Market Action

July 25, 2008

PerpetualDiscounts had a good strong day on light volume: up 0.41% to finish just short of the July 10 level. They are now down a mere 4.24% on the month; yield 6.37% or 8.92% interest-equivalent at the standard 1.4x equivalency factor; long corporates continue to yield 6.2%, so the spread is now 272bp.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.68% 4.39% 67,557 16.33 6 +0.1243% 1,085.5
Floater 4.19% 4.22% 58,149 16.97 3 -1.3008% 880.0
Op. Retract 4.99% 4.47% 134,727 3.26 17 +0.1054% 1,041.7
Split-Share 5.37% 6.13% 61,157 4.50 14 +0.0991% 1,029.5
Interest Bearing 6.13% 5.90% 41,382 3.69 3 +0.2026% 1,122.6
Perpetual-Premium 6.14% 6.15% 70,640 10.67 4 +0.5314% 981.9
Perpetual-Discount 6.32% 6.37% 228,563 13.39 67 +0.4139% 840.0
Major Price Changes
Issue Index Change Notes
BAM.PR.B Floater -2.1164%  
CM.PR.E PerpetualDiscount -2.0319% Now with a pre-tax bid-YTW of 6.97% based on a bid of 20.25 and a limitMaturity.
BAM.PR.K Floater -2.0313%  
SLF.PR.E PerpetualDiscount -1.9337% Now with a pre-tax bid-YTW of 6.42% based on a bid of 17.75 and a limitMaturity.
CM.PR.J PerpetualDiscount -1.5285% Now with a pre-tax bid-YTW of 6.77% based on a bid of 16.75 and a limitMaturity.
NA.PR.M PerpetualDiscount -1.2097% Now with a pre-tax bid-YTW of 6.13% based on a bid of 24.50 and a limitMaturity.
GWO.PR.I PerpetualDiscount +1.0107% Now with a pre-tax bid-YTW of 6.33% based on a bid of 17.99 and a limitMaturity.
BNS.PR.N PerpetualDiscount +1.0214% Now with a pre-tax bid-YTW of 6.07% based on a bid of 21.76 and a limitMaturity.
RY.PR.C PerpetualDiscount +1.0799% Now with a pre-tax bid-YTW of 6.16% based on a bid of 18.72 and a limitMaturity.
TCA.PR.X PerpetualDiscount +1.0870% Now with a pre-tax bid-YTW of 6.01% based on a bid of 46.50 and a limitMaturity.
BNS.PR.J PerpetualDiscount +1.1284% Now with a pre-tax bid-YTW of 6.14% based on a bid of 21.51 and a limitMaturity.
BNA.PR.C SplitShare +1.1284% Asset coverage of 3.2+:1 as of June 30 according to the company. Now with a pre-tax bid-YTW of 8.73% based on a bid of 17.81 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (6.19% to 2010-9-30) and BNA.PR.B (8.52% to 2016-3-25).
ENB.PR.A PerpetualDiscount +1.3187% Now with a pre-tax bid-YTW of 6.06% based on a bid of 23.05 and a limitMaturity. Trading through Royal Bank. Right.
PWF.PR.H PerpetualDiscount +1.3636% Now with a pre-tax bid-YTW of 6.74% based on a bid of 22.30 and a limitMaturity.
CU.PR.B PerpetualDiscount +1.6598% Now with a pre-tax bid-YTW of 6.22% based on a bid of 24.50 and a limitMaturity.
W.PR.J PerpetualDiscount +1.7908% Now with a pre-tax bid-YTW of 6.53% based on a bid of 21.60 and a limitMaturity.
GWO.PR.F PerpetualDiscount +1.7952% Now with a pre-tax bid-YTW of 5.97% based on a bid of 24.95 and a limitMaturity.
POW.PR.A PerpetualDiscount +1.8216% Now with a pre-tax bid-YTW of 6.47% based on a bid of 21.80 and a limitMaturity.
PWF.PR.F PerpetualDiscount +2.3278% Now with a pre-tax bid-YTW of 6.26% based on a bid of 21.10 and a limitMaturity.
MFC.PR.C PerpetualDiscount +2.6158% Now with a pre-tax bid-YTW of 6.06% based on a bid of 18.83 and a limitMaturity.
POW.PR.D PerpetualDiscount +3.0384% Now with a pre-tax bid-YTW of 6.53% based on a bid of 19.33 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
SLF.PR.E PerpetualDiscount 316,750 Nesbitt crossed 300,000 at 17.75. Now with a pre-tax bid-YTW of 6.42% based on a bid of 17.75 and a limitMaturity.
RY.PR.B PerpetualDiscount 46,195 Royal crossed 25,000 at 19.10. Now with a pre-tax bid-YTW of 6.24% based on a bid of 18.87 and a limitMaturity.
TD.PR.R PerpetualDiscount 33,900 CIBC crossed 25,000 at 23.95. Now with a pre-tax bid-YTW of 5.88% based on a bid of 23.91 and a limitMaturity.
BAM.PR.N PerpetualDiscount 31,735 Nesbitt crossed 18,000 at 16.20. See BAM.PR.M, below. Now with a pre-tax bid-YTW of 7.38% based on a bid of 16.33 and a limitMaturity.
BAM.PR.M PerpetualDiscount 27,985 Nesbitt crossed 18,000 at 16.50. See BAM.PR.N, above. This really looks like a tax-loss crystallization, but why the different prices? Is one fund being favoured over another? Now with a pre-tax bid-YTW of 7.35% based on a bid of 16.40 and a limitMaturity.

There were twelve other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Update, 2008-7-28: Newly Assiduous Reader newtoprefs comments that he she has been advised to sell BAM.PR.O short. I have uploaded the HIMIPref™ OpRet Index for 7/25. It is unclear to me why, if you were going to shortsell anything in this index (a big if, in my opinion, but what do I know?) AND you were going to shortsell one of the BAM issues … why wouldn’t you shortsell BAM.PR.I? The yield is 30bp lower than that of BAM.PR.O.

Interesting External Papers

Canadian Debt Market Statistics, 1Q08

The Investment Industry Association of Canada has announced:

Widening credit spreads and unsettled markets, coupled with rising inflation and falling real yields, created difficult borrowing conditions in the latest quarter. For the first three months this year, total debt issuance declined 18% quarter-over-quarter. The fall was broad-based, with a notable pullback in provincial and municipal financings. Although issuance fell short of last year’s Q1 level, encouragingly, debt trading activity remained steady with $1.7 billion worth of bonds exchanging hands in the quarter. The Investment Industry Association of Canada (IIAC) today released its periodical An Issue of Debt: Inside Canada’s Debt Markets that includes analysis and results for the first quarter of 2008.

I don’t think much of the articles, but the statistics fall into the “Impressive-sounding statistics to Quote” category.

Market Action

July 24, 2008

A story on Bloomberg discussed the repercussions of the liquidity freeze-up in US Auction Rate Securities:

New York Attorney General Andrew Cuomo filed a lawsuit against UBS AG over its role in the sale of auction-rate securities, five months after the market collapsed, stranding investors.

Cuomo alleges the Zurich-based bank committed fraud by misleading investors in its marketing of the long-term securities as money market-like instruments that were easy to buy and sell. UBS continued selling the debt even as the market unraveled and top bank executives unloaded $21 million in personal auction-rate holdings, Cuomo’s suit alleges.

… and, to my gratification, included a link to the Massachusetts lawsuit site. The complaint against UBS alleges many things, but what it all boils down to is that some people have made an investment that didn’t work out as intended.

Just where to draw the regulatory line is a matter of opinion. I just hope the regulators and politicians know where their current hard line attitude is taking us: to a world where brokerages are on the hook for whatever they sell their clients and therefore offer nothing but the blandest investments possible. It’s regulation by headline and it will ultimately cost us all a great deal of money.

It leads to another interesting thought … if banks are to be on the hook for short-term paper they sell to their retail clients, shouldn’t this be recognized as credit risk (in addition to operational risk) for capital calculation purposes? I’ve already advocated that their exposure to their branded MMFs be recognized.

As far as today is concerned … so much for the financial rally:

U.S. stocks tumbled, sending financial shares to their worst drop in eight years, after home sales slid more than forecast …
…
Financial stocks in the S&P 500 fell 6.7 percent as a group, the third drop in the past three weeks greater than 5 percent. Today’s slump follows a six-day, 30 percent rally spurred by better-than-estimated earnings reports from Citigroup, JPMorgan and Wells Fargo and legislation to rescue Fannie Mae and Freddie Mac.

I wonder how many sigmas that makes?

PerpetualDiscounts managed to eke out a two-basis-point gain today (which, when you annualize it, is about right) keeping the streak alive: there have been six consecutive gains.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.68% 4.40% 69,576 16.32 6 -0.0067% 1,084.2
Floater 4.14% 4.16% 58,395 17.08 3 +0.8780% 891.6
Op. Retract 4.99% 4.47% 137,526 3.42 17 -0.0353% 1,040.6
Split-Share 5.38% 6.14% 61,694 4.50 14 -0.0084% 1,028.5
Interest Bearing 6.15% 6.23% 41,154 3.69 3 -0.2349% 1,120.3
Perpetual-Premium 6.17% 6.18% 71,954 10.61 4 -0.0305% 976.8
Perpetual-Discount 6.34% 6.40% 231,051 13.36 67 +0.0216% 836.6
Major Price Changes
Issue Index Change Notes
POW.PR.D PerpetualDiscount -3.2990% Now with a pre-tax bid-YTW of 6.73% based on a bid of 18.76 and a limitMaturity.
PWF.PR.H PerpetualDiscount -2.8698% Now with a pre-tax bid-YTW of 6.56% based on a bid of 22.00 and a limitMaturity.
BAM.PR.M Floater
PerpetualDiscount		 -2.1674% Now with a pre-tax bid-YTW of 7.41% based on a bid of 16.25 and a limitMaturity.
W.PR.J PerpetualDiscount -1.7138% Now with a pre-tax bid-YTW of 6.66% based on a bid of 21.22 and a limitMaturity.
SLF.PR.B PerpetualDiscount -1.5789% Now with a pre-tax bid-YTW of 6.50% based on a bid of 18.70 and a limitMaturity.
POW.PR.A PerpetualDiscount -1.5632% Now with a pre-tax bid-YTW of 6.60% based on a bid of 21.41 and a limitMaturity.
RY.PR.F PerpetualDiscount -1.4444% Now with a pre-tax bid-YTW of 6.28% based on a bid of 17.74 and a limitMaturity.
BAM.PR.I OpRet -1.1837% Now with a pre-tax bid-YTW of 6.32% based on a bid of 24.21 and softMaturity 2013-12-30 at 25.00. Compare with BAM.PR.H (6.43% to 2012-3-30), BAM.PR.J (7.06% to 2018-3-30) and BAM.PR.O (6.57% to 2013-6-30).
RY.PR.A PerpetualDiscount -1.0440% Now with a pre-tax bid-YTW of 6.19% based on a bid of 18.01 and a limitMaturity.
ALB.PR.A OpRet -1.0204% Asset coverage of just under 1.6:1 as of July 17 according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 5.80% based on a bid of 24.25 and a hardMaturity 2011-2-28.
BAM.PR.O OpRet -1.0105% See BAM.PR.I, above.
ELF.PR.F PerpetualDiscount +1.1873% Now with a pre-tax bid-YTW of 7.14% based on a bid of 18.75 and a limitMaturity.
CM.PR.J PerpetualDiscount +1.4916% Now with a pre-tax bid-YTW of 6.66% based on a bid of 17.01 and a limitMaturity.
PWF.PR.K PerpetualDiscount +1.5175% Now with a pre-tax bid-YTW of 6.42% based on a bid of 19.40 and a limitMaturity.
GWO.PR.H PerpetualDiscount +1.5536% Now with a pre-tax bid-YTW of 6.26% based on a bid of 19.61 and a limitMaturity.
SLF.PR.D PerpetualDiscount +1.6851% Now with a pre-tax bid-YTW of 6.44% based on a bid of 17.50 and a limitMaturity.
PWF.PR.G PerpetualDiscount +1.8096% Now with a pre-tax bid-YTW of 6.27% based on a bid of 23.63 and a limitMaturity.
NA.PR.M PerpetualDiscount +1.8480% Now with a pre-tax bid-YTW of 6.06% based on a bid of 24.80 and a limitMaturity.
POW.PR.B PerpetualDiscount +1.9990% Now with a pre-tax bid-YTW of 6.30% based on a bid of 21.43 and a limitMaturity.
BAM.PR.B Floater +2.1070%  
POW.PR.C PerpetualDiscount +2.4512% Now with a pre-tax bid-YTW of 6.48% based on a bid of 22.57 and a limitMaturity.
MFC.PR.B PerpetualDiscount +2.6140% Now with a pre-tax bid-YTW of 5.89% based on a bid of 20.02 and a limitMaturity.
SLF.PR.E PerpetualDiscount +2.7825% Now with a pre-tax bid-YTW of 6.29% based on a bid of 18.10 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
BCE.PR.A FixFloat 290,900 CIBC crossed three blocks at 24.35: 50,000, 200,000 and 40,500.
BNS.PR.J PerpetualDiscount 108,439 “Anonymous” bought & sold (or maybe crossed) 79,000 at 21.25.Now with a pre-tax bid-YTW of 6.21% based on a bid of 21.27 and a limitMaturity.
BNS.PR.N PerpetualDiscount 43,400 “Anonymous” bought & sold (or maybe crossed) 40,000 at 21.60. Now with a pre-tax bid-YTW of 6.12% based on a bid of 21.54 and a limitMaturity.
BAM.PR.N PerpetualDiscount 30,440 Now with a pre-tax bid-YTW of 7.39% based on a bid of 16.30 and a limitMaturity.
CM.PR.I PerpetualDiscount 27,521 Now with a pre-tax bid-YTW of 6.81% based on a bid of 17.39 and a limitMaturity.

There were twenty-three other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Issue Comments

RF.PR.A Raising Capital

C.A.Bancorp has announced:

that a preliminary prospectus had been filed with, and a receipt therefor issued by, the securities regulatory authorities in each of the provinces and territories of Canada.

The Corporation is offering (the “Offering”) units (the “Units”) at a price of $10.00 per Unit. Each Unit consists of one Class A Share and one warrant (a “Warrant”) to purchase one Series 1, Preferred Share (the “Preferred Shares”). Prospective purchasers may purchase Units by (i) cash payment, or (ii) an exchange (the “Exchange Option”) of eligible securities of certain issuers (“Issuers”) at the applicable exchange ratio. The Offering is for a minimum of 2,000,000 Units ($20,000,000) and a maximum of 10,000,000 Units ($100,000,000).
…
C.A. Bancorp Ltd. (the “Manager”) views the Preferred Shares as a form of financial leverage to the Class A Shares as the Preferred Shares have a fixed term, fixed cash distributions and fixed maturity value.

The Manager uses the maturity value of the Preferred Shares issued and outstanding and compares that to the tangible net book value of the Class A Shares issued and outstanding as a measure of debt (the Preferred Shares) to equity (the Class A Shares) ratio of the Corporation (the “Leverage Ratio”). As at June 30, 2008, the Leverage Ratio was 8.8 to 1.
…
Each Warrant will entitle the holder to purchase one Preferred Share at a subscription price of $24.50 at any time on or before 4:00 p.m. (Toronto time) on September 30, 2011.

Assiduous Readers will recall I hated this issue on announcement. At issue, the Leverage Ratio was about 8:1, so it would appear that so far in their short history, they’ve lost money … but this is just a guess, since their investment update, while lauding many attractive features of the fund, does not go so far as to provide even an estimated mark-to-market of the fund’s value. Fortunately, however, there is a prospectus for this capital raise on SEDAR (search the last six months for “Bancorp”):

EARNINGS COVERAGE RATIOS

The Preferred Shares’ distribution (interest) requirements, after giving effect of the issuance of Preferred Shares through the exercise of the maximum number of Warrants offered under this Offering would have been $19,473,273 per annum. The Corporation had a loss before interest of $1,870,240 (annualized from $666,113 for the 130 days ended June 30, 2008). An increase of $24,573,439 per annum in earnings would be necessary to produce an earnings coverage ratio of one to one for the annualized period ended June 30, 2008 which would have required a yield of 7.32% on any net proceeds received on a maximum Offering of Class A Shares and full exercise of all Warrants distributed under the Offering.

Well, it’s all very interesting, but I won’t be looking at this further. It’s a wonderful idea for a company, but I have great difficulty envisaging the preferred shares as investment grade. Mind you, RF.PR.A is currently quoted at 20.51-50, 4×1, so those with an appetite for junk might be interested.

Issue Comments

DBRS Places FTN.PR.A Under "Review-Developing"

Following the shareholder approval of the term extension, DBRS:

has today placed the rating of the Preferred Shares issued by Financial 15 Split Corp. (the Company) Under Review with Developing Implications.

An initial rating of Pfd-2 was assigned to the Preferred Shares in November 2003. The Preferred Shares had a scheduled final maturity date of December 1, 2008. On June 3, 2008, Quadravest Capital Management (the Manager) announced a proposal would be made to the Company’s shareholders to extend the mandatory termination date for the Company from December 1, 2008 to December 1, 2015.

On July 23, the Manager announced that the resolution to extend the final maturity was approved by the required percentage of Preferred Shareholders and Class A Shareholders. As a result of such developments, DBRS has placed the rating of the Preferred Shares Under Review with Developing Implications.

FTN.PR.A had an asset coverage of just under 1.7:1 as of July 15, according to the company, with the note:

As at the close on July 17, 2008, there have been material upward movements in the net asset values ranging from 10% to 25%.

Shall we guess? Based on the downgrade of WFS.PR.A and the downgrade of FFN.PR.A, I’d call it 50-50 between a rating of Pfd-2(low) and Pfd-3(high) once the review has been completed.

Miscellaneous News

FDIC Approves Covered Bonds

The US Federal Deposit Insurance Corporation has issued a press release announcing their formal approval of covered bonds:

On April 23, 2008, the FDIC published an Interim Final Covered Bond Policy Statement and requested public comment. The FDIC received approximately 130 comment letters, including comments from national banks, federal home loan banks, industry groups, and individuals. Most commenters supported the FDIC’s adoption of the Policy Statement to clarify how the FDIC would treat covered bonds in the case of a conservatorship or receivership and, thereby, facilitate the development of the U.S. covered bond market. After reviewing the comments, FDIC staff recommended Board approval of the final Policy Statement.

The full statement reviews the comment letters. It’s a very different release altogether from the terse OSFI statement.

Primers

Basel II in the United States : CRS Report RL33278

This background report has been written by the Congressional Research Service.

Good background, an excellent primer. Of particular interest was:

The third pillar of the Basel II framework is public disclosure. Pillar three is a set of public information disclosures that a bank must make about itself. These disclosures are to make it easier for creditors and investors in financial markets to assess a bank’s risk posture more accurately and adjust borrowing and capital costs accordingly. The idea behind this requirement is to bring market discipline to bear to give bank management a cost incentive to adopt strong safety and soundness practices. The disclosure requirements will also make it easier for depositors, investors, and regulators to make comparisons across banking institutions. This knowledge, in turn, is expected to affect the willingness of investors to invest in banks and their related businesses. Without pillar three, financial institutions could become more opaque and more difficult to understand as the institutions develop new products and complex risk-hedging strategies that are difficult to evaluate. It could also make it more difficult to understand the risk profile of the firm creating and selling these products as well as the firms buying and using them.

Stirring principals certainly; I’m not sure how well it works in practice, but I do find American disclosure far superior to Canadian disclosure. OSFI, for instance, will not reveal why they have given Royal Bank an increased Assets to Capital multiple cap for the last five-odd years.

Market Action

July 23, 2008

PerpetualDiscounts had a wonderful day today, up nearly a point and closing just short of their value on July 10. They are now down a mere 4.66% on the month, with a weighted-mean-average pre-tax bid-Yield-to-Worst of 6.40% (up 37bp on the month), interest-equivalent to 8.96%, which is a spread of +276bp to long corporates.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.68% 4.40% 68,855 16.31 6 -0.0675% 1,084.2
Floater 4.17% 4.20% 56,240 17.01 3 -1.1328% 883.8
Op. Retract 4.99% 4.44% 140,946 3.42 17 +0.1973% 1,041.0
Split-Share 5.37% 6.11% 62,575 4.50 14 +0.1881% 1,028.6
Interest Bearing 6.13% 5.93% 40,969 3.69 3 +0.3373% 1,122.9
Perpetual-Premium 6.17% 6.18% 72,676 10.62 4 +0.4087% 977.0
Perpetual-Discount 6.35% 6.40% 232,414 13.36 67 +0.9457% 836.4
Major Price Changes
Issue Index Change Notes
BAM.PR.K Floater -2.2553%  
SLF.PR.D PerpetualDiscount -1.6571% Now with a pre-tax bid-YTW of 6.55% based on a bid of 17.21 and a limitMaturity.
BAM.PR.B Floater -1.3326%  
BNA.PR.B SplitShare -1.3107% Asset coverage of 3.2+:1 as of June 30, according to the company. Now with a pre-tax bid-YTW of 8.48% based on a bid of 20.33 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (6.15% to 2010-9-30) and BNA.PR.C (8.94% to 2019-1-10).
BAM.PR.O OpRet +1.0208% Now with a pre-tax bid-YTW of 6.33% based on a bid of 23.75 and optionCertainty 2013-6-30 at 25.00. Compare with BAM.PR.H (6.46% to 2012-3-30), BAM.PR.I (6.05% to 2013-12-30) and BAM.PR.J (7.02% to 2018-3-30).
BAM.PR.I OpRet +1.0309% See BAM.PR.O, above.
RY.PR.G PerpetualDiscount +1.0603% Now with a pre-tax bid-YTW of 6.22% based on a bid of 18.11 and a limitMaturity.
PWF.PR.H PerpetualDiscount +1.1161% Now with a pre-tax bid-YTW of 6.38% based on a bid of 22.65 and a limitMaturity.
FFN.PR.A SplitShare +1.2461% Asset coverage of just under 1.6:1 as of July 15, according to the company … “As at the close on July 17, 2008, there have been material upward movements in the net asset values ranging from 10% to 25%.” Now with a pre-tax bid-YTW of 5.82% based on a bid of 9.75 and a hardMaturity 2014-12-1 at 10.00.
RY.PR.H PerpetualDiscount +1.2605% Now with a pre-tax bid-YTW of 5.86% based on a bid of 24.10 and a limitMaturity.
CM.PR.P PerpetualDiscount +1.3678% Now with a pre-tax bid-YTW of 6.92% based on a bid of 20.01 and a limitMaturity.
POW.PR.C PerpetualDiscount +1.3806% Now with a pre-tax bid-YTW of 6.63% based on a bid of 22.03 and a limitMaturity.
RY.PR.D PerpetualDiscount +1.3920% Now with a pre-tax bid-YTW of 6.19% based on a bid of 18.21 and a limitMaturity.
BNS.PR.L PerpetualDiscount +1.3959% Now with a pre-tax bid-YTW of 6.23% based on a bid of 18.16 and a limitMaturity.
RY.PR.W PerpetualDiscount +1.4344% Now with a pre-tax bid-YTW of 6.20% based on a bid of 19.80 and a limitMaturity.
SLF.PR.B PerpetualDiscount +1.5500% Now with a pre-tax bid-YTW of 6.40% based on a bid of 19.00 and a limitMaturity.
ELF.PR.G PerpetualDiscount +1.6585% Now with a pre-tax bid-YTW of 7.25% based on a bid of 16.55 and a limitMaturity.
PWF.PR.F PerpetualDiscount +1.6618% Now with a pre-tax bid-YTW of 6.35% based on a bid of 20.80 and a limitMaturity.
TD.PR.P PerpetualDiscount +1.7082% Now with a pre-tax bid-YTW of 5.99% based on a bid of 22.03 and a limitMaturity.
GWO.PR.I PerpetualDiscount +1.7624% Now with a pre-tax bid-YTW of 6.36% based on a bid of 17.90 and a limitMaturity.
PWF.PR.L PerpetualDiscount +1.8267% Now with a pre-tax bid-YTW of 6.58% based on a bid of 19.51 and a limitMaturity.
PWF.PR.K PerpetualDiscount +1.9200% Now with a pre-tax bid-YTW of 6.52% based on a bid of 19.11 and a limitMaturity.
FBS.PR.B SplitShare +1.9792% Asset coverage of 1.5+:1 as of July 17, 2008, according to TD Securities. Now with a pre-tax bid-YTW of 5.64% based on a bid of 9.79 and a hardMaturity 2011-12-15 at 10.00.
POW.PR.B PerpetualDiscount +1.9903% Now with a pre-tax bid-YTW of 6.43% based on a bid of 21.01 and a limitMaturity.
POW.PR.A PerpetualDiscount +2.1127% Now with a pre-tax bid-YTW of 6.49% based on a bid of 21.75 and a limitMaturity.
CM.PR.D PerpetualDiscount +2.1144% Now with a pre-tax bid-YTW of 6.81% based on a bid of 21.25 and a limitMaturity.
RY.PR.B PerpetualDiscount +2.1277% Now with a pre-tax bid-YTW of 6.13% based on a bid of 19.20 and a limitMaturity.
CM.PR.G PerpetualDiscount +2.1388% Now with a pre-tax bid-YTW of 6.95% based on a bid of 19.58 and a limitMaturity.
GWO.PR.H PerpetualDiscount +2.1693% Now with a pre-tax bid-YTW of 6.36% based on a bid of 19.31 and a limitMaturity.
BMO.PR.H PerpetualDiscount +2.2395% Now with a pre-tax bid-YTW of 6.43% based on a bid of 21.00 and a limitMaturity.
CM.PR.E PerpetualDiscount +2.2920% Now with a pre-tax bid-YTW of 6.87% based on a bid of 20.53 and a limitMaturity.
PWF.PR.I PerpetualDiscount +2.5195% Now with a pre-tax bid-YTW of 6.38% based on a bid of 23.60 and a limitMaturity.
GWO.PR.G PerpetualDiscount +3.7313% Now with a pre-tax bid-YTW of 6.31% based on a bid of 20.85 and a limitMaturity.
PWF.PR.E PerpetualDiscount +4.2213% Now with a pre-tax bid-YTW of 6.44% based on a bid of 21.48 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
BNS.PR.L PerpetualDiscount 543,211 Nesbitt crossed 500,000 at 18.00, then another 25,000 at the same price. Now with a pre-tax bid-YTW of 6.23% based on a bid of 18.16 and a limitMaturity.
BNS.PR.M PerpetualDiscount 524,912 Nesbitt crossed 500,000 at 18.00. Now with a pre-tax bid-YTW of 6.24% based on a bid of 18.15 and a limitMaturity.
CM.PR.I PerpetualDiscount 523,950 Nesbitt crossed 500,000 at 17.00. Now with a pre-tax bid-YTW of 6.82% based on a bid of 17.36 and a limitMaturity.
PWF.PR.I PerpetualDiscount 254,030 Nesbitt crossed 250,000 at 23.25. Now with a pre-tax bid-YTW of 6.38% based on a bid of 23.60 and a limitMaturity.
BNS.PR.J PerpetualDiscount 226,575 Two trades, four anonymouses. Two blocks of 100,000 at 21.25. Now with a pre-tax bid-YTW of 6.21% based on a bid of 21.28 and a limitMaturity.
BPO.PR.J Scraps (Would be OpRet, but there are credit concerns) 123,950 TD crossed 100,000 at 20.50, then bought 16,200 from Nesbitt at the same price. Now with a pre-tax bid-YTW of 8.98% based on a bid of 20.36 and a softMaturity 2014-12-30 at 25.00.

There were twenty-one other index-included $25-pv-equivalent issues trading over 10,000 shares today.

Issue Comments

HLG.PR.B to be Delisted

The Toronto Stock Exchange has announced:

Pursuant to an Order issued on July 21, 2008 by the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act, the Company and its monitor in those proceedings, Ernst & Young Inc., have been authorized to consent to the delisting of Hollinger Inc’s Retractable Common Shares (Symbol: HLG.C) and Exchangeable Non-Voting Preference Shares Series II (Symbol: HLG.PR.B) (collectively the “Securities”). Accordingly, TSX will delist the Securities at the close of market on August 22, 2008 for failure to meet the continued listing requirements of TSX. The Securities of the Company are currently halted due to the imposition of a Cease Trade Order by the Ontario Securities Commission. In addition, the Securities have been suspended from trading by TSX effective immediately.

The same press release had further details regarding the Argus delisting previously discussed.

HLG.PR.B has not been tracked by HIMIPref™.

Update, 2008-8-22: The delisting has become effective:

Hollinger Inc. (the “Company”)(TSX:HLG.C)(TSX:HLG.PR.B) announced today that the Company’s common shares and Series II preference shares (collectively, the “Shares”) were delisted from the Toronto Stock Exchange (the “TSX”) effective as of the close of business today.

The Shares have been suspended from trading since the issuance of a cease trade order by the Ontario Securities Commission on July 23, 2008. The cease trade order was issued as a result of the Company’s determination, in the interests of reducing its costs for the benefit of its stakeholders, not to prepare and file annual audited financial statements and other annual disclosure documents in respect of the Company’s financial year ended March 31, 2008. Consequently, following June 30, 2008, the Company has been in default of its continuous disclosure filing requirements under Canadian securities laws.

On July 21, 2008, the Ontario Superior Court of Justice (the “Court”) issued an order authorizing the Company and Ernst & Young Inc., the Company’s court-appointed Monitor (the “Monitor”), to consent to the issuance of the cease trade order and the delisting of the Shares. The Company and the Monitor have provided such consent.

Pursuant to proceedings under the Companies’ Creditors Arrangement Act (Canada), the Company is conducting a claims process for the Company and its subsidiaries, Sugra Ltd. and 4322525 Canada Inc. (the “Applicants”), and will also do so for its non-Applicant subsidiaries as part of their winding-up. Retired justice John D. Ground has been appointed as Litigation Trustee to administer the Company’s litigation assets, assisted by an Advisory Committee and under the supervision of the Monitor and the Court.

Preliminary estimates prepared by the Company, in conjunction with the Monitor, indicate that there is a significant risk that there will not be adequate recoveries from the Company’s assets for there to be any residual value for the Series II preference or common shareholders of the Company.

Interesting External Papers

Target Capitalization of Big US Banks

How Do Large Banking Organizations Manage Their Capital Ratios?, a research paper from the Kansas City Fed.

The authors “find strong evidence that target capital ratios decrease with BHC [Bank Holding Company] size and increase with the volatility of BHC earnings (risk). The relationships between capital targets and BHC market value, growth strategy, and business mix are less systematic and statistically weaker.”

I note that by comparing Table 3, Panel A (regressions on leverage ratio) with Table 3, Panel B (regressions on Tier 1 Ratio) it appears that an asset size of greater than $50-billion (comprising 5.4% of the sample) had a statistically significant influence on the calculation of the targetted Tier 1 ratio, but was insignificant when calculating the targetted Leverage Ratio.

Note a 2003 Comment Letter from the State of New York Banking Department stated:

Capital ratios as well as business plans tend to be different at LCBOs [Large Complex Banking Organizations] and smaller banks. Compared to community and regional banks, LCBOs tend to have capital ratios that are closer to the well-capitalized minimums (see Table 1). All five of the New York State banks with assets over $45 billion have leverage ratios between 5.4% and 6.2%, while the range for all banks is from 5.3% to 52%.[1] (The leverage ratio is more constraining than the risk-based capital ratios.) Thus, bifurcation seems to address the concern of LCBOs to manage their capital ratios, while acknowledging that most community and regional banks are comfortable with much higher than required capital ratios.

However, the situation for large regional banks may be somewhat different: the12 New York banks with assets between $5 billion and $45 billion tend to have higher capital ratios than the largest banks, but may be feeling market pressure to manage these ratios. For these institutions, opting in to the A-IRB approach could make it possible to maintain the same risk-based capital ratios while lowering their leverage ratio close to 5%. As IRB systems and software become more developed, opting in may make more sense for these banks, especially since sophisticated credit risk modeling systems also allow more risk-sensitive pricing.