Citigroup’s liquidity guarantees are attracting scrutiny:
Financial Crisis Inquiry Commission investigators may conclude a primary cause of Citigroup’s 2008 bailout was the use of “liquidity puts” by traders to bolster sales, Chairman Phil Angelides said in an interview yesterday. Those puts allowed customers to sell debt securities back to the bank at face value if credit markets froze, something that Citigroup’s traders bet would never happen, according to Angelides.
…
To raise money to buy the assets, Citigroup sold commercial paper, with the assets pledged as collateral. Commercial paper is a type of debt that matures in less than a year and was popular with money-market funds and corporate treasurers who want to invest their surplus cash in readily redeemable funds while earning higher yields.Liquidity puts were added to “facilitate” the sales of the commercial paper, [Citigroup CDO boss Nestor] Dominguez said; investors could “put back” the commercial paper to Citigroup if the market went cold. Dominguez described this as a “significant widening in credit spreads or a temporary inability to issue commercial paper.” Widening credit spreads, or the gap between a bond’s yield and benchmark rates, indicate slackening investor demand.
…
Citigroup used the liquidity puts partly because they required less capital support than backup credit lines that bank’s typically offer, Georgiou said.The liquidity puts were subject to a 0.8 percent capital charge, [commission member Byron] Georgiou said. Put another way, the bank had to set aside $1 of capital for every $125 of commercial paper. That compares with Citigroup’s overall ratio of $1 for every $14.50 of loans, securities and other investments as of Dec. 31.
The International Monetary Fund has released the April 2010 Global Financial Stability Report. I haven’t had a chance to do much besides skim it, but the big news is that they’re recommending capital charges on “systemically important” banks based on regulatory fiat, rather than any kind of formula:
Regulators may find it necessary to weigh “direct preemptive measures,” including constraining the size of certain activities to limit the emergence of “systemically important” firms, the Washington-based IMF said today in its bi-annual Global Financial Stability Report.
The report precedes an April 23 meeting of the Group of 20 nations in Washington, where the IMF plans to detail for finance chiefs ways that financial firms may help pay for the costs of bailouts. Since the start of the credit crisis, governments and central banks have spent more than $11 trillion to support the financial industry, according to the Paris-based Organization for Economic Cooperation and Development.
The capital surcharge would be “a buffer” designed to increase “the resiliency of the institution to sustain different shocks,” Juan Sole, one of the report’s authors, told reporters in Washington today.
Political momentum to overhaul financial regulations in some countries may be weakening as economic growth returns, IMF Managing Director Dominique Strauss-Kahn said in an interview in Kenya last month.
Parts of the financial industry have gone “back to practices of risk taking, which is probably not the most appropriate to have a stable financial system at the global level,” he said.
Now, more than ever, it is important for large banks to offer cushy jobs to ex-regulators!
The rebound in the market continued today on heavy volume, with PerpetualDiscounts up 26bp while FixedResets lost 4bp … taking the yield on the latter index within striking distance of 4%!
| 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 | 2.60 % | 2.71 % | 55,414 | 20.88 | 1 | -0.2764 % | 2,122.8 |
| FixedFloater | 4.94 % | 3.01 % | 47,480 | 20.39 | 1 | 0.3238 % | 3,237.9 |
| Floater | 1.90 % | 1.65 % | 42,088 | 23.46 | 4 | 0.3755 % | 2,427.3 |
| OpRet | 4.88 % | 3.48 % | 107,376 | 0.29 | 10 | -0.0350 % | 2,313.7 |
| SplitShare | 6.34 % | -1.27 % | 136,202 | 0.08 | 2 | 0.0438 % | 2,151.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0350 % | 2,115.6 |
| Perpetual-Premium | 5.82 % | 3.86 % | 34,650 | 0.62 | 2 | 0.4654 % | 1,853.8 |
| Perpetual-Discount | 6.14 % | 6.20 % | 197,668 | 13.65 | 76 | 0.2626 % | 1,733.0 |
| FixedReset | 5.43 % | 3.93 % | 479,541 | 3.66 | 44 | -0.0373 % | 2,173.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.C | Perpetual-Discount | -2.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 18.09 Evaluated at bid price : 18.09 Bid-YTW : 6.30 % |
| GWO.PR.I | Perpetual-Discount | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 6.24 % |
| RY.PR.B | Perpetual-Discount | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 20.11 Evaluated at bid price : 20.11 Bid-YTW : 5.94 % |
| SLF.PR.D | Perpetual-Discount | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 18.01 Evaluated at bid price : 18.01 Bid-YTW : 6.24 % |
| POW.PR.B | Perpetual-Discount | 1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 6.31 % |
| POW.PR.D | Perpetual-Discount | 1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 20.07 Evaluated at bid price : 20.07 Bid-YTW : 6.27 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.Y | FixedReset | 92,850 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 24.35 Evaluated at bid price : 24.40 Bid-YTW : 3.95 % |
| RY.PR.R | FixedReset | 70,460 | National crossed 55,000 at 27.61. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.57 Bid-YTW : 3.75 % |
| BNS.PR.T | FixedReset | 58,045 | National crossed 50,000 at 27.44. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.37 Bid-YTW : 3.75 % |
| TD.PR.G | FixedReset | 53,818 | RBC crossed 13,700 at 27.41; Nesbitt bought 10,000 from anonymous at 27.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.31 Bid-YTW : 3.82 % |
| SLF.PR.D | Perpetual-Discount | 44,253 | RBC bought 10,000 from National at 18.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-04-13 Maturity Price : 18.01 Evaluated at bid price : 18.01 Bid-YTW : 6.24 % |
| MFC.PR.E | FixedReset | 44,214 | National crossed 25,000 at 26.79. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.68 Bid-YTW : 4.10 % |
| There were 61 other index-included issues trading in excess of 10,000 shares. | |||
FTN.PR.A Gets Bigger
Wednesday, April 14th, 2010Financial 15 Split Corp has announced it has:
There were about 7.3-million units outstanding as at November 30, 2009, so this offering improves liquidity by about 25%.
FTN.PR.A was last mentioned when the treasury offering was announced. FTN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.
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