Archive for March, 2009

March 24, 2009

Tuesday, March 24th, 2009

Bernanke & Geithner continued their campaign to have the Fed become the regulator of everything:

The top two U.S. economic leaders called for new powers to take over and wind down failing financial companies after the government’s troubled rescue of American International Group Inc.

“As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,” Treasury Secretary Timothy Geithner said in testimony to a House Financial Services Committee hearing today in Washington. Federal Reserve Chairman Ben S. Bernanke said “AIG highlights the urgent need for new resolution procedures.”

I can’t support it. The only reason AIG posed a risk to the banking system was because the banks were insufficiently regulated … by the Fed. Why were the banks allowed to pair off their long/short CDS positions to such an extent? This would only be appropriate in the case in which AIG had posted a lot of collateral … and they didn’t post any collateral. Had the banks & brokerages been required to put up capital against this lack of collateralization, it wouldn’t have been a problem.

PerpetualDiscounts advanced and FixedResets declined, the latter on heavy volume as it appears that the RY new issue announcement caused a certain amount of portfolio rejigging.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.1433 % 853.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.1433 % 1,380.1
Floater 4.64 % 5.62 % 59,547 14.49 3 1.1433 % 1,066.1
OpRet 5.24 % 4.91 % 129,977 3.88 15 0.2179 % 2,064.4
SplitShare 6.79 % 9.81 % 51,656 4.78 6 0.3089 % 1,636.7
Interest-Bearing 6.07 % 9.27 % 35,953 0.73 1 -0.9027 % 1,933.6
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.1216 % 1,508.5
Perpetual-Discount 7.17 % 7.28 % 154,645 12.17 71 0.1216 % 1,389.3
FixedReset 6.13 % 5.78 % 655,501 13.77 31 -0.2992 % 1,808.4
Performance Highlights
Issue Index Change Notes
PWF.PR.H Perpetual-Discount -3.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 17.26
Evaluated at bid price : 17.26
Bid-YTW : 8.53 %
CM.PR.K FixedReset -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 21.98
Evaluated at bid price : 22.02
Bid-YTW : 4.89 %
RY.PR.P FixedReset -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.17
Evaluated at bid price : 25.22
Bid-YTW : 5.99 %
RY.PR.F Perpetual-Discount -2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 16.51
Evaluated at bid price : 16.51
Bid-YTW : 6.84 %
RY.PR.R FixedReset -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.23
Evaluated at bid price : 25.28
Bid-YTW : 6.17 %
BNS.PR.L Perpetual-Discount -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 6.79 %
RY.PR.N FixedReset -1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.25
Evaluated at bid price : 25.30
Bid-YTW : 5.50 %
RY.PR.G Perpetual-Discount -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 16.77
Evaluated at bid price : 16.77
Bid-YTW : 6.81 %
BAM.PR.K Floater -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 7.50
Evaluated at bid price : 7.50
Bid-YTW : 5.85 %
SLF.PR.B Perpetual-Discount -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 15.16
Evaluated at bid price : 15.16
Bid-YTW : 7.98 %
BNS.PR.N Perpetual-Discount -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 19.58
Evaluated at bid price : 19.58
Bid-YTW : 6.84 %
RY.PR.W Perpetual-Discount -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 18.51
Evaluated at bid price : 18.51
Bid-YTW : 6.72 %
RY.PR.T FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 23.15
Evaluated at bid price : 25.05
Bid-YTW : 5.78 %
TD.PR.G FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.40
Evaluated at bid price : 25.45
Bid-YTW : 6.05 %
CM.PR.D Perpetual-Discount 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 7.42 %
NA.PR.L Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 17.57
Evaluated at bid price : 17.57
Bid-YTW : 7.02 %
BAM.PR.H OpRet 1.09 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 8.44 %
BNS.PR.P FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 22.81
Evaluated at bid price : 22.91
Bid-YTW : 4.34 %
CU.PR.A Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 21.35
Evaluated at bid price : 21.35
Bid-YTW : 6.88 %
BAM.PR.O OpRet 1.16 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 21.80
Bid-YTW : 8.68 %
CU.PR.B Perpetual-Discount 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 21.94
Evaluated at bid price : 22.28
Bid-YTW : 6.81 %
NA.PR.K Perpetual-Discount 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 20.91
Evaluated at bid price : 20.91
Bid-YTW : 7.12 %
RY.PR.H Perpetual-Discount 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 21.40
Evaluated at bid price : 21.40
Bid-YTW : 6.70 %
PWF.PR.G Perpetual-Discount 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 19.31
Evaluated at bid price : 19.31
Bid-YTW : 7.81 %
BNS.PR.J Perpetual-Discount 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 6.80 %
LFE.PR.A SplitShare 1.47 % Asset coverage of 1.1-:1 as of March 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.61
Bid-YTW : 13.97 %
TD.PR.A FixedReset 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 22.71
Evaluated at bid price : 22.75
Bid-YTW : 4.36 %
GWO.PR.E OpRet 1.65 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2014-03-30
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 4.98 %
ELF.PR.G Perpetual-Discount 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 13.45
Evaluated at bid price : 13.45
Bid-YTW : 9.09 %
POW.PR.A Perpetual-Discount 1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 7.56 %
MFC.PR.A OpRet 1.93 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 4.27 %
BAM.PR.M Perpetual-Discount 2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 13.16
Evaluated at bid price : 13.16
Bid-YTW : 9.11 %
PWF.PR.E Perpetual-Discount 2.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 17.99
Evaluated at bid price : 17.99
Bid-YTW : 7.81 %
SLF.PR.D Perpetual-Discount 3.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 7.60 %
PWF.PR.A Floater 3.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 13.00
Evaluated at bid price : 13.00
Bid-YTW : 3.39 %
CIU.PR.A Perpetual-Discount 3.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 17.56
Evaluated at bid price : 17.56
Bid-YTW : 6.63 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.T FixedReset 221,841 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 23.15
Evaluated at bid price : 25.05
Bid-YTW : 5.78 %
RY.PR.R FixedReset 165,755 RBC bought 15,000 from HSBC at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.23
Evaluated at bid price : 25.28
Bid-YTW : 6.17 %
TD.PR.I FixedReset 122,790 Recent new issue
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.06
Evaluated at bid price : 25.11
Bid-YTW : 5.94 %
TD.PR.G FixedReset 112,885 TD bought 10,000 from National at 25.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.40
Evaluated at bid price : 25.45
Bid-YTW : 6.05 %
CM.PR.L FixedReset 97,113 National bought 19,000 from TD at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.20
Evaluated at bid price : 25.25
Bid-YTW : 6.23 %
RY.PR.P FixedReset 78,065 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-24
Maturity Price : 25.17
Evaluated at bid price : 25.22
Bid-YTW : 5.99 %
There were 42 other index-included issues trading in excess of 10,000 shares.

New Issue: RY FixedReset 6.25%+442

Tuesday, March 24th, 2009

Royal Bank has announced:

a domestic public offering of $200 million of Non-Cumulative, 5 year rate reset Preferred Shares Series AV.

The bank will issue 8 million Preferred Shares Series AV priced at $25 per share and holders will be entitled to receive non-cumulative quarterly fixed dividend for the initial period ending August 24, 2014 in the amount of $1.5625 per share, to yield 6.25 per cent annually. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 3.0 million Preferred Shares at the same offering price.

Subject to regulatory approval, on or after August 24, 2014, the bank may redeem the Preferred Shares Series AV in whole or in part at par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.42 per cent over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series AV will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series AW (the “Preferred Shares Series AW”) on August 24, 2014 and on August 24 every five years thereafter.

Holders of the Preferred Shares Series AW will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.42 per cent. Holders of Preferred Shares Series AW will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series AV on August 24, 2019 and on August 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is April 1, 2009.

There is a long first dividend: $0.62072 payable August 24, based on the anticipated closing.

Update: RBC has announced:

that as a result of strong investor demand for its domestic public offering of Non-Cumulative, 5 year rate reset Preferred Shares Series AV (the “Preferred Shares Series AV”), the size of the offering has been increased to 13 million shares. The gross proceeds of the offering will now be $325 million. In addition, the bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 3 million Preferred Shares Series AV at a price of $25 per share. The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is April 1, 2009.

Update, 2009-4-10: The greenshoe was exercised in full and the issue is worth par value $400-million.

March 23, 2009

Monday, March 23rd, 2009

There was an interesting joint Treasury / Fed Press Release today that raised as many questions as it answered:

The Federal Reserve to avoid credit risk and credit allocation
The Federal Reserve’s lender-of-last-resort responsibilities involve lending against collateral, secured to the satisfaction of the responsible Federal Reserve Bank. Actions taken by the Federal Reserve should also aim to improve financial or credit conditions broadly, not to allocate credit to narrowly-defined sectors or classes of borrowers. Government decisions to influence the allocation of credit are the province of the fiscal authorities.

This is eminently sensible – but why is it being repeated? There has been some concern expressed that the Fed is usurping fiscal functions (which I have disagreed with) – are these concerns gaining traction?

Need for a comprehensive resolution regime for systemically critical financial institutions
The Treasury and the Federal Reserve remain fully committed to preventing the disorderly failure of systemically critical financial institutions. To reduce the risk of future crises, the Treasury and the Federal Reserve will work with the Congress to develop a regime that will allow the U.S. government to address effectively at an early stage the potential failure of any systemically critical financial institution. As part of the framework set forth, the legislation should spell out to the extent possible the expected role of the Federal Reserve and other U.S. government agencies in such resolutions.

It looks like the Fiscal Stability Regulator plan is going to happen.

In the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate, the so-called Maiden Lane facilities made by the Federal Reserve as part of efforts to stabilize systemically critical financial institutions.

Is this an admission that the Maiden Lane facilities were not, in fact, adequately collateralized?

Equities were on fire today:

Canadian stocks rose the most in three months after the U.S. Treasury said it will spend $1 trillion to purchase distressed assets and Petro-Canada agreed to be bought in the biggest deal for a Canadian oil company.

Manulife Financial Corp., Canada’s largest insurer, climbed 16 percent after the Treasury said it will provide capital and financing for private investors to buy illiquid loans and securities held by banks.

Royal Bank of Canada increased 7.6 percent to C$37.94. Toronto-Dominion Bank rose 10 percent to C$45.50. A gauge of financial shares surged 8.7 percent, the most of the 10 industries in the S&P/TSX.

The Treasury’s Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion. The Treasury said the program may double “over time.”

Thoughts of imminent mass-bankruptcy disappeared (at least for today) and prefs did really well – in fact, the sub-investment grade split share preferreds did really, really well.

Split Share High Performers
March 23, 2009
Ticker Asset
Coverage
Day’s
Performance
FTU.PR.A 0.4+:1
3/13
+14.06%
FTN.PR.A 1.2-:1
3/13
+12.48%
LFE.PR.A 1.1-:1
3/13
+6.84%
FFN.PR.A 1.0+:1
3/13
+5.73%
ASC.PR.A 0.7-:1
3/20
+5.56%
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.4666 % 843.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4666 % 1,364.5
Floater 4.69 % 5.65 % 59,072 14.44 3 0.4666 % 1,054.1
OpRet 5.26 % 4.84 % 129,999 3.89 15 0.0028 % 2,059.9
SplitShare 6.81 % 9.59 % 52,151 4.79 6 1.3986 % 1,631.6
Interest-Bearing 6.02 % 7.98 % 34,811 0.74 1 0.8089 % 1,951.2
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.5297 % 1,506.7
Perpetual-Discount 7.18 % 7.27 % 152,275 12.13 71 0.5297 % 1,387.6
FixedReset 6.11 % 5.74 % 633,745 13.83 31 0.1316 % 1,813.8
Performance Highlights
Issue Index Change Notes
BMO.PR.H Perpetual-Discount -3.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.62
Evaluated at bid price : 19.62
Bid-YTW : 6.85 %
PWF.PR.L Perpetual-Discount -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 15.86
Evaluated at bid price : 15.86
Bid-YTW : 8.22 %
TD.PR.A FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 22.35
Evaluated at bid price : 22.39
Bid-YTW : 4.43 %
PWF.PR.G Perpetual-Discount -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 7.92 %
CM.PR.D Perpetual-Discount -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 7.49 %
CU.PR.A Perpetual-Discount -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 21.11
Evaluated at bid price : 21.11
Bid-YTW : 6.96 %
RY.PR.G Perpetual-Discount -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 17.04
Evaluated at bid price : 17.04
Bid-YTW : 6.70 %
GWO.PR.E OpRet -1.26 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2014-03-30
Maturity Price : 25.00
Evaluated at bid price : 24.30
Bid-YTW : 5.35 %
NA.PR.P FixedReset -1.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-17
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 6.43 %
TD.PR.Q Perpetual-Discount -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 21.26
Evaluated at bid price : 21.26
Bid-YTW : 6.71 %
IAG.PR.C FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 21.71
Evaluated at bid price : 21.75
Bid-YTW : 6.14 %
CM.PR.H Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 16.51
Evaluated at bid price : 16.51
Bid-YTW : 7.42 %
TD.PR.O Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 18.77
Evaluated at bid price : 18.77
Bid-YTW : 6.58 %
CM.PR.J Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 15.64
Evaluated at bid price : 15.64
Bid-YTW : 7.35 %
POW.PR.B Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 17.22
Evaluated at bid price : 17.22
Bid-YTW : 7.80 %
RY.PR.D Perpetual-Discount 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 6.72 %
ELF.PR.G Perpetual-Discount 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 13.20
Evaluated at bid price : 13.20
Bid-YTW : 9.26 %
TD.PR.R Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 6.72 %
ENB.PR.A Perpetual-Discount 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 22.68
Evaluated at bid price : 22.92
Bid-YTW : 6.06 %
PWF.PR.F Perpetual-Discount 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 7.75 %
GWO.PR.F Perpetual-Discount 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 7.58 %
SLF.PR.D Perpetual-Discount 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 14.31
Evaluated at bid price : 14.31
Bid-YTW : 7.83 %
W.PR.J Perpetual-Discount 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.76
Evaluated at bid price : 19.76
Bid-YTW : 7.26 %
BNS.PR.R FixedReset 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 21.30
Evaluated at bid price : 21.57
Bid-YTW : 4.52 %
POW.PR.A Perpetual-Discount 1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 7.70 %
BAM.PR.N Perpetual-Discount 1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 12.91
Evaluated at bid price : 12.91
Bid-YTW : 9.28 %
SBN.PR.A SplitShare 2.00 % Asset coverage of 1.6-:1 as of March 12 according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.16
Bid-YTW : 9.59 %
CU.PR.B Perpetual-Discount 2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 21.75
Evaluated at bid price : 22.02
Bid-YTW : 6.89 %
W.PR.H Perpetual-Discount 2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 7.24 %
POW.PR.D Perpetual-Discount 2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 7.63 %
MFC.PR.B Perpetual-Discount 2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 7.38 %
PWF.PR.I Perpetual-Discount 2.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 20.68
Evaluated at bid price : 20.68
Bid-YTW : 7.41 %
CM.PR.K FixedReset 2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 22.46
Evaluated at bid price : 22.50
Bid-YTW : 4.78 %
BAM.PR.O OpRet 2.62 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 8.98 %
RY.PR.W Perpetual-Discount 2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 18.74
Evaluated at bid price : 18.74
Bid-YTW : 6.63 %
GWO.PR.J FixedReset 2.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 24.40
Evaluated at bid price : 24.45
Bid-YTW : 5.14 %
POW.PR.C Perpetual-Discount 3.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 7.64 %
LFE.PR.A SplitShare 6.84 % Asset coverage of 1.1-:1 as of March 13, according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.50
Bid-YTW : 14.43 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.O FixedReset 211,656 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 25.03
Evaluated at bid price : 25.08
Bid-YTW : 6.30 %
MFC.PR.D FixedReset 193,421 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 24.50
Evaluated at bid price : 24.55
Bid-YTW : 6.48 %
RY.PR.T FixedReset 109,077 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 23.25
Evaluated at bid price : 25.36
Bid-YTW : 5.69 %
RY.PR.R FixedReset 63,743 National crossed 12,000 at 25.61.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 5.75 %
BNS.PR.X FixedReset 60,924 National bought 10,000 from RBC at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 6.10 %
TD.PR.I FixedReset 60,333 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-23
Maturity Price : 25.13
Evaluated at bid price : 25.18
Bid-YTW : 5.92 %
There were 25 other index-included issues trading in excess of 10,000 shares.

Late Update: Andrew Cuomo proudly announced the success of his extortion racket:

New York state’s attorney general, Andrew Cuomo, said late Monday that 15 of the top 20 recipients of $165 million in retention bonuses from American International Group Inc.’s Financial Products unit have agreed to give back their bonuses — amounting to in excess of $30 million in cash.

He added that he sees no public interest in disclosing the names of people who return their bonuses, and he acknowledged that returning the money is a difficult decision for many people in the unit who weren’t involved in devising the problematic transactions that helped topple AIG.

I like to think I’d hang on to the money and force Congress to illustrate the depths of their moral bankruptcy by taxing it all way. I also like to think I’d quit – CEO Liddy threw his people to the wolves rather than stand up for them. CEO Liddy is not a leader.

New Issue: HSBC FixedReset 6.60%+485

Monday, March 23rd, 2009

Issue: HSBC Bank Canada Non-Cumulative 5-Year Rate Reset Class 1 Preferred Shares Series E

Size: 5-million shares (=$125-million) + greenshoe 3-million shares (=$75-million)

Dividends: $1.65 p.a. (=6.60%); reset every Exchange Date to 5-Year GOC + 485bp. First dividend payable 2009-6-30 for $0.4125 based on Closing Date.

Closing Date: 2009-3-31

Exchange Dates: 2014-6-30 and every five years thereafter

Exchange: To and from Series F (“Floaters”), which pay 90-day bills + 485bp, reset quarterly

Redemption: Every Exchange Date at $25.00. Floaters are also redeemable at $25.50 at any other valid time; it is not clear to me whether they may be redeemed in the period 2014-6-30 to 2019-6-30:

The Series F Preferred Shares will not be redeemable prior to June 30, 2019.

$25.50 in the case of redemptions on any other date on or after June 30, 2014 …

Update: Press Release. I am advised that the issue size has been bumped to 7-million shares + 3-million greenshoe.

Update: Press release on size increase

Update, 2009-4-10: Greenshoe exercised in full, issue size 10-million shares = $250-million.

March 20, 2009

Friday, March 20th, 2009

Assiduous Readers will remember I am following the Lyondell bankruptcy – the last mention was on February 24 … there’s more news today:

LyondellBasell Industries AF SCA missed an interest payment on bonds that will trigger payouts on credit-default swaps guaranteeing as much as $1.5 billion of the company’s debt.

Dealers and investors in the market will start the process of settling contracts linked to Netherlands-based LyondellBasell after it failed to pay interest on 500 million euros ($679 million) of bonds maturing in 2015, the International Swaps and Derivatives Association said in a statement today.

Traders had bought or sold a net $744 million in protection on LyondellBasell debt through credit swaps as of March 13, according to data from the Depository Trust & Clearing Corp., which runs a central registry for the market. Another $786 million of protection was bought through index contracts that include LyondellBasell among a group of 50 companies.

The net figures don’t include contracts covering a gross amount of about $16.6 billion that economically offset each other and typically wouldn’t be paid as long as there are no defaults by the firms selling the protection, DTCC data show.

Credit-default swaps on LyondellBasell, one of the world’s largest closely held chemical producers, cost 94 percent upfront and 5 percent a year, according to CMA Datavision prices at 5 p.m. in London. That means it costs 9.4 million euros in advance and 500,000 euros a year to protect 10 million euros of the company’s bonds from default for five years.

That’s a nice price for protection, eh? I wonder if anybody paid it!

Good volume and fine performance from the Fixed-Resets today, probably inspired by some portfolio reshuffling with the closing of BMO.PR.O. PerpetualDiscounts continued their recovery from their recent dip.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.2723 % 839.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.2723 % 1,358.2
Floater 4.71 % 5.69 % 58,415 14.38 3 1.2723 % 1,049.2
OpRet 5.26 % 4.86 % 128,732 3.90 15 0.0248 % 2,059.8
SplitShare 6.90 % 10.01 % 52,512 4.79 6 -0.3167 % 1,609.1
Interest-Bearing 6.07 % 8.99 % 34,920 0.75 1 -0.4028 % 1,935.5
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2366 % 1,498.7
Perpetual-Discount 7.21 % 7.33 % 152,809 12.13 71 0.2366 % 1,380.3
FixedReset 6.12 % 5.70 % 643,437 13.84 31 0.5914 % 1,811.4
Performance Highlights
Issue Index Change Notes
ELF.PR.G Perpetual-Discount -3.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 13.05
Evaluated at bid price : 13.05
Bid-YTW : 9.36 %
SBN.PR.A SplitShare -1.84 % Asset coverage of 1.6-:1 as of March 12, according to Mulvihill.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Evaluated at bid price : 8.00
Bid-YTW : 10.01 %
BMO.PR.L Perpetual-Discount -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 20.07
Evaluated at bid price : 20.07
Bid-YTW : 7.33 %
ACO.PR.A OpRet -1.35 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2011-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 4.86 %
POW.PR.C Perpetual-Discount -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 18.81
Evaluated at bid price : 18.81
Bid-YTW : 7.90 %
BNA.PR.B SplitShare -1.25 % Asset coverage of 1.7-:1 as of February 28, according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2016-03-25
Maturity Price : 25.00
Evaluated at bid price : 20.60
Bid-YTW : 8.41 %
HSB.PR.C Perpetual-Discount -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 17.55
Evaluated at bid price : 17.55
Bid-YTW : 7.31 %
BMO.PR.H Perpetual-Discount -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 20.33
Evaluated at bid price : 20.33
Bid-YTW : 6.61 %
BNS.PR.P FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 22.66
Evaluated at bid price : 22.75
Bid-YTW : 4.37 %
RY.PR.L FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 24.12
Evaluated at bid price : 24.16
Bid-YTW : 4.82 %
SLF.PR.E Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 14.71
Evaluated at bid price : 14.71
Bid-YTW : 7.70 %
TD.PR.P Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 6.74 %
RY.PR.E Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 16.91
Evaluated at bid price : 16.91
Bid-YTW : 6.75 %
W.PR.J Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 19.44
Evaluated at bid price : 19.44
Bid-YTW : 7.37 %
NA.PR.K Perpetual-Discount 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 7.25 %
BAM.PR.N Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 12.66
Evaluated at bid price : 12.66
Bid-YTW : 9.46 %
TD.PR.R Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 6.79 %
GWO.PR.F Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 19.32
Evaluated at bid price : 19.32
Bid-YTW : 7.69 %
BMO.PR.J Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 16.41
Evaluated at bid price : 16.41
Bid-YTW : 6.95 %
BNS.PR.R FixedReset 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 21.21
Evaluated at bid price : 21.21
Bid-YTW : 4.62 %
CM.PR.D Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 7.37 %
CIU.PR.A Perpetual-Discount 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 16.98
Evaluated at bid price : 16.98
Bid-YTW : 6.86 %
BAM.PR.M Perpetual-Discount 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 12.70
Evaluated at bid price : 12.70
Bid-YTW : 9.43 %
MFC.PR.C Perpetual-Discount 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 14.91
Evaluated at bid price : 14.91
Bid-YTW : 7.62 %
BMO.PR.M FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 4.27 %
TD.PR.A FixedReset 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 22.71
Evaluated at bid price : 22.75
Bid-YTW : 4.36 %
BNA.PR.A SplitShare 1.72 % Asset coverage of 1.7-:1 as of February 28 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2010-09-30
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 10.54 %
BNS.PR.L Perpetual-Discount 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 17.16
Evaluated at bid price : 17.16
Bid-YTW : 6.68 %
PWF.PR.G Perpetual-Discount 1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 19.35
Evaluated at bid price : 19.35
Bid-YTW : 7.78 %
BAM.PR.K Floater 2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 7.65
Evaluated at bid price : 7.65
Bid-YTW : 5.73 %
GWO.PR.J FixedReset 2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 23.71
Evaluated at bid price : 23.75
Bid-YTW : 5.30 %
TD.PR.Y FixedReset 2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 21.53
Evaluated at bid price : 21.53
Bid-YTW : 4.37 %
BAM.PR.B Floater 2.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 7.70
Evaluated at bid price : 7.70
Bid-YTW : 5.69 %
TD.PR.Q Perpetual-Discount 3.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 6.63 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.O FixedReset 550,271 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 25.10
Evaluated at bid price : 25.15
Bid-YTW : 6.27 %
TD.PR.G FixedReset 145,316 RBC crossed 122,500 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 5.80 %
CM.PR.M FixedReset 108,096 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 24.86
Evaluated at bid price : 24.91
Bid-YTW : 6.18 %
RY.PR.T FixedReset 107,255 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 23.21
Evaluated at bid price : 25.24
Bid-YTW : 5.72 %
BNS.PR.T FixedReset 63,013 TD bought 11,000 from Scotia at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 25.12
Evaluated at bid price : 25.17
Bid-YTW : 5.95 %
TD.PR.I FixedReset 61,458 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-20
Maturity Price : 25.16
Evaluated at bid price : 25.21
Bid-YTW : 5.91 %
There were 24 other index-included issues trading in excess of 10,000 shares.

BMO.PR.O Settles at Premium on Heavy Volume

Friday, March 20th, 2009

BMO.PR.O, the 6.50%+458 Fixed-Reset announced on March 11 has settled successfully, trading 550,271 shares in a range of 24.90-20 before closing at 25.15-20, 8×50.

Issue size was $150-million plus a greenshoe for $75-million. No announcement has yet been made regarding take-up of the underwriters’ option; but with such heavy volume I’ll bet a nickel it was exercised in full.

Five-Year Canadas have come in considerably since the announcement and are now at 1.58%. This means that the yield-to-Perpetuity of the issue is now a more modest than expected 6.27%, based on a bid of 25.15 and a limitMaturity price of 25.10.

This issue has been added to the HIMIPref™ Fixed-Reset sub-index.

FDIC Releases Revised 4Q08 Quarterly Banking Profile

Friday, March 20th, 2009

The FDIC has release a Revised 4Q08 QBP with the explanation:

Shortly after the original release of the Fourth Quarter 2008 Quarterly Banking Profile, amended financial reports were received that significantly changed aggregate fourth quarter and full year earnings. Accordingly, this issue has been updated from the original release to reflect the changes. Updated results include substantially higher charges for goodwill impairment in the fourth quarter, which affected the industry’s aggregate net income and total equity capital. As a result of the amended reports, the industry’s fourth quarter net loss widened from $26.2 billion to $32.1 billion, and net income for all of 2008 was revised from $16.1 billion to $10.2 billion.

The cheery headlines are:

  • Industry Reports First Quarterly Loss Since 1990
  • Provisions for Loan Losses Are More than Double Year-Earlier Total
  • Average Net Interest Margin at Community Banks Falls to 20-Year Low
  • Full-Year Earnings Fall to Lowest Level in 19 Years
  • Quarterly Net Charge-Off Rate Matches Previous High
  • Noncurrent Loans Register Sizable Increase in the Fourth Quarter
  • Reserve Coverage Ratio Slips to 16-Year Low
  • Goodwill Writedowns Produce Drop in Total Equity Capital
  • Balances at Federal Reserve Banks Increased by $342 Billion in the Quarter
  • Deposit Share of Asset Funding Rises
  • Trust Activities Receded in 2008
  • Failures and Assistance Transactions Rose to 15-Year High in 2008

The breakdowns by type of bank are fascinating. For instance, almost all of the industry’s (8,305 institutions, assets $13,847-billion) profits were made by 26 credit card banks (assets $513-billion) and 5 international banks (assets $3,410-billion).

Reminder: SplitShares Seminar Thursday March 26

Thursday, March 19th, 2009

Just a reminder! The next seminar in the series on the theory and practice of preferred share investing will be held a week from today on Thursday March 26.

These seminars are aimed at active and potential preferred share investors who wish to review relative valuation techniques in preferred share analysis.

All seminars will be presented by James Hymas, who has written extensively on the subject of preferred share investment and has been referred to as a "top expert" on the subject.

Questions are encouraged throughout the seminars, as well as in informal discussion at the end of the session.

Each seminar is two hours in length; coffee and tea will be served. The cost of attendance is $100, but a discount of $50 will be given to participants who have an annual subscription to PrefLetter with at least one issue remaining at the time of the seminar.

All seminars will be video-recorded for future distribution.

Thursday, March 26

SplitShares: Theory & Practice

"SplitShares" are popular with investors who:

  • wish to obtain tax-advantaged income
  • want an investment with a fixed-term

These issues are characterized by:

  • Fund owns portfolio of stocks (usually financials)
  • Fund finances portfolio with two classes of stock
    • Capital Units get increased expected returns at expense of safety
    • Preferred shares get increased safety at the expense of expected return
  • Cumulative Dividends
  • There is a set wind-up date for the fund

This seminar will review the theory of SplitShare Preferred evaluation, including:

  • Credit Quality
  • Embedded calls
  • Embedded puts
  • The importance of ex-Dividend dates
  • Investment characteristics relative to bonds

Examples of relative valuation in current markets will be supplied and discussed.

Attendence is limited; a reservation will avoid disappointment.

Location: Days Hotel & Conference Center, (at Carlton & College, downtown Toronto) Yorkville Room (see map).

Time: March 26, 2009, 6pm-8pm.

Reservations: Please visit the PrefLetter Seminar Page.

March 19, 2009

Thursday, March 19th, 2009

A correlation has been found between fails-to-deliver (associated with naked shorts) and the demised of Bear Stearns & Lehman:

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

Twice last year, hundreds of thousands of failed trades coincided with widespread rumors about Lehman Brothers. Speculation that the company was being acquired at a discount and later that it was losing two trading partners both proved untrue.

After the 158-year-old investment bank collapsed in bankruptcy on Sept. 15, listing $613 billion in debt, former Chief Executive Officer Richard Fuld told a congressional panel on Oct. 6 that naked short sellers had midwifed his firm’s demise.

The Fed has announced:

that the set of eligible collateral for loans extended by the Term Asset-Backed Securities Loan Facility (TALF) is being expanded to include four additional categories of asset-backed securities (ABS):

  • ABS backed by mortgage servicing advances
  • ABS backed by loans or leases relating to business equipment
  • ABS backed by leases of vehicle fleets
  • ABS backed by floorplan loans

“Floorplan loans”, by the way, are loans made to auto dealers to finance inventory, secured by that inventory.

Another good day for prefs – PerpetualDiscounts are now up 1.89% Year-to-Date and up 5.20% from the low on March 10, but still down 5.36% from the high on January 13.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.5879 % 829.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.5879 % 1,341.1
Floater 4.77 % 5.85 % 56,960 14.15 3 1.5879 % 1,036.0
OpRet 5.26 % 4.88 % 128,434 3.90 15 0.0939 % 2,059.3
SplitShare 6.88 % 9.60 % 52,927 4.80 6 0.2734 % 1,614.3
Interest-Bearing 6.04 % 8.41 % 35,122 0.75 1 2.2657 % 1,943.4
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.6417 % 1,495.2
Perpetual-Discount 7.23 % 7.38 % 152,993 12.02 71 0.6417 % 1,377.1
FixedReset 6.14 % 5.82 % 596,548 13.76 30 0.4466 % 1,800.8
Performance Highlights
Issue Index Change Notes
GWO.PR.J FixedReset -3.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 23.22
Evaluated at bid price : 23.26
Bid-YTW : 5.49 %
ENB.PR.A Perpetual-Discount -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 22.18
Evaluated at bid price : 22.46
Bid-YTW : 6.18 %
MFC.PR.C Perpetual-Discount -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 14.71
Evaluated at bid price : 14.71
Bid-YTW : 7.72 %
BAM.PR.H OpRet -1.46 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Evaluated at bid price : 23.01
Bid-YTW : 8.78 %
TD.PR.C FixedReset -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 23.97
Evaluated at bid price : 24.01
Bid-YTW : 5.01 %
LFE.PR.A SplitShare -1.13 % Asset coverage of 1.1-:1 as of March 13 according to the company.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Evaluated at bid price : 7.02
Bid-YTW : 16.55 %
CM.PR.I Perpetual-Discount 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 16.11
Evaluated at bid price : 16.11
Bid-YTW : 7.44 %
TD.PR.O Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 18.58
Evaluated at bid price : 18.58
Bid-YTW : 6.65 %
TD.PR.A FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 22.37
Evaluated at bid price : 22.41
Bid-YTW : 4.51 %
TD.PR.P Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 19.63
Evaluated at bid price : 19.63
Bid-YTW : 6.81 %
BNS.PR.R FixedReset 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 4.78 %
BNS.PR.O Perpetual-Discount 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 21.21
Evaluated at bid price : 21.21
Bid-YTW : 6.73 %
PWF.PR.H Perpetual-Discount 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 8.21 %
NA.PR.L Perpetual-Discount 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 7.14 %
BMO.PR.H Perpetual-Discount 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 20.56
Evaluated at bid price : 20.56
Bid-YTW : 6.53 %
TD.PR.Y FixedReset 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 21.02
Evaluated at bid price : 21.02
Bid-YTW : 4.57 %
RY.PR.L FixedReset 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 23.86
Evaluated at bid price : 23.90
Bid-YTW : 4.95 %
PWF.PR.K Perpetual-Discount 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 8.38 %
PWF.PR.I Perpetual-Discount 1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 20.26
Evaluated at bid price : 20.26
Bid-YTW : 7.56 %
RY.PR.C Perpetual-Discount 1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 17.34
Evaluated at bid price : 17.34
Bid-YTW : 6.73 %
BMO.PR.M FixedReset 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 21.20
Evaluated at bid price : 21.20
Bid-YTW : 4.43 %
W.PR.H Perpetual-Discount 1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 19.06
Evaluated at bid price : 19.06
Bid-YTW : 7.39 %
BAM.PR.B Floater 2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 7.50
Evaluated at bid price : 7.50
Bid-YTW : 5.85 %
BAM.PR.I OpRet 2.12 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-12-30
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 8.96 %
CU.PR.A Perpetual-Discount 2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 6.91 %
PWF.PR.E Perpetual-Discount 2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 17.75
Evaluated at bid price : 17.75
Bid-YTW : 7.91 %
STW.PR.A Interest-Bearing 2.27 % Asset coverage of 1.4+:1 as of March 12, based on Capital Unit NAV of 2.14. and 1.99 Capital Units per Preferred.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2009-12-31
Maturity Price : 10.00
Evaluated at bid price : 9.93
Bid-YTW : 8.41 %
BNS.PR.N Perpetual-Discount 2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 6.81 %
SLF.PR.E Perpetual-Discount 2.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 7.78 %
RY.PR.G Perpetual-Discount 2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 17.11
Evaluated at bid price : 17.11
Bid-YTW : 6.67 %
BNS.PR.Q FixedReset 2.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 21.11
Evaluated at bid price : 21.11
Bid-YTW : 4.54 %
ELF.PR.G Perpetual-Discount 2.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 13.50
Evaluated at bid price : 13.50
Bid-YTW : 9.04 %
HSB.PR.C Perpetual-Discount 2.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 17.75
Evaluated at bid price : 17.75
Bid-YTW : 7.23 %
POW.PR.D Perpetual-Discount 2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 7.79 %
BMO.PR.L Perpetual-Discount 2.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 7.21 %
GWO.PR.I Perpetual-Discount 2.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 15.05
Evaluated at bid price : 15.05
Bid-YTW : 7.52 %
TD.PR.S FixedReset 2.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 4.42 %
RY.PR.I FixedReset 3.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 23.22
Evaluated at bid price : 23.26
Bid-YTW : 4.30 %
PWF.PR.L Perpetual-Discount 3.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 8.02 %
BAM.PR.K Floater 3.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 7.50
Evaluated at bid price : 7.50
Bid-YTW : 5.85 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.E FixedReset 98,825 TD crossed 73,800 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 5.98 %
TD.PR.I FixedReset 98,510 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 25.08
Evaluated at bid price : 25.13
Bid-YTW : 6.00 %
RY.PR.T FixedReset 61,299 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 23.18
Evaluated at bid price : 25.16
Bid-YTW : 5.82 %
BNS.PR.X FixedReset 57,102 RBC crossed 18,400 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 6.07 %
CM.PR.E Perpetual-Discount 55,775 National Bank crosse 45,000 at 18.93.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 19.04
Evaluated at bid price : 19.04
Bid-YTW : 7.50 %
CM.PR.L FixedReset 48,545 Nesbitt bought 19,300 from National at 25.22.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-03-19
Maturity Price : 25.15
Evaluated at bid price : 25.20
Bid-YTW : 6.31 %
There were 29 other index-included issues trading in excess of 10,000 shares.

UK FSA Publishes Turner Report on Bank Regulation

Thursday, March 19th, 2009

The UK Financial Services Authority has announced that it has published:

Lord Turner’s Review and the supporting FSA Discussion Paper. These take an in-depth look at the causes of the financial crisis and recommend steps that the international community needs to take to enhance regulatory standards, supervisory approaches and international cooperation and coordination.

The Turner Review, as the report is called, starts with a very good review of ‘How did we get here from there?’, with a particular emphasis, of course, on the UK situation. For those interested in the US MMF initiatives, there is the comment:

The development of mutual-fund based maturity transformation was much less important in the UK than in the US: UK consumers do not to a significant extent hold mutual-fund investments as bank deposit substitutes. And while several UK banks set up SIVs and conduits, the scale was in general smaller than those of the big US banks. But US mutual funds and SIVs were very significant buyers of UK securitised credit: when they stopped buying, a large source of funding for UK credit extension disappeared.

There’s an attack on market efficiency … which is explicitly used as an argument for more wise and beneficial official influence of market prices:

  • Market efficiency does not imply market rationality.
  • Individual rationality does not ensure collective rationality.
  • Individual behaviour is not entirely rational.
  • Allocative efficiency benefits have limits.
  • Empirical evidence illustrates large scale herd effects and market overshoots.

There has been a recent, media-fueled resurgence of interest in financial models and their role in the crisis; the report contains a section on “Misplaced reliance on sophisticated maths”:

Four categories of problem can be distinguished:

  • Short observation periods…
  • Non-normal distributions…
  • Systemic versus idiosyncratic risk….
  • Non-independence of future events; distinguishing risk and uncertainty….

I suggest that these problems are not root causes, but symptoms. Believe me, the people who understood the models knew their limits very well. But in any large business, facts are used in the way the famous drunk uses a lamp-post: for support rather than illumination.

I have previously reviewed the problems inherent in estimating Loan Default Correlation. I suggest that the root cause of the problems in this process is the bigness of banks; there are too many layers of management eagerly telling their superiors what they want to hear, rather than making a Career Limiting Move and playing Cassandra. It is for this reason that there should be a surcharge on Risk Weighted Assets for size.

In fact, however, Lord Turner makes an almost sacreligious attack on market discipline – the Third Pillar of Basel II that I have attempted to defend from OSFI’s depredations. Lord Turner claims:

A reasonable conclusion is that market discipline expressed via market prices cannot be expected to play a major role in constraining bank risk taking, and that the primary constraint needs to come from regulation and supervision.

I suggest a more reasonable thing to try is disclosure … not disclosure from the banks, which is currently ignored, but disclosure by portfolio managers. Anybody with a licence to make discretionary trades for clients should be publishing returns – full and complete returns, which should then be published by the regulators (with spot checks for verification, same as with everything else that gets filed). In this way, we can hope to decrease the influence of salesmen in the industry; portfolio management is largely regarded primarily as an unfortunate regulatory cost to be minimized.

For purposes of this review, I’ve only skimmed over the first section. However, there is a section (2.9) of the more meaty sections of the report that brought tears of joy to my eyes:

Several commentators have argued for a clear separation of roles in which:
• Banks which perform classic retail and commercial banking functions, and which enjoy the benefits of retail deposit insurance and access to lender of last resort facilities, would be severely restricted in their ability to conduct risky trading activities.
• Financial institutions which are significantly involved in risky trading activities would be clearly excluded from access to retail deposit insurance and from [Lender of Last Resort] facilities, and would therefore face the market discipline of going bankrupt if they ran into difficulties.
The theoretical clarity of this argument has attracted considerable support.

The key tools to achieve [elimination of Too Big To Fail status] will include:
• A regulatory regime for trading book capital (discussed in Sections 2.2 (ii) and (vi)) that combines significantly increased capital requirements with a gross leverage ratio rule which constrains total balance sheet size. Such a regime could include very major variation in capital requirements as between different types of trading activity, effectively achieving a distinction between market making to support customer service and proprietary position taking. The fundamental review of the trading book capital regime, proposed in Section 2.2 (ii), should consider the potential to achieve such distinction.