PrefBlog

The US has shaken down HSBC & Standard Chartered:

HSBC (HSBA) Holdings Plc will pay at least $1.9 billion in a deferred prosecution agreement that settles U.S. probes of money laundering tied to Europe’s largest bank, a person familiar with the matter said, making it the largest such accord ever.
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Yesterday, Standard Chartered Plc (STAN), Britain’s second-largest bank by market value, agreed to pay $327 million in fines after regulators alleged it violated U.S. sanctions with Iran.

As far as I can tell from the Senate REPORT: U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History, the problem was that they did not create enough paper:

An outside auditor hired by HBUS has so far identified, from 2001 to 2007, more than 28,000 undisclosed, OFAC sensitive transactions that were sent through HBUS involving $19.7 billion. Of those 28,000 transactions, nearly 25,000 involved Iran, while 3,000 involved other prohibited countries or persons. The review has characterized nearly 2,600 of those transactions, including 79 involving Iran, and with total assets of more than $367 million, as “Transactions of Interest” requiring additional analysis to determine whether violations of U.S. law occurred. While the aim in many of those cases may have been to avoid the delays associated with the OFAC filter and individualized reviews, rather than to facilitate prohibited transactions, actions taken by HSBC affiliates to circumvent OFAC safeguards may have facilitated transactions on behalf of terrorists, drug traffickers, or other wrongdoers. While HBUS insisted, when asked, that HSBC affiliates provide fully transparent transaction information, when it obtained evidence that some affiliates were acting to circumvent the OFAC filter, HBUS failed to take decisive action to confront those affiliates and put an end to the conduct. HBUS’ experience demonstrates the strong measures that the U.S. affiliate of a global bank must take to prevent affiliates from circumventing OFAC prohibitions.

It was a directionless day for the Canadian preferred share market, with PerpetualPremiums up 4bp while FixedResets and DeemedRetractibles both gained 1bp. Volatility was low. Volume was average.

When does a recession become a depression? Ask the Greeks:

Greece’s economy shrank by 6.9 per cent in the third quarter of the year, compared with the same period in 2011.

The national statistics agency says that the decrease was less than the 7.2-per-cent drop estimated in November, based on new data that wasn’t available last month.

However, the Greeks have the answer – steal from bank shareholders:

Greece’s three biggest banks said they participated in the government’s 10 billion-euro ($13 billion) buyback of sovereign debt, the second hit to their bond holdings this year as the nation rushes to cut a debt load that threatens further international aid.

National Bank of Greece SA, the largest lender, Alpha Bank SA and Eurobank Ergasias SA said in statements to the Athens bourse today that their boards agreed unanimously to join the offer, which ended at 7 p.m. Athens time. No further details were provided.
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Stung by the biggest sovereign restructuring in history earlier this year, the Greek banks got a promise that they won’t be subject to any legal proceedings from shareholders for participating in the offer. Finance Minister Yannis Stournaras said today the banks would have legal indemnity from potential shareholder lawsuits.

The buyback is aimed at the 62 billion euros of new bonds issued when Greece restructured its privately held debt in March. Greek banks held about 15 billion euros of the bonds, while the country’s pension funds had 8 billion euros, according to a Nov. 27 draft report by the troika of the European Commission, European Central Bank and IMF.
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The prices offered for bonds maturing from 2023 to 2042 averaged 33.1 percent of face value, based on information in a statement from the Athens-based Public Debt Management Agency on Dec. 3.

There was a good, but not great, US Jobs number:

Total nonfarm payroll employment rose by 146,000 in November, and the unemployment rate edged down to 7.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in retail trade, professional and business services, and health care.

However:

The drop in the jobless rate, from 7.9 percent in October, wasn’t great news because of why it happened: More people dropped out of the labor force so they weren’t counted among the unemployed. The labor-force participation rate remains depressed more than three years after the end of the 2007-09 recession. If it were at normal levels, the unemployment rate would be substantially higher.

IIROC has released new rules on electronic trading:

The amendments expand on existing obligations under the Universal Market Integrity Rules (UMIR) by assigning IIROC-regulated dealers clear supervisory and gatekeeper responsibilities to protect against errors related to electronic trading. The changes will ensure that market participants have appropriate automated filters, testing of algorithms, and other risk management tools in place for handling orders before those orders enter the marketplace.

For “gatekeeper”, read “policeman”. Everybody’s a policeman! Yay!

DBRS confirmed BIG.PR.B and BIG.PR.C at Pfd-2:

The Class B Preferred Shares and Class C Preferred Shares yield 7.00% and 5.75% annually, respectively, on their issue price of $12 per Preferred Share and rank pari passu with respect to return of principal and payment of dividends. Holders of the Capital Shares are expected to receive all excess dividend income after Preferred Share distributions and other Company expenses have been paid.

DBRS last confirmed the rating of the Preferred Shares at Pfd-2 on December 7, 2011. Performance has been generally stable since the last rating confirmation, with the NAV of the Company fluctuating between $28 and $32. The current dividend coverage ratio is 1.6 times and the current downside protection (as of November 30, 2012) available to holders of the preferred shares is approximately 62.4%. The confirmation of the rating of the Preferred Shares is based primarily on the level of downside protection and dividend coverage available, as well as on the high credit quality and consistency of dividend distributions of the underlying names in the Portfolio.

DBRS confirmed BSD.PR.A at Pfd-4(low):

As of September 30, 2012, the Portfolio consisted of 68% Canadian common stock, 22% REITs, 6% power generation and pipeline trusts and 3% Canadian preferred stock. Since the rating was last confirmed in December 2011, performance has been slightly negative. Downside protection available to holders of the Preferred Securities has slowly trended lower over the past year, falling from 23.9% on November 30, 2011, to 17.4% as of November 30, 2012. The yield on the Portfolio has also decreased slightly, causing the distribution coverage ratio to drop to 0.8 times (as of November 30, 2012). Despite the reduction, downside protection remains at levels sufficient for a Pfd-4 (low) rating. The rating on the Preferred Securities continues to be constrained by the large percentage of underlying securities in the Portfolio that are not rated by any rating agency and the grind on the Portfolio due to distributions exceeding income.

The redemption date for the Preferred Securities is March 31, 2015.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 10bp, FixedResets gaining 3bp and DeemedRetractibles off 1bp. Volatility was minimal. Volume was average.

DBRS confirmed Loblaws at Pfd-3:

Loblaw’s ratings continue to be supported by its strong market position, large scale, national diversification and industry-leading private labels. The ratings also continue to reflect the high level of, and intensifying competition in, Canadian food retailing.

The confirmation also reflects DBRS’s view that Loblaw’s earnings profile should remain in the range acceptable for the current rating category, despite intensifying competition and a difficult consumer environment. DBRS expects top-line revenue will remain relatively flat in the near term, based on a modest increase in square footage and flat-to-negative same-store sales. EBITDA margins should remain under pressure as Loblaw could be forced to increase its use of promotional pricing to help drive traffic as competition intensifies (particularly with new openings of Wal-Mart Supercenters and Target stores) and the Company continues to invest in infrastructure upgrades. As such, DBRS expects EBITDA (on a comparable basis) will decline moderately or, at best, remain flat in the near term.
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DBRS will review all aspects of the [REIT spin-off] transaction upon closing. Should the proposed transaction close on terms and conditions that are not substantially in accordance with those outlined in the proposed plan provided to DBRS and/or Loblaw or the transaction experience material adverse changes, DBRS will consider the actual terms and a rating action could result.

DBRS confirmed Weston at Pfd-3.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 3bp, FixedResets up 4bp and DeemedRetractibles off 9bp. Volatility was average. Volume was average.