PrefBlog

Bureaucrats scored a huge win in Ontario today:

The legislation would also crack down on fraud by giving FSCO the right to oversee health clinics that invoice insurers.

It would also expand FSCO’s right to investigate fraudsters.

Ah, regulation! I’ve been following the chemotherapy drug scandal with keen interest – so keen, in fact, that I have written to the Ministry of Health for more information:

I understand that your response to the chemotherapy drug scandal is to demand an increase in employment of regulators.

I do not understand this. It appears that the supplies were used by the (regulated, hospital-based) pharmacies involved as a stock solution, even though there was no concentration listed on the label, that the contract with the supplier quite clearly indicated that concentration was irrelevant, and that – evidently – concentration of the supplied solutions was not checked irregardless of the label.

Please advise me how many individuals employed by London Health Sciences Centre, Windsor Regional Hospital, Lakeridge Health and Peterborough Regional Health Centre will be losing (or have already lost) their jobs over this gross incompetence.

Themis Trading was quoted today in the wake of the Symantec silliness:

Approximately 504,000 Symantec shares were traded in a three-second period that saw the stock dive from $24.40 to a low of $21.93 before it was halted.
…
Before the prevalence of high-frequency trading, “a series of market makers would have filled this mistake with substantially less carnage,” said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.

“Today’s market structure is perfectly set up to take advantage of any and all missteps in the most efficient manner … if you were day-trading this, or had a stop-loss order in, then you got hit not because of your thesis, but because of a market structure issue.”

Shares of Symantec resumed trading five minutes after being halted, and bounced back above $24. They fell 1.3 per cent to $24.26 in midday trading.

I take issue with Mr. Arnuk’s comments. If you were day-trading this, then you were acting as a market-maker; and if you’re not very good at market making, you may well have lost some money. If you had a stop-loss order in, then you got hit because you’re an idiot.

Banking crises continue to nibble away at the margins of the EU:

Slovenia, the first former Communist nation in the euro zone, is facing a typically capitalist dilemma: whether to protect creditors of big banks.

Rising loan losses resulting from a housing bust and a second recession in two years have left a hole of about 7.5 billion euros ($9.9 billion) at Slovenia-based lenders, investment bank Keefe Bruyette & Woods estimates. That’s a lot for a 35 billion-euro economy: A bank bailout would push government debt above 70 percent of economic output.

Even after a successful domestic debt sale two weeks ago, the country may need assistance from the European Union, and holders of bank bonds, including the most senior creditors, could be forced to take losses, according to Raoul Ruparel, head of research at London-based Open Europe. Such a bail-in, which would be the second in the euro zone, after Cyprus, risks deepening divergence in the monetary union by keeping borrowing costs higher in economically weak nations.

Don’t know why they’re worried. Ten billion isn’t even a big bond deal:

Apple Inc. wowed the debt markets on Tuesday with the largest non-bank bond deal in history, offering a whopping $17-billion (U.S.) for sale as the U.S. computer giant switches strategy to placate restless shareholders.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums off 3bp, FixedResets down 7bp and DeemedRetractibles gaining 2bp. Volatility fails to arouse interest. Volume was average.

Deutsche Bank is raising some capital:

Deutsche Bank AG (DBK), continental Europe’s biggest bank, will raise as much as 4.8 billion euros ($6.3 billion) to increase capital as first-quarter profit climbed.

The company will issue 2.8 billion euros in stock, or as many as 90 million new shares, with full dividend entitlement for 2012, as part of the plan, the Frankfurt-based bank said in a statement today. Deutsche Bank has already received enough orders for the sale, according to the term sheet.
…
The share sale will increase Deutsche Bank’s core Tier 1 capital adequacy ratio under Basel III rules, a key measure of financial strength, to about 9.5 percent from 8.8 percent at the end of March, it said.

Veresen, proud issuer of VSN.PR.A, was confirmed at Pfd-3(high) by DBRS:

The Preferred Shares are confirmed at Pfd-3 (high). All trends are Stable. The confirmation reflects (1) relatively stable cash distributions from the Company’s regulated Pipeline businesses, which accounted for approximately 49% of Veresen’s 2012 cash distributions received from its subsidiaries and investments; (2) improved cash flow diversification as result of the acquisition of the Hythe/Steeprock complex (the Acquisition) from Encana Corporation (rated BBB); and (3) solid cash flow-interest coverage and cash flow-to-debt metrics (non-consolidated). The confirmation is also based on DBRS’s expectation that the currently high debt leverage (as a result of the Acquisition) at the parent level will improve over the medium term.
…
As a result of the Acquisition ($920 million), the parent debt increased significantly in 2012. The non-consolidated debt-to-capital ratio increased to over 40% in 2012 from 35.7% in 2011, which is viewed as aggressive. DBRS recognizes that Veresen benefits from owning a large non-debt and diverse asset base, which allows the Veresen to carry more non-consolidated debt than a pure holding company.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets off 2bp and DeemedRetractibles up 10bp. Volatility was minimal. Volume was average.

It has become easier (for some) to buy (some) foreign securities:

Offerings of securities in other jurisdictions are frequently extended to purchasers in Canada on a private placement basis. However, it is generally necessary to include with the foreign offering document a Canadian wrapper that contains disclosure required under the securities legislation of the various Canadian jurisdictions where the offering is made. Also, it may be necessary to obtain relief from certain Canadian securities regulators in order to permit specified disclosure contained in the foreign offering document, such as a listing representation, that is not permitted under local rules. Since most investors in such offerings are sophisticated institutional investors, the value of this additional disclosure and prohibition is questionable. Furthermore, the time and expense associated with preparing a Canadian wrapper has been cited as a significant deterrent to extending foreign offerings to Canadian purchasers.

The Ontario Securities Commission has (a) granted relief to a group of dealers and (b) proposed amendments to the applicable requirements in Ontario that would allow such offerings to be made available to sophisticated investors without a Canadian wrapper.

PROPOSED ONTARIO AMENDMENTS
The proposed amendments apply to the offering of “designated foreign securities”, which include:

• • securities offered primarily in a foreign jurisdiction
• • securities issued by an issuer that is
  • o created under the laws of a foreign jurisdiction
  • o not a reporting issuer in Canada, and
  • o has its head office or principal executive offices outside of Canada, or
• • securities that are issued or guaranteed by the government of a foreign jurisdiction.

…The proposed amendments are open for comment until July 24, 2013 and are available here.
The OSC decision document providing the above relief is available here.

Why is it that self-proclaimed “consumer advocates” are always the ones who oppose the flow of information?

U.S. Securities and Exchange Commission chairman Mary Jo White is pushing to adopt a rule allowing hedge funds to advertise in a move consumer advocates say could fail to protect unsophisticated investors, according to two people familiar with the matter.

White, who became SEC chairman on April 10, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the SEC has slow-walked the rule, which was required to be completed by July 2012.

Approving the regulation would allow White to make good on a promise she made in her Senate confirmation hearing to prioritize rules mandated by the Jumpstart Our Business Startups Act, which was designed to boost capital-raising and job creation. At the same time, it could anger advocates for small investors and at least one Democratic commissioner.

“It would be a very bad sign — a cause for grave concern about the substance of the issue and process of how investor protection concerns are addressed,” Barbara Roper, director investor protection at the Washington-based Consumer Federation of America, said in a phone interview. Roper said she discussed the rule with White and other SEC officials on April 23.

It was an uneven day for the Canadian preferred share market, with PerpetualPremiums gaining 1bp, FixedResets winning 23bp and DeemedRetractibles off 1bp. Volatility was minor. Volume was average.

Assiduous Reader JP sends in a clipping detailing the interesting defence to the fraud charges against S&P:

Now, lawyers defending the company against the Justice Department’s recent civil lawsuit say that statements about independence and objectivity are “puffery” and were never meant to be taken at face value by investors.
…
In its formal defense filed Monday, S&P pointed to two earlier court decisions where judges ruled that such statements by the firm were puffery and therefore can’t form the basis for a fraud claim.
…
“Even if it’s a viable legal argument, it’s a pretty unattractive argument for S&P to be putting forward since they’re basically in the business of charging clients for their reputation,” said Samuel Buell, a law professor at Duke University and a former federal prosecutor. “What they’re saying here is, ‘When we’re talking to investors about our own reputation, we’re engaging in meaningless puffery.’ ”

“That’s the whole point of the rating agencies, their seal of approval,” Mr. Buell said.

I disagree with Mr. Buell’s characterization of ‘the whole point of the rating agencies’. They don’t provide a “seal of approval” to anything – they provide an opinion on the credit-worthiness of the firm, or instrument. Since the issuers use this opinion to help sell their product, it can be fairly characterized as puffery, although not entirely meaningless.

The CRAs do not do anything a competent analyst cannot do – except, of course, for using material non-public information in the course of their work, a provision of Canadian and US securities laws I despise. Their value is: at least it’s a reasonably consistent opinion across companies; their 100-year track record is excellent (they are being blamed for the credit crisis – that’s like blaming the weatherman for Hurricane Sandy); and they serve as a public flash-point for concerns about creditworthiness that may spur action when times are tough.

It was an inconsequential day on the Canadian preferred share market, with PerpetualPremiums down 5bp, FixedResets off 4bp and DeemedRetractibles gaining 2bp. Volatility was low. Volume was on the high side of average.