that whatever they’re talking about, it’s not the merits of the deal.

Bloomberg reports on today’s testimony to a parliamentry committee. Caldwell has a number of fish to fry with respect to exchange mergers, but had the right idea:

“Of course they’re against it because it provides real competition for Alpha,” said Brendan Caldwell, Chief Executive Officer of Caldwell Investment Management Ltd., a money manager that owns shares in TMX. “They banks don’t like real competition, they like the little oligopoly where they divvy up the financial pie of Canada amongst themselves. It’s quite incestuous.”

The Globe plays up support for the deal from the Toronto Financial Services Alliance. I confess I don’t know much about this group, but they repeat that hoary canard about the WEF ranking of banks around the world on the front page of their website, so their opinions can’t be worth much.

The Kansas City Financial Stress Index is at its lowest level since June 2007:

Click for big

Another mixed day in the Canadian preferred share market, with PerpetualDiscounts up 22bp, FixedResets gaining 3bp and DeemedRetractibles slipping 4bp. Only one entry – which barely made it – in the Performance Highlights table. Volume remained high.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the new standard equivalency factor of 1.3x. Long corporates now yield about 5.6% (ok, maybe a tiny bit less) so the pre-tax interest-equivalent spread is now about 175bp, a slight (and perhaps spurious) decline from the 180bp reported on March 2.

Alarms are sounding about a possible Chinese bank crisis:

China faces a 60 percent risk of a banking crisis by mid-2013 in the aftermath of record lending and surging property prices, according to a Fitch Ratings gauge.

The assessment is from a macro-prudential monitor used by the ratings company, Richard Fox, a London-based senior director, said in a phone interview on March 4.
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The indicator signaled crises in Iceland and Ireland and has been tested back to the 1980s, Fox said.
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The indicator’s failures have included not sounding an alarm about the banking system in Spain, he added.
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Banking systems in emerging markets are vulnerable to systemic stress when credit growth exceeds 15 percent annually over two years with real property prices rising more than 5 percent, according to Fitch. Credit growth in China averaged 18.6 percent annually over 2008 and 2009 as house prices jumped, according to the ratings company.

The fallout from China’s lending spree may be bad loans totaling $400 billion, according to Hong Kong-based advisory firm Asianomics Ltd.

Gloominess on Europe:

Some countries in the euro region may have their credit ratings cut further while a Greece debt default is a “possibility,” said Moritz Kraemer, managing director of European sovereign ratings at Standard & Poor’s.

Asked if the worst was over for the region’s sovereign credit-rating outlook, Kraemer said: “I wish I could say yes, but the answer is no.”

“We still have a number of countries with a negative outlook or CreditWatch negative, indicating their credit ratings may be going down further,” Kraemer said in an interview in London. “Trigger points for that could be slippage in fiscal consolidation and structural reforms, but also decisions that will be taken at the European level later this month.”

S&P said on March 1 it kept Portugal’s A-long-term, A2 short-term and Greece’s BB+ long-term ratings on CreditWatch with a negative outlook. It cited Portugal’s “high external financing need and limited funding sources.” Moody’s Investors Service downgraded Greece’s government bond ratings yesterday to B1 from Ba1 , and assigned a negative outlook to the rating.

And more gloom on US mortgages:

Bank of America Corp. (BAC), the biggest U.S. lender by assets, is segregating almost half its 13.9 million mortgages into a “bad” bank comprised of its riskiest and worst-performing “legacy” loans, said Terry Laughlin, who is running the new unit.
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The legacy portfolio will hold 6.7 million of loans with outstanding principal balance of about $1 trillion, according to a presentation to investors today. The split leaves home loan President Barbara Desoer with about half her previous portfolio, as well as new lending going forward.

Laughlin’s portfolio will include loans that are currently 60 or more days delinquent as well as riskier types of loans the bank no longer originates, such as subprime, Alt-A, interest- only and option adjustable-rate mortgages, he said. He said the portfolios will be completely split by March 31 and that his will be liquidated over time. Of the 13.9 million loans Bank of America services, about 3.5 million are held by the company on its balance sheet. The rest are owned by other investors.

There’s a rather odd perspective on the Charlie Sheen spectacle:

Second, he’s the talent. A hedge fund wouldn’t fire the star trader if he was a drug user or an alcoholic. It would have to get rid of half the staff if it did.

Which is why hedge funds blow up with such amazing regularity. I think it’s just sad: we have a guy who has achieved enormous success and can’t handle it. After pondering whether he was lucky or smart, he’s not just chosen “smart”, but gone beyond, into “completely irreplacable and personally indestructible.” It happens all the time, not just in Hollywood and Wall Street, but everywhere, sometimes with a definitions of “enormouse success” that most of us would consider “a good start”, causing an immense amount of pain and waste of talent.

If any employee of mine were ever to be found doing coke, he’d be out on his ass instantly, lawsuits and employer accomodation of addictions be damned. It’s cheaper in the end, as the Bishop said to the choir-boy.

Here’s some sense:

A top jurist has condemned plea bargaining as a form of coercion that tempts an intolerable number of innocent people into pleading guilty to avoid a harsh sentence.

Mr. Justice Marc Rosenberg of the Ontario Court of Appeal urged a thorough review of plea bargaining – a system that has become so entrenched in the past three decades that 90 per cent of criminal cases result in a guilty plea.

We can get rid of negotiated settlements in the securities industry while we’re at it.

Hats off to the Proceeds of Crime Act! Another way to build up slush funds like Brampton’s:

The Peel Police Services Board has bought tens of thousands of dollars worth of tickets to private mayoral galas in Brampton and Mississauga, using “proceeds of crime” that in Ontario typically go to victim and crime prevention programs.

The tickets were purchased over the years while Brampton Mayor Susan Fennell and a fundraising organizer of Mississauga Mayor Hazel McCallion sat on the board — and with the approval of Peel Region chair Emil Kolb, who also heads the police board.

Minutes show, for example, that the board approved buying a $4,000 table at Fennell’s gala on Feb. 20 last year, on Fennell’s invitation. A month before the gala took place, then-board member Jim Murray put forward a motion to buy a second table. It was approved.
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[Peel Region chair Emil] Kolb, who has chaired the police board since 1996, acknowledged that the board routinely approves such purchases, but points out that it’s not tax-generated dollars being spent.

“It’s funds that come from crime funds. Not one red cent is taxpayer dollars.”

Kolb should be fired – not just for reckless misuse of funds, but for general stupidity. Once it’s in the coffers, pal, it’s taxpayer’s money. Every goddam penny, regardless of whether it’s taxes, fees, fines, gifts or proceeds of crime. It’s not yours to do political favours for your buddies. Asshole.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts losing 10bp, FixedResets flat and DeemedRetractibles gaining 16bp. Volatility was subdued with only one entry in the Performance Highlights table. Volume was heavy.

There are threats of inflation in Asia:

The Bank of Thailand and Bank of Korea will each raise key interest rates this week by a quarter percentage point, median estimates in Bloomberg News surveys of economists show. Malaysia may also be approaching the end of its pause in boosting borrowing costs, as four of 12 analysts polled see a March 11 move, the highest such share since the last increase, in July.
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The region’s economies are strong enough to withstand the impact of faster inflation, the Asian Development Bank said last week.

“The region is particularly prone to food and oil price shocks as a greater percentage of household income is spent on food and transportation,” said Vishnu Varathan, an economist in Singapore at Capital Economics (Asia) Pte.
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Diminished resistance to currency gains in China may have a knock-on effect throughout Asia as the continent’s biggest economy also seeks to contain price pressures. People’s Bank of China Governor Zhou Xiaochuan said last month in Paris that his nation may use means “including rates and currency” to curb increases in food and home prices.

WordPress.org was attacked by hackers in China recently. I wondered how one defends against this and found a paper by S S Nagamuthu Krishnan and Dr. V. Saravanan titled DDoS Defense Mechanism by applying stamps. Precious in places (‘Oh, do be a good netizen while munching your granola’) and, naturally enough, veering occasionally into jargon, but they do achieve one of their major objectives in the paper addressing a major problem:

This was a major event, covered in the major news media. They have done an excellent job in their coverage; as far as it has gone, their coverage has been accurate. The problem is, their coverage hasn’t been sufficiently detailed to explain why we cannot track down the people committing these attacks, and why we can’t defend against them. There’s a good reason for these omissions: the attack is subtle, and understanding how it works well enough to understand why we can’t cope today, and what will have to change before we can, requires a more detailed explanation of how the Internet is constructed than the mass media are prepared to deliver to their audiences.

It was a mixed day on the Canadian preferred share market, as PerpetualDiscounts gained 6bp, FixedResets lost 8bp and DeemedRetractibles were down 11bp. Volume was average, but there were some nice blocks changing hands – all courtesy of Nesbitt, which shut out the rest of the street on the Volume Highlights table.