PrefBlog

Teachers’ supports the TMX / LSE deal:

Specifically, we support the proposed merger for the following reasons:

• It is important to ensure that Teachers’ and other investors have access to an effective, low cost trading platform to execute both cash and derivative trades. The combined exchange operator should be able to achieve economies of scale, lowering the cost of capital and trading costs.
• …

What? Judging a company by what it does for its customers rather that the quality of jobs it provides its employees and suppliers? Why, that’s … that’s un-Canadian! The More-Subsidies government should revoke their citizenship, immediately and retroactively!

The Fed has relaxed dividend restrictions on large US bank holding companies:

The Federal Reserve on Friday announced it has completed the Comprehensive Capital Analysis and Review (CCAR), its cross-institution study of the capital plans of the 19 largest U.S. bank holding companies.

As a result of the CCAR, some firms are expected to increase or restart dividend payments, buy back shares, or repay government capital. The Federal Reserve on Friday will discuss the reviews and its decisions with firms that requested a capital action. All 19 firms will receive more detailed assessments of their capital planning processes next month.

In February 2009, the Federal Reserve advised bank holding companies that safety and soundness considerations required that dividends be substantially reduced or eliminated. Since that time, the Federal Reserve has indicated that increased capital distributions would generally not be considered prudent in the absence of a well-developed capital plan and a capital position that would remain strong even under adverse conditions.

There was immediate reaction:

JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) increased dividends and authorized share buybacks after the Federal Reserve reviewed the ability of the largest U.S. lenders to withstand another economic slump. Bank stocks rallied in New York trading.
…
Goldman Sachs Group Inc. (GS) said it got permission to buy back $5 billion of preferred stock sold to Warren Buffett’s Berkshire Hathaway Inc. in 2008.

And some took advantage of the market’s reaction:

KeyCorp (KEY), Ohio’s second-biggest bank, raised $625 million selling shares as part of a plan to repay a U.S. bailout after a Federal Reserve review of the company’s capital strength.

KeyCorp, based in Cleveland, sold 70.6 million shares of common stock at $8.85 each, the bank said today in a statement.

The Federal Reserve told KeyCorp it didn’t object to a plan to sell stock and issue debt to help repurchase $2.5 billion of preferred shares sold to the U.S. Treasury in 2008 as part of the Troubled Asset Relief Program, the company said in a statement. KeyCorp paid about $282 million in dividends to Treasury during the investment period.

KeyCorp advanced 7 cents to $8.92 as of 4 p.m. today in New York Stock Exchange composite trading before the announcement.

… and so did SunTrust:

SunTrust Banks Inc. (STI) raised $1.04 billion selling shares as part of a plan to repay $4.85 billion in U.S. bailout funds.

The lender, based in Atlanta, sold 35.3 million shares of common stock for $29.50 each, data compiled by Bloomberg show.

The Federal Reserve, which reviewed the financial strength of the largest U.S. lenders, didn’t object to SunTrust’s capital plan to sell the stock and issue a further $1 billion of debt, the bank said today in a statement. Repayment to the Troubled Asset Relief Program, which will also draw on “other available funds,” is subject to approval by the U.S. Treasury Department, the bank said.

SunTrust advanced $1.34, or 4.7 percent, to $29.59 as of 4 p.m. today in New York Stock Exchange composite trading before the announcement.

Regulators world-wide are seeking to expand their empires:

Michael Oxley, the former congressman who co-wrote the Sarbanes-Oxley Act of 2002, has registered as a lobbyist for the Financial Industry Regulatory Authority to promote self-regulation of investment advisers.

Oxley, a partner at Baker Hostetler LLP in Washington, registered this week as a Finra lobbyist, saying he would work on securities regulation and the “harmonization of regulation of broker-dealers and investment advisers,” according to his registration form. Finra oversees about 4,560 brokerage firms and is interested in expanding to investment advisers.

Salesmen should not have the same regulator as asset managers.

Today’s embarrassing news release is:

GMP Capital Inc. (“GMP”) (TSX: GMP and GMP.PR.B) announced that it has re-filed its audited financial statements and accompanying management’s discussion and analysis for the year ended December 31, 2010 to correct a calculation error relating to earnings per common share for 2009.

The correction relates to amounts recorded in connection with the redemption of GMP’s Series A preferred shares in December 2009. The amounts were charged to retained earnings, as required, but were not deducted in computing net income available to common shareholders. The earnings per common share (“EPS”) for 2009 has accordingly been revised from $0.64 per basic EPS and $0.59 per diluted EPS, as originally reported, to $0.52 per basic EPS and $0.48 per diluted EPS. The correction and re-filing has no effect on EPS for 2010 and does not otherwise affect GMP’s financial statements for the years ended 2010 and 2009.

On the whole, I would say that’s on a par with the Toronto Society of Financial Analysts repeated problems with their financial statements! It was just yesterday that Harris Fricker, CEO of GMP Capital, wrote an incomprehensible essay in the Globe trying to tell the TMX how to manage its business.

It was quite the day for BMO.PR.J!

Click for big

BMO.PR.J was the best performing index-included preferred share for the day, trading 89,346 shares in a range of 23.78-26.25 (!) [It’s been a while seen we’ve seen $2+ ranges!] before closing at 24.20-43, 10×18. Thanks to Assiduous Reader GA for bringing this to my attention.

Was it Algos Gone Wild? Fat Finger? One way or another, Desjardins bought 19,500 shares at an average price of 24.60 in 24 pieces from 11:40:36 to 11:40:37 – the first piece executed at 23.81, the last at 26.23. Then two odd-lots traded at 26.25 (presumably the offering price, but I haven’t bought that data), indicating a separate order. The next batch of Desjardins’ buying was another 20,200 shares at an average price of 25.75 in 9 pieces from 11:40:37 to 11:40:48, starting at 24.20 (an algo coming in with a new offer?) and ending at 26.25. This sequence included 16,400 shares at the high for the day of 26.25. Kudos to Goldman Sachs, who – I’m guessing, but it’s a pretty confident kind of guess – has an algorithm trolling the alleyways just looking for this sort of thing and were the seller of the last four lots at 26.25, totalling 9,500 shares.

Or maybe it wasn’t a Goldman algorithm, but an iceberg, placed well off the market price some time every morning? Either way, they made about $20-grand.

Oh, and when I say “Desjardins” and “Goldman”, it might not have been their prop desks acting as principal – this might all have been client orders.

The Canadian preferred share market was strong today, with PerpetualDiscounts up 9bp, FixedResets gaining 14bp and DeemedRetractibles winning 37bp. Volume was light.

The Irish government is upset about its zombie banks:

Irish Prime Minister Enda Kenny said it’s “grossly unfair” that taxpayers alone should carry the cost of bailing out the country’s banks as he pushed for lower rates on a European-led rescue loan.

Kenny, on a visit to Washington where he says he’s trying to repair Ireland’s “damaged” reputation, called for changes to the rescue package by the European Union and the International Monetary Fund to avoid a situation where Ireland struggles to pay back its loan and can’t generate economic growth.

“It is grossly unfair to expect the taxpayer to have to pay 100 percent for the reckless lending practices of banks which caused this in the first instance,” Kenny said yesterday in an interview with Bloomberg Television’s “InBusiness With Margaret Brennan” that will be broadcast today. The 5.8 percent average rate Ireland pays for its loans is “too severe,” he said.
…
Kenny stopped short of saying who should pay along with taxpayers. Asked about the treatment of senior bondholders, Kenny said that his government will put no additional cash into banks “until you see the scale of what the liability is, until there is an understanding of what might be here.”

There was cheering in B-Comm classes across Canada today as Harris Fricker, CEO of GMP Capital, demonstrated that you can achieve enormous success on Bay Street without the ability to construct a coherent argument. There’s really not much worth quoting, but here’s the conclusion:

We cannot help but feel that a major opportunity has been lost to preserve a distinctly Canadian success story. Will the acquisition by the LSEG imperil our markets or impede the formation of capital in Canada? Not at all likely. Is the loss of the standalone status of the TMX regrettable in the face of its success to date and its potential going forward? Undeniably.

There is no support for either concluding assertion in the preceeding mish-mash of unrelated statements.

Mr. Fricker’s effort demonstrates:

• that whatever the TMX debate is about, it has nothing to do with what’s being said in public
• the intellectual bankruptcy of public disourse in Canada.

We’re getting involved in another foreign war:

The United Nations Security Council voted today to ground Libyan leader Muammar Qaddafi’s air force and to grant military authority to the U.S. and its allies to protect civilians and population centers threatened by Qaddafi’s forces.

It seems quite clear to me that the Qaddafi regime is awful, both domestically and internationally, but I’m not sure why we think the alternatives are better. Nobody’s bothered to explain it to me. I’m with Haass:

“Why is anyone so sure that the people we’d be helping, that they would necessarily be dramatically better than Gadhafi?” said Richard Haass, president of the Council on Foreign Relations.

So we’ll happily support the Libyan rebels, giving them carte blanche to fight Quaddafi – just like we gave bin Laden carte blanche to fight the Soviets.

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts down 13bp, FixedResets gaining 2bp and DeemedRetractibles up 16bp. Volume was on the light side.

There are rising doubts about UK growth:

The Organization for Economic Cooperation and Development cut its forecast for U.K. economic growth in 2011 and said the Bank of England should refrain from increasing interest rates until the second half of the year.

Gross domestic product will expand 1.5 percent instead of the 1.7 percent predicted in November, the Paris-based group said in its economic survey of the U.K. published today. It maintained its 2 percent growth forecast for next year.

“The recovery is likely to remain subdued in 2011, as the necessary fiscal tightening and a fading rebound in world trade create headwinds, before picking up again in 2012,” it said.

… and Moody’s downgraded Portugal:

The euro halted three days of gains versus the dollar after Moody’s Investors Service downgraded Portugal’s credit rating, reviving concern about Europe’s ability to solve its debt crisis.

The 17-nation common currency depreciated versus all but two its major counterparts after Portugal was cut two steps by Moody’s yesterday to A3, four steps from so-called junk status.

It was a good day overall for the Canadian preferred share market, with PerpetualDiscounts up 30bp, FixedResets losing 4bp and DeemedRetractibles up 6bp. Volume was average.