Month: January 2009

BMO is buying AIG’s Canadian life insurance business. Nice to see the balance sheet of a Canadian bank being put to work.

Professor Axel Leijonhufvud has written a two part series on Vox (commencing yesterday) in which he concludes in part:

Two elements of a reconstructed system of regulatory control may be suggested.

First, re-impose effective reserve requirements on deposit-taking banks and extend them to all types of institutions that carry demand liabilities (e.g. money market funds).

Assiduous Readers will remember that I have called for bank-sponsored money market funds to be consolidated in their sponsors’ balance sheets for risk measurement purposes.

The ABCP soap-opera appears to be finally grinding to a resolution as the restructuring has received final approval. Investor Advocates will be pleased to learn that regulators now have judicial imprimatur to restrict investments even further:

Judge Campbell urged regulators to be more watchful about complicated products such as ABCP in the future.

He questioned whether investors and investment advisers “truly understood” what they were selling, and he went on to “urge regulators to sort out what investments should be available to whom.”

Soon only mutual funds will be legal for retail because, you know, you’re just not smart enough for anything else. The government says so, and they’re here to help you.

PerpetualDiscounts returned to their winning ways today.

You know what the trouble with TARP is? I’ll tell you what the trouble with TARP is. The trouble with TARP is there’s not enough box-ticking and there’s not enough feel-goodism and there’s not enough publicity for regulators. Fortunately, the FDIC is taking proactive steps to proactively rectify these shortcomings in a proactive manner:

• The FDIC expects that state nonmember institutions (or their parent companies) will deploy funding received from these federal programs to prudently support credit needs in their market and strengthen bank capital.
• In order to assess how participation in these federal programs has helped the institution support lending and/or support efforts to work with existing mortgage borrowers to avoid unnecessary foreclosures, FDIC-supervised institutions should implement a process to document how these funds were used. State nonmember institutions should describe their utilization of this federal funding during bank examinations and are encouraged to summarize such information in published annual reports and financial statements. Including such information in public reports will provide important information for shareholder and public evaluation of participation in these programs.

All good things must come to an end, usually pretty soon, and the PerpetualDiscount winning streak was halted today. Just a whisker, but a loss never-the-less. Split-shares were hit hard, presumably due to stock market declines.

The ABX index derivatives (which reference either the lowest or the penultimate AAA tranche of structured subprime mortgage products) are getting hammered today due to fears of pending legislation:

it appears that a bill to allow bankruptcy judges to alter loan balances has picked up a head of steam as Citibank broke ranks with other lenders and no longer opposes the measure.

The jobs number was appalling:

The U.S. lost more jobs in 2008 than in any year since 1945 as employers fired another 524,000 people in December, indicating a free-fall in the economy just days before President-elect Barack Obama takes office.
…
The Labor Department reported that the nation lost 2.589 million jobs in 2008, just shy of the 2.75 million decline at the end of World War II. The unemployment rate climbed more than economists forecast, to 7.2 percent in December, the highest level in almost 16 years.

The Great Perpetual Rally of 2009 continued today, with PerpetualDiscounts posting their eleventh straight trading day of gains from the low of Dec. 22 to show a total gain of 21.87% over the period. The median pre-tax bid-YTW has declined from 8.48% to 6.86% … what can I say? The interest-equivalent is now 9.60%, while long corporates continue to hold steady at 7.50% – so we’re back down to a 210bp pre-tax interest-equivalent spread, which is just a little over the last patch of relative stability experienced in the first half of 2008.