PrefBlog

Looks like an election is in the wind:

Opposition leaders have signalled they will not support the Conservative budget, making a spring election all but inevitable.

The budget’s debt management strategy was interesting:

The government said in the debt management strategy that it released with the federal budget that it’s taking the step to ensure that it always has enough cash to pay one month of bills, which incidentally is the same requirement that will be in place for banks under the new Basel rules. The money will be stashed in interest bearing accounts and foreign exchange reserves and shouldn’t add to the deficit in a “material” way.

Europe had a bad day:

Irish notes slid, leading bonds of Europe’s most indebted nations lower, and the euro fell on concern the region’s leaders are struggling to fix the government-finance crisis. Oil rallied, while U.S. and European stocks retreated following a rebound in Japanese shares.

Irish 2-year note yields surged 62 basis points to 9.87 percent and rose as high as 10.18 percent, the most since Bloomberg began collecting the data in 2003. Yields on similar- maturity Portuguese and Greek debt climbed at least 26 basis points.

UK inflation is on the rise:

U.K. inflation accelerated more than economists forecast in February to the fastest pace in more than two years, adding pressure on the Bank of England to increase its benchmark interest rate.

Consumer prices rose 4.4 percent from a year earlier after a 4 percent increase in January, the Office for National Statistics said today in London. That’s the most since October 2008. The median forecast of 32 economists in a Bloomberg News survey was 4.2 percent. A separate report showed the budget deficit unexpectedly widened as government revenue fell.

But I may have been wrong about the long term effects of Credit Crunch politics on the UK financial sector:

Goldman Sachs Group Inc. (GS) employs almost as many people in London today as it did in 2007, before Lehman Brothers Holdings Inc. (LEHMQ) filed for the biggest bankruptcy in history, sparking a global recession.

Goldman Sachs isn’t alone. Royal Bank of Scotland Group Plc (RBS), recipient of the world’s biggest bank bailout, has more workers in its securities unit than four years ago. Barclays Capital, under Robert Diamond, hired 1,800 in 2010.

Investment banks in Europe’s financial capital are adding jobs, helping to bolster headcounts at law and accounting firms across London, as the rest of Britain struggles to recover from the worst economic contraction since the 1930s. Chancellor of the Exchequer George Osborne, who delivers his budget today, has little alternative except to do all he can to keep companies such as Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) from leaving London.

“We want London to remain a global financial center, and one that will continue to flourish and grow because of the employment it brings,” Treasury minister Mark Hoban said at a conference in the City of London last week. “We want to see more employment in the U.K., not less and I think a blooming financial services sector can help deliver that.”

Nevertheless, DBRS is worried:

• • Some investors have expressed increasing concern about Euro zone countries suffering from high and rising debt burdens, uncertain bank recapitalization needs, low competitiveness or political instability.
• • In addition to low investor confidence, deterioration in global economic and political conditions – the Japanese nuclear crisis, popular unrest in Bahrain, energy supply disruptions in Libya – could slow Europe’s economic recovery and thereby delay fiscal adjustment and debt stabilization.
• • Greater clarity on European policies came on March 11, the first in a series of meetings through March 25, with a set of initiatives that if approved may help restore confidence and provide countries with time to implement fiscal austerity programs and return to growth.
• • However, DBRS believes that the final announcements may continue to leave doubts about Europe’s policy stance regarding debt restructuring. The unstable macroeconomic environment however increases the need for greater policy clarity.
• • DBRS would be encouraged by policies that address not only liquidity needs, but also reduce debt servicing costs. Clearer policies would further help to stabilize DBRS’s sovereign ratings in Europe.

One can’t help but wonder what will ultimately happen to Detroit:

The population in Detroit plunged 25 percent during the last decade, falling to the lowest level since 1910, according to 2010 Census figures.

The number of city residents fell to 713,777 last year, compared with 951,270 in 2000, the U.S. Census Bureau said today in Washington.
…
Detroit’s overall population has fallen steadily since 1950, when it peaked at 1.8 million.

There’s a fascinating development in workplace computer privacy law:

A judgment on Tuesday from the Ontario Court of Appeal broke new ground on an issue that is exploding into the court system – the extent to which Internet information is private and beyond the reach of the law.

The case involved a Northern Ontario high school teacher charged with possessing child pornography. The judges said that police breached his Charter rights by viewing his computer files without a warrant.
…
Toronto lawyer Scott Hutchison, a privacy expert, said that the court has given a sound answer to a vital question. “This case comes down firmly on the side of privacy and holds that employers cannot give police investigators access to a workplace computer,” he said.

“This case makes it clear that the employer may own the computer, but that doesn’t give them the power to waive the employee’s privacy rights,” Mr. Hutchison added.
…
Writing on behalf of Chief Justice Warren Winkler and Mr. Justice Robert Sharpe, Madam Justice Andromache Karakatsanis said the board employee did not breach the Charter protection against unreasonable search and seizure because he was mandated to do so.

However, the police search was an entirely different matter.

DBRS has released six methodological updates. Of primary interest are Life Insurance companies and P&C Insurance companies.

The Globe’s John Heinzl had a good piece titled Getting a grip on the dividend gross-up.

It was another strong day in the Canadian preferred share market, with PerpetualDiscounts up 26bp, FixedResets winning 13bp and DeemedRetractibles gaining 9bp. Volume continued to be light.

No commentary today – sorry!

It was a strong day on the Canadian preferred share market, with PerpetualDiscounts gaining 16bp, FixedResets up 10bp and DeemedRetractibles winning 20bp. Volume was light – most investors (other than myself, of course) being too busy dancing naked in lascivious spring rites. Why don’t I ever get invited?

To my astonishment, not only did BMO.PR.J not crash heavily to earth after Friday’s fireworks, but it again topped the list of Performance Highlights! It now looks even more expensive and there is the possibility that there is more behind the story than a simple fat-finger or algo-gone-wild. A short squeeze, maybe? Unlikely, I know, but what else is there? A point against the short-squeeze story is that today’s buying – of 13,941 shares – was broadly based, with RBC taking the largest share with 4,005 shares. Friday’s buyer, Desjardins, bought 2,618 shares. It’s all very peculiar, but living in PreferredShareLand is a little like being the White Queen in Through the Looking Glass – one sometimes see six preposterous things before breakfast.

Teachers’ supports the TMX / LSE deal:

Specifically, we support the proposed merger for the following reasons:

• It is important to ensure that Teachers’ and other investors have access to an effective, low cost trading platform to execute both cash and derivative trades. The combined exchange operator should be able to achieve economies of scale, lowering the cost of capital and trading costs.
• …

What? Judging a company by what it does for its customers rather that the quality of jobs it provides its employees and suppliers? Why, that’s … that’s un-Canadian! The More-Subsidies government should revoke their citizenship, immediately and retroactively!

The Fed has relaxed dividend restrictions on large US bank holding companies:

The Federal Reserve on Friday announced it has completed the Comprehensive Capital Analysis and Review (CCAR), its cross-institution study of the capital plans of the 19 largest U.S. bank holding companies.

As a result of the CCAR, some firms are expected to increase or restart dividend payments, buy back shares, or repay government capital. The Federal Reserve on Friday will discuss the reviews and its decisions with firms that requested a capital action. All 19 firms will receive more detailed assessments of their capital planning processes next month.

In February 2009, the Federal Reserve advised bank holding companies that safety and soundness considerations required that dividends be substantially reduced or eliminated. Since that time, the Federal Reserve has indicated that increased capital distributions would generally not be considered prudent in the absence of a well-developed capital plan and a capital position that would remain strong even under adverse conditions.

There was immediate reaction:

JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) increased dividends and authorized share buybacks after the Federal Reserve reviewed the ability of the largest U.S. lenders to withstand another economic slump. Bank stocks rallied in New York trading.
…
Goldman Sachs Group Inc. (GS) said it got permission to buy back $5 billion of preferred stock sold to Warren Buffett’s Berkshire Hathaway Inc. in 2008.

And some took advantage of the market’s reaction:

KeyCorp (KEY), Ohio’s second-biggest bank, raised $625 million selling shares as part of a plan to repay a U.S. bailout after a Federal Reserve review of the company’s capital strength.

KeyCorp, based in Cleveland, sold 70.6 million shares of common stock at $8.85 each, the bank said today in a statement.

The Federal Reserve told KeyCorp it didn’t object to a plan to sell stock and issue debt to help repurchase $2.5 billion of preferred shares sold to the U.S. Treasury in 2008 as part of the Troubled Asset Relief Program, the company said in a statement. KeyCorp paid about $282 million in dividends to Treasury during the investment period.

KeyCorp advanced 7 cents to $8.92 as of 4 p.m. today in New York Stock Exchange composite trading before the announcement.

… and so did SunTrust:

SunTrust Banks Inc. (STI) raised $1.04 billion selling shares as part of a plan to repay $4.85 billion in U.S. bailout funds.

The lender, based in Atlanta, sold 35.3 million shares of common stock for $29.50 each, data compiled by Bloomberg show.

The Federal Reserve, which reviewed the financial strength of the largest U.S. lenders, didn’t object to SunTrust’s capital plan to sell the stock and issue a further $1 billion of debt, the bank said today in a statement. Repayment to the Troubled Asset Relief Program, which will also draw on “other available funds,” is subject to approval by the U.S. Treasury Department, the bank said.

SunTrust advanced $1.34, or 4.7 percent, to $29.59 as of 4 p.m. today in New York Stock Exchange composite trading before the announcement.

Regulators world-wide are seeking to expand their empires:

Michael Oxley, the former congressman who co-wrote the Sarbanes-Oxley Act of 2002, has registered as a lobbyist for the Financial Industry Regulatory Authority to promote self-regulation of investment advisers.

Oxley, a partner at Baker Hostetler LLP in Washington, registered this week as a Finra lobbyist, saying he would work on securities regulation and the “harmonization of regulation of broker-dealers and investment advisers,” according to his registration form. Finra oversees about 4,560 brokerage firms and is interested in expanding to investment advisers.

Salesmen should not have the same regulator as asset managers.

Today’s embarrassing news release is:

GMP Capital Inc. (“GMP”) (TSX: GMP and GMP.PR.B) announced that it has re-filed its audited financial statements and accompanying management’s discussion and analysis for the year ended December 31, 2010 to correct a calculation error relating to earnings per common share for 2009.

The correction relates to amounts recorded in connection with the redemption of GMP’s Series A preferred shares in December 2009. The amounts were charged to retained earnings, as required, but were not deducted in computing net income available to common shareholders. The earnings per common share (“EPS”) for 2009 has accordingly been revised from $0.64 per basic EPS and $0.59 per diluted EPS, as originally reported, to $0.52 per basic EPS and $0.48 per diluted EPS. The correction and re-filing has no effect on EPS for 2010 and does not otherwise affect GMP’s financial statements for the years ended 2010 and 2009.

On the whole, I would say that’s on a par with the Toronto Society of Financial Analysts repeated problems with their financial statements! It was just yesterday that Harris Fricker, CEO of GMP Capital, wrote an incomprehensible essay in the Globe trying to tell the TMX how to manage its business.

It was quite the day for BMO.PR.J!

Click for big

BMO.PR.J was the best performing index-included preferred share for the day, trading 89,346 shares in a range of 23.78-26.25 (!) [It’s been a while seen we’ve seen $2+ ranges!] before closing at 24.20-43, 10×18. Thanks to Assiduous Reader GA for bringing this to my attention.

Was it Algos Gone Wild? Fat Finger? One way or another, Desjardins bought 19,500 shares at an average price of 24.60 in 24 pieces from 11:40:36 to 11:40:37 – the first piece executed at 23.81, the last at 26.23. Then two odd-lots traded at 26.25 (presumably the offering price, but I haven’t bought that data), indicating a separate order. The next batch of Desjardins’ buying was another 20,200 shares at an average price of 25.75 in 9 pieces from 11:40:37 to 11:40:48, starting at 24.20 (an algo coming in with a new offer?) and ending at 26.25. This sequence included 16,400 shares at the high for the day of 26.25. Kudos to Goldman Sachs, who – I’m guessing, but it’s a pretty confident kind of guess – has an algorithm trolling the alleyways just looking for this sort of thing and were the seller of the last four lots at 26.25, totalling 9,500 shares.

Or maybe it wasn’t a Goldman algorithm, but an iceberg, placed well off the market price some time every morning? Either way, they made about $20-grand.

Oh, and when I say “Desjardins” and “Goldman”, it might not have been their prop desks acting as principal – this might all have been client orders.

The Canadian preferred share market was strong today, with PerpetualDiscounts up 9bp, FixedResets gaining 14bp and DeemedRetractibles winning 37bp. Volume was light.