PrefBlog

A good solid day for the Canadian preferred share market, with PerpetualDiscounts up 15bp while FixedResets gained 4bp … reasonably close to a parallel shift in yields, given the difference in their weighted-median average modified duration. Not a lot of price volatility, not a lot of volume.

The SEC is casting aspersions on the hedge fund industry:

U.S. Securities and Exchange Commission Enforcement Director Robert Khuzami said the recent insider-trading cases among hedge funds including Galleon Group reflect “systemic behavior” in the industry.

“You have funds whose business model consisted of vigorous attempts to collect information from corporate insiders and to utilize that information to trade,” Khuzami said today at the Bloomberg Washington Summit. The cases point to “a more systemic approach to the problem and therefore potentially more dangerous.”

Whether that’s true or not I couldn’t say, but based on some of the people I’ve met in the industry … it doesn’t surprise me.

Canadian Pacific Railway has issued a thirty-year MTN with a 6.45% coupon:

DBRS has today assigned a BBB rating, with a Stable trend, to the $400 million in Medium-Term Notes (Notes) issued today by Canadian Pacific Railway Company (CP or the Company). The 6.45% Notes are due in November 2039, will rank pari passu with the Company’s existing senior unsecured debt, and include change of control provisions. The debt will be offered under the Company’s base shelf prospectus dated June 26, 2009 for up to $1.5 billion in medium-term notes. Proceeds from the issuance are expected to be used for general corporate purposes, which may include the funding of pension plan obligations and the reduction and restructuring of indebtedness.

There’s a speech by Julie Dickson on Lifeco regulation that demands it’s own post … but I don’t know if I’ll get to it tonight.

I note that NS Power and its tidal technology partner OpenHydro have successfully deployed the first commercial scale in-stream tidal turbine in the Bay of Fundy today. Thank heaven! I heard about those plans so often in high school that I achieved deep understanding of the term “tidal bore”.

It was a “little” day today … the market edged up a little; volume recovered a little.

To my embarassment, I must correct the November 9 mention of the G-20 and the proposed Tobin tax. A Reuters story quotes a somewhat irritated Gordon Brown on the controversy:

“I think if you read my speech on Saturday, what I was talking about was the social responsibility of financial institutions,” Brown said at his regular news conference.

The actual speech:

But what we need to consider is whether in fact we need to go further in recognising the social and economic responsibility of the financial system not least in mitigating the risks to the rest of society.
…
So I believe we should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society.

There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global financial transactions levy.

Any measures we consider would have to be set against four core principles.

First, they would have to be global: to reflect the existence of the world’s first truly global sector and thereby create a level playing field for its operation.
…
Second, they would have to be non-distortionary to avoid damaging reductions in liquidity, inefficient allocation of capital and the temptation of avoidance.

Third, any measures should complement – and reinforce – the action we are already taking to enhance the stability of the international financial system and the global economy.

Fourth the contribution we ask the global financial services sector to make must be fair, measured and enable financial services to make their necessary contribution to future economic growth.

*sigh* That’s what I get for trusting a reporter instead of going straight to source documents.

The Dodd banking bill, briefly mentioned yesterday in the context of regulatory / monetary policy separation (I don’t believe arguments for either separation or combination are compelling, although I lean towards separation on the grounds that no institution should have too much power), also undermines Fed independence:

The financial-regulation overhaul proposed yesterday by Senator Christopher Dodd would strip the Fed of its role as a bank supervisor and give Congress a greater voice in naming the officials who set interest rates. The measure opens the door to interference from politicians who might disagree with any move by the Fed to raise rates from record lows, former central bank officials said.
…
Under the proposal, commercial banks would lose their power to appoint directors of the 12 regional Fed banks. Instead, directors would be chosen by the Fed’s Senate-confirmed governors, and each board chairman would be subject to Senate approval. Currently, two-thirds of directors are chosen by private-sector banks and one-third by the Washington-based governors.

Robert Benmosche of AIG, last mentioned on PrefBlog on August 31, is just about the only super-CEO who’s coming through the post-crisis recriminations with a good reputation. That reputation was burnished today:

American International Group Inc. Chief Executive Officer Robert Benmosche told the insurer’s board of directors that he may quit because of government limits on what the company can pay employees, according to a person familiar with the matter.

Benmosche made the comments at a board meeting last week, about three months after joining the company, said the person, who declined to be identified because the meeting was private. The CEO’s remarks were an expression of frustration, and Benmosche, 65, hasn’t acted on his declaration, the person said.

Can you imagine that? A CEO who actually stands up for his guys! Incredible, isn’t it?

Mark Pengelly of Risk Magazine has some interesting technical notes on the CIT CDS Recovery auction in CIT auction not likely to be heavily bid.

BIS has released its Regular OTC Derivatives Statistics:

Key developments:

• •notional amounts of all types of OTC contracts rebounded somewhat to stand at $605 trillion at the end of June 2009, 10% above the level six months before,
• •gross market values decreased by 21% to $25 trillion,
• •gross credit exposures fell by 18% from an end-2008 peak of $4.5 trillion to $3.7 trillion,
• •notional amounts of CDS contracts continued to decline, albeit at a slower pace than in the second half of 2008 and
• •CDS gross market values shrank by 42%, following an increase of 60% during the previous six-month period.

More gains for Canadian preferreds today, as PerpetualDiscounts were up 13bp while FixedResets advanced 2bp, on thin volume. There were no losers in the Performance Highlights table.

PerpetualDiscounts now yield an average 5.95%, equivalent to 8.33% interest at the standard equivalency factor of 1.4x. Long Corporates continue to yield about 6.0%, so the pre-tax interest-equivalent spread (also referred to as the Seniority Spread) is about 235bp, slightly tighter than the 240bp reported on November 4.

The question of whether central banking and bank regulation functions should be separated or not is heating up again in the States:

Senator Christopher Dodd will propose creating a single U.S. regulator that would strip the Federal Reserve and Federal Deposit Insurance Corp. of bank- supervision authority, said a person familiar with the matter.

Dodd, chairman of the Senate Banking Committee, would eliminate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and fold the Treasury Department units into the new bank regulator, according to the person, who spoke on condition of anonymity because the plan isn’t public. The Connecticut Democrat is scheduled to release a draft of his financial-regulation overhaul plan today in Washington.

Deutsche Bank sees a big increase in hedge fund assets coming:

Hedge fund assets may top the previous $2 trillion high by the end of next year as double-digit average returns lure investors, said Barry Bausano, Deutsche Bank AG’s global co-head of prime finance.

Hedge fund assets parked with Deutsche Bank have risen recently and global investors plan to allocate new capital next year, New York-based Bausano said during a visit to Hong Kong on Nov. 6. His division provides services and products ranging from securities lending to financing and derivatives to the industry.

As the banks retreat – and are forced away, like Citigroup / Philbro – from proprietary trading, I think it entirely reasonable to suppose that hedge funds will take their place. Naturally, there are all kinds of hedge funds, just as there are all kinds of investment manager: most of the principals will just be jumped-up stockbrokers, but some of them will know what they’re doing.

I am pleased to see Dealbreaker taking a stand against lousy programming practices, but I can’t help feeling that it’s more complex than they state. Surely writing wrappers around external APIs, formats and codes is standard?

Integrity. Character. Forthrightness. These are the regulatory buzzwords today. And Senator Dodd (STASI, Connecticut) will lead the way to Nirvana:

Securities and Exchange Commission employees would get $50,000 awards for snitching on each other, under Senate Banking Committee Chairman Christopher Dodd’s proposed legislation to overhaul financial regulation.

Ralph Cioffi and Matthew Tannin, whose hedge fund at Bear Stearns collapsed and presaged the onset of the credit crunch, are not guilty:

A jury of eight women and four men deliberated less than a day before reaching a verdict this afternoon. Cioffi, 53, the portfolio manager for the hedge funds, and Tannin, 48, their chief operating officer, went on trial Oct. 13 in federal court in Brooklyn, New York, on charges of conspiracy, securities and wire fraud. Each faced as many as 20 years in prison if convicted. When the verdicts were read, the two men didn’t visibly react. Their wives burst into tears.
…
Juror Aram Hong said e-mails sent by Cioffi and Tannin showed that the men were working “24-7” to save the funds in the months before they collapsed.

“Just because you’re the captain of a ship and it gets hit doesn’t mean you should be blamed,” Hong said.

I have had no opinion on their guilt or innocence. There have been, and will be, convictions by the barrel related to the crisis; there’s always crime. But I also know that the US justice system is extraordinarily vindictive, that bursting into tears is ex-post de rigeur when things go wrong, that prosecutors are desperate for scalps to brandish during their next electoral campaign, and that the (shielded) regulators are desperate to divert attention from their own incompetence (who’s gone to jail for missing Madoff? Not criticized, not demoted, not fired … I want to know who has been charged with a criminal offense. Nobody? Golly, what a surprise). So I’m pleased by the verdict.

Another good strong day for preferreds, with PerpetualDiscounts gaining 19bp and FixedResets picking up 18bp. Volume recovered to good levels (GWO issues were a highlight), but I suspect that to get things really moving again we need more issuance.