PrefBlog

PrefBlog’s SEDAR-watching Department, otherwise known as Assiduous Reader MP, points out that Sun Life Financial has issued a new $5-billion shelf prospectus. Of particular interest are the Class B Preferred Shares:

The Class B Shares of each series rank on a parity with the Class B Shares of each other series with respect to the payment of dividends and the return of capital on the liquidation, dissolution or winding-up of SLF. The Class B Shares are entitled to preference over the Common Shares and any other shares ranking junior to the Class B Shares with respect to the payment of dividends and the return of capital, but are subordinate to the Class A Shares and any other shares ranking senior to the Class B Shares with respect to the payment of dividends and return of capital.

However, there are no shares of this class currently outstanding (all the extant SLF preferreds are Series A) and the ability to issue Class Bs has been around for some time – see, for example, the shelf prospectus dated November 4, 2005.

Canadian equities continued their rally today and PerpetualDiscounts rose with them. SplitShares did quite well today – not surprisingly, what with asset coverage improving by leaps and bounds.

Monetary stimulus appears to be having an effect in the UK:

By buying government securities to increase the supply of money, Bank of England Governor King is taking a step that Federal Reserve Chairman Bernanke has only talked about. Early results have been encouraging: Yields on 10-year U.K. government bonds fell to 2.94 percent March 13, at least a 20-year low, from 3.64 percent before King announced the policy March 5.

“The BOE is providing an actual experiment in answering some of the concerns that the Fed has about the effectiveness” of using the strategy to effectively print more money, says former Fed Governor Laurence Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers LLC.
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King — whose office adjoined Bernanke’s when the two were visiting professors at MIT in Cambridge, Massachusetts, during the 1980s — is pursuing both approaches.

Gilt Purchases

He is aiming to expand reserves in the financial system through purchases of U.K. government bonds, known as gilts — a strategy he describes as “conventional unconventional” monetary policy. He will also buy private-sector assets as Bernanke is doing — an approach the Bank of England chief calls “unconventional unconventional.”

Nobody knows what to call things nowadays! I called it “monetary stimulus” because it is government securities that are being purchased; I would not call this “quantitative easing”. I presume that King refers to the process as “conventional unconventional” because “conventional conventional” would be buying government securities at issue time.

The crisis is going to re-write the economics textbooks all right! Especially the glossary!

Tempers are flaring about TARP’s populism and stress tests:

When the U.S. Treasury persuaded the nation’s nine biggest banks to accept capital investments in October, it signaled the whole industry was weak, Kovacevich, 65, said in a March 13 speech at Stanford University in California. Even though Wells Fargo didn’t want the money, it must comply with the same rules that the government placed on banks that did need it, he said.

“Is this America — when you do what your government asks you to do and then retroactively you also have additional conditions?” Kovacevich said. “If we were not forced to take the TARP money, we would have been able to raise private capital at that time” and not needed to cut the dividend to preserve cash, he said.
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Kovacevich said the government is still making mistakes as it tries to save the industry. The “stress test,” designed to determine which of the 19 largest U.S. banks need more capital, provides opportunities for short-sellers to drive down bank stocks and can hurt confidence in the system even more, he said.
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“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”

I noted on March 12 that CIBC had issued a collateral call to MAV Trust (the successor to non-bank ABCP) … it wasn’t met:

As noted in the DBRS press release dated March 12, 2009, the deadline for providing additional collateral was 5:00 p.m. on March 13, 2009. DBRS was advised that MAVII did not receive the funding of $19.3 million. Since no funding was advanced, CIBC had the option to terminate all or a portion of the leveraged credit default swap transactions collateralized by MAVII. The resulting reduction in collateral supporting the MAVII notes is capped at $107,742,597 (or approximately 1.1% of the assets of MAVII). DBRS was advised today that the entire notional amount of these credit default swap transactions was terminated.

As indicated in the DBRS press release dated March 6, 2009, confirming the ratings of the MAVI and MAVII Class A-1 and Class A-2 Notes (the Notes), the potential for transactions not subject to the 18-month moratorium to unwind was considered by DBRS when assigning the “A” rating to the Notes, and no rating action is warranted at this time.

Willem Buiter writes an interesting piece on VoxEU regarding resolution of the banking crisis – but it is crippled by his idea that markets are efficient. They’re not. There must be some way of cross-training academics & market practitioners such that the former could lose some their awe for the latter. Perhaps an in-depth study of some of the successful pension funds might be a good start?

Another good day for PerpetualDiscounts, which have now recovered 3.88% from their recent low on March 10 … but they’re still down 6.55% from their 2009 high reached on January 13.