Month: October 2008

Banking Crisis 2008

TD Throws Down the Gauntlet on Prime

TD Bank has announced:

it has lowered its prime lending rate by 25 basis points to 4.50 per cent, effective October 9, 2008.
“Like all financial institutions, we have been watching the key lending rates very closely. Continuing market turmoil has steadily driven up the cost of borrowing for financial institutions. This makes it challenging to match the Bank of Canada rate cut at this time. We recognize the efforts the Bank of Canada is making and, despite the fact that our cost of funds remains high, we have decided to reduce our rate by 25 bps. We see this as a balanced move in managing our funds and passing along the intended benefits to our customers,” said Tim Hockey, President and CEO, TD Canada Trust.

This follows the Bank of Canada announcement:

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent

The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.

So Prime and the Bank of Canada rate have now decoupled … the potential for this was discussed in PrefBlog on January 16.

It will be most interesting to see what the other banks do … will they seek to maintain their margins and follow TD? Or will they go after market share and follow the Bank?

Update: Margins it is!

CIBC, Royal Bank of Canada, Scotiabank and Bank of Montreal soon followed, saying they would cut their prime by a quarter point as well to 4.5 per cent from 4.75 per cent, effective Thursday.

Market Action

October 7, 2008

Via Dealbreaker comes news that CME and Citadel will be starting a CDS exchange. The follows reports yesterday that the Fed was pushing the principals of a proposed clearinghouse to get moving; the report noted:

CNBC reported earlier that the Fed was meeting with officials from Chicago-based futures exchange operator CME Group and the Intercontinental Exchange Inc., the second-largest U.S. futures market, to create a marketplace for credit-default swaps.

Kelly Loeffler, a spokeswoman for Intercontinental Exchange, and CME spokeswoman Mary Haffenberg declined to comment on the meeting. Both companies have announced plans to offer clearing services for the market and ICE earlier this year bought credit swap broker Creditex Group Inc., which is one of the owners of Clearing Corp.

CME last year started offering futures contracts that were similar to credit-default swaps in an effort to tap into the over-the-counter market, which had swelled more than 100-fold the past seven years.

For background, see the post Exchange Traded CDSs and Accrued Interest.

I’ve updated the post SEC and BSC with some juicy de-redactions.

There is a cheery note from Bloomberg:

The Standard & Poor’s 500 Index lost 18 percent since the start of 2000 after sinking 11 percent this month, total return data compiled by Bloomberg show. The decline would be the first for a decade in 70 years and exceeds the 8.9 percent plunge in the 1930s, following the stock market crash of 1929, data compiled by New York University’s Stern School of Business show.

Econbrowser‘s Menzie Chinn paraphrases an IMF report on historical experience with finance-led recessions and provides a cheery chart:

The risk weight of Fannie/Freddie debt is being cut to 10%:

The Federal Deposit Insurance Corp. today tentatively approved a rule, proposed by all four federal bank regulators, that eases capital requirements for federally insured depository institutions that hold large amounts of Fannie and Freddie corporate debt, subordinated debt, mortgage guarantees and derivatives. The so-called risk weighting for banks on Fannie and Freddie’s credit claims was cut to 10 percent from 20 percent.

Sub-debt, too? Let’s hope they’ve got some really good signatures on the government guarantee!

At the same time, the banks are putting the screws to any borrower who breaches covenants. It’s every man for himself!

Brookfield issues were killed today. Annihilated. There has been a significant increase in options activity but the most recent actual news I can find is that Brookfield Residential Property Services has bought GMAC Home Services LLC. GMAC Home Services Mortgage and GMAC Real Estate were also included in the deal. But that was September 23. Are there any options mavens out there (you know who you are!) who want to take a stab at estimating default probabilities and times for the BAM retractibles, perps and BNA split-shares?

As at October 6, BMO-CM calls Brookfield a market-performer; it was down significantly today, but given that it outperformed slightly yesterday that’s not all too much surprising. If anybody can explain this, let me know!

What can I say? At 6.63%, PerpetualDiscount yields are now equal to their July 16 peak. This time around, though, long corporates are at about 6.70, so the interest-equivalent yield of 9.28% is a spread of “only” 258bp. Hell, we were there in June.

What gets me, though, and what has people who know me crossing the street so I won’t complain to them about it again, is just how sloppy the market is. It’s outrageous! If it keeps up, you won’t need any fancy software to outperform the market … just the ability to calculate current yields for similar issues with the same ex-Date.

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
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 5.07% 5.26% 78,171 15.23 6 -3.2842% 1,016.10
Floater 6.23% 6.29% 49,274 13.51 2 -10.1215% 646.5
Op. Retract 5.28% 5.98% 124,524 3.82 14 -1.7919% 995.2
Split-Share 6.14% 9.81% 57,458 4.06 12 -1.3550% 919.8
Interest Bearing 6.82% 8.83% 42,864 3.64 3 -0.8202% 1,013.7
Perpetual-Premium 6.36% 6.41% 54,973 13.30 1 +1.1537% 975.1
Perpetual-Discount 6.56% 6.63% 176,835 13.06 70 -0.9966% 819.2
Fixed-Reset 5.21% 5.07% 1,082.323 15.26 10 +0.6686% 1,096.7
Major Price Changes
Issue Index Change Notes
BAM.PR.I OpRet -12.9565% (!!!) Unbelievable. Now with a pre-tax bid-YTW of 10.67% based on a bid of 20.02 and a softMaturity 2013-12-30 at 25.00. Compare with BAM.PR.H (9.22% to 2012-3-30), BAM.PR.J (10.68% to 2018-3-30) and BAM.PR.O (10.27% to 2013-6-30); and with the perpetuals at 8.58% and 9.03%.
BNA.PR.A SplitShare -12.2414% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.3+:1 based on BAM.A at 24.05 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 18.31% (!) based on a bid of 20.36 and a hardMaturity 2010-9-30 at 25.00. Compare with BNA.PR.B (11.33% to 2016-3-25) and BNA.PR.C (12.07% to 2019-1-10). Unlike yesterday and the BNA.PR.B, the closing quote of 20.36-21.60, 2×2, is actually realistic on the bid side. After a trade at 21.04 at 1:14pm, some guy sold 1900 shares at 20.03 at 1:40pm, and the closing trade at 3:45pm was at 20.15. Incredible. I thought – still! even after all the horrors of 2008 – that you had to be on the brink of bankruptcy, with high leverage funded by short-term paper, to trade like this.
BAM.PR.B Floater -12.2000% Well, the floaters have to get in on the action too, don’t they?
W.PR.H PerpetualDiscount -8.8557% Commodities are going out of style! Now with a pre-tax bid-YTW of 7.56% based on a bid of 18.32 and a limitMaturity. Several smallish trades below the closing bid in the last two hours of trading.
BAM.PR.K Floater -8.0952%  
BAM.PR.J OpRet -8.0423% See BAM.PR.I, above.
BAM.PR.N PerpetualDiscount -7.9530% Now with a pre-tax bid-YTW of 9.04% based on a bid of 13.31 and a limitMaturity.
BCE.PR.I FixFloat -7.7021%  
GWO.PR.G PerpetualDiscount -6.6421% Now with a pre-tax bid-YTW of 7.42% based on a bid of 17.71 and a limitMaturity.
LBS.PR.A SplitShare -6.0674% Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 9.37% based on a bid of 8.36 and a hardMaturity 2013-11-29. The capital units are at a premium, making a monthly retraction a speculative proposition, but the annual retraction is at the end of November.
BCE.PR.Z FixFloat -5.4759%  
FIG.PR.A InterestBearing -5.4054% Asset coverage of 1.6+:1 as of October 3, according to Faircourt. Now with a pre-tax bid-YTW of 9.01% based on a bid of 8.75 and a hardMaturity 2014-12-31 at 10.00.
BAM.PR.M PerpetualDiscount -5.0169% Now with a pre-tax bid-YTW of 8.58% based on a bid of 14.01 and a limitMaturity.
BMO.PR.H PerpetualDiscount -4.6190% Now with a pre-tax bid-YTW of 6.73% based on a bid of 20.03 and a limitMaturity.
BAM.PR.H OpRet -4.4492% See BAM.PR.I, above.
POW.PR.B PerpetualDiscount -4.0701% Now with a pre-tax bid-YTW of 7.23% based on a bid of 18.62 and a limitMaturity.
BAM.PR.O OpRet -3.5714% Now with a pre-tax bid-YTW of 10.2660% based on a bid of 20.25 and a limitMaturity.
CU.PR.A PerpetualDiscount -3.4869% Now with a pre-tax bid-YTW of 6.32% based on a bid of 23.25 and a limitMaturity.
BCE.PR.C FixFloat -3.2609%  
PWF.PR.F PerpetualDiscount -3.2379% Now with a pre-tax bid-YTW of 6.51% based on a bid of 20.62 and a limitMaturity.
BCE.PR.A FixFloat -3.1250%  
CM.PR.J PerpetualDiscount -3.1250% Now with a pre-tax bid-YTW of 7.29% based on a bid of 15.50 and a limitMaturity.
CM.PR.P PerpetualDiscount -3.1008% Now with a pre-tax bid-YTW of 7.36% based on a bid of 18.75 and a limitMaturity.
POW.PR.A PerpetualDiscount -2.9907% Now with a pre-tax bid-YTW of 6.79% based on a bid of 20.76 and a limitMaturity.
CM.PR.I PerpetualDiscount -2.9500% Now with a pre-tax bid-YTW of 7.32% based on a bid of 16.12 and a limitMaturity.
NA.PR.L PerpetualDiscount -2.9255% Now with a pre-tax bid-YTW of 6.77% based on a bid of 18.25 and a limitMaturity.
BNS.PR.L PerpetualDiscount -2.8571% Now with a pre-tax bid-YTW of 6.14% based on a bid of 18.36 and a limitMaturity.
W.PR.J PerpetualDiscount -2.7490% Now with a pre-tax bid-YTW of 7.52% based on a bid of 18.75 and a limitMaturity.
BNS.PR.K PerpetualDiscount -2.6290% Now with a pre-tax bid-YTW of 6.02% based on a bid of 20.00 and a limitMaturity.
HSB.PR.C PerpetualDiscount -2.5974% Now with a pre-tax bid-YTW of 6.87% based on a bid of 18.75 and a limitMaturity.
FBS.PR.B SplitShare -2.2198% Asset coverage of 1.5+:1 as of October 2, according to TD Securities. Now with a pre-tax bid-YTW of 9.31% based on a bid of 8.81 and a hardMaturity 2011-12-15 at 10.00. Perhaps in an effort to halt the carnage, the fund announced a dividend increase for the capital units today; let’s see … FBS.B closed at 4.90; FBS.PR.B closed at 8.80; NAV $15.07 as of October 2; Special Annual Retraction in December …. hmmm ….
TD.PR.R PerpetualDiscount -2.1268% Now with a pre-tax bid-YTW of 6.09% based on a bid of 23.01 and a limitMaturity.
POW.PR.D PerpetualDiscount -2.0219% Now with a pre-tax bid-YTW of 7.02% based on a bid of 17.93 and a limitMaturity.
NA.PR.K PerpetualDiscount -1.9956% Now with a pre-tax bid-YTW of 6.73% based on a bid of 22.10 and a limitMaturity.
GWO.PR.I PerpetualDiscount -1.8282% Now with a pre-tax bid-YTW of 7.06% based on a bid of 16.11 and a limitMaturity.
DFN.PR.A SplitShare -1.7281% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.45% based on a bid of 8.53 and a hardMaturity 2014-12-1 at 10.00.
CM.PR.H PerpetualDiscount -1.7178% Now with a pre-tax bid-YTW of 7.52% based on a bid of 16.02 and a limitMaturity.
PWF.PR.E PerpetualDiscount -1.5549% Now with a pre-tax bid-YTW of 6.32% based on a bid of 22.16 and a limitMaturity.
BNS.PR.O PerpetualDiscount -1.4799% Now with a pre-tax bid-YTW of 6.02% based on a bid of 23.30 and a limitMaturity.
RY.PR.F PerpetualDiscount -1.3514% Now with a pre-tax bid-YTW of 6.46% based on a bid of 17.25 and a limitMaturity.
PWF.PR.K PerpetualDiscount -1.2880% Now with a pre-tax bid-YTW of 6.60% based on a bid of 19.16 and a limitMaturity.
CM.PR.D PerpetualDiscount -1.2500% Now with a pre-tax bid-YTW of 7.31% based on a bid of 19.75 and a limitMaturity.
BNS.PR.N PerpetualDiscount -1.1807% Now with a pre-tax bid-YTW of 6.04% based on a bid of 21.76 and a limitMaturity.
BNS.PR.J PerpetualDiscount -1.1358% Now with a pre-tax bid-YTW of 6.03% based on a bid of 21.76 and a limitMaturity.
BCE.PR.R FixFloat -1.0753%  
BNS.PR.Q FixedReset -1.0717%  
BCE.PR.Y FixFloat -1.0638%  
PWF.PR.L PerpetualDiscount +1.0842% Now with a pre-tax bid-YTW of 6.66% based on a bid of 19.58 and a limitMaturity.
CL.PR.B PerpetualPremium (for now!) +1.1537% Now with a pre-tax bid-YTW of 6.41% based on a bid of 24.55 and a limitMaturity.
CM.PR.E PerpetualDiscount +1.1873% Now with a pre-tax bid-YTW of 7.50% based on a bid of 18.75 and a limitMaturity.
BSD.PR.A InterestBearing +1.2346% Asset coverage of just under 1.3:1 as of October 3, according to Brookfield Funds. The asset coverage implies no more distributions to capital units. Now with a pre-tax bid-YTW of 10.00% based on a bid of 8.20 and a hardMaturity 2015-3-31 at 10.00.
PWF.PR.G PerpetualDiscount +1.3130% Now with a pre-tax bid-YTW of 6.28% based on a bid of 23.92 and a limitMaturity.
SLF.PR.D PerpetualDiscount +1.3629% Now with a pre-tax bid-YTW of 6.29% based on a bid of 17.85 and a limitMaturity.
ELF.PR.F PerpetualDiscount +1.4320% Now with a pre-tax bid-YTW of 7.85% based on a bid of 17.00 and a limitMaturity.
BNA.PR.C SplitShare +1.4493% See BNA.PR.A, above.
ELF.PR.G PerpetualDiscount +1.5303% Now with a pre-tax bid-YTW of 7.83% based on a bid of 15.26 and a limitMaturity.
STW.PR.A InterestBearing +1.5544% Asset coverage of just under 1.7:1 as of September 25, according to Middlefield. Now with a pre-tax bid-YTW of 7.68% (mostly as interest) based on a bid of 9.80 and a hardMaturity 2009-12-31.
MFC.PR.C PerpetualDiscount +1.6375% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.00 and a limitMaturity.
CIU.PR.A PerpetualDiscount +1.9553% Now with a pre-tax bid-YTW of 6.40% based on a bid of 18.25 and a limitMaturity.
PWF.PR.H PerpetualDiscount +2.0316% Now with a pre-tax bid-YTW of 6.49% based on a bid of 22.60 and a limitMaturity.
CM.PR.R OpRet +2.0408% Now with a pre-tax bid-YTW of 5.03% based on a bid of 25.00 and a softMaturity 2013-4-29 at 25.00.
PWF.PR.I PerpetualDiscount +2.4086% Now with a pre-tax bid-YTW of 6.43% based on a bid of 23.81 and a limitMaturity.
IAG.PR.A PerpetualDiscount +2.8807% Now with a pre-tax bid-YTW of 6.64% based on a bid of 17.50 and a limitMaturity.
BNA.PR.B SplitShare +4.6582% See BNA.PR.A, above.
NA.PR.N FixedReset +8.8405% Mostly reverses yesterday’s nonsense.
Volume Highlights
Issue Index Volume Notes
GWO.PR.F PerpetualDiscount 72,155 Anonymous crossed 67,300 at 25.00 … unless they were different anonymice! Now with a pre-tax bid-YTW of 6.00% based on a bid of 24.76 and a limitMaturity.
CM.PR.A OpRet 39,090 Nesbitt crossed 36,000 at 25.25. Now with a pre-tax bid-YTW of 5.22% based on a bid of 25.00 and a softMaturity 2011-7-30 at 25.00.
CM.PR.E PerpetualDiscount 34,500 TD crossed 25,000 at 18.95. Now with a pre-tax bid-YTW of 7.50% based on a bid of 18.75 and a limitMaturity.
BNS.PR.R FixedReset 34,325 RBC bought 10,000 at 24.45 from Scotia.
CM.PR.H PerpetualDiscount 29,735 Now with a pre-tax bid-YTW of 7.52% based on a bid of 16.02 and a limitMaturity.

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

Market Action

October 6, 2008

Total, Utter Carnage:

Canadian stocks fell, sending the main index to the lowest in three years, as commodity producers slid on concern their profits will be hurt by a global recession.
…
The S&P/TSX fell 5.3 percent to 10,230.43 in Toronto and earlier slid 11 percent for its biggest intraday drop since the “Black Monday” crash of Oct. 19, 1987. Canada’s main index is trading at the lowest level since October 2005, having fallen 32 percent from its June 18 record. All 10 industry groups in the S&P/TSX retreated today as 13 stocks out of 244 rose in Toronto.

Preferred Shares were not immune, with the TXPR down 1.71% compared to the TSX’s 5.30%. PerpetualDiscounts had their worst single day since I started doing these indices 2006-6-30 … the second worst day was a loss of a mere 2.183%. They closed with a weighted-mean average pre-tax bid-YTW of 6.56%, equivalent to 9.18% interest at the standard 1.4x factor. Long corporates closed with a yield of about 6.7%, so the spread is now about 248bp. The recent peak in PerpetualDiscount yield was 6.63% on July 16.

Volume wasn’t particularly heavy today, but there were quite a few SplitShare preferreds trading well above average volumes. Bid-Ask spreads were enormous, and the market is very, very sloppy.

We will see what tomorrow brings!

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
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 4.90% 5.03% 79,903 15.48 6 -1.0852% 1,050.6
Floater 5.60% 5.64% 49,408 14.47 2 -3.4386% 719.3
Op. Retract 5.18% 5.62% 124,524 3.68 14 -1.1827% 1,013.4
Split-Share 6.04% 9.07% 57,254 4.04 12 -3.2975% 932.4
Interest Bearing 6.76% 8.99% 43,738 3.68 3 -4.6180% 1,022.1
Perpetual-Premium 6.44% 6.48% 55,467 13.20 1 -1.6613% 964.0
Perpetual-Discount 6.49% 6.56% 178,147 13.15 70 -2.6004% 827.5
Fixed-Reset 5.24% 5.10% 1,109,234 15.21 10 -0.9498% 1,089.4
Major Price Changes
Issue Index Change Notes
BNA.PR.B SplitShare -12.5397% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.4+:1 based on BAM.A at 25.27 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 12.13% (!) based on a bid of 16.53 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (10.75% to 2010-9-30) and BNA.PR.C (12.27% to 2019-1-10). As with much else today, this one looks worse than it is … the closing quote was 16.53-17.49, 2×1, but the day’s low was 17.00 … which was still way worse than the previous 52-week low of 18.75. The underlying security of this split share, BAM.A, actually outperformed other equities today, down a mere 3.40%.
NA.PR.N FixedReset -9.9600% One of the Toronto Stock Exchange’s favourite quotes, 22.51-25.09. Low for the day was 25.00.
GWO.PR.G PerpetualDiscount -7.9126% Now with a pre-tax bid-YTW of 6.92% based on a bid of 18.97 and a limitMaturity.
BSD.PR.A InterestBearing -7.5342% Asset coverage of just under 1.3:1 as of October 3, according to Brookfield Funds. The asset coverage implies no more distributions to capital units. Now with a pre-tax bid-YTW of 10.24% based on a bid of 8.10 and a hardMaturity 2015-3-31 at 10.00.
BNA.PR.C SplitShare -7.1332% See BNA.PR.B, above
CIU.PR.A PerpetualDiscount -6.7708% Now with a pre-tax bid-YTW of 6.52% based on a bid of 17.90 and a limitMaturity.
WFS.PR.A SplitShare -6.2718% Asset coverage of 1.5+:1 as of September 30, according to Mulvihill. Now with a pre-tax bid-YTW of 14.16% based on a bid of 8.07 and a hardMaturity 2011-6-30. Below $9, some might find even the regular monthly retraction to be attractive.
MFC.PR.C PerpetualDiscount -6.0477% Now with a pre-tax bid-YTW of 6.43% based on a bid of 17.71 and a limitMaturity.
W.PR.J PerpetualDiscount -5.9512% Now with a pre-tax bid-YTW of 7.31% based on a bid of 19.28 and a limitMaturity.
BAM.PR.N PerpetualDiscount -5.7980% Now with a pre-tax bid-YTW of 8.31% based on a bid of 14.46 and a limitMaturity.
CM.PR.E PerpetualDiscount -4.9744% Now with a pre-tax bid-YTW of 7.59% based on a bid of 18.53 and a limitMaturity.
PWF.PR.I PerpetualDiscount -4.9469% Now with a pre-tax bid-YTW of 6.58% based on a bid of 23.25 and a limitMaturity.
TD.PR.N OpRet -4.8573% Now with a pre-tax bid-YTW of 5.39% based on a bid of 24.05 and a softMaturity 2014-1-30 … but don’t get your hopes up! The closing quote was 24.05-25.49, 7×20, and the low for the day was 25.50.
BAM.PR.M PerpetualDiscount -4.8387% Now with a pre-tax bid-YTW of 8.14% based on a bid of 14.75 and a limitMaturity.
CM.PR.H PerpetualDiscount -4.6226% Now with a pre-tax bid-YTW of 7.39% based on a bid of 16.30 and a limitMaturity.
ELF.PR.G PerpetualDiscount -4.5714% Now with a pre-tax bid-YTW of 7.96% based on a bid of 15.03 and a limitMaturity.
PWF.PR.H PerpetualDiscount -4.3197% Now with a pre-tax bid-YTW of 6.62% based on a bid of 22.15 and a limitMaturity.
BAM.PR.K Floater -4.2969%  
NA.PR.M PerpetualDiscount -4.2289% Now with a pre-tax bid-YTW of 6.61% based on a bid of 23.10 and a limitMaturity.
FIG.PR.A InterestBearing -4.1451% Asset coverage of 1.6+:1 as of October 3, according to Faircourt. Now with a pre-tax bid-YTW of 7.88% based on a bid of 9.25 and a hardMaturity 2014-12-31 at 10.00.
NA.PR.L PerpetualDiscount -4.0795% Now with a pre-tax bid-YTW of 7.69% based on a bid of 18.80 and a limitMaturity.
LFE.PR.A SplitShare -4.0795% Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.69% based on a bid of 9.17 and a hardMaturity 2012-12-1 at 10.00
BNS.PR.M PerpetualDiscount -3.9256% Now with a pre-tax bid-YTW of 6.07% based on a bid of 18.60 and a limitMaturity.
PWF.PR.L PerpetualDiscount -3.8710% Now with a pre-tax bid-YTW of 6.73% based on a bid of 19.37 and a limitMaturity.
GWO.PR.I PerpetualDiscount -3.8101% Now with a pre-tax bid-YTW of 6.92% based on a bid of 16.41 and a limitMaturity.
CM.PR.G PerpetualDiscount -3.6979% Now with a pre-tax bid-YTW of 7.33% based on a bid of 18.49 and a limitMaturity.
ELF.PR.F PerpetualDiscount -3.4562% Now with a pre-tax bid-YTW of 7.96% based on a bid of 16.76 and a limitMaturity.
BNS.PR.J PerpetualDiscount -3.2953% Now with a pre-tax bid-YTW of 5.96% based on a bid of 22.01 and a limitMaturity.
DFN.PR.A SplitShare -3.2330% Asset coverage of just under 2.2:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.09% based on a bid of 8.68 and a hardMaturity 2014-12-1 at 10.00.
BMO.PR.K PerpetualDiscount -3.1175% Now with a pre-tax bid-YTW of 6.61% based on a bid of 20.20 and a limitMaturity.
PWF.PR.F PerpetualDiscount -3.0923% Now with a pre-tax bid-YTW of 6.29% based on a bid of 21.31 and a limitMaturity.
BNS.PR.L PerpetualDiscount -3.0769% Now with a pre-tax bid-YTW of 5.97% based on a bid of 18.90 and a limitMaturity.
NA.PR.K PerpetualDiscount -3.0108% Now with a pre-tax bid-YTW of 6.60% based on a bid of 22.55 and a limitMaturity.
HSB.PR.D PerpetualDiscount -2.8871% Now with a pre-tax bid-YTW of 6.82% based on a bid of 18.50 and a limitMaturity.
TD.PR.Q PerpetualDiscount -2.8807% Now with a pre-tax bid-YTW of 6.03% based on a bid of 23.25 and a limitMaturity.
BAM.PR.H OpRet -2.8807% Now with a pre-tax bid-YTW of 7.71% based on a bid of 23.60 and a softMaturity 2012-3-30 at 25.00. Compare with BAM.PR.I (7.45% to 2013-12-30), BAM.PR.J (9.43% to 2018-3-30) and BAM.PR.O (9.35% to 2013-6-30); and with the perpetuals at 8.14% and 8.31%.
CM.PR.I PerpetualDiscount -2.8655% Now with a pre-tax bid-YTW of 7.10% based on a bid of 16.61 and a limitMaturity.
TD.PR.O PerpetualDiscount -2.8629% Now with a pre-tax bid-YTW of 6.31% based on a bid of 19.27 and a limitMaturity.
POW.PR.A PerpetualDiscount -2.7715% Now with a pre-tax bid-YTW of 6.58% based on a bid of 21.40 and a limitMaturity.
TCA.PR.X PerpetualDiscount -2.6661% Now with a pre-tax bid-YTW of 6.17% based on a bid of 45.27 and a limitMaturity.
STW.PR.A InterestBearing -2.6236% Asset coverage of just under 1.7:1 as of September 25, according to Middlefield. Now with a pre-tax bid-YTW of 9.00% (mostly as interest) based on a bid of 9.65 and a hardMaturity 2009-12-31.
SLF.PR.C PerpetualDiscount -2.6111% Now with a pre-tax bid-YTW of 6.40% based on a bid of 17.53 and a limitMaturity.
RY.PR.W PerpetualDiscount -2.6091% Now with a pre-tax bid-YTW of 6.42% based on a bid of 19.41 and a limitMaturity.
BAM.PR.B Floater -2.5974%  
FBS.PR.B SplitShare -2.5946% Asset coverage of 1.5+:1 as of October 2, according to TD Securities. Now with a pre-tax bid-YTW of 8.51% based on a bid of 9.01 and a hardMaturity 2011-12-15 at 10.00.
BNS.PR.N PerpetualDiscount -2.5232% Now with a pre-tax bid-YTW of 5.97% based on a bid of 22.02 and a limitMaturity.
FFN.PR.A SplitShare -2.5200% Asset coverage of 1.8+:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 8.49% based on a bid of 8.51 and a hardMaturity 2014-12-1 at 10.00.
POW.PR.C PerpetualDiscount -2.4537% Now with a pre-tax bid-YTW of 6.93% based on a bid of 21.07 and a limitMaturity.
POW.PR.B PerpetualDiscount -2.3642% Now with a pre-tax bid-YTW of 6.94% based on a bid of 19.41 and a limitMaturity.
BMO.PR.L PerpetualDiscount -2.3555% Now with a pre-tax bid-YTW of 6.46% based on a bid of 22.80 and a limitMaturity.
BCE.PR.C FixFloat -2.3355%  
BCE.PR.Y Ratchet -2.2869%  
BNS.PR.O PerpetualDiscount -2.2727% Now with a pre-tax bid-YTW of 5.92% based on a bid of 23.65 and a limitMaturity.
CU.PR.A PerpetualDiscount -2.2718% Now with a pre-tax bid-YTW of 6.09% based on a bid of 24.09 and a limitMaturity.
CM.PR.R OpRet -2.2346% Now with a pre-tax bid-YTW of 5.53% based on a bid of 24.50 and a softMaturity 2013-4-29 at 25.00.
BNS.PR.K PerpetualDiscount -2.1905% Now with a pre-tax bid-YTW of 5.86% based on a bid of 20.54 and a limitMaturity.
ENB.PR.A PerpetualDiscount -2.1702% Now with a pre-tax bid-YTW of 6.05% based on a bid of 22.99 and a limitMaturity.
RY.PR.H PerpetualDiscount -2.1413% Now with a pre-tax bid-YTW of 6.28% based on a bid of 22.85 and a limitMaturity.
CM.PR.J PerpetualDiscount -2.1407% Now with a pre-tax bid-YTW of 7.06% based on a bid of 16.00 and a limitMaturity.
MFC.PR.B PerpetualDiscount -2.1399% Now with a pre-tax bid-YTW of 6.27% based on a bid of 18.75 and a limitMaturity.
BCE.PR.G FixFloat -2.1304%  
SLF.PR.E PerpetualDiscount -2.1217% Now with a pre-tax bid-YTW of 6.48% based on a bid of 17.53 and a limitMaturity.
SLF.PR.A PerpetualDiscount -2.0931% Now with a pre-tax bid-YTW of 6.41% based on a bid of 18.71 and a limitMaturity.
CU.PR.B PerpetualDiscount -2.0808% Now with a pre-tax bid-YTW of 6.33% based on a bid of 24.00 and a limitMaturity.
BAM.PR.J OpRet -2.0725% See BAM.PR.I, above
SLF.PR.B PerpetualDiscount -2.0608% Now with a pre-tax bid-YTW of 6.37% based on a bid of 19.01 and a limitMaturity.
PWF.PR.K PerpetualDiscount -2.0192% Now with a pre-tax bid-YTW of 6.52% based on a bid of 19.41 and a limitMaturity.
BNS.PR.R FixedReset -2.0161%  
PWF.PR.G PerpetualDiscount -1.9925% Now with a pre-tax bid-YTW of 6.37% based on a bid of 23.61 and a limitMaturity.
BNA.PR.A SplitShare -1.9027% See BNA.PR.B, above.
RY.PR.E PerpetualDiscount -1.8681% Now with a pre-tax bid-YTW of 6.41% based on a bid of 17.86 and a limitMaturity.
RY.PR.G PerpetualDiscount -1.8428% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.11 and a limitMaturity.
RY.PR.A PerpetualDiscount -1.7709% Now with a pre-tax bid-YTW of 6.37% based on a bid of 17.75 and a limitMaturity.
PWF.PR.E PerpetualDiscount -1.7460% Now with a pre-tax bid-YTW of 6.21% based on a bid of 22.51 and a limitMaturity.
RY.PR.B PerpetualDiscount -1.7223% Now with a pre-tax bid-YTW of 6.35% based on a bid of 18.83 and a limitMaturity.
CM.PR.D PerpetualDiscount -1.7199% Now with a pre-tax bid-YTW of 7.22% based on a bid of 20.00 and a limitMaturity.
TCA.PR.Y PerpetualDiscount -1.7186% Now with a pre-tax bid-YTW of 6.10% based on a bid of 45.75 and a limitMaturity.
BMO.PR.J PerpetualDiscount -1.6835% Now with a pre-tax bid-YTW of 6.53% based on a bid of 17.52 and a limitMaturity.
CL.PR.B PerpetualPremium (for now!) -1.6613% Now with a pre-tax bid-YTW of 6.48% based on a bid of 24.27 and a limitMaturity.
RY.PR.F PerpetualDiscount -1.6611% Now with a pre-tax bid-YTW of 6.37% based on a bid of 17.76 and a limitMaturity.
LBS.PR.A SplitShare -1.6575% Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 7.91% based on a bid of 8.90 and a hardMaturity 2013-11-29. The capital units are at a premium, making a monthly retraction a speculative proposition, but the annual retraction is at the end of November.
TD.PR.R PerpetualDiscount -1.6488% Now with a pre-tax bid-YTW of 5.96% based on a bid of 23.51 and a limitMaturity.
GWO.PR.H PerpetualDiscount -1.6393% Now with a pre-tax bid-YTW of 6.80% based on a bid of 18.00 and a limitMaturity.
RY.PR.C PerpetualDiscount -1.5781% Now with a pre-tax bid-YTW of 6.25% based on a bid of 18.71 and a limitMaturity.
TD.PR.A FixedReset -1.5385%  
HSB.PR.C PerpetualDiscount -1.4337% Now with a pre-tax bid-YTW of 6.69% based on a bid of 19.25 and a limitMaturity.
BAM.PR.O OpRet -1.4085% See BAM.PR.H, above.
BAM.PR.I OpRet -1.1603% See BAM.PR.H, above.
FTN.PR.A SplitShare -1.1099% Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 7.30% based on a bid of 8.91 and a hardMaturity 2014-12-1 at 10.00. The capital unit closed at 9.30, and the Special Annual Concurrent Retraction is this month … so it might be worth checking out this possibility.
RY.PR.D PerpetualDiscount -1.0923% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.11 and a limitMaturity.
BCE.PR.Z FixFloat -1.0748%  
BCE.PR.R FixFloat -1.0638%  
PWF.PR.J OpRet -1.0580% Now with a pre-tax bid-YTW of 4.69% based on a bid of 25.25 and a softMaturity 2013-7-30 at 25.00.
TD.PR.P PerpetualDiscount +1.1669% Now with a pre-tax bid-YTW of 5.96% based on a bid of 22.05 and a limitMaturity.
TD.PR.Y FixedReset +1.4633%  
IAG.PR.A PerpetualDiscount +1.4916% Now with a pre-tax bid-YTW of 6.83% based on a bid of 17.01 and a limitMaturity.
TD.PR.S FixedReset +3.225%  
Volume Highlights
Issue Index Volume Notes
GWO.PR.F PerpetualDiscount 61,741 National Bank crossed 10,000 at 25.00, then bought 15,000 from anonymous at the same price. Now with a pre-tax bid-YTW of 6.00% based on a bid of 24.76 and a limitMaturity.
SLF.PR.E PerpetualDiscount 56,975 Nesbitt crossed 50,000 at 17.75. Now with a pre-tax bid-YTW of 6.48% based on a bid of 17.53 and a limitMaturity.
BNS.PR.P FixedReset 47,740 Nesbitt crossed 42,300 at 24.70
MFC.PR.A OpRet 32,570 CIBC crossed 25,000 at 25.00. Now with a pre-tax bid-YTW of 4.31% based on a bid of 24.76 and a softMaturity 2015-12-18 at 25.00.
BNS.PR.L PerpetualDiscount 30,200 Anonymous crossed 10,000 at 19.00 … unless it was two different anonymice. Now with a pre-tax bid-YTW of 5.97% based on a bid of 18.90 and a limitMaturity.

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

Interesting External Papers

IIAC Releases 2Q08 Debt Report

The Investment Industry Association of Canada has released An Issue of Debt 2Q08 – statistics on issuance and trading in Canadian debt markets.

Of interest is the issuance of Maple bonds (issued by foreign companies in Canadian currency):

Corporate issuance remained lofty in Q2, despite widening credit spreads experienced early in the quarter. Financings totaled $24 billion with over 60% of issuance deriving from the financial sector— an increase of 33% from Q1 but still off the pace with last year’s figures (Chart 1). The pull back has largely been attributed to the lack of Maple bond offerings thus far in 2008. For the first half of 2008, Maple bond issuance has totaled just $500 million as compared to over $23 billion during the same period in 2007 (Chart 2).

MAPF

MAPF Performance: September 2008

The fund underperfomed its benchmark in September, but strongly outperformed the index over the quarter. As an investor, I can’t say I like the volatility any more than my clients do, but as an investment manager I have to say that the immense volatility of the market is leading to most unusual trading opportunities.

The fund’s price at September 30 was $8.1886, after a distribution of $0.168825 per unit, after expenses, but before fees (which are billed individually to each client).

Returns to September 30, 2008
Period MAPF Index
One Month -3.13% -2.59%
Three Months +0.19% -1.88%
One Year -3.72% -6.64%
Two Years (annualized) -1.31% -4.36%
Three Years (annualized) +1.06% -1.64%
Four Years (annualized) +2.53% +0.04%
Five Years (annualized) +5.01% +1.01%
Six Years (annualized) +9.07% +2.02%
Seven Years (annualized) +6.97% +2.20%
The Index is the BMO-CM “50”

Returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW		 Leverage
Divisor		 Securities
Average
YTW		 Sustainable
Income
June, 2007 9.3114 5.16% 1.03 5.01% 0.4665
September 9.1489 5.35% 0.98 5.46% 0.4995
December, 2007 9.0070 5.53% 0.942 5.87% 0.5288
March, 2008 8.8512 6.17% 1.047 5.89% 0.5216
June 8.3419 6.034% 0.952 6.338% $0.5287
September, 2008 8.1886 7.108% 0.969 7.335% $0.6006
NAVPU is shown after quarterly distributions.
“Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00%
“Securities YTW” divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
“Sustainable Income” is the best available estimate of the fund’s dividend income per unit, before fees and expenses.

The fund has positions in two “Split Share” preferreds – terribly out of fashion at this time and trading at yields higher than the perpetuals – which, as explained last month results in the calculation being rendered somewhat suspect. If these positions were sold – at the closing bid on 9/30 – and the proceeds reinvested in rest of the portfolio, the resultant portfolio would yield 6.608% and the estimated sustainable dividend per unit (before fees and expenses) would be $0.5411; significantly less than the figure calculated above, but still an increase from last month’s adjusted figure and continuing the long-term upward trend.

It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

  • the very good performance against the index
  • the long term increases in sustainable income per unit

At some point – and I won’t guess when that time will be! – the market will cease its decline and, probably, return to its normal levels of between 100bp and 150bp above long term corporates, which in turn will return to more normal levels against long term Canadas. At the moment, however, people are scared, the market is sloppy and trading opportunities abound.

More later.

Update, 2008-10-19: I note that according to Claymore the performance of CPD – as measured by its NAV – was -8.38% in the year to September 30. This figure is net of all fees and expenses; but is significantly worse than the actively traded MAPF.

Sub-Prime!

Cassandra's Reward

Via Dealbreaker and Alea, a fascinating look at Freddie Mac’s contribution to the housing bubble:

For two years, Mr. Mudd operated without a permanent chief risk officer to guard against unhealthy hazards. When Enrico Dallavecchia was hired for that position in 2006, he told Mr. Mudd that the company should be charging more to handle risky loans.

In the following months to come, Mr. Dallavecchia warned that some markets were becoming overheated and argued that a housing bubble had formed, according to a person with knowledge of the conversations. But many of the warnings were rebuffed.

Mr. Mudd told Mr. Dallavecchia that the market, shareholders and Congress all thought the companies should be taking more risks, not fewer, according to a person who observed the conversation. “Who am I supposed to fight with first?” Mr. Mudd asked.

In the interview, Mr. Mudd said he never made those comments. Mr. Dallavecchia was among those whom Mr. Mudd forced out of the company during a reorganization in August.

Well … who knows who said what to whom when. But I’ll bet that all the internal memoranda are made public with the next few years and will be very interesting.

Another revealing quote from the article is:

“When homes are doubling in price in every six years and incomes are increasing by a mere one percent per year, Fannie’s mission is of paramount importance,” Senator Jack Reed, a Rhode Island Democrat, lectured Mr. Mudd at a Congressional hearing in 2006. “In fact, Fannie and Freddie can do more, a lot more.”

Um … demand destruction is the market’s role. Once a government gets into the business of distorting a market’s price signals, watch out! A recent example of the US government getting it right was leaving oil prices alone … they fell quickly enough when it became clear that US consumers were adjusting their behaviour to use less.

Miscellaneous News

Help Wanted: Compliance Officer

In these trying times, it will come as a great relief to many to learn that there will be at least one new hire on Bay Street between now and Christmas (2009). The subject of this post is a little unusual for PrefBlog, but I’m just trying to help out and spread the news of a vacancy. And besides, this is hilarious.

How many of youse guys know what a compliance officer at a registered firm does for a living? According to OSC Rule 31-505:

1.3 Designation of Compliance Officer

(1) A registered dealer or adviser shall designate a registered partner or officer as the compliance officer who is responsible for discharging the obligations of the registered dealer or adviser under Ontario securities law.

(2) The person designated under subsection (1) by a registered dealer or adviser shall also be responsible for opening each new account, supervising trades made for or with each client and supervising advice provided to each client or, if a branch manager is designated under subsection 1.4(1), for supervising the branch manager’s conduct of the activities specified in subsection 1.4(2).

(3) Despite subsections (1) and (2), the designated compliance officer may delegate supervisory functions to an individual who reports to the compliance officer and who meets the proficiency requirements under Rule 31-502 Proficiency Requirements for Registrants for a salesperson in the same category of registration as the dealer or an officer in the same category of registration as the adviser, that has in each case designated the compliance officer.

(4) An applicant for registration or reinstatement of registration as a dealer or adviser shall deliver to the Commission, with the application, written notice of the name of the person proposed to be designated under subsection (1).

The Globe and Mail reports:

He’d soon approach the desk. He’d demand cash, threaten the teller and often say he had a gun – although no weapon was ever seen. Sometimes he was given cash; other times he came out empty-handed. But in each case he ran, and got away.

And so it continued, since 2003, in some 26 suspected robberies carried out by the “exchange bandit.” The most recent happened last month, and this week, the Canadian Bankers Association decided that was enough.

On Thursday, it offered a $10,000 reward for information leading to the arrest and conviction of the thief
…
On Friday morning, they got a break. A 37-year-old vice-president of a Toronto investment firm walked into a downtown police station, with his lawyer, and turned himself in.

A compliance officer with Paradigm Capital in Toronto’s financial district, Kevin John Pinto’s job was to make sure his company’s deals were all within regulation and above-board. On Friday, Mr. Pinto was charged by Toronto police with 10 bank robberies. More charges from other regions are expected, Constable Tony Vella said.

Friday night, Paradigm Capital confirmed Mr. Pinto had been an employee since January, 2006. Chief executive officer David Roland said the company found out about the allegations Friday afternoon, suspended Mr. Pinto, began contacting all the regulatory bodies which may need to investigate, while striking up an investigation of its own.

Paradigm has 37 registrants. Kevin Pinto was only the Vice President, Compliance; the Chief Compliance Officer is Michael Ward, CA. Mr. Pinto has been suspended.

The Toronto police published a news release about his surrender and arrest. What gets me is:

the latest robbery occurred in Toronto on Friday, September 12, 2008, at Scotiabank, 44 King Street West.

and Paradigm’s address is:

95 Wellington Street West, Suite 2101, P.O. Box 55, Toronto, Ontario, Canada M5J 2N7

What did he do? Walk up during lunch?

Update, 2008-10-08: Via Financial Webring Forum, some colour from the Star.

Market Action

October 3, 2008

Accrued Interest brings us up to date on US Municipals. He mentioned delevering of closed end funds frantically trying to redeem their Auction Rate Securities … First Trust Advisors redeemed one tranche on Sept. 24, then another tranche Oct. 2 … of the same paper! The symbol (of the “Capital Units”, shall we say) of the fund is FPI and it has not been having a nice time:

FPI invests in tax-advantaged preferreds, but the delevering principal is the same as with municipal funds.

Ten year municipals are trading 50bp over treasuries – before tax effects – which is unusual to say the least. States and cities aren’t doing so well in this market:

Tax-exempt borrowers this week sold less than 15 percent of a typical week’s sales, data compiled by Bloomberg show, and their costs to borrow long term soared to the highest in eight years. Congress passed a $700 billion financial-market rescue plan today designed to unlock credit markets, urged on by California Governor Arnold Schwarzenegger’s warning that his and other states may need emergency loans without it.
…
States and cities have postponed more than $12 billion in note and bond deals since Lehman Brothers Holdings Inc. declared bankruptcy on Sept. 15, according to data compiled by Bloomberg. California may run out of cash at the end of the month if the state can’t sell billions in short-term debt, Treasurer Bill Lockyer, a Democrat, said Oct. 1.

Assiduous Readers will remember Mr. Lockyer – he’s made many unintentionally hilarious statements about investor behaviour … but should be more careful with what he wishes for.

The Citigroup/Wachovia/Wells Fargo fight promises to be entertaining – who has the most influential regulators?

“The FDIC stands behind its previously announced agreement with Citigroup,” FDIC Chairman Sheila Bair said in a statement today. “The FDIC will be reviewing all proposals and working with the primary regulators of all three institutions to pursue a resolution that serves the public interest.”

Emergency changes allow ideas to be tested in unexpected ways. I remember reading about a professor in the States who had gone so far as to attempt to estimate the effect on climate of jet plane contrails. All very thorough and meticulous, I’m sure, but how could his calculations ever be tested? He got his chance when air traffic over North America was shut down in the wake of 9/11.

And so it is with this moronic short-selling ban. The WSJ publicized some Credit Suisse research and there are a few bits and pieces here and there similarly examining actual data. Basically, the ban has increased volatility and increased transaction costs. This ban will provide grist for academic mills for a long time to come … I may start making a book on when the regulators will come forward and admit ‘We don’t understand the first thing about markets, we panicked and we were wrong’. Should be about maybe next week, eh?

As it happens, they rescinded the ban … its last day will be Wednesday 8th. Surprisingly, the press release makes no mention of staff resignations.

I’ve added material to the post Synthetic Extended Deposit Insurance – the Critique.

CIBC has entered into a risk-sharing agreement with Cerberus:

Canadian Imperial Bank of Commerce, which has taken more writedowns than any Canadian lender during the financial crisis, said Cerberus Capital Management LP will invest $1.05 billion in its U.S. real estate portfolio, helping the bank reduce risk.
…
The real estate portfolio has a notional value of about $6.3 billion and consists of mortgage-backed securities and collateralized debt obligations. The assets have been written down “by a material amount,” Lalonde said, with a fair value of $1.08 billion at July 31.
…
“CIBC has given away a portion of what appears to be the economic value of the underlying assets to protect the accounting (i.e. mark-to-market) downside,” National Bank Financial analyst Robert Sedran said in a note to investors.

PerpetualDiscounts off a bit today, marking their ninth consecutive down day. The weighted-mean-average pre-tax bid-YTW is now 6.38%, equivalent to 8.93% at the standard 1.4x equivalency factor. Long Corporates are now at about 6.75, making the pre-tax interest-equivalent spread about 218bp.

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
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 4.84% 4.95% 80,743 15.57 6 -0.7350% 1,062.1
Floater 5.40% 5.44% 48,810 14.79 2 -0.8375% 745.0
Op. Retract 5.10% 5.23% 124,115 3.69 14 -0.2790% 1,025.5
Split-Share 5.84% 8.20% 56,441 4.10 12 +0.3760% 964.2
Interest Bearing 6.44% 7.40% 43,164 3.76 3 +0.9056% 1,071.5
Perpetual-Premium 6.33% 6.37% 55,114 13.36 1 +0.7347% 980.3
Perpetual-Discount 6.31% 6.38% 178,759 13.38 70 -0.0424% 849.6
Fixed-Reset 5.16% 5.05% 1,130,057 15.26 10 -0.3707% 1,100.0
Major Price Changes
Issue Index Change Notes
SBC.PR.A SplitShare -5.1777% Asset coverage of 1.9+:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 7.11% based on a bid of 9.34 and a hardMaturity 2012-11-30 at 10.00. Sadly, the capital units are trading at around NAV, making the monthly retraction a chancy thing. Still … the Annual Retraction is at the end of December.
IAG.PR.A PerpetualDiscount -4.6101% Now with a pre-tax bid-YTW of 6.92% based on a bid of 16.76 and a limitMaturity.
LBS.PR.A SplitShare -3.3120% Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 7.52% based on a bid of 9.05 and a hardMaturity 2013-11-29. The capital units are at a premium, making a monthly retraction a speculative proposition, but the annual retraction is at the end of November.
BAM.PR.J OpRet -2.7708% Now with a pre-tax bid-YTW of 9.11% based on a bid of 19.30 and a softMaturity 2018-3-30 at 25.00. Compare with BAM.PR.H (6.73% to 2012-3-30), BAM.PR.I (7.17% to 2013-12-30) and BAM.PR.O (8.97% to 2013-6-30); and with the perpetuals at about 7.80%.
CM.PR.P PerpetualDiscount -2.7638% Now with a pre-tax bid-YTW of 7.13% based on a bid of 19.35 and a limitMaturity.
CM.PR.K FixedReset -2.6369% Now with a pre-tax bid-YTW of 5.43% based on a bid of 24.00 and a limitMaturity.
TD.PR.P PerpetualDiscount -2.5980% Now with a pre-tax bid-YTW of 6.05% based on a bid of 22.12 and a limitMaturity.
BCE.PR.C FixFloat -1.8750%  
CM.PR.E PerpetualDiscount -1.7632% Now with a pre-tax bid-YTW of 7.20% based on a bid of 19.50 and a limitMaturity.
POW.PR.D PerpetualDiscount -1.5633% Now with a pre-tax bid-YTW of 6.89% based on a bid of 18.26 and a limitMaturity.
BCE.PR.G FixFloat -1.4989%  
GWO.PR.G PerpetualDiscount -1.4354% Now with a pre-tax bid-YTW of 6.36% based on a bid of 20.60 and a limitMaturity.
CU.PR.B PerpetualDiscount -1.3682% Now with a pre-tax bid-YTW of 6.19% based on a bid of 24.51 and a limitMaturity.
PWF.PR.H PerpetualDiscount -1.1106% Now with a pre-tax bid-YTW of 6.33% based on a bid of 23.15 and a limitMaturity.
BAM.PR.K Floater -1.0947%  
NA.PR.L PerpetualDiscount -1.0096% Now with a pre-tax bid-YTW of 6.29% based on a bid of 19.61 and a limitMaturity.
BNS.PR.N PerpetualDiscount +1.0054% Now with a pre-tax bid-YTW of 5.81% based on a bid of 22.59 and a limitMaturity.
PWF.PR.L PerpetualDiscount +1.2054% Now with a pre-tax bid-YTW of 6.46% based on a bid of 20.15 and a limitMaturity.
W.PR.J PerpetualDiscount +1.8887% Now with a pre-tax bid-YTW of 6.87% based on a bid of 20.50 and a limitMaturity.
BAM.PR.M PerpetualDiscount +1.9066% Now with a pre-tax bid-YTW of 7.74% based on a bid of 15.50 and a limitMaturity.
ENB.PR.A PerpetualDiscount +1.9523% Now with a pre-tax bid-YTW of 5.92% based on a bid of 23.50 and a limitMaturity.
WFS.PR.A SplitShare +2.1352% Asset coverage of just under 1.6:1 as of September 25, according to Mulvihill. Now with a pre-tax bid-YTW of 11.41% based on a bid of 8.61 and a hardMaturity 2011-6-30. Below $9, some might find even the regular monthly retraction to be attractive.
STW.PR.A InterestBearing +2.1352% Asset coverage of just under 1.7:1 as of September 25, according to Middlefield. Now with a pre-tax bid-YTW of 6.65% (mostly as interest) based on a bid of 9.91 and a hardMaturity 2009-12-31.
FTN.PR.A SplitShare +3.2073% Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 7.10% based on a bid of 9.01 and a hardMaturity 2014-12-1 at 10.00. The capital unit closed at 10.42, and the Special Annual Concurrent Retraction is this month … so it might be worth checking out this possibility.
ELF.PR.G PerpetualDiscount +3.2787% Now with a pre-tax bid-YTW of 7.59% based on a bid of 15.75 and a limitMaturity.
LFE.PR.A SplitShare +3.913% Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 6.51% based on a bid of 9.56 and a hardMaturity 2012-12-1 at 10.00
BMO.PR.H PerpetualDiscount +3.9803% Now with a pre-tax bid-YTW of 6.36% based on a bid of 21.16 and a limitMaturity.
BNA.PR.C SplitShare +6.0671% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.5+:1 based on BAM.A at 26.16 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 11.21% (!) based on a bid of 14.86 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (9.62% to 2010-9-30) and BNA.PR.B (9.75% to 2016-3-25).
Volume Highlights
Issue Index Volume Notes
NTL.PR.G Scraps (would be Ratchet, but there are credit concerns) 170,875  
MFC.PR.B PerpetualDiscount 169,900 Now with a pre-tax bid-YTW of 6.13% based on a bid of 19.16 and a limitMaturity.
NTL.PR.F Scraps (would be Ratchet but there are credit concerns) 154,557  
GWO.PR.F FixFloat 56,562 Now with a pre-tax bid-YTW of 5.97% based on a bid of 24.86 and a limitMaturity.
BNS.PR.K PerpetualDiscount 34,825 Now with a pre-tax bid-YTW of 5.72% based on a bid of 21.00 and a limitMaturity.
TD.PR.P PerpetualDiscount 23,855 Now with a pre-tax bid-YTW of 6.05% based on a bid of 22.12 and a limitMaturity.
PWF.PR.L PerpetualDiscount 17,325 Now with a pre-tax bid-YTW of 6.46% based on a bid of 20.15 and a limitMaturity.

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

Market Action

October 2, 2008

Again, very brief commentary. Sorry, folks!

Fed will get hit by mark-to-market accounting rules. Haha! This will fuel political debates for CENTURIES!

The Fed will announce its quarterly estimate of the fair value of Maiden Lane LLC’s $30 billion of holdings that JPMorgan Chase & Co. considered too risky when it acquired Bear Stearns in March, Bank of America analysts Jeffrey Rosenberg and Hans Mikkelsen wrote in a client note. The central bank valued the assets at $29 billion as of June 30, according to the report.

“With the worsening in mortgage markets since last quarter, we estimate a range of $2 billion to $6 billion of unrealized losses,” the New York-based analysts wrote.

Discount window working overtime

Market for short term paper on strike; and some anecdotal colour thereof.

Corporate bond market completely illiquid:

The so-called bid-ask spread on Dallas-based AT&T Inc.’s $600 million of 6.8 percent bonds due in 2036 averaged 121 basis points last week, up from 7 basis points in early 2007, according to data compiled by Bloomberg.

Preferred got smacked today in the backwash from a horrible, horrible, horrible day in equities. A bit more commentary, with an emphasis on the sloppiness of the market at Sloppy, Indeed!

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.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
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 4.81% 4.91% 81,540 15.64 6 -0.7121% 1,070.0
Floater 5.36% 5.40% 48,056 14.87 2 +0.0646% 751.2
Op. Retract 5.09% 5.15% 125,759 3.71 14 -0.2562% 1,028.4
Split-Share 5.86% 8.21% 56,288 4.08 12 -0.8550% 960.6
Interest Bearing 6.50% 8.15% 43,247 3.79 3 -1.0739% 1,061.9
Perpetual-Premium 6.38% 6.42% 57,006 13.30 1 -2.0000% 973.1
Perpetual-Discount 6.30% 6.37% 180,427 13.37 70 -1.2436% 850.0
Fixed-Reset 5.13% 5.03% 1,159,714 15.26 10 -0.6122% 1,104.0
Major Price Changes
Issue Index Change Notes
ELF.PR.G PerpetualDiscount -5.0436% Now with a pre-tax bid-YTW of 7.83% based on a bid of 15.25 and a limitMaturity.
WFS.PR.A SplitShare -4.4218% Asset coverage of just under 1.6:1 as of September 25, according to Mulvihill. Now with a pre-tax bid-YTW of 12.27% based on a bid of 8.43 and a hardMaturity 2011-6-30. Below $9, some might find even the regular monthly retraction to be attractive.
W.PR.J PerpetualDiscount -4.1905% Now with a pre-tax bid-YTW of 7.00% based on a bid of 20.12 and a limitMaturity.
BMO.PR.H PerpetualDiscount -4.0094% Now with a pre-tax bid-YTW of 6.62% based on a bid of 20.35 and a limitMaturity.
BAM.PR.M PerpetualDiscount -3.6122% Now with a pre-tax bid-YTW of 7.89% based on a bid of 15.21 and a limitMaturity.
POW.PR.D PerpetualDiscount -3.5863% Now with a pre-tax bid-YTW of 6.78% based on a bid of 18.55 and a limitMaturity.
BAM.PR.J OpRet -3.5002% Now with a pre-tax bid-YTW of 8.70% based on a bid of 19.85 and a softMaturity 2018-3-30 at 25.00. Compare with BAM.PR.H (6.73% to 2012-3-30), BAM.PR.I (7.13% to 2013-12-30) and BAM.PR.O (9.08% to 2013-6-30); and with the perpetuals at about 7.85%.
FFN.PR.A SplitShare -2.2581% Asset coverage of just under 1.8:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 8.03% based on a bid of 8.70 and a hardMaturity 2014-12-1 at 10.00. Sadly, the capital unit is trading at what I suspect is now a premium to NAV [check before you do anything about this!], making the Regular Monthly Retraction a very chancy thing.
PWF.PR.L PerpetualDiscount -3.3964% Now with a pre-tax bid-YTW of 6.54% based on a bid of 19.91 and a limitMaturity.
HSB.PR.C PerpetualDiscount -3.2901% Now with a pre-tax bid-YTW of 6.63% based on a bid of 19.40 and a limitMaturity.
CM.PR.J PerpetualDiscount -2.9922% Now with a pre-tax bid-YTW of 6.96% based on a bid of 16.21 and a limitMaturity.
BAM.PR.N PerpetualDiscount -2.9672% Now with a pre-tax bid-YTW of 7.80% based on a bid of 15.37 and a limitMaturity.
STW.PR.A InterestBearing -2.9146% Asset coverage of just under 1.7:1 as of September 25, according to Middlefield. Now with a pre-tax bid-YTW of 8.83% (mostly as interest) based on a bid of 9.66 and a hardMaturity 2009-12-31. Not bad for one-year money!
CM.PR.I PerpetualDiscount -2.8571% Now with a pre-tax bid-YTW of 6.93% based on a bid of 17.00 and a limitMaturity.
BCE.PR.G FixFloat -2.7083%  
SLF.PR.D PerpetualDiscount -2.6432% Now with a pre-tax bid-YTW of 6.34% based on a bid of 17.68 and a limitMaturity.
HSB.PR.D PerpetualDiscount -2.5641% Now with a pre-tax bid-YTW of 6.64% based on a bid of 19.00 and a limitMaturity.
BMO.PR.J PerpetualDiscount -2.4725% Now with a pre-tax bid-YTW of 6.44% based on a bid of 17.75 and a limitMaturity.
BNA.PR.C SplitShare -2.4373% Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of just under 2.7:1 based on BAM.A at 27.69 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 12.04% (!) based on a bid of 14.01 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (9.66% to 2010-9-30) and BNA.PR.B (9.37% to 2016-3-25).
IAG.PR.A PerpetualDiscount -2.3889% Now with a pre-tax bid-YTW of 6.60% based on a bid of 17.57 and a limitMaturity.
SLF.PR.A PerpetualDiscount -2.2040% Now with a pre-tax bid-YTW of 6.28% based on a bid of 19.08 and a limitMaturity.
RY.PR.A PerpetualDiscount -2.1196% Now with a pre-tax bid-YTW of 6.28% based on a bid of 18.01 and a limitMaturity.
GWO.PR.G PerpetualDiscount -2.1077% Now with a pre-tax bid-YTW of 6.27% based on a bid of 20.90 and a limitMaturity.
BCE.PR.R FixFloat -2.0833%  
RY.PR.G PerpetualDiscount -2.0288% Now with a pre-tax bid-YTW of 6.23% based on a bid of 18.35 and a limitMaturity.
CM.PR.H PerpetualDiscount -2.0057% Now with a pre-tax bid-YTW of 7.04% based on a bid of 17.10 and a limitMaturity.
CL.PR.B PerpetualPremium (for now!) -2.0000% Now with a pre-tax bid-YTW of 6.42% based on a bid of 24.50 and a limitMaturity. This is the only member of the PerpetualPremium index!
SLF.PR.C PerpetualDiscount -1.9759% Now with a pre-tax bid-YTW of 6.28% based on a bid of 17.86 and a limitMaturity.
TD.PR.O PerpetualDiscount -1.9493% Now with a pre-tax bid-YTW of 6.15% based on a bid of 20.12 and a limitMaturity.
GWO.PR.H PerpetualDiscount -1.9344% Now with a pre-tax bid-YTW of 6.70% based on a bid of 18.25 and a limitMaturity.
SLF.PR.B PerpetualDiscount -1.7722% Now with a pre-tax bid-YTW of 6.24% based on a bid of 19.40 and a limitMaturity.
RY.PR.D PerpetualDiscount -1.7666% Now with a pre-tax bid-YTW of 6.23% based on a bid of 18.35 and a limitMaturity.
PWF.PR.K PerpetualDiscount -1.6890% Now with a pre-tax bid-YTW of 6.38% based on a bid of 19.79 and a limitMaturity.
BCE.PR.I FixFloat -1.6667%  
RY.PR.E PerpetualDiscount -1.6164% Now with a pre-tax bid-YTW of 6.26% based on a bid of 18.26 and a limitMaturity.
LFE.PR.A SplitShare -1.6043% Asset coverage of 2.2+:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.57% based on a bid of 9.20 and a hardMaturity 2012-12-1 at 10.00
DFN.PR.A SplitShare -1.5402% Asset coverage of just under 2.3:1 as of September 15 according to the company. Now with a pre-tax bid-YTW of 7.46% based on a bid of 8.95 and a hardMaturity 2014-12-1 at 10.00. Sadly, the capital units are trading too close – if not over – NAV to make the monthly retraction feature a compelling possibility. But some might wish to keep an eye on it…
CM.PR.G PerpetualDiscount -1.5385% Now with a pre-tax bid-YTW of 7.05% based on a bid of 19.20 and a limitMaturity.
POW.PR.B PerpetualDiscount -1.5377% Now with a pre-tax bid-YTW of 6.78% based on a bid of 19.85 and a limitMaturity.
NA.PR.M PerpetualDiscount -1.4718% Now with a pre-tax bid-YTW of 6.32% based on a bid of 24.10 and a limitMaturity.
RY.PR.H PerpetualDiscount -1.4706% Now with a pre-tax bid-YTW of 6.11% based on a bid of 23.45 and a limitMaturity.
BCE.PR.Z FixFloat -1.4407%  
TD.PR.S FixedReset -1.4022%  
BAM.PR.I OpRet -1.2712% See BAM.PR.J, above.
PWF.PR.H PerpetualDiscount -1.2653% Now with a pre-tax bid-YTW of 6.25% based on a bid of 23.41 and a limitMaturity.
SLF.PR.E PerpetualDiscount -1.2610% Now with a pre-tax bid-YTW of 6.30% based on a bid of 18.01 and a limitMaturity.
BNS.PR.Q FixedReset -1.1670%  
PWF.PR.G PerpetualDiscount -1.0700% Now with a pre-tax bid-YTW of 6.25% based on a bid of 24.04 and a limitMaturity.
MFC.PR.C PerpetualDiscount +1.0182% Now with a pre-tax bid-YTW of 6.03% based on a bid of 18.85 and a limitMaturity.
BAM.PR.H OpRet +1.2078% See BAM.PR.J, above.
ALB.PR.A SplitShare +2.5918% Asset coverage of 1.7+:1 as of September 25 according to Scotia. Now with a pre-tax bid-YTW of 6.74% based on a bid of 23.75 and a hardMaturity 2011-2-28 at 25.00
BCE.PR.C FixFloat +2.8718%  
Volume Highlights
Issue Index Volume Notes
MFC.PR.B PerpetualDiscount 155,250 Desjardins crossed 100,000 at 19.20; CIBC crossed 50,000 at the same price. Now with a pre-tax bid-YTW of 6.13% based on a bid of 19.16 and a limitMaturity.
BNS.PR.L PerpetualDiscount 132,205 Desjardins crossed 100,000 at 19.72; National crossed 25,000 at the same price. Now with a pre-tax bid-YTW of 5.81% based on a bid of 19.72 and a limitMaturity.
BNS.PR.M PerpetualDiscount 124,575 Desjardins crossed 70,000 at 19.72; National crossed 35,000 at the same price. Now with a pre-tax bid-YTW of 5.82% based on a bid of 19.70 and a limitMaturity.
BNS.PR.P FixedReset 73,200 Anonymous bought 36,300 from Scotia at 25.00.
SLF.PR.E PerpetualDiscount 62,450 Desjardins crossed 50,000 at 18.35. Now with a pre-tax bid-YTW of 6.30% based on a bid of 18.01 and a limitMaturity.

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

Spreads to Bonds

Sloppy Indeed!

It will not have escaped notice that equities got crushed today:

Canadian stocks tumbled the most in almost eight years, led by a record drop in raw-material shares, as tighter credit, rising unemployment and lower home prices threatened to tip the U.S. into a recession.

Potash Corp. of Saskatchewan Inc. fell the most since 1989 after rival Mosaic Co. posted profit that missed analysts’ estimates and cut its sales forecast. Barrick Gold Corp. plunged the most in two decades as bullion declined on speculation the U.S. will approve a $700 billion plan to revive credit markets, reducing the metal’s appeal.

Suncor Energy Inc. touched the lowest in 15 years, leading oil and gas producers lower as crude fell below $95 a barrel and Merrill Lynch & Co. said it may drop to $50. The Standard & Poor’s/TSX Composite Index fell 7 percent to 10,900.54 in Toronto, the most since Oct. 25, 2000.

Preferreds were not immune, although the TXPR’s loss of 1.02% looks a whole better than ‘first-loss’ equities!

But the really illuminating thing about the action is just how SLOPPY this market is. I mean, look … if you want to tell me that the proper yield for preferreds in this environment is X, I’ll listen! For a while, anyway. That sort of speculation is simply market timing and I don’t put much credence in it.

But surely similar securities from the same issuer should trade somewhere around each other! But that’s not the case today … the yield curve has been getting sloppier and sloppier over the past couple of weeks and today … well, I haven’t checked, but it must be some kind of record!

Internal Spreads on
Perpetual Discount Issues
Issuer High Bid Yield Low Bid Yield High/Low
Series ID
BMO 6.62% 6.26% H, L
BNS 5.89% 5.70% N, K
CM 7.07% 6.93% E, I
GWO 6.70% 5.97% H, F
NA 6.39% 6.23% K, L
POW 6.78% 6.38% (B & D), A
PWF 6.54% 6.06% L, E
RY 6.29% 6.11% W, H
SLF 6.34% 6.24% D, B
TD 6.15% 5.84% O, (Q & R)
Issuers included in list if they have at least three issues listed in the “PerpetualDiscount” index

Speaking very generally, there appears to be some positive correlation between Average Daily Trading Value and Yield – that is, the higher the average volume, the higher the yield, which is to say: the liquidity premium is negative … which really shouldn’t happen.

This behavior is consistent with people simply reducing exposure by selling whatever’s easiest to sell, regardless of price.

The weighted mean average pre-tax bid-YTW of the PerpetualDiscount index is now 6.37%, which is about where it was on July 11 (going up) and July 28 (going down). This is equivalent to 8.92% interest at the standard conversion factor of 1.4x. Long corporates now yield about 6.7%, so the PTIE spread is now about 220bp.