PrefBlog

A story on the potential for LIBOR lawsuits:

Plaintiffs would face difficulties, such as proving how much money they lost, said Roy Smith, a finance professor at New York University’s Stern School of Business and a former Goldman Sachs partner. Because Libor rates excluded some of the highest and lowest estimates, it may be hard to calculate which firms were culpable for influencing the outcome, he said.

Regulators may also have known that banks were fixing Libor and neglected to stop it, which could make a court case yet more complex, Smith said. U.K. lawmakers have been questioning Bank of England Governor Mervyn King and his deputy Paul Tucker on their roles in the scandal. The Federal Reserve Bank of New York last week released documents showing it knew Barclays underreported rates and recommended changes to Libor.

“It makes it even more complicated when the regulators appear to have known about it and not have objected to it, which means it wasn’t illegal,” Smith said. “All I can say is, ‘Good luck with your lawsuit.’”

Meanwhile, in news of the Great Financial Repression:

The Treasury sold $15 billion in 10- year inflation-indexed notes at a record negative yield as investors sought a hedge against rising consumer prices amid speculation the Federal Reserve will add more stimulus.

The Treasury Inflation Protected Securities, or TIPS, were sold at a so-called high yield of negative 0.637 percent, the fourth consecutive auction of the securities where investors were willing to pay the U.S. to hold their principal. Five-year TIPS have also been sold at negative yields at the past five auctions of the securities.

Will wonders never cease? Asset managers are competing on price:

Federated Investors Inc. (FII) will replace Fidelity’s Pyramis Global Advisors in providing management services for the Massachusetts Municipal Depository Trust, which oversees money for the state and about 290 local governments, state Treasurer Steven Grossman announced today. Pyramis has managed the funds for the trust since it was created in 1977, he said.

The new contract will cut costs by 34 percent, or almost $8.2 million, over three years through lower investment fees, Grossman said in a statement. Federated, based in Pittsburgh, has also committed to expanding its Boston office and the three- year contract can be extended for two years, he said.

Of course, there’s such a thing as doing asset management too cheaply!

Here’s yet another revolving door:

Air Canada says a senior aide to Prime Minister Stephen Harper will become the airline’s vice-president for corporate strategy and government affairs, starting in September.

Derek Vanstone is currently Harper’s deputy chief of staff and was previously chief of staff to Finance Minister Jim Flaherty from 2007 to 2010.

TMX DataLinx had collywobbles last night when I attempted to retrieve prices, so this report is a day late. Sorry!

Better late than never!

PerpetualDiscounts now yield 4.93%, equivalent to 6.41% at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215bp, a slight (and perhaps spurious) widening from the 210bp reported July 11.

The bank rate is unchanged:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Global growth prospects have weakened since the Bank’s April Monetary Policy Report (MPR). While the economic expansion in the United States continues at a gradual but somewhat slower pace, developments in Europe point to a renewed contraction. In China and other emerging economies, the deceleration in growth has been greater than anticipated, reflecting past policy tightening and weaker external demand. This slowdown in global activity has led to a sizeable reduction in commodity prices, although they remain elevated. The combination of increasing global excess capacity over the projection horizon and reduced commodity prices is expected to moderate global inflationary pressures. Global financial conditions have also deteriorated since April, with periods of considerable volatility. The Bank’s base case projection assumes that the European crisis will continue to be contained, although this assumption is subject to downside risks.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 10bp, FixedResets gaining 13bp and DeemedRetractibles up 11bp. Volatility was almost non-existent. While there were a few issues with very good volumes (with a very high correlation to the recent TXPR rebalancing), overall volume was light.

As long as the dividend tax rate remains a political football, the US will never have a decent preferred share market:

Senate Democrats are seeking to set the top tax rate on dividends at 23.8 percent, almost 20 percentage points lower than the proposal offered by President Barack Obama in his budget.

That detail, along with a top estate tax rate of 45 percent and a one-year patch to prevent the alternative minimum tax from affecting millions more families, are part of the written version of Senate Democrats’ attempt to extend expiring income tax cuts for one year. The core of the proposal would extend the George W. Bush-era cuts through 2013 for 98 percent of households while letting them expire on income above $200,000 for individuals and above $250,000 for married couples.

There’s more finger-pointing with Barclay’s / LIBOR:

A former executive of Barclays who has been blamed for ordering subordinates to submit false interest rates in 2008 says he believed his action had been sanctioned by the Bank of England.

Jerry del Missier, a Canadian, told a Parliamentary committee on Monday that he drew that conclusion from a conversation with the bank’s chief executive, Bob Diamond. He insisted that he believed he had done nothing wrong.

It’s entirely believable. It’s the oldest trick in the book … the boss expresses a vague notion that it would be nice if something happened … and eager subordinates fall over each other to put a smile on the boss’ face. “Who will rid me of this turbulent priest?”

I wonder if it will occur to any of the investigators to wonder just why nobody thought it was odd that Bank of England would counsel somebody to lie.

The Globe has a long story today on Canada’s Vanishing Tech Sector:

High-tech names have been vanishing from the radar in Canada at an alarming rate. Last year, 45 Canadian tech firms were snapped up by foreign buyers, up from 32 the year before and less than 15 per year in the mid-2000s, according to Branham Group, an Ottawa market research firm.

Worse, most of those companies are selling out too early, before they have a chance to grow into larger, global businesses that could fuel further innovation and success in the tech sector, say industry insiders and observers. The blame is squarely pointed at what they call a “broken” financing system, starting with wary, previously burned angel investors, a timid, underfunded and inexperienced venture capital industry, and moving up to institutional investors who are still smarting from their experience with Nortel stock. Many Bay Street investment dealers have lost all interest in the sector, content with the flow of deals in mining and oil and gas. Equity offerings from technology companies represented less than 4 per cent of deals on the TSX in each of the past four years, down from more than 20 per cent a decade ago.

After carefully reviewing the data and determining that Canada does not have a competitive advantage in high-tech venture capital, Spend-Every-Penny has reached a conclusion:

The federal government has taken notice. In its recent budget, the government announced it will pour $400-million into Canadian venture capital, and Finance Minister Jim Flaherty has tapped Sam Duboc, one of Canada’s most successful venture capital investors, to provide advice on how best to deploy the money.

Canada has a competitive advantage in filling out forms and whining for government assistance. We must thank our wise masters for recognizing and exploiting this fact.

It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums up 5bp, FixedResets gaining 2bp and DeemedRetractibles winning 8bp. Volatility was subdued. Volume was average – a pleasant change from the troughs of last week!