PrefBlog

There was a good jobs number in the US:

American employers took on more workers than forecast in April and the jobless rate unexpectedly fell to a four-year low of 7.5 percent, reflecting confidence in the outlook for the world’s biggest economy.

Payrolls expanded by 165,000 following a revised 138,000 increase in March that was larger than first estimated, Labor Department figures showed today in Washington. Revisions added a total of 114,000 jobs to the counts for February and March.

There continues to be some concern amongst those who have recently realized that central bank heads should be independent:

The decision of the Harper government to name an outsider as the next governor of the Bank of Canada will raise uncomfortable questions over the sacrosanct independence of the central bank.

That’s not to suggest that Stephen Poloz isn’t qualified for the key position, only that he comes to the job with that hanging over his head.
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The job of finding a Bank of Canada governor actually lies with the central bank’s board of directors, which interviews candidates and then presents its recommendation to the finance minister.

However, this time around, Mr. Flaherty in January issued a news release saying that he would be interviewing a short list of potential governors. He actually did that in 2007, as well, but without the fanfare.

Bloomberg reminds me that:

At the European Central Bank, it was Bundesbank President Axel Weber who made the early running to replace Jean-Claude Trichet as head in 2011 before dropping out in part because he anticipated clashing with governments. The post went instead to Bank of Italy Governor Mario Draghi.

And some snippets of interest have already been reported:

Flaherty says “you’re doing great” after Poloz said: “I certainly wouldn’t express a judgement about fiscal policies in any jurisdiction.”

As well as comment in the media:

In reality, it is a very political appointment – which, in part, explains why Stephen Poloz is the new Governor.
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But at the end of the day, it was likely Mr. Poloz’s indication that he was happy to accommodate the government’s agenda that won him the job.

Nothing impresses the members of this government more than agreeing with them.

In the opinion of Moody’s analysts:

The signal sent to markets is not clear, but suggests the government wants to exercise more control over policymaking.

Julie Dickson of OSFI made a speech at the 2013 Financial Services Invitational Forum:

At OSFI, cyber risk has become one of our top concerns. A growing number of North American banks have been hit with denial of service attacks, in some cases causing websites to go down, thereby creating problems for customers trying to do everyday transactions.
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At OSFI, we have significantly increased our supervisory resources in the Op-risk area, and have launched a number of initiatives, such as conducting in-depth reviews of institutions’ current cyber protection practices.
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Some other countries are experiencing frothy real estate markets and have introduced floors on risk weights — sometimes around 15 per cent. Given that in Canada the uninsured mortgages would tend to be of higher quality than the average loan portfolio in other countries (because uninsured loans in Canada have maximum loan-to-value ratios of 80 per cent), we are generally comfortable with the capital being held by banks using models. OSFI is also aware that floors can become safe harbours and lead banks and supervisors to pay less attention to the ―appropriate‖ risk weight, especially when it should be well above the floor for a particular bank. Thus, our focus will continue to be on scrutinizing models currently in use.
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The natural genetics of a bank are sometimes to give the business lines considerable leeway and to see risk management and internal audit as standing in the way of progress. This ―wiring‖ reflects the fact that the business is where the money is made – at least in the short term. A bank cannot consistently make money without regard for sound risk management. So, structures and processes need to be built as a counterbalance, and to reinforce a broader and longer perspective. Risk appetite statements are part of the new suite of tools to aid in ensuring that the bank management and the board have a 100 per cent agreement on the balance of power in the institution and the overall risk stance.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets off 7bp and DeemedRetractibles up 5bp. Volatility was minimal. Volume was ludicrously low – did everybody take off early for the first warm weekend?

Lapdog Carney has been replaced:

Finance Minister Jim Flaherty shocked Bay Street Thursday, shunning the obvious choice to follow Mark Carney as governor of the Bank of Canada, and instead naming Stephen Poloz.

The top comment on the Globe story is:

Oh, this has all the markings of a power grab by the PMO, who don’t want another strong, independent governor of BoC. Very scary.

It was a good day for the Canadian preferred share market, with PerpetualPremiums up 11bp, FixedResets winning 21bp and DeemedRetractibles gaining 3bp. Volatility was minimal. Volume was low.

There were no surprises in today’s FOMC statement:

The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
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To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

The feds are continuing their efforts to expand the secret police:

The finance committee recommended few major changes to existing practices, but endorsed the creation of a new whistleblower program, promised in the recent federal budget, that would allow the Canada Revenue Agency to pay rewards to people who provide tips about tax evasion.

It also proposed that financial entities covered by money-laundering laws be required to “take reasonable measures to ascertain” ownership information from customers that are corporations, trusts or other entities to make it easier to understand who is moving money offshore.

OSFI has published another laughable effort at self-justification by surveying 50 CEOs and CFOs of deposit taking institutions regulated by OSFI. So tell me, what does a sensible person say when asked how his regulator is doing – even when confidentiality is assured? “Oh, wonderful job, wonderful job.”

It was a modestly positive day for the Canadian preferred share market, with PerpetualPremiums and DeemedRetractibles both gaining 5bp and FixedResets up 6bp. Volatility was minimal. Volume was slightly below average.

PerpetualDiscounts now yield 4.87%, equivalent to 6.33% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05% (!) so the interest-equivalent pre-tax spread is now about 230bp, a marked rise from the 220bp reported April 24.

Bureaucrats scored a huge win in Ontario today:

The legislation would also crack down on fraud by giving FSCO the right to oversee health clinics that invoice insurers.

It would also expand FSCO’s right to investigate fraudsters.

Ah, regulation! I’ve been following the chemotherapy drug scandal with keen interest – so keen, in fact, that I have written to the Ministry of Health for more information:

I understand that your response to the chemotherapy drug scandal is to demand an increase in employment of regulators.

I do not understand this. It appears that the supplies were used by the (regulated, hospital-based) pharmacies involved as a stock solution, even though there was no concentration listed on the label, that the contract with the supplier quite clearly indicated that concentration was irrelevant, and that – evidently – concentration of the supplied solutions was not checked irregardless of the label.

Please advise me how many individuals employed by London Health Sciences Centre, Windsor Regional Hospital, Lakeridge Health and Peterborough Regional Health Centre will be losing (or have already lost) their jobs over this gross incompetence.

Themis Trading was quoted today in the wake of the Symantec silliness:

Approximately 504,000 Symantec shares were traded in a three-second period that saw the stock dive from $24.40 to a low of $21.93 before it was halted.
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Before the prevalence of high-frequency trading, “a series of market makers would have filled this mistake with substantially less carnage,” said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.

“Today’s market structure is perfectly set up to take advantage of any and all missteps in the most efficient manner … if you were day-trading this, or had a stop-loss order in, then you got hit not because of your thesis, but because of a market structure issue.”

Shares of Symantec resumed trading five minutes after being halted, and bounced back above $24. They fell 1.3 per cent to $24.26 in midday trading.

I take issue with Mr. Arnuk’s comments. If you were day-trading this, then you were acting as a market-maker; and if you’re not very good at market making, you may well have lost some money. If you had a stop-loss order in, then you got hit because you’re an idiot.

Banking crises continue to nibble away at the margins of the EU:

Slovenia, the first former Communist nation in the euro zone, is facing a typically capitalist dilemma: whether to protect creditors of big banks.

Rising loan losses resulting from a housing bust and a second recession in two years have left a hole of about 7.5 billion euros ($9.9 billion) at Slovenia-based lenders, investment bank Keefe Bruyette & Woods estimates. That’s a lot for a 35 billion-euro economy: A bank bailout would push government debt above 70 percent of economic output.

Even after a successful domestic debt sale two weeks ago, the country may need assistance from the European Union, and holders of bank bonds, including the most senior creditors, could be forced to take losses, according to Raoul Ruparel, head of research at London-based Open Europe. Such a bail-in, which would be the second in the euro zone, after Cyprus, risks deepening divergence in the monetary union by keeping borrowing costs higher in economically weak nations.

Don’t know why they’re worried. Ten billion isn’t even a big bond deal:

Apple Inc. wowed the debt markets on Tuesday with the largest non-bank bond deal in history, offering a whopping $17-billion (U.S.) for sale as the U.S. computer giant switches strategy to placate restless shareholders.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums off 3bp, FixedResets down 7bp and DeemedRetractibles gaining 2bp. Volatility fails to arouse interest. Volume was average.

Deutsche Bank is raising some capital:

Deutsche Bank AG (DBK), continental Europe’s biggest bank, will raise as much as 4.8 billion euros ($6.3 billion) to increase capital as first-quarter profit climbed.

The company will issue 2.8 billion euros in stock, or as many as 90 million new shares, with full dividend entitlement for 2012, as part of the plan, the Frankfurt-based bank said in a statement today. Deutsche Bank has already received enough orders for the sale, according to the term sheet.
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The share sale will increase Deutsche Bank’s core Tier 1 capital adequacy ratio under Basel III rules, a key measure of financial strength, to about 9.5 percent from 8.8 percent at the end of March, it said.

Veresen, proud issuer of VSN.PR.A, was confirmed at Pfd-3(high) by DBRS:

The Preferred Shares are confirmed at Pfd-3 (high). All trends are Stable. The confirmation reflects (1) relatively stable cash distributions from the Company’s regulated Pipeline businesses, which accounted for approximately 49% of Veresen’s 2012 cash distributions received from its subsidiaries and investments; (2) improved cash flow diversification as result of the acquisition of the Hythe/Steeprock complex (the Acquisition) from Encana Corporation (rated BBB); and (3) solid cash flow-interest coverage and cash flow-to-debt metrics (non-consolidated). The confirmation is also based on DBRS’s expectation that the currently high debt leverage (as a result of the Acquisition) at the parent level will improve over the medium term.
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As a result of the Acquisition ($920 million), the parent debt increased significantly in 2012. The non-consolidated debt-to-capital ratio increased to over 40% in 2012 from 35.7% in 2011, which is viewed as aggressive. DBRS recognizes that Veresen benefits from owning a large non-debt and diverse asset base, which allows the Veresen to carry more non-consolidated debt than a pure holding company.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets off 2bp and DeemedRetractibles up 10bp. Volatility was minimal. Volume was average.