Issue Comments

SLF Preferreds Downgraded by Moodys

Moody’s has announced:

Moody’s Investors Service downgraded the credit ratings of Sun Life Financial Inc. (SLF; TSX: SLF) and the insurance financial strength (IFS) ratings of its operating companies to Aa3 from Aa2, as well as the ratings of its other affiliates. As part of this action, preferred shares issued by the holding company, SLF, were downgraded to Baa2 from Baa1. The Aa3 IFS ratings apply to SLF’s primary operating companies — Sun Life Assurance Company of Canada (SLA) and Sun Life Assurance Company of Canada U.S. (Sun Life US). This action follows the release of the company’s fourth quarter 2008 results. The rating outlook for SLA and its affiliates has been returned to stable. The outlook on Sun Life US and its affiliates remains at negative.
…
Regarding the future direction of SLF’s ratings, one or more of the following developments could lead to an additional downgrade: (1) SLA’s MCCSR ratio falls below 200% for a sustained period; (2) Sun Life US’s regulatory capital ratio (NAIC RBC) falls below 300% for a sustained period; (3) SLF’s financial leverage rises above 30%; or (4) SLF’s earnings coverage falls below 8x and cash coverage below 5x for a sustained period.

S&P has not commented on the 4Q08 Results; neither has DBRS.

SunLife has the following preferreds outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D & SLF.PR.E.

Issue Comments

DBRS Downgrades 26 Split-Share Preferreds

At last! The DBRS mass reviews of Split-Share preferreds announced in October and December have been resolved. DBRS has announced:

today downgraded 26 ratings of structured Preferred Shares issued by various split share companies or trusts. Each of these split share companies or trusts has invested in a portfolio of securities (the Portfolio) funded by issuing two classes of shares – dividend-yielding preferred shares or securities (the Preferred Shares) and capital shares or units (the Capital Shares). The Preferred Shares benefit from a stable dividend yield and downside protection on their principal via the net asset value (NAV) of the Capital Shares.

On October 24, 2008, and on December 19, 2008, DBRS placed the Preferred Shares listed below (among others) Under Review with Negative Implications. Each of the Preferred Shares has experienced considerable declines in downside protection during the past number of months amidst tremendous volatility in global equity markets. DBRS has today taken final rating action on these 26 Preferred Shares ratings based on longer-term trends being established for the NAVs of the affected split share companies. Ratings assigned are also dependent on structural features benefiting the Preferred Shares and the credit quality and management of the Portfolios. For many of the split share companies listed below, distributions to holders of the Capital Shares are now suspended due to the failure of asset coverage tests. This feature ensures greater excess income for the Company and decreases the reliance on other income-generating methods such as option writing when downside protection has been significantly reduced.

In the future, DBRS will continue to closely monitor changes in the credit quality of these Preferred Shares. If the various Portfolios appreciate in value significantly, rating upgrades may be considered. However, any upward movement may be constrained depending on the possibility of increased distributions to the holders of the Capital Shares.

I have not yet reviewed the changes … more later.

Later:

DBRS Review Announced 2008-10-24
Ticker Old
Rating		 Asset
Coverage		 Last
PrefBlog
Post		 HIMIPref™
Index		 New
Rating
FBS.PR.B Pfd-2(low) 1.0+:1
1/12		 Review-Negative SplitShare Pfd-4
ASC.PR.A Pfd-2(low) 0.7+:1
2/13		 Downgrade
11/6		 Scraps Pfd-5
11/6
ALB.PR.A Pfd-2(low) 1.1-:1
2/12		 Dividend Policy SplitShare Pfd-4
BSD.PR.A Pfd-2(low) 0.9-:1
2/6		 Issuer Bid InterestBearing Pfd-5
12/5
CIR.PR.A Pfd-4(low) 0.5+:1
2/13		 Downgrade
11/6		 None Pfd-5
11/6
CBW.PR.A Pfd-5 0.7+:1
10/24		 Downgraded
11/6		 None Pfd-5
11/6
DF.PR.A Pfd-2 1.4-:1
1/30		 Review-Negative Scraps Pfd-3(low)
DGS.PR.A Pfd-2 1.3+:1
2/12		 Review-Negative None Pfd-3(low)
ES.PR.B Pfd-3(high) 1.0-:1
2/12		 Review-Negative None Not Resolved
FCS.PR.A Pfd-2 1.2-:1
2/12		 Partial Redemption None Pfd-4
GFV.PR.A Pfd-2 1.4+:1
2/12		 Dividend Policy None Pfd-3
GBA.PR.A Pfd-5 0.4-:1
2/12		 Dividend Policy None Pfd-5(low)
11/6
HPF.PR.A Pfd-2(low) Their Numbers Note Calculation Dispute Issuer Bid Scraps Affirmed
12/5
HPF.PR.B Pfd-4 Their Numbers Note Calculation Dispute Issuer Bid Scraps Pfd-5(low)
12/5
FIG.PR.A Pfd-2 1.1-:1
2/12		 Rights Offer Cancelled InterestBearing Pfd-5
PIC.PR.A Pfd-3(high) 1.1-:1
2/5		 Review Negative Scraps Pfd-5
NBF.PR.A Pfd-2(low) 1.1-:1
2/12		 Downgrade None Pfd-4(low)
12/23
SLS.PR.A Pfd-2(low) 0.9-:1
2/12		 Partial Redemption None Pfd-4(low)
12/5
SNH.PR.U Pfd-3(high) N/A Maturity None Pfd-5(high)
12/5
SNP.PR.V Pfd-2(low) 1.2+:1
2/12		 Review-Negative None Pfd-4(high)
YLD.PR.A Pfd-3 0.8-:1
1/30		 Downgraded Scraps Pfd-5
11/6
TXT.PR.A Pfd-3(high) 1.1+:1
2/5		 Review-Negative None Pfd-4(low)
WFS.PR.A Pfd-2(low) 1.1+:1
2/5		 Issuer Bid SplitShare Pfd-4(low)

DBRS Review Announced 2008-12-19
Ticker Old
Rating		 Asset
Coverage		 Last
PrefBlog
Post		 HIMIPref™
Index		 New
Rating
ABK.PR.B Pfd-2(low) 1.3-:1
2/12		 Review-Negative None Pfd-3
TDS.PR.B Pfd-2(low) 1.4-:1
2/12		 Review-Negative Scraps Pfd-3
FTN.PR.A Pfd-2 1.2+:1
1/30		 Dividend Policy SplitShare Pfd-4
BMT.PR.A Pfd-2(low) 1.1+:1
2/12		 Dividend Policy Scraps Not Resolved
MST.PR.A Pfd-2(low) 1.3+:1
12/18		 Review Negative Scraps Not Resolved
FFN.PR.A Pfd-2(low) 1.1-:1
1/30		 Review-Negative SplitShare Pfd-5(high)
EN.PR.A Pfd-2(low) 1.5-:1
2/12		 Review-Negative Scraps Pfd-3
BXN.PR.B Pfd-2(low) 1.8+:1
2/12		 Review-Negative None Pfd-3(high)
PPL.PR.A Pfd-2 1.3+:1
1/30		 Review-Negative SplitShare Pfd-3
LSC.PR.C Pfd-2 1.2+:1
2/12		 Dividend Policy None Pfd-3
BSC.PR.A Pfd-2(low) 1.5-:1
2/12		 Review-Negative None Pfd-3
SBC.PR.A Pfd-2 1.4-:1
2/12		 Review-Negative SplitShare Pfd-3
PDV.PR.A Pfd-2 1.4-:1
1/30		 Review-Negative None Pfd-3
SOT.PR.A Pfd-2(low) 1.5+:1
2/12		 Review-Negative None Pfd-3(high)
BBO.PR.A Pfd-2 1.6-:1
2/13		 Review-Negative None Pfd-3(high)
LBS.PR.A Pfd-2 1.3-:1
2/12		 Dividend Policy SplitShare Pfd-3(low)
RBS.PR.A Pfd-2(low) 1.1-:1
2/12		 Review-Negative None Not Resolved
LCS.PR.A Pfd-2 1.1+:1
2/12		 Review-Negative None Pfd-4
Regulatory Capital

MFC 4Q08 Results

Manulife has issued its 4Q08 Press Release, which includes the entertaining line:

During the quarter, the Company successfully raised $4,275 million of new capital, consisting of $2,275 million of common shares and $2,000 million of term loans.

Inablility to discern a difference between term loans and capital might go a long way towards explaining their problems!

Of the $2,920 million equity related loss, $2,407 million is due to the post tax increase in segregated fund guarantee liabilities, comprised of $1,805 million for the reduction in the market value of the funds being guaranteed and $602 million because the sharp drop in swap interest rates reduced the discount rates used in the measurement of the obligation. The remaining $513 million of the equity related loss is on equity investments supporting non-experience adjusted policy liabilities ($196 million), reduced capitalized future fee income on equity-linked and variable universal life products ($100 million), impairments on equity positions in the Corporate and Other segment ($158 million) and lower fee income ($59 million).
…
Regulatory capital adequacy is primarily managed at the insurance operating company level (MLI and JHLICO). MLI’s Minimum Continuing Capital and Surplus Requirements (“MCCSR”) ratio of 233 as at December 31, 2008 has increased by 40 points from 193 per cent as at September 30, 2008. The increase in MLI’s new capital, funded largely by MFC’s common equity issuance and $2 billion term loan, plus the changes OSFI made to the capital requirements were in excess of the fourth quarter loss, dividends to its parent MFC and capital increases in segregated fund guarantees as a result of the equity market declines. JHLICO’s Risk-Based Capital (“RBC”) ratio is calculated annually and is estimated to be 400 per cent at December 31, 2008 compared to a regulatory target of 200 per cent.

Page 9 of their presentation slides is comprised of the following table:

MFC Notable 4Q08 Earnings Items
CAD Millions
Segregated Fund and other equity items ($2,920)
Credit Impairments & downgrades (128)
Changes in actuarial methods & assumptions 321
Tax related provisions for leveraged lease investments (181)
Tax related gains arising from Canadian tax changes 181
Total ($2,727)

Page 36 shows that they have a net unrealized loss of $5.2-billion on a fixed income portfolio of $112.6-billion, a decline of 8%.

What I am trying to obtain is a view as to how well their default assumptions reflect credit spreads. Given that an unrealized loss of $5,200-million translated into impairment charges of $128-million (a transmission rate of just under 2.5%), it appears to me that they are (probably!) relying totally on credit ratings as an estimator of default risk. For an unleveraged and diversified investor, this is not entirely unreasonable (subject to sanity checks!); for a leveraged investor – such as MFC and any other insurer – it is … somewhat suspect.

Banking Crisis 2008

Calomiris on Regulatory Reform

Charles W. Calomiris of Columbia University has been mentioned on PrefBlog before, most recently on September 23. He has just posted a piece on VoxEU, Financial Innovation, Regulation and Reform that is thoughtful enough to deserve a thorough review.

He suggests that the current crisis is due to

  • the Fed’s easy monetary policy in 2002-05
  • official encouragement for sub-prime lending
  • restrictions on bank ownership and
  • ineffective prudential regulation

To fix this, he suggests a six-point plan.

The first point addresses the measurement of risk. He states:

If subprime risk had been correctly identified in 2005, the run-up in subprime lending in 2006 and 2007 could have been avoided.

The essence of the solution to this problem is to bring objective information from the market into the regulatory process, and to bring outside (market) sources of discipline in debt markets to bear in penalising bank risk-taking. These approaches have been tried with success outside the US, and they have often worked.

With respect to bringing market information to bear in measuring risk, one approach to measuring the risk of a loan is to use the interest rate paid on a loan as an index of its risk. Higher-risk loans tend to pay higher interest. Argentine bank capital standards introduced this approach successfully in the 1990s by setting capital requirements on loans using loan interest rates (Calomiris and Powell 2001). If that had been done with high-interest subprime loans, the capital requirements on those loans would have been much higher. Another complementary measure would be to use observed yields on uninsured debts of banks, or their credit default swaps, to inform supervisors about the overall risk of an institution.

Laudable objectives, but these are unworkable in practice.

Firstly, it is a lot easier to look back at sub-prime and say how nutty it was than it is to identify a bubble when you’re in the middle of it. See Making Sense of Subprime

Secondly, it’s extremely procyclical. Say we have a bank that accepts deposits, but puts its money to work by buying corporate bonds. In good times, spreads will be narrow, they will be making money and capital requirements will be small. In bad times, spreads will widen, losing them money and increasing capital requirements at the same time. This is not a good recipe.

The Argentine approach may address the procyclicity angle, but it is not apparrent in the essay. Dr. Calomiris needs to address this point head-on.

The second point is macro-prudential regulation triggers. Dr. Calomiris suggests that some form of countercyclical regulatory environment is desirable:

Borio and Drehmann (2008) develop a practical approach to identifying ex ante signals of bubbles that could be used by policy makers to vary prudential regulations in a timely way in reaction to the beginning of a bubble. They find that moments of high credit growth that coincide with unusually rapid stock market appreciation or unusually rapid house price appreciation are followed by unusually severe recessions. They show that a signalling model that identifies bubbles in this way (i.e., as moments in which both credit growth is rapid and one or both key asset price indicators is rising rapidly) would have allowed policy makers to prevent some of the worst boom-and-bust cycles in the recent experience of developed countries. They find that the signal-to-noise ratio of their model is high – adjustment of prudential rules in response to a signal indicating the presence of a bubble would miss few bubbles and would only rarely signal a bubble in the absence of one.

I think it’s entirely reasonable to adjust risk-weightings based on the age of the facility. Never mind macro-prudential considerations, I suspect that new relationships are inherently more risk than old, even in the absence of a growing balance sheet.

The third point is a desire for disaster planning by each institution to include pre-approved bail-out plans for “too big to fail” (TBTF) banks. I have problems with this. Lehman, for instance, may now be clearly seen as having been too big to fail in September 2008; but if it had blown up, for whatever reason, in September 2006 it would have been no big deal. This proposal brings with it a false sense of security.

I suggest that the TBTF problem be addressed by a progressive capital charge on size. The problem with bureacracies is that you get ahead by telling your boss whatever he wants to hear. Many of the problems we’re having is that the big boss (and the directors) were so many layers removed from the action that it’s no wonder they suffered a little hubris. If your first $20-billion in assets required $1-billion capital and your second $20-billion required $1.5-billion, I suggest that risk/reward analysis would be simpler. For the extremely limited amount of business that genuinely requires size, the banks could simply form one-off consortia.

The fourth point is a plea for housing finance reform. Dr. Calomiris suggests that the agencies be wound up and replaced with, for instance, conditional grants to first time buyers. My own suggestions, frequently droned, are:

Americans should also be taking a hard look at the ultimate consumer friendliness of their financial expectations. They take as a matter of course mortgages that are:

  • 30 years in term
  • refinancable at little or no charge (usually; this may apply only to GSE mortgages; I don’t know all the rules)
  • non-recourse to borrower (there may be exceptions in some states)
  • guaranteed by institutions that simply could not operate as a private enterprise without considerably more financing
  • Added 2008-3-8: How could I forget? Tax Deductible

The fifth point is relaxing restrictions on bank ownership to make accountability a little more of a practical concept, and I couldn’t agree more. I will also suggest that a progressive charge on size will help in this regard.

The sixth point seeks transparency in derivatives transactions. due to perceived opacity in counterparty risk.

The problem with requiring that all OTC transaction clear through a clearing house is that this may not be practical for the most customised OTC contracts. A better approach would be to attach a regulatory cost to OTC contracts that do not clear through the clearing house to encourage, but not require, clearing-house clearing.

I sort-of agree with this. I will suggest that the major problem with counterparty risk in this episode was that the big name players (AIG and the Monolines) were able to leave their committments uncollateralized. I suggest that uncollateralized derivative exposures should attract a significant capital charge … EL = PD * EAD * LD, right (that’s Basel-geek-speak for Expected Loss = Probability of Default * Exposure at Default * Loss on Default). Incorporate that in the capital charges and there will be little further problem with counterparty exposure.

Market Action

February 13, 2009

The Fed has, apparently, been taking its responsibilities seriously. I have often observed that the Fed is doing exactly what Central Banks are supposed to do: make credit available at punitive rates against good collateral. As most recently discussed on February 10, many commentators, including Across the Curve and Econbrowser, have expressed the fear that the Fed is crossing the line from monetary policy into fiscal policy – which I agree would be a Bad Thing. Virtually everybody agrees that the discount window should not be used to prop up insolvent banks. There’s another bill being talked up that will allow retroactive confiscation of bonuses. Remember January 22, when I suggested bonus-eligible employess discount deferred bonuses by 50%? Better make it 80%. And keep a reserve against all cash received.

So, it was with great pleasure that I read:

Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, dropped 7.8 percent in New York trading after being ousted from the federal program that buys short-term debt.

The insurer, which was excluded after its credit ratings were downgraded, will have to repay the $375 million in commercial paper “from existing sources of liquidity,” the company said in its annual report today. “Future deterioration of our capital position at a time when we are unable to access the commercial paper markets due to prevailing market conditions could have a material adverse effect on our liquidity.”

The exclusion of a somewhat shaky company from the liquidity provisions of the Commercial Paper Funding Facility is a good sign. Bloomberg has noted continued slow shrinking in the Fed’s balance sheet, but cautions that TALF (discussed February 10) will probably expand it again.

Dealbreaker passes along a note that the “Derivatives Markets Transparency and Accountability Act of 2009” otherwise known as the “Protect America from BONUSES while being kind to Small Furry Animals Act” (at least, that’s what it’s known as here). has been introduced. Let’s just hope it’s ordinary grandstanding.

Volume in the pref market picked up a little today, but there’s little discernable trend or volatility in prices. To an extent this is good for traders, as swaps can be legged (er … that means you can sell one to buy another, without fussing too much about simultaneity) with a lower chance that the market will move $2 against you before you blink.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices
Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 5.28 % 3.74 % 23,378 17.86 2 -0.1018 % 860.8
FixedFloater 7.29 % 6.91 % 69,897 14.01 7 -0.8401 % 1,376.7
Floater 5.20 % 4.21 % 29,035 16.95 4 0.1488 % 1,009.7
OpRet 5.23 % 4.72 % 141,198 4.00 15 0.1568 % 2,054.3
SplitShare 6.23 % 9.12 % 67,899 4.07 15 0.0032 % 1,788.4
Interest-Bearing 7.09 % 8.19 % 32,386 0.84 2 0.5239 % 1,994.3
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 -0.1059 % 1,563.6
Perpetual-Discount 6.88 % 6.98 % 197,346 12.59 71 -0.1059 % 1,440.1
FixedReset 6.07 % 5.70 % 628,448 13.99 27 0.1305 % 1,813.4
Performance Highlights
Issue Index Change Notes
BCE.PR.Z FixedFloater -3.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 25.00
Evaluated at bid price : 15.26
Bid-YTW : 7.01 %
BAM.PR.O OpRet -1.67 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 20.55
Bid-YTW : 10.40 %
BCE.PR.G FixedFloater -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 25.00
Evaluated at bid price : 14.75
Bid-YTW : 7.20 %
NA.PR.N FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 22.39
Evaluated at bid price : 22.45
Bid-YTW : 4.83 %
ELF.PR.F Perpetual-Discount -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 15.41
Evaluated at bid price : 15.41
Bid-YTW : 8.75 %
MFC.PR.C Perpetual-Discount -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 6.88 %
WFS.PR.A SplitShare -1.40 % Asset coverage of 1.1+:1 as of February 5 according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-06-30
Maturity Price : 10.00
Evaluated at bid price : 8.45
Bid-YTW : 13.49 %
BAM.PR.B Floater -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 7.61
Evaluated at bid price : 7.61
Bid-YTW : 7.02 %
SBN.PR.A SplitShare -1.27 % Asset coverage of 1.6+:1 as of February 5 according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 9.33
Bid-YTW : 6.69 %
FTN.PR.A SplitShare -1.25 % Asset coverage of 1.2+:1 as of January 30 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2015-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.91
Bid-YTW : 9.63 %
POW.PR.B Perpetual-Discount -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 19.17
Evaluated at bid price : 19.17
Bid-YTW : 7.08 %
MFC.PR.B Perpetual-Discount -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 6.78 %
BAM.PR.J OpRet -1.12 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 18.51
Bid-YTW : 9.97 %
FFN.PR.A SplitShare -1.10 % Asset coverage of 1.1-:1 as of January 30 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.18
Bid-YTW : 12.35 %
LFE.PR.A SplitShare -1.10 % Asset coverage of 1.3+:1 as of January 30 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 9.00
Bid-YTW : 8.49 %
BNS.PR.O Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 21.32
Evaluated at bid price : 21.32
Bid-YTW : 6.64 %
SLF.PR.D Perpetual-Discount -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 7.36 %
NA.PR.L Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 17.58
Evaluated at bid price : 17.58
Bid-YTW : 6.96 %
IAG.PR.A Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 16.66
Evaluated at bid price : 16.66
Bid-YTW : 7.03 %
BAM.PR.H OpRet 1.05 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 9.06 %
GWO.PR.H Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 16.85
Evaluated at bid price : 16.85
Bid-YTW : 7.33 %
BNA.PR.C SplitShare 1.16 % Asset coverage of 1.9-:1 as of January 31 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 12.16
Bid-YTW : 14.52 %
CIU.PR.A Perpetual-Discount 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 16.76
Evaluated at bid price : 16.76
Bid-YTW : 6.89 %
LBS.PR.A SplitShare 1.86 % Asset coverage of 1.3+:1 as of February 5 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2013-11-29
Maturity Price : 10.00
Evaluated at bid price : 8.20
Bid-YTW : 10.28 %
PWF.PR.A Floater 2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 12.50
Evaluated at bid price : 12.50
Bid-YTW : 4.20 %
BNA.PR.B SplitShare 2.68 % Asset coverage of 1.9-:1 as of January 31 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2016-03-25
Maturity Price : 25.00
Evaluated at bid price : 21.11
Bid-YTW : 8.09 %
RY.PR.F Perpetual-Discount 2.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 6.29 %
BAM.PR.I OpRet 2.88 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-12-30
Maturity Price : 25.00
Evaluated at bid price : 22.17
Bid-YTW : 8.62 %
Volume Highlights
Issue Index Shares
Traded		 Notes
TD.PR.G FixedReset 237,557 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 6.13 %
RY.PR.R FixedReset 100,242 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 6.12 %
CM.PR.L FixedReset 74,320 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 6.44 %
TD.PR.R Perpetual-Discount 72,877 RBC crossed 63,500 at 20.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 20.77
Evaluated at bid price : 20.77
Bid-YTW : 6.82 %
BNS.PR.X FixedReset 68,125 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : 6.18 %
BNS.PR.T FixedReset 52,745 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-12
Maturity Price : 25.20
Evaluated at bid price : 25.25
Bid-YTW : 6.13 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Regulatory Capital

GWO 4Q08 Results

Great-West Lifeco has released its 4Q08 Results. They consider their results to be so shameful that they have put anti-copying protection on the PDF on their site; thus, I have had to copy-paste from the MarketLink version:

Lifeco’s Canadian operating subsidiary, Great-West Life, reported a Minimum Continuing Capital and Surplus (MCCSR) ratio of 210% at December 31, 2008, which did not include any benefit from the $1,230 million of common and preferred share capital that was raised by Lifeco in the fourth quarter.
…
Gross unrealized bond losses were $6.1 billion at December 31, 2008. These unrealized losses reflect the mark-to-market values at December 31st, the magnitude of which is significantly impacted by the duration of the bonds. These bonds are typically held in support of long-term policyholder liabilities.
…
In the fourth quarter, the Company recorded a non-cash impairment charge in connection with Putnam goodwill and intangible assets of $(1,353) million after-tax. In addition, the Company recorded a valuation allowance against a Putnam deferred tax asset of $(34) million after-tax, and a Putnam restructuring charge of $(45) million after-tax. The impairment charge primarily reflects the significant deterioration in financial markets since the acquisition by Lifeco in August 2007. This charge did not impact the regulatory capital ratios of Lifeco’s operating subsidiaries, and it is not expected to impact the credit ratings of the Company.
…
A replay of the call will be available from February 12 to February 19, 2009, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 3280920 followed by the number sign).

Their Management Discussion and Analysis (similarly copy-protected) states that:

The held for trading bonds are held primarily in support of actuarial liabilities with changes in the fair value of these assets, excluding changes on other-than-temporarily impaired assets, offset by a corresponding change in the value of the actuarial liabilities

This appears to imply that they have held their default estimates constant and ascribed every single bp of spread widening to liquidity. Page 20 of the copy-protected PDF contains the delicious line:

Actuarial liabilities in Canada decreased $1.4 billion due mainly to changes in the fair value of assets backing actuarial liabilities since January 1, 2008

That’s certainly a convenient way to keep the balance sheet pristine!

Regulatory Capital

SunLife 4Q08 Results

Assiduous Readers will remember that OSFI made a late Christmas Eve announcement of major changes to the MCCSR guidelines, which included:

Revised methodologies for calculating available capital. The key change recognizes that unrealized gains and losses on available for sale (AFS) debt securities held by life insurance companies do not reflect the capital value of these assets to a life insurer as, in most cases, these assets will be held for the long term (e.g. to maturity). As such, OSFI is updating its life insurance company capital rules so that, when fully implemented, they will correspond to the capital treatment for banks holding similar securities (i.e. unrealized gains and losses on AFS debt securities do not change capital adequacy).

As noted yesterday, this issue has come to the fore in the UK, with companies being sternly warned to ensure that when determining the profit and loss on their annuity business, increased spreads lead to at least a certain amount of increase in the implied default risk of the assets.

In fact, OSFI’s new Capital Guidelines state:

OSFI will begin phasing out the capital adjustments for accumulated unrealized gains and losses on available-for-sale debt securities reported in Other Comprehensive Income (OCI) on December 31, 20086. At year-end 2008, companies must elect whether to phase out these adjustments over three years, or to phase them out immediately.

All this is of interest due to the following information in SunLife’s 4Q08 Earnings Release:

Net income of $129 million for the fourth quarter of 2008 was driven by an after-tax gain of $825 million from the Company’s sale of its interest in CI Financial. This was offset by a significant decline in equity markets, asset impairments, credit-related write-downs and spread widening, changes to asset default assumptions in anticipation of higher future credit-related losses, charges taken in the Company’s life retrocession reinsurance business related to the strengthening of actuarial reserves to reflect more comprehensive information on potential future premiums and claims as well as the weakening of the Canadian dollar relative to foreign currencies from losses in business segments in which the U.S. dollar is the primary currency. The Company’s hedging program helped offset some of the losses related to volatility in capital markets during the quarter.

Credit market losses include the following amounts:

Sunlife 4Q08
Reported
Credit Market
Losses (CAD-million)
Write-downs & realized losses 155
Downgrades 55
Spread widening 155
Strengthening of Reserves for Asset Default Assumptions 164
Total 529

With an MCCSR ratio of 232% Sun Life Assurance was well above minimum regulatory capital levels as at December 31, 2008, compared to 213% as at December 31, 2007. The increase in the MCCSR ratio is primarily due to revisions by OSFI to the MCCSR rules in the fourth quarter of 2008, as well as the impact of the portion of the proceeds of the CI Financial transaction attributable to Sun Life Assurance. This was partially offset by market impacts experienced during 2008 and write-downs on assets in Sun Life Assurance’s investment portfolio. Other subsidiaries are subject to local capital requirements in the jurisdictions in which they operate.

The current market environment highlighted the need to revise the treatment of certain components of capital to better reflect both the nature of the risks and the quality of capital supporting these risks. In response to the issues surfaced, OSFI issued several revisions to the current MCCSR rules effective December 2008. First, the minimum capital rules for segregated fund guarantees were updated to differentiate between near-term and long-term obligations. Second, companies were given the option to exclude from available capital the net after-tax unrealized gains and losses on available-for-sale bonds reflected in other comprehensive income to better reflect the long-term nature of these bonds. Finally, the requirement to hold capital for future pricing decisions was eliminated to avoid potential redundancy with risk charges and actuarial reserves.
…
The Company’s principal operating subsidiary, Sun Life Assurance, is subject to the MCCSR capital rules for a life insurance company in Canada. The MCCSR calculation involves using qualifying models or applying quantitative factors to specific assets and liabilities based on a number of risk components to arrive at required capital and comparing this requirement to available capital to assess capital adequacy. Certain of these risk components, along with available capital, are sensitive to changes in equity markets. The estimated impact on the MCCSR of Sun Life Assurance from an immediate 10% increase across all equity markets as at December 31, 2008 would be an approximate 2% – 4% increase in MCCSR. Conversely, the estimated impact on the MCCSR of Sun Life Assurance from an immediate 10% drop across all equity markets would be an approximate 3% – 5% decrease in MCCSR.

The MCCSR is a very nice number, insofar as it can be trusted. Unfortunately, there is not enough detail in their Supplementary Information (available here) to make a determination of how well their credit impairment assumptions correspond to their liability net present value assumptions.

Interesting External Papers

UK FSA Publishes 2009 Financial Risk Outlook

The Financial Services Authority has released its Financial Risk Outlook 2009 report, a very good review of the current situation, its causes and possible effects.

I will note in passing that it’s hard to learn about these releases! The FSA restricts its eMail notifications to journalists, citing “high demand”. I don’t understand! I spend seven hours per day deleting eMail offering me many interesting pills, and the FSA can’t send me an eMail that I’ve specifically requested? This makes no sense.

One highly interesting and topical subject is the decomposition of corporate bond yields, which have been discussed many times on PrefBlog – for instance, in the post announcing BoE Releases October 2008 Financial Stability Report. According to the Financial Times:

Fears are mounting over possible dividend cuts by life assurers, after a demand from the Financial Services Authority that they hold enough capital to survive fresh market shocks.

Life assurers are being told to test whether they would have a capital buffer after what is in effect a 60 per cent reduction in equity markets from current levels, as well as a significant increase in bond defaults, according to people who are aware of the project.
…
In the latest tests – regarded as more extreme than the December exercise – the FSA has told companies to test whether they would have a capital buffer in the event of a 1980s-style sharp and deep recession, according to people familiar with the plans.

This includes a 20 per cent reduction in equity markets from current levels, followed by another 39 per cent decline, which would take the FTSE 100 index to around the 2,000 level.

It is also asking companies to test whether they would have a capital buffer after a further significant increase in the returns that investors demand for holding bonds that are more risky than gilts and a significant decline in property prices.

The tests represent yet another change in approach by the FSA, which has alternated between pragmatism and strict solvency demands.

“Its like dealing with the police if they kept changing the crime laws,” added the executive.

Tergiversations by regulators are nothing new … but then, neither are flip-flops by the Financial Times, as noted in a very informative article published by The Actuary:

In October 2008, the Financial Times opined that “life assurers should not be using rising yields on corporate bonds to reduce estimates of their future liabilities. The higher yields… represent a higher risk of default and added potential costs”. However, a later article suggested that “the markets are utterly divorced from fundamental value or risks of defaults”.

The Actuary article provides a review of the Liquidity Premium from an investment standpoint:

The spread on corporate bonds over the liquid risk-free rate (for example, government bonds) represents compensation for several different factors:

A Expected default losses
B Unexpected default risk, such as default and recovery rate risk
C Mark-to-market risk, such as the risk of a fall in the market price of the bond
D Liquidity risk, such as the risk of not finding a ready buyer at the theoretical market price.

Investors concerned with the realisable value of their investment in the short-term require compensation for all these risks.

However, investors who can hold bonds to maturity need compensation only for A and B. Such investors can enjoy the premiums for C and D, and we refer to these collectively as a ‘liquidity premium’.

The traditional method for credit deductions only allowed directly for expected default losses, albeit measured on a prudent basis. The Financial Services Authority (FSA), in its September 2008 Insurance Sector Briefing, observed that insurers should allow for both expected losses and the risk of unexpected losses, although they have since deferred any recommendations until 2009.

… while pointing out the dangers of blind adherence to classical structural models:

These models are not without their issues. For example, in the Bank of England model, the residual premium on Sterling investment grade bonds fell from 155bps at 30 September 2008 to a negative premium of -9bps on 10 October, before rising to 118bps by the end of October. This is due to the use of equity market volatility to quantify credit default risk — on 10 October equity markets fell 10% with corresponding spikes in volatility, while credit markets were largely unaffected.

Nevertheless, structural models provide a valuable new tool for actuaries to quantify liquidity premiums, and also strong evidence of their existence.

The FSA does not go out of its way to talk tough on this issue, but does note:

As most life insurers hold corporate bonds to back various classes of business, analysis of market developments should be a key consideration for them in determining the discount rate used to value long-term liabilities. In setting this discount rate, most insurers make an assessment of the extent to which bond spreads can be explained by liquidity premiums, rather than the probability of default. Bond spreads have widened significantly, particularly in the third quarter of 2008, and whether insurers attribute this to an increase in the liquidity premium or an increase in credit default risk affects the value of their liabilities. Moreover, asset values will themselves be affected by the increased risk of corporate bond defaults. It is therefore critical that insurers holding corporate bond portfolios properly review underlying credit developments, in order to understand the state of their balance sheets and their capital positions.

Some insurers may have experienced difficulty with the valuation of their assets and, in particular, corporate bonds, because of the considerable reduction in market activity in many asset classes.

and provides a picture:

The FSA returns to this issue when discussing annuities:

Insurers operating predominantly or exclusively in annuity business are exposed to a concentration of longevity and credit risk. Market conditions have added to the impact of these risks, increasing the risk profile of this part of the sector. The risks arising from widening corporate bond spreads (as outlined above) are a particular issue for annuity business, in which long-term assets such as corporate bonds are used to match long-term liabilities (such as annuities in payment).

and included an exhortation to be prudent when decomposing the spreads in their “key messages to insurers”.

Also of interest was the FSA’s distinction between the much reviled “originate and distribute” model and the more precise “acquire and arbitrage” practice:

The need to support the growing levels of property and mortgage lending led to the increasing scale and size of securitised markets, and their mounting complexity were accompanied by a significant escalation in the leverage of banks, investment banks and off balance-sheet vehicles, and the growing role of hedge funds. (Chart A5 and A6) Large positions in securitised credit and related derivatives were increasingly held by banks, near banks, and shadow banks, rather than passed through to traditional hold-to-maturity investors.

Hence, the new model of securitised credit intermediation was not solely or indeed primarily one of originate and distribute. Rather, credit intermediation passed through multiple trading books in banks, leading to a proliferation of relationships within the financial sector. This ‘acquire and arbitrage’ model resulted in the majority of incurred losses falling on banks and investment banks involved in risky maturity transformation activities, rather than investors outside the banking system. This explosion of claims within the financial system resulted in financial sector balance sheets becoming of greater consequence to the economy.

Market Action

February 11, 2009

Enrico Perotti & Javier Suarez write a piece on VoxEU, Liquidity Insurance for Systemic Crises, proposing:

to establish a mandatory liquidity charge, to be paid continuously to a regulator who is able to provide emergency liquidity (and perhaps capital) during systemic crisis. The charge should be increasing in the maturity mismatch of assets and liabilities, and would be applicable to all institutions with access to safety net guarantees. Its effect should be to make short and medium term (up to one year) bank funding comparable in cost. Retail deposits would be exempted, as they are more stable thanks to their own separate insurance.

Revenues would go into an Emergency Liquidity Insurance Fund (ELIF), with legal autonomy and pre-packaged access to central bank liquidity and government funds backing. Upon significant aggregate liquidity runs (not concerning single banks), the payment of insurance would be triggered by the relevant supervisor, resulting in immediate liquidity support, guarantees on uninsured wholesale funding, and some automatic capital injections. Specific conditions may be attached, such as restrictions on compensation and dividends, as well as on some strategic choices.

The insurance charges could be thought of as prepayment for future rescue costs.

Restrictions on compensation have certainly become fashionable!

I don’t want to dismiss the idea out of hand; I will certainly agree that the next Basel Accord should address the degree of maturity transformation in some way. But:

  • Liquidity crunches are black swan events. Any level of insurance premium will be a guess.
  • It is the job of the central bank to address liquidity crunches, by making funds available against good collateral at a punitive rate of interest. A liquidity crunch, per se, is profitable for the central bank

From Across the Curve via PrefBlog’s Liquidity is Valuable Department comes another reminder:

One unintended consequence of the Fed [Agency] purchases is that the purchases have been concentrated in the large liquid issues. That has led to a substantial gulf between that paper and some smaller older illiquid paper. The illiquid securities now trading as much as 50 basis points cheap to the more liquid stuff.

PerpetualDiscounts eked out a small gain today to close with a pre-tax bid-YTW of 6.95%, equivalent to 9.73% interest at the standard conversion factor of 1.4x. Long corporates continue to yield 7.6%, so the spread remains fairly constant at 213bp. A fairly unexciting day, with volumes continuing normal, with pockets of frantic activity from recent Fixed-Reset issues.

However, today’s excitement was the downgrade of the BCE Prefs, which had no real effect on prices, but does mean that the HIMIPref™ Ratchet and Fixed-Floater sub-indices are about to disappear.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices
Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 5.29 % 3.76 % 24,240 17.83 2 -0.1524 % 861.7
FixedFloater 7.23 % 6.86 % 65,562 14.10 7 0.9867 % 1,388.3
Floater 5.21 % 4.29 % 29,507 16.83 4 1.6133 % 1,008.2
OpRet 5.24 % 4.77 % 146,337 4.00 15 0.3090 % 2,051.1
SplitShare 6.23 % 9.24 % 68,453 4.06 15 -0.0343 % 1,788.3
Interest-Bearing 7.13 % 8.77 % 32,590 0.85 2 -0.5787 % 1,983.9
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.0768 % 1,565.3
Perpetual-Discount 6.87 % 6.95 % 200,117 12.62 71 0.0768 % 1,441.6
FixedReset 6.08 % 5.73 % 626,979 13.94 27 0.0918 % 1,811.0
Performance Highlights
Issue Index Change Notes
DFN.PR.A SplitShare -1.71 % Asset coverage of 1.6-:1 as of January 30 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.60
Bid-YTW : 8.45 %
MFC.PR.C Perpetual-Discount -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 16.95
Evaluated at bid price : 16.95
Bid-YTW : 6.77 %
NA.PR.K Perpetual-Discount -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 20.56
Evaluated at bid price : 20.56
Bid-YTW : 7.17 %
BCE.PR.Z FixedFloater -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 25.00
Evaluated at bid price : 15.74
Bid-YTW : 6.80 %
GWO.PR.H Perpetual-Discount -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 16.66
Evaluated at bid price : 16.66
Bid-YTW : 7.42 %
FIG.PR.A Interest-Bearing -1.21 % Asset coverage of 1.1-:1 as of February 10, based on Capital units at $1.29 and 0.53 Capital Units per preferred.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-31
Maturity Price : 10.00
Evaluated at bid price : 7.36
Bid-YTW : 13.11 %
LFE.PR.A SplitShare -1.19 % Asset coverage of 1.3+:1 as of January 30 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 9.10
Bid-YTW : 8.15 %
HSB.PR.D Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 17.56
Evaluated at bid price : 17.56
Bid-YTW : 7.25 %
TD.PR.R Perpetual-Discount -1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 6.84 %
CM.PR.P Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 19.91
Evaluated at bid price : 19.91
Bid-YTW : 6.99 %
GWO.PR.G Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 18.26
Evaluated at bid price : 18.26
Bid-YTW : 7.25 %
BNS.PR.Q FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 22.20
Evaluated at bid price : 22.24
Bid-YTW : 4.48 %
BAM.PR.H OpRet 1.16 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 22.76
Bid-YTW : 9.44 %
FTN.PR.A SplitShare 1.26 % Asset coverage of 1.2+:1 as of January 30 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2015-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.01
Bid-YTW : 9.38 %
W.PR.H Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 7.07 %
BAM.PR.O OpRet 1.46 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 20.90
Bid-YTW : 9.94 %
CL.PR.B Perpetual-Discount 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 7.42 %
ELF.PR.G Perpetual-Discount 2.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 14.00
Evaluated at bid price : 14.00
Bid-YTW : 8.63 %
BAM.PR.I OpRet 2.57 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-12-30
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 9.31 %
TRI.PR.B Floater 2.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 12.65
Evaluated at bid price : 12.65
Bid-YTW : 4.19 %
BCE.PR.G FixedFloater 2.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 25.00
Evaluated at bid price : 15.00
Bid-YTW : 7.10 %
BAM.PR.K Floater 3.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 7.70
Evaluated at bid price : 7.70
Bid-YTW : 6.93 %
BCE.PR.F FixedFloater 7.07 % Catching up in price to the other fixed floaters on slightly below average volume. Traded 1800 shares in a range of 14.25-15.50 before closing at 15.00-50, 1×15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 25.00
Evaluated at bid price : 15.00
Bid-YTW : 7.01 %
Volume Highlights
Issue Index Shares
Traded		 Notes
TD.PR.G FixedReset 266,723 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 6.26 %
RY.PR.R FixedReset 102,142 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 6.21 %
BNS.PR.X FixedReset 80,971 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 6.24 %
BAM.PR.B Floater 67,039 Nesbitt bought 44,800 from Desjardins at 7.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 7.71
Evaluated at bid price : 7.71
Bid-YTW : 6.92 %
BNS.PR.T FixedReset 66,130 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-02-11
Maturity Price : 25.06
Evaluated at bid price : 25.11
Bid-YTW : 6.16 %
WFS.PR.A SplitShare 58,900 Asset coverage of 1.1+:1 as of February 5 according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-06-30
Maturity Price : 10.00
Evaluated at bid price : 8.57
Bid-YTW : 12.80 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Regulation

OSFI Report Card Ignores Investors

The Treasury Board of Canada Secretariat has released its report card on OSFI’s performance in 2007-08.

It is without value. Despite the admission that (bolding added):

Primary to OSFI’s mission and central to its contribution to Canada’s financial system are two strategic outcomes:

  • To regulate and supervise to contribute to public confidence in Canada’s financial system and safeguard from undue loss. OSFI safeguards depositors, policyholders and private pension plan members by enhancing the safety and soundness of federally regulated financial institutions and private pension plans.
  • To contribute to public confidence in Canada’s public retirement income system

… OSFI’s success in meeting the objectives of interest to investors was determined by:

OSFI provided The Strategic Counsel, an independent research firm, with a list of CEOs of federally regulated financial institutions. The research firm invited the CEOs to participate in either an online or a telephone survey, and 166 (61%) participated. OSFI does not know which CEOs participated. The complete report is available on OSFI’s Web site under Organization / Reports/ Consultations and Surveys.

Yup, the people who can put me out of business tomorrow are doing just a fine job, no question, yup.