Archive for July, 2013

FFH: S&P Revises Outlook to Stable from Positive

Wednesday, July 31st, 2013

Standard & Poor’s has announced:

  • Following a review under our revised insurance criteria, we are affirming our ratings on Fairfax and its core subsidiaries.
  • The ratings predominantly reflect our view of the group’s strong business and financial risk profiles, based on its strong competitive position and very strong capital and earnings.
  • We have revised our outlook to stable from positive based on our view that Fairfax will gradually improve its underwriting results and fixed-charge coverage metrics but not enough to warrant an upgrade in the near term.


We assess Fairfax’s capital and earnings as very strong, which we expect to continue in our base-case economic scenario despite the current low interest rates. Its capital adequacy according to our proprietary capital model is currently at the lower end of the ‘AA’ category, which is somewhat lower than historically mainly because of the reduction in interest rates used to discount loss reserves. The group’s exposure to natural peril and man-made catastrophes and uncertainty related to its substantial casualty reserves (both ongoing and runoff) translate into a moderate risk position score, partially offsetting its very strong capital adequacy. Shareholders’ equity (including preferred shares) totaled $8.9 billion as of year-end 2012, up from $8.4 billion as of year-end 2011. We expect Fairfax to maintain its capital adequacy at an ‘AA’ level.

We regard Fairfax’s risk position as moderate. The group has minimal exposure to employee benefit liabilities. Although its exposure to high risk assets is at 70% of total adjusted capital, Fairfax carries substantial cash and liquid fixed-income securities to counterbalance the volatility of equities. About 75% of the portfolio is invested in cash and fixed-income securities with a weighted average rating of ‘A+’. But we are concerned about potential capital and earnings volatility due to its exposure to property catastrophe losses, its willingness to take significant concentrated investment positions to achieve above-average returns, and its asbestos and environmental exposure.

The now obsolete Positive Outlook was reported on PrefBlog when it came into effect …. nearly two years ago!

Fairfax has the following preferreds outstanding: FFH.PR.C, FFH.PR.E, FFH.PR.G, FFH.PR.I AND FFH.PR.K. All are FixedResets; all are relegated to the Scraps index on credit concerns.

MAPF Semi-Annual Financials (Unaudited) Released

Wednesday, July 31st, 2013

I am pleased to announce that the 13H1 Semi-Annual Financials (Unaudited) for Malachite Aggressive Preferred Fund are now available through the fund’s main web page:

July 30, 2013

Tuesday, July 30th, 2013

The Fabulous Fab trial goes to jury today:

A win by the SEC may demonstrate the agency has the will and resources to win cases at trial, strengthening its hand in future negotiations with Wall Street institutions and their employees.

A loss, following a defeat last year in a trial against Brian Stoker, the former head of Citigroup Inc.’s CDO structuring group, would be the second high-profile trial loss in cases tied to the 2008 financial meltdown, in the Manhattan federal courthouse just blocks from Wall Street.

“At the end of the day, this was a tremendous build-up for what amounts to a minor case involving a midlevel player whose personality essentially became the case,” said Jacob Frenkel, a former SEC lawyer not involved in the Tourre case. “What we’re seeing so far is that the government’s best shot at Goldman was a low-level figure.”

The decision not to call any additional witnesses “highlights the level of confidence the defense has in its case,” Frenkel said.

In other fallout from the Credit Crunch, Barclays has come out with a massive rights deal:

Barclays Plc (BARC), the U.K.’s second-largest bank by assets, plans to raise 5.8 billion pounds ($8.9 billion) in a rights offering to bolster capital as it booked its biggest charge to date for customer compensation.

nvestors will be able to buy one new share for every four they already own for 185 pence, 40 percent less than yesterday’s closing price, London-based Barclays said in a statement today. It will also shrink assets by as much as 80 billion pounds to 1.5 trillion pounds and sell 2 billion pounds of loss-absorbing securities to meet calls by the regulator to cut leverage.

Chief Executive Officer Antony Jenkins, 52, is selling more shares than the 4 billion pounds analysts had anticipated after the lender’s capital shortfall swelled to 12.8 billion pounds at the end of June under the stricter Basel III rules on bank capital. The Prudential Regulation Authority is imposing a 3 percent leverage ratio, forcing banks to hold 3 pounds of equity for every 100 pounds of assets to make the financial system safer. Barclays had sought to plug the deficit by using contingent convertible bonds and retaining earnings.

Barclays was one of only two British lenders to miss the regulator’s leverage target in June, with only 2.5 percent. Nationwide Building Society, which at 2 percent also failed, was given until the end of 2015 to make up the shortfall.

Barclays said that under the full Basel III rules its ratio was only 2.2 percent at the end of June. The ratio declined after the latest version of the Basel rules added 85 billion pounds of leverage exposure, the lender said. Part of the 12.8 billion-pound gap comes from a PRA calculation of future bad loan losses and potential redress for customers, which reduces capital by 4.1 billion pounds, Barclays said.

Deutsche Bank followed:

Deutsche Bank AG (DBK), continental Europe’s biggest bank, said it will shrink its balance sheet by 250 billion euros ($332 billion), joining Barclays Plc (BARC) and UBS AG (UBSN) in seeking to comply with stricter capital rules.

Deutsche Bank will reduce leverage by changing the way it accounts for derivatives and by winding down a 73 billion-euro portfolio of assets, Chief Financial Officer Stefan Krause told investors on a conference call today. Krause announced the plan after the bank said net income slid 49 percent to 334 million euros, missing the average 767.6 million-euro estimate of nine analysts.

Meanwhile, UBS provides some insight as to why scaremongers talk about “downgrades” rather than “defaults”:

UBS needed state aid after the bankruptcy of Lehman Brothers Holdings Inc. in 2008 froze financial markets and the Swiss bank’s mistimed bet on the U.S. housing market resulted in more than $57 billion in writedowns and losses during the subprime crisis.

The company spun off $38.7 billion of risky assets into the Swiss National Bank fund, while the government provided 6 billion francs ($6.4 billion) of equity and the SNB made a loan to support the assets as they were being run down. The Swiss government sold its investment in UBS less than a year later for a profit of 1.2 billion francs.

As part of the rescue, UBS was granted an option to buy back the equity of the fund once the SNB loan was repaid. Under that arrangement, UBS would pay the central bank $1 billion plus 50 percent of the value of equity exceeding that level — amounting to about $3.25 billion based on values at the end of last year.

REITs are the key to a lot of deals. Does this tell you anything?

The high likelihood that Hudson’s Bay will spin off its real estate portfolio into a real estate investment trust (REIT) – seen by many as not only a means to cash in on the ample high-value real estate it would acquire in the Saks deal, but also a source of funds to reduce the debt burden – is also, paradoxically, a dilemma for Moody’s.

Still, the REIT looks like the key to solving Hudson’s Bay’s debt puzzle. Mr. Caicco estimates that Hudson’s Bay could hand nearly $1.6-billion of its debt over to the REIT, along with the assets associated with it. There, the debt would be supported by nearly $3.8-billion in properties across Hudson’s Bay, Saks and Lord & Taylor’s holdings.

This is why the market needs to hear the REIT plan. Without it, an awful lot of debt questions remain unanswered.

More trouble for Canaccord?

Aggarwal, 40, of Gurgaon, India, was arrested yesterday by agents of the Federal Bureau of Investigation in San Jose, California, as part of the U.S. government’s six-year crackdown on insider trading at hedge funds, said Peter Donald, an FBI spokesman in New York.

Manhattan U.S. Attorney Preet Bharara’s office said Aggarwal is charged with one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud for passing along an inside tip about a pending deal between Yahoo! Inc. (YHOO) and Microsoft Corp. (MSFT)

“Sandeep Aggarwal leveraged his contacts in the technology industry to obtain an illegal edge in the form of inside information about a highly anticipated development, then lied about his criminal conduct,” Bharara said in a statement.

Aggarwal formerly worked at Collins Stewart LLC in San Francisco, said a person familiar with the situation, who requested anonymity because the matter wasn’t public. Andrea Sergautis, a spokeswoman for Canaccord Genuity in Toronto, which acquired Collins Stewart, didn’t return a call seeking comment on Aggarwal’s case.

Aggarwal provided material nonpublic information about a strategic partnership in Internet search and advertising between Microsoft and Yahoo to two different hedge funds, including SAC, the U.S. alleged in a criminal complaint unsealed today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 1bp, FixedResets up 10bp and DeemedRetractibles gaining 8bp. There was again a surprisingly lengthy Performance Highlights table. Volume was above average.

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 -0.5876 % 2,601.0
FixedFloater 4.10 % 3.40 % 34,837 18.58 1 0.0000 % 4,046.5
Floater 2.70 % 2.87 % 85,020 20.05 4 -0.5876 % 2,808.4
OpRet 4.59 % 1.87 % 85,736 0.08 3 0.1532 % 2,628.5
SplitShare 4.70 % 4.85 % 61,197 4.16 6 0.3011 % 2,950.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1532 % 2,403.5
Perpetual-Premium 5.62 % 4.67 % 105,726 0.09 12 -0.0166 % 2,285.2
Perpetual-Discount 5.38 % 5.45 % 138,621 14.71 26 -0.0122 % 2,392.8
FixedReset 4.99 % 3.66 % 233,811 3.96 84 0.0973 % 2,466.8
Deemed-Retractible 5.09 % 4.65 % 197,274 6.84 43 0.0835 % 2,374.8
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.56
Bid-YTW : 4.15 %
BAM.PR.K Floater -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 18.06
Evaluated at bid price : 18.06
Bid-YTW : 2.92 %
BAM.PR.C Floater -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 18.16
Evaluated at bid price : 18.16
Bid-YTW : 2.91 %
GWO.PR.N FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.52
Bid-YTW : 3.89 %
SLF.PR.H FixedReset -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.64
Bid-YTW : 4.12 %
POW.PR.D Perpetual-Discount 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 23.17
Evaluated at bid price : 23.43
Bid-YTW : 5.37 %
BAM.PF.D Perpetual-Discount 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 22.54
Evaluated at bid price : 22.86
Bid-YTW : 5.42 %
BAM.PR.N Perpetual-Discount 1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 21.86
Evaluated at bid price : 21.86
Bid-YTW : 5.50 %
BAM.PR.X FixedReset 1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 22.65
Evaluated at bid price : 23.55
Bid-YTW : 3.95 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.L Deemed-Retractible 67,381 National crossed 47,400 at 25.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.93
Bid-YTW : 4.56 %
BNS.PR.A FixedReset 66,120 National crossed blocks of 49,100 and 10,400, both at 26.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-29
Maturity Price : 25.50
Evaluated at bid price : 26.10
Bid-YTW : -26.40 %
CM.PR.D Perpetual-Premium 59,972 Nesbitt crossed 40,000 at 25.16.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-29
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : -1.54 %
BMO.PR.M FixedReset 57,130 Will reset to 3.39% coupon.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 3.57 %
CM.PR.G Perpetual-Premium 52,000 Nesbitt crossed 42,300 at 25.07.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-01
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 5.27 %
BMO.PR.L Deemed-Retractible 39,304 Nesbitt crossed 35,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-29
Maturity Price : 26.00
Evaluated at bid price : 26.04
Bid-YTW : -1.12 %
There were 39 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.F FixedReset Quote: 23.56 – 24.49
Spot Rate : 0.9300
Average : 0.7145

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.56
Bid-YTW : 4.15 %

FTS.PR.G FixedReset Quote: 24.10 – 24.55
Spot Rate : 0.4500
Average : 0.3213

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 22.81
Evaluated at bid price : 24.10
Bid-YTW : 3.98 %

BNA.PR.E SplitShare Quote: 25.20 – 25.55
Spot Rate : 0.3500
Average : 0.2294

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.85 %

BAM.PF.D Perpetual-Discount Quote: 22.86 – 23.15
Spot Rate : 0.2900
Average : 0.1873

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 22.54
Evaluated at bid price : 22.86
Bid-YTW : 5.42 %

TD.PR.C FixedReset Quote: 25.26 – 25.50
Spot Rate : 0.2400
Average : 0.1538

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 3.48 %

ELF.PR.H Perpetual-Premium Quote: 24.47 – 24.84
Spot Rate : 0.3700
Average : 0.2840

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-30
Maturity Price : 24.08
Evaluated at bid price : 24.47
Bid-YTW : 5.65 %

DBRS Announces New SplitShare Rating Methodology

Tuesday, July 30th, 2013

DBRS has announced that it:

has today published updated versions of two Canadian structured finance methodologies:
— Stability Ratings for Canadian Structured Income Funds
— Rating Canadian Split Share Companies and Trusts

Neither of the methodology updates resulted in any meaningful changes and as such, neither publication has resulted in any rating changes or rating actions.

DBRS’s criteria and methodologies are publicly available on its website, www.dbrs.com, under Methodologies. DBRS’s rating definitions and the terms of use of such ratings are available at www.dbrs.com.

Of interest in the methodology is the explicit nature of their rating categories (I have added the Asset Coverage Ratio, calculated from the Downside Protection):

Minimum Downside Protection Criteria by Rating Category
DBRS Preferred Share Rating Minimum Downside Protection*
(Net of Agents’ Fees and Offering Expenses)
Asset
Coverage
Ratio
(JH)
Pfd-2 (high) 57% 2.3+:1
Pfd-2 50% 2.0:1
Pfd-2 (low) 44% 1.8-:1
Pfd-3 (high) 38% 1.6+:1
Pfd-3 33% 1.5-:1
Pfd-3 (low) 29% 1.4+:1
* Downside protection = percentage reduction in portfolio NAV before preferred shares are in a loss position.

and

Downside Protection Adjustments for Portfolio Diversifi cation
Level of Diversification Adjustment to Minimum Downside
Protection Level (Multiple)
Strong by industry and by number of securities 1.0x (i.e., no change)
Adequate by industry and by number of securities 1.0x to 1.2x
Adequate by number of securities, one industry 1.2x to 1.3x
Single entity 1.3x to 1.5x

Also noteworthy is:

The importance of credit quality in a portfolio increases as the diversification of the portfolio decreases. To be included as a single name in a split share portfolio, a company should be diversified in its business operations by product and by geography. The rating on preferred shares with exposure to single-name portfolios will generally not exceed the rating on the preferred shares of the underlying company since the downside protection is dependent entirely on the value of the common shares of that company.

They are, quite reasonably, unimpressed by call writing strategies:

DBRS views the strategy of writing covered calls as an additional element of risk for preferred shareholders because of the potential to give up unrealized capital gains that would increase the downside protection available to cover future portfolio losses. Furthermore, an option-writing strategy relies on the ability of the investment manager. The investment manager has a large amount of discretion to implement its desired strategy, and the resulting trading activity is not monitored as easily as the performance of a static portfolio. Relying partially on the ability of the investment manager rather than the strength of a split share structure is a negative rating factor.

They even have a table for the effect of cash grind (which is a special case of Sequence of Return Risk):

Impact of Capital Share Distributions on Initial Ratings
Size of Regular Capital Distributions (see note) NAV Test Likely Impact on Initial Rating
Excess income None None
5% or less per annum 1.75x coverage 0-1 notches lower
5% or less per annum 1.5x coverage 1 notch lower
8% per annum 1.75x coverage 1-2 notches lower
8% per annum 1.5x coverage 2 notches lower
The likely impact on ratings for these distribution sizes assumes a typical split share structure (preferred shares $10 each, capital shares $15 each). If a structure were to differ from this assumption significantly, the likely impact on the preferred share rating will not match what is shown in the table.

I consider their VaR methodology highly suspect:

The steps in the VaR analysis completed by DBRS are as follows:
(1) Gather daily historical performance data for a defined period.
(2) Annualize each daily return by multiplying it by the square root of the number of trading days in a year.
(3) Sort the annualized returns from lowest to highest.
(4) Using the initial amount of downside protection available to the preferred shares, determine the appropriate dollar loss required for the preferred shares to be in a loss position (i.e., asset coverage ratio is less than 1.0)
(5) Solve for the probability that will yield a one-year VaR at the appropriate dollar-loss amount for the transaction.
(6) Determine the implied long-term bond rating by comparing the probability of default with the DBRS corporate cumulative default probability table.
(7) Link the implied bond rating to the appropriate preferred share rating using an assumption that the preferred shares of a company should be rated two notches below the company’s issuer rating.

As stated, it’s nonsensical. Whatever one’s views on long-term mean reversion of equity returns, there is definitely short-term mean reversion, so annualizing a single day’s return is far too pessimistic. Using the square root of the days in the year to annualize the results implies that each day’s returns are independent.

There’s a big table titled “Maximum Preferred Share Ratings Based on Portfolio Credit Quality and Correlation”, which I won’t reproduce here simply because it’s too big.

I am not a big fan of this “base case plus adjustments” methodology and (not surprisingly) continue to prefer my own stochastic model, which is used in every edition of PrefLetter. Implications of my methodology have been discussed in my articles It’s all about Sequence and Split Share Credit Quality.

July 29, 2013

Tuesday, July 30th, 2013

Looks to me as if Obama’s preparing to reject Keystone XL:

U.S. President Barack Obama called into question the number of jobs that would be created from the controversial Keystone XL pipeline in an interview with the New York Times released on Saturday.

“Republicans have said that this would be a big jobs generator,” Obama said, according to the newspaper.

“There is no evidence that that’s true. The most realistic estimates are this might create maybe 2,000 jobs during the construction of the pipeline, which might take a year or two, and then after that we’re talking about somewhere between 50 and 100 jobs in an economy of 150 million working people.”

The Times said Obama disputed an argument that the pipeline would bring down gasoline prices. He said it might actually increase prices somewhat in the U.S. Midwest, which would be able to ship more of its oil elsewhere in the world, the paper reported.

TransCanada shot back:

In a statement issued late Saturday, TransCanada described the proposed 2,500-kilometre pipeline as the largest infrastructure project waiting to be built in the U.S., with 13,000 construction jobs alone.

Well, 13,000 construction jobs lasting how long each? And it is not clear how that reconciles with their other claim:

The $5.3-billion Keystone XL Pipeline Project is the largest infrastructure project currently proposed in the United States. Construction of the 1,179-mile pipeline will require 9,000 skilled American workers. The project will provide jobs for welders, mechanics, electricians, pipefitters, laborers, safety coordinators, heavy equipment operators and other workers who rely on large construction projects for their livelihoods.

In addition to construction jobs, an estimated 7,000 U.S. jobs are being supported in manufacturing the steel pipe and the thousands of fittings, valves, pumps and control devices required for a major oil pipeline.

There may be some legal tussling over the mosaic theory of investment analysis, given its likely prominence in the SAC trial:

In the 41-page indictment filed July 25, prosecutors alleged that Cohen and his top managers sought to hire traders and analysts who had the ability to deliver any kind of “edge” over the market.

Take Richard Lee, who joined the Stamford, Connecticut-based hedge fund from Citadel LLC in April 2009 even though prosecutors claim SAC had been warned by one of Lee’s former colleagues that he was suspected of insider trading at Citadel. Lee pleaded guilty on July 23 to two counts of insider trading, both of which occurred at SAC in 2009.

The SAC indictment also cites the examples of Jon Horvath, a former research analyst at SAC who pleaded guilty to insider trading last September, and Mathew Martoma, who has pleaded not guilty to charges that he engaged in insider trading.

In an e-mail cited in the indictment, Horvath justified his recommendation that SAC invest in Sun Microsystems Inc. in October 2007 by saying, “My edge is contacts at the company and their distribution channel.”

As for Martoma, whose trial is scheduled to begin in November, SAC hired him, according to prosecutors, in part because of his “industry contacts beyond management” in the pharmaceutical field.

He’s accused of using tips from a doctor who had access to information on drug trials to recommend Cohen sell his stake in two drug companies, helping SAC make $276 million. It’s the biggest insider trading case in U.S. history, prosecutors said.

“The relentless pursuit of an information ‘edge’ fostered a business culture within SAC in which there was no meaningful commitment to ensure that such ‘edge’ came from legitimate research and not inside information,” the indictment says.

I’m not enough of a barrack-room lawyer to opine on how explicit the pursuit must be in order to be considered criminal; but one thing is clear: when you promise immense rewards if such-and-such is done and a pink slip if it isn’t, you have created a culture in which naughtiness is more likely than would otherwise be the case. But is that criminal? Cohen may well be citing Henry II in his defence: Will no one rid me of this turbulent priest? I mean, geez, that was rhetorical, right?

Politicians all over seem afraid of property bubbles:

Taiwan (TWGDCONY) is considering changes in luxury tax rules to narrow the gap between property prices and incomes amid slower pace of economic expansion.

“Current rules have flaws, for example, we are unable to tax those deep-pocket investors, who can wait for more than two years to sell properties,” Finance Minister Chang Sheng-ford said in a briefing on July 26. Changes may include a levy on buyers of properties, he said. Sellers are already taxed.

The move comes amid an increase in prices of properties in Taipei City, the country’s capital, and a widening in the gap between home prices and incomes. Taiwan, which imposed luxury tax from June 2011, may extend the current levy on investment properties sold within two years of purchase, Chang said.

A 15 percent tax applies to commercial and residential investment properties sold within a year of purchase and 10 percent to those sold within two years. A 10 percent tax applies on sales of luxury goods such as yachts and airplanes worth at least NT$3 million ($100,328), and furs and furniture valued at NT$500,000 or more.

All over? Well, maybe not in Rangoon, Burma (as us crypto-imperialists like to call it) – there it’s considered pretty good:

Sean Danley has spent the past six months scouting office space in Yangon after being sent to establish the Myanmar branch of his U.S.-based employer.

He looked in the city’s three sole 1990s-era towers, where annual rents have climbed to more than $100 a square foot, compared with less than $75 in downtown Manhattan, according to broker CBRE Group Inc. Too expensive, he said.

Developers are rushing to solve Danley’s problem, one faced by hundreds of multinational companies setting up operations in Myanmar following its political opening and easing of international sanctions. Yangon, the commercial capital, needs at least 8.7 million square feet (800,000 square meters) of office space to support the influx, according to Yoma Strategic Holdings Ltd. (YOMA) About 1.9 million square feet will be available by the end of 2015, compared with 600,000 now, the Myanmar office of broker Colliers International UK Plc estimated.

Rents have increased almost fivefold in Yangon’s three towers, none of which is higher than 27 stories, from $22 a square foot a year as of the end of 2011, before Myanmar President Thein Sein began allowing more political freedom and loosening economic controls, according to CBRE data. Tenants at the three — Sakura Tower, FMI Centre and Centrepoint Towers — include Standard Chartered Plc (STAN), PricewaterhouseCoopers LLP, Coca-Cola Co., Nestle SA, Sumitomo Corp., Bank of Tokyo-Mitsubishi UFJ Ltd. and Malayan Banking Bhd.

Some interesting testimony from Fabulous Fab:

Tourre testified he made $1.7 million in salary and bonus in 2007.

Tourre, a French citizen, said he voluntarily testified before a U.S. Senate subcommittee in 2010. After that he “had to take a step back and think about what to do,” as his career had been “effectively destroyed” by the allegations. Tourre was placed on paid leave by Goldman Sachs for one year, at his base salary of about $750,000. He said he hoped he’d be able to return to the firm.

The rewards for being a top-notch institutional salesman at a big-name dealer are pretty good! Of course, that leads to the whole corrosion of ethics problem that is currently at issue at SAC Capital; but the point is, the customers know this. A good institutional salesman will not waste your time; he’ll tell you about events, deals, market colour and trivia in which you might genuinely have an interest (lousy ones are just order takers), get you data, maybe even set up a meeting with somebody; but he will not give you decent investment advice, mainly because that’s not his job and that’s not the business of his firm. Only incompetent idiots, such as Laura Schwartz and Alan Roseman of ACA Management LLC would expect it.

Let’s all laugh at the Greens:

Germany’s air pollution is set to worsen for a second year, the first back-to-back increase since at least the 1980s, after Chancellor Angela Merkel’s decision to shut nuclear plants led utilities to burn more coal.

The nation, which is seeking to lead European climate-protection efforts, probably will produce higher greenhouse-gas emissions in 2013 on top of a 1.5 percent gain last year, according to the DIW economic institute, which acts as an adviser to the government.

Utilities led by RWE AG (RWE) and EON SE boosted hard coal imports 25 percent in the first quarter to 10 million metric tons, the nation’s Coal Importers Association said.

Dodd-Frank is having a visible effect:

American International Group Inc. (AIG) will return funds to customers of its banking unit and shut their accounts as the Dodd-Frank Act places limits on insurers with deposit-taking units.

AIG Federal Savings Bank “will no longer be servicing retail deposit accounts as of Sept. 30,” according to a letter to customers. “All accounts will be automatically closed as of that date and any funds, including all interest due on your accounts, will be returned.”

AIG is joining Principal Financial Group Inc. (PFG) in narrowing its focus ahead of rules that limit proprietary trading and investments in private-equity or hedge funds by insurers with bank units. MetLife Inc. (MET), Hartford Financial Services Group Inc. and Allstate Corp. have sold deposits or retreated from banking as regulators increase oversight.

“AIG Federal Savings Bank is currently undergoing an orderly transition from a traditional savings bank to a trust only thrift,” Jon Diat, a spokesman for the New York-based insurer, said in an e-mail yesterday.

A young man was shot by Toronto police on the weekend. According to a criminal lawyer of my acquaintance, Toronto cops have become increasingly arrogant over the past decade – he’s seeing lots of cases where all the escalation of an incident has come from the police side.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets off 9bp and Deemed Retractibles gaining 1bp. Somewhat surprisingly, given the overall lack of movement, the Performance Highlights table is lengthy, with BAM issues notable amongst both winners and losers. Volume was below average.

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 0.8112 % 2,616.4
FixedFloater 4.10 % 3.40 % 34,744 18.58 1 0.1298 % 4,046.5
Floater 2.68 % 2.85 % 85,283 20.10 4 0.8112 % 2,825.0
OpRet 4.60 % 3.33 % 86,652 2.26 3 -0.2547 % 2,624.4
SplitShare 4.71 % 4.62 % 58,937 4.17 6 -0.2397 % 2,941.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2547 % 2,399.8
Perpetual-Premium 5.62 % 5.14 % 104,527 0.09 12 0.1127 % 2,285.6
Perpetual-Discount 5.38 % 5.46 % 137,605 14.65 26 0.0016 % 2,393.1
FixedReset 4.99 % 3.73 % 234,042 3.97 84 -0.0878 % 2,464.4
Deemed-Retractible 5.09 % 4.72 % 196,868 6.86 43 0.0104 % 2,372.8
Performance Highlights
Issue Index Change Notes
BAM.PR.X FixedReset -3.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.41
Evaluated at bid price : 23.10
Bid-YTW : 4.05 %
BAM.PF.D Perpetual-Discount -2.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.18
Evaluated at bid price : 22.53
Bid-YTW : 5.50 %
POW.PR.D Perpetual-Discount -1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.81
Evaluated at bid price : 23.19
Bid-YTW : 5.42 %
TRP.PR.B FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.56
Evaluated at bid price : 22.90
Bid-YTW : 3.39 %
BNS.PR.K Deemed-Retractible -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.84
Bid-YTW : 4.92 %
GWO.PR.M Deemed-Retractible -1.00 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.62
Bid-YTW : 5.42 %
GWO.PR.F Deemed-Retractible 1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-28
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : -12.18 %
GWO.PR.Q Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 5.56 %
BAM.PR.C Floater 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 18.38
Evaluated at bid price : 18.38
Bid-YTW : 2.87 %
BAM.PR.B Floater 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 18.53
Evaluated at bid price : 18.53
Bid-YTW : 2.85 %
BAM.PR.M Perpetual-Discount 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 21.83
Evaluated at bid price : 21.83
Bid-YTW : 5.51 %
FTS.PR.J Perpetual-Discount 3.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.63
Evaluated at bid price : 23.00
Bid-YTW : 5.23 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.L Deemed-Retractible 120,953 TD crossed 48,100 at 26.45 and another 55,000 at 26.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-28
Maturity Price : 26.00
Evaluated at bid price : 26.40
Bid-YTW : -1.18 %
BMO.PR.M FixedReset 60,842 Will reset to 3.39% coupon.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.52 %
TD.PR.R Deemed-Retractible 60,080 TD crossed 49,500 at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-28
Maturity Price : 26.00
Evaluated at bid price : 26.13
Bid-YTW : -1.05 %
CM.PR.M FixedReset 53,740 Scotia crossed 50,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 2.25 %
BNS.PR.L Deemed-Retractible 53,723 National crossed 24,500 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.94
Bid-YTW : 4.55 %
MFC.PR.K FixedReset 53,500 Scotia crossed 40,000 at 24.76.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 4.05 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRI.PR.B Floater Quote: 23.10 – 24.50
Spot Rate : 1.4000
Average : 0.8754

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.82
Evaluated at bid price : 23.10
Bid-YTW : 2.25 %

POW.PR.D Perpetual-Discount Quote: 23.19 – 23.69
Spot Rate : 0.5000
Average : 0.3209

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.81
Evaluated at bid price : 23.19
Bid-YTW : 5.42 %

GWO.PR.M Deemed-Retractible Quote: 25.62 – 26.17
Spot Rate : 0.5500
Average : 0.3872

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.62
Bid-YTW : 5.42 %

BNS.PR.Y FixedReset Quote: 23.59 – 24.09
Spot Rate : 0.5000
Average : 0.3403

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.59
Bid-YTW : 3.78 %

BNA.PR.C SplitShare Quote: 24.10 – 24.65
Spot Rate : 0.5500
Average : 0.4176

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 5.28 %

TD.PR.S FixedReset Quote: 24.55 – 24.89
Spot Rate : 0.3400
Average : 0.2228

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 3.64 %

AX.PR.G Declines On Good Volume

Tuesday, July 30th, 2013

Artis Real Estate Investment Trust has announced:

that it has closed its previously announced public offering (the “Financing”) of Cumulative Rate Reset Preferred Trust Units, Series G (the “Series G Units”) on a bought deal basis through a syndicate of underwriters led by RBC Capital Markets and CIBC (the “Underwriters”). Artis issued and sold an aggregate of 3,200,000 Series G Units (inclusive of 200,000 Series G Units issued pursuant to the partial exercise of the Underwriters’ option) at a price of $25.00 per Series G Unit for gross proceeds to Artis of $80,000,000.

DBRS Limited assigned a rating of Pfd-3 (low) to the Series G Units.

Artis intends to use the net proceeds from the Financing to repay indebtedness, fund future acquisitions, and for general trust purposes.

AX.PR.G is a FixedReset, 5.00%+313, announced July 18. Note that it is not strictly a “preferred share”, it is a trust unit, and that it pays interest and return of capital (see comments), not dividends. The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

The DBRS rating of Pfd-3(low) is now official. As was the case with Friday’s closing of PPL.PR.A, I don’t believe the price decline has anything to do with the specifics of the issue, or should be taken as an indication that the underwriters got it wrong … it’s just a crummy environment right now for low-quality FixedResets.

AX.PR.G traded 219,520 shares today in a range of 24.24-70 before closing at 24.66-69, 18×50. Vital statistics are:

AX.PR.G FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-29
Maturity Price : 22.99
Evaluated at bid price : 24.66
Bid-YTW : 4.91 %

BMO.PR.M To Reset at 3.390%

Tuesday, July 30th, 2013

The Bank of Montreal has announced (although not yet on their website):

the applicable dividend rates for its Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 16 (the “Preferred Shares Series 16”) and Non-Cumulative Floating Rate Class B Preferred Shares, Series 17 (the “Preferred Shares Series 17”).

With respect to any Preferred Shares Series 16 that remain outstanding after August 26, 2013, commencing as of such date, holders thereof will be entitled to receive fixed rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the five-year period commencing on August 26, 2013, and ending on August 25, 2018, will be 3.390%, being equal to the sum of the five-year Government of Canada bond yield as at July 29, 2013, plus 1.65%, as determined in accordance with the terms of the Preferred Shares Series 16.

With respect to any Preferred Shares Series 17 that may be issued on August 26, 2013, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, calculated on the basis of actual number of days elapsed in each quarterly floating rate period divided by 365, as and when declared by the Board of Directors of the Bank and subject to the provisions of the Bank Act (Canada). The dividend rate for the three-month period commencing on August 26, 2013, and ending on November 25, 2013, will be 2.669%, being equal to the sum of the three-month Government of Canada Treasury bill yield as at July 29, 2013, plus 1.65%, as determined in accordance with the terms of the Preferred Shares Series 17.

Beneficial owners of Preferred Shares Series 16 who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to ensure that they meet the deadline to exercise such right, which is 5:00 p.m. (EDT) on August 12, 2013.

Conversion inquiries should be directed to BMO’s Registrar and Transfer Agent, Computershare Trust Company of Canada, at 1-800-340-5021.

BMO’s intent to allow the issue to reset was reported on PrefBlog.

I recommend holders of BMO.PR.M (series 16) convert to the FloatingReset (series 17).

This recommendation is based on several factors:

  • The two series will be interconvertible again in five years, thus they will have identical values in five years (even if they do not have an identical price!)
  • Therefore, any difference in value must be due to the dividends paid in the interim.
  • For the amounts paid to be equal, three-month T-Bills must average 1.74% throughout the period, 75bp above their current level. This implies that the ending three-month rate for break-even is about 2.50% (assuming rate hikes are evenly spaced). This is not an unreasonable projection.
  • In addition, the FloatingReset offers some insurance against short-term government rates skyrocketting, a scenario which I consider to be of low probability, but of higher probability of short-term rates diving.
  • The market loves FloatingResets and I expect the new series to trade above the old one.

The last point deserves a bit more explanation: the FixedReset BNS.PR.P is bid today at 24.59, while the FloatingReset BNS.PR.A (the only FloatingReset currently trading) is bid at 26.12. Given an interconversion date of 2018-4-26 and a fixed yield of 3.35% on BNS.PR.P, it is trivial to calculate that the average required coupon on BNS.PR.A must be 4.85% for break-even. Given the Issue Reset Spread of 205bp, this implies that the break-even three-month bill rate is 2.80%, which is very, very high compared to the current rate of 1.00%. Assuming equal spacing of hikes, this means and end-rate of 4.60%; readers may take their own views on the likelihood of that.

If we set the price of the FixedReset BMO.PR.M at 25.00 and perform a similar calculation, we find that in order for the break-even three-month bill rate to be 2.80%, the price of the new FloatingReset will have to be 26.15.

So, according to me conversion is recommended. Note that the above analysis ignores the fact that FloatingResets are callable at any time at 25.50, a risk that does not apply to the FixedResets. I do not consider this to have a material effect on the analysis, but views may differ.

I have updated the Pair Equivalency Calculator to include data for the three FixedReset / FloatingReset strong pairs currently outstanding or announced.

July 26, 2013

Saturday, July 27th, 2013

Wholesale funding? Schmolesale funding!

Investors are ignoring criticism from Standard & Poor’s that Svenska Handelsbanken AB (SHBA) is too reliant on short-term funding as bonds sold by the European Union’s best-capitalized bank rally.
Since S&P’s July 19 warning, the yield on Handelsbanken’s 4.194 percent perpetual bond eased to its lowest since the middle of June.

Five-year credit default swaps on its senior unsecured debt were unchanged at 65 basis points, a few basis points lower than contracts on the governments of Japan and France, suggesting a smaller risk of default. The bank’s shares have gained 5.5 percent since the end of last week, beating a 2.5 percent gain in the 40-member Bloomberg index of European banks.

S&P said last week it may downgrade Handelsbanken’s AA-issuer rating unless the bank takes steps to wean itself off short-term wholesale funding. Swedish banks in general rely too much on short borrowing compared with their peers in the rest of the world, the rating company said.

Sweden’s biggest banks have spent the past few years building bigger reserves than their competitors elsewhere. Handelsbanken is now the best-capitalized major bank in the EU, with a core Tier 1 capital ratio of risk-weighted assets of 17.8 percent at the end of June. It was also Europe’s strongest lender and No. 11 globally on a Bloomberg Markets ranking in May that looked at measures such as capital ratios, non-performing assets and deposit-to-funding ratios.

It doesn’t look as if we’ll be paying off the debt incurred during the Great Recession any time soon:

The federal government posted a $2.7-billion deficit over the first two months of the fiscal year, which begins April 1. That compares to a $1.8-billion deficit during the same two months – April and May – the year before.

A manager at Merrill Lynch has gotten into trouble by attempting to train his staff for the world as it is, rather than the world as it might be in some alternate universe:

Three women are suing Merrill Lynch for gender discrimination, alleging that a former manager tried to train them using a book titled Seducing the Boys Club: Uncensored Tactics From a Woman at the Top.

The 2008 book includes handy tips like stocking your desk with candy, bringing in games “like boggle and checkers,” playing on men’s “masculine pride and natural instincts to protect the weaker sex,” as well as constant, unremitting flattery. (“It was also important to reinforce his hunk status,” is one piece of advice.)

I find it rather peculiar that all the European money is flowing into London and not so much to North America:

Voracious investor demand for the best London real estate is approaching record levels that could trigger a price crash in popular areas such as upmarket Bond Street, property experts said this week.

The luxury shopping strip that is home to Prada, Louis Vuitton and Cartier has ultra-low yields that mark it out as the most in-demand stretch of real estate in Europe.

The price of commercial property is dictated by the yield, which is the annual rent expressed as a percentage of a property’s value. Yields fall as investor demand increases and push up real estate prices.

The 2.75 per cent yield on Bond Street properties should fall to 2.25 per cent by the end of the year and could hit the world-record low of 1.75 per cent in 18 months, says David Hutchings, of property consultant Cushman & Wakefield, adding that the record was set by Taipei, Taiwan, in 2011.

It was a rough day for the Canadian preferred share market, with PerpetualDiscounts losing 44bp, FixedResets off 11bp and DeemedRetractibles down 26bp. A lengthy Performance Highlights table is almost entirely comprised of losers, dominated by Straight Perpetuals of various kinds. Volume was average.

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 -0.1543 % 2,595.3
FixedFloater 4.11 % 3.40 % 36,101 18.58 1 0.0433 % 4,041.2
Floater 2.70 % 2.88 % 85,991 20.02 4 -0.1543 % 2,802.2
OpRet 4.59 % 3.21 % 87,687 0.82 3 -0.1145 % 2,631.1
SplitShare 4.70 % 4.62 % 59,341 4.18 6 -0.5630 % 2,948.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1145 % 2,405.9
Perpetual-Premium 5.63 % 4.93 % 105,127 0.74 12 -0.0795 % 2,283.0
Perpetual-Discount 5.38 % 5.42 % 138,962 14.68 26 -0.4388 % 2,393.1
FixedReset 4.99 % 3.64 % 237,170 4.20 84 -0.1113 % 2,466.6
Deemed-Retractible 5.09 % 4.53 % 199,444 6.87 43 -0.2625 % 2,372.6
Performance Highlights
Issue Index Change Notes
FTS.PR.J Perpetual-Discount -4.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 21.83
Evaluated at bid price : 22.16
Bid-YTW : 5.43 %
GWO.PR.Q Deemed-Retractible -2.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.05
Bid-YTW : 5.68 %
GWO.PR.I Deemed-Retractible -1.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.93 %
PWF.PR.K Perpetual-Discount -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 22.85
Evaluated at bid price : 23.25
Bid-YTW : 5.33 %
BNA.PR.E SplitShare -1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.94 %
BAM.PR.M Perpetual-Discount -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 5.60 %
SLF.PR.H FixedReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 3.91 %
PWF.PR.P FixedReset -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 23.09
Evaluated at bid price : 24.08
Bid-YTW : 3.45 %
TRP.PR.C FixedReset -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 22.72
Evaluated at bid price : 23.36
Bid-YTW : 3.53 %
PWF.PR.L Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 5.44 %
GWO.PR.F Deemed-Retractible -1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.23
Bid-YTW : -0.19 %
MFC.PR.F FixedReset 2.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 3.96 %
Volume Highlights
Issue Index Shares
Traded
Notes
POW.PR.C Perpetual-Premium 55,600 RBC crossed 50,000 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 0.13 %
PWF.PR.M FixedReset 44,050 TD bought 11,900 from Scotia at 25.20, then crossed 22,000 at 25.22.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 3.80 %
BMO.PR.O FixedReset 30,000 Nesbitt crossed 11,100 at 26.03.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 26.03
Bid-YTW : 2.77 %
TRP.PR.B FixedReset 29,296 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 22.80
Evaluated at bid price : 23.15
Bid-YTW : 3.26 %
POW.PR.D Perpetual-Discount 27,480 RBC crossed 10,000 at 23.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 23.39
Evaluated at bid price : 23.65
Bid-YTW : 5.32 %
BMO.PR.M FixedReset 24,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.42 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.K Perpetual-Discount Quote: 23.25 – 23.73
Spot Rate : 0.4800
Average : 0.2897

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 22.85
Evaluated at bid price : 23.25
Bid-YTW : 5.33 %

FTS.PR.J Perpetual-Discount Quote: 22.16 – 22.75
Spot Rate : 0.5900
Average : 0.4137

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 21.83
Evaluated at bid price : 22.16
Bid-YTW : 5.43 %

TRP.PR.A FixedReset Quote: 24.56 – 25.09
Spot Rate : 0.5300
Average : 0.3586

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 24.21
Evaluated at bid price : 24.56
Bid-YTW : 3.73 %

FTS.PR.H FixedReset Quote: 22.83 – 23.25
Spot Rate : 0.4200
Average : 0.2535

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 22.49
Evaluated at bid price : 22.83
Bid-YTW : 3.53 %

GWO.PR.R Deemed-Retractible Quote: 24.00 – 24.48
Spot Rate : 0.4800
Average : 0.3192

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.34 %

PWF.PR.H Perpetual-Premium Quote: 25.24 – 25.67
Spot Rate : 0.4300
Average : 0.2719

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : -6.73 %

PPL.PR.A Whacked on Adequate Volume

Saturday, July 27th, 2013

Pembina Pipeline Corporation has announced:

that it has closed its previously announced public offering of 10,000,000 cumulative redeemable rate reset class A preferred shares, series 1 (the “Series 1 Preferred Shares”) at a price of $25.00 per Series 1 Preferred Share (the “Offering”) for aggregate gross proceeds of $250 million. This includes the previously announced underwriters’ option to purchase an additional 2,000,000 Series 1 Preferred Shares at a price of $25.00 per share, which was exercised in full.

The Offering was first announced on July 17, 2013 when Pembina entered into an agreement with a syndicate of underwriters led by RBC Capital Markets and Scotiabank.

Proceeds from the offering will be used to partially fund capital projects, to reduce short-term indebtedness and for other general corporate purposes of the Company and its affiliates.

The Series 1 Preferred Shares will begin trading on the Toronto Stock Exchange today under the symbol PPL.PR.A.

PPL.PR.A is a FixedReset, 4.25%+247, announced July 17.

The issue will be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

PPL.PR.A traded 207,284 shares today in a wide range of 24.27-73 before closing at 24.61-64, 10×1. I don’t think there’s anything particularly wrong with this issue, or the underwriters’ pricing: it simply got caught up in a very weak market for junk FixedResets.

Vital statistics are:

PPL.PR.A FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-26
Maturity Price : 23.00
Evaluated at bid price : 24.61
Bid-YTW : 4.13 %

July 25, 2013

Friday, July 26th, 2013

There’s an article in the Globe bewailing the decline of telephone polling:

The odds are that, at some point in your life, a polling firm has tried to contact you over the telephone to take part in a survey. The odds are even better that the attempt failed. You were not home, you did not take the call, or you just hung up. This is what happens with roughly nine out of every 10 phone calls a polling firm makes.

Banks of telephone numbers can be acquired from specialized sampling firms, and numbers can also be dialed randomly. Live telephone operators then follow a script and input responses into a computer (this method is often referred to as CATI, for computer-assisted telephone interviewing). If the person who is called does not pick up the phone, the number is redialed at a later time or date. Otherwise, the sample would not be as random – it would just be a sample of people who were home at a particular time.

“In some segments – especially young voters – land lines are as archaic as the rotary dial to an earlier generation,” writes Angus Reid, executive chairman of Vision Critical and Angus Reid Public Opinion, in a recent article for Maclean’s. “This means pollsters have a harder time finding younger voters, who either don’t have a landline at all, or are loathe to answer calls from pollsters on their mobile, when they are being charged by the minute.”

I have a wonderful app on my ‘phone: Blacklist. If I get a call and the caller is a robot – or if there is a pause after I say hello, indicating robo-dialling – I hang up and blacklist the number. All calls from a blacklisted number are routed directly to voice mail and don’t ring the ‘phone. I don’t have many apps on my ‘phone, but that single app makes a smart ‘phone worthwhile!

Steve Cohen’s SAC Capital has been indicted:

“When so many people from a single hedge fund have engaged in insider trading, it is not a coincidence,” Manhattan U.S. Attorney Preet Bharara said. “Today’s indictment is not just a narrative of names and numbers, it is more broadly an account of a firm with zero tolerance for low returns but seemingly tremendous tolerance for questionable conduct,” he said. “So SAC, over time, became a veritable magnet for market cheaters.”

I don’t know the details, but one count against them is that they didn’t blacklist people based on whispers from the boys’ club:

In the summer of 2008, Steven A. Cohen was warned by an employee at Citadel LLC that a portfolio manager he was about to hire, Richard S. Lee, had a reputation for insider trading.

Cohen ignored the red flag as well as objections from his own legal department and hired him the following year, according to an indictment yesterday that accused Cohen’s SAC Capital Advisors LP of securities fraud and wire fraud. The government said SAC created an environment in which employees were encouraged to use illicit information and the compliance office identified only one example of suspected insider trading in its history.

Lee’s hiring was among the evidence cited by the government to allege that SAC, based in Stamford, Connecticut, enabled and promoted insider trading from as early as 1999 through at least 2010. Lee, who co-managed a $1.25 billion portfolio at SAC, including borrowed money, joined Cohen’s firm in April 2009 and left in June 2011 before returning for a second stint last year.

So the moral of the story is: if you want to ruin a security professional’s career, just bad-mouth him. Firms are then required to blacklist him, on pain of criminal charges.

It was another down day for the Canadian preferred share market, with PerpetualDiscounts losing 36bp, FixedResets down 18bp and DeemedRetractibles flat. The Performance Highlights table is fairly lengthy, with low-spread FixedReset losers quite prominent. Volume was high.

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 0.3095 % 2,599.3
FixedFloater 4.11 % 3.40 % 34,660 18.58 1 0.4783 % 4,039.5
Floater 2.70 % 2.88 % 89,072 20.02 4 0.3095 % 2,806.6
OpRet 4.58 % 1.02 % 88,029 0.67 3 0.4088 % 2,634.2
SplitShare 4.67 % 4.53 % 56,050 3.91 6 -0.2368 % 2,965.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.4088 % 2,408.7
Perpetual-Premium 5.62 % 3.72 % 104,587 0.09 12 -0.0099 % 2,284.8
Perpetual-Discount 5.36 % 5.37 % 140,156 14.78 26 -0.3619 % 2,403.6
FixedReset 4.98 % 3.63 % 237,096 3.97 84 -0.1873 % 2,469.4
Deemed-Retractible 5.08 % 4.52 % 202,997 6.84 43 0.0038 % 2,378.8
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -4.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 4.24 %
HSE.PR.A FixedReset -2.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 22.77
Evaluated at bid price : 23.50
Bid-YTW : 3.74 %
FTS.PR.J Perpetual-Discount -1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 22.75
Evaluated at bid price : 23.14
Bid-YTW : 5.19 %
BAM.PR.N Perpetual-Discount -1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 21.57
Evaluated at bid price : 21.57
Bid-YTW : 5.57 %
BNA.PR.C SplitShare -1.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 4.92 %
BAM.PR.M Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 21.79
Evaluated at bid price : 21.79
Bid-YTW : 5.51 %
TRP.PR.C FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 22.88
Evaluated at bid price : 23.66
Bid-YTW : 3.47 %
BAM.PR.X FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 22.86
Evaluated at bid price : 24.00
Bid-YTW : 3.77 %
FTS.PR.H FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 22.51
Evaluated at bid price : 22.85
Bid-YTW : 3.52 %
BAM.PR.J OpRet 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 27.05
Bid-YTW : -0.19 %
ELF.PR.H Perpetual-Premium 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 24.35
Evaluated at bid price : 24.75
Bid-YTW : 5.58 %
Volume Highlights
Issue Index Shares
Traded
Notes
PWF.PR.S Perpetual-Discount 95,892 TD crossed 30,000 at 23.75 and 10,000 at 23.50, and bought 10,000 from Scotia at 23.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 5.11 %
CU.PR.G Perpetual-Discount 92,099 Scotia crossed 57,200 at 22.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 21.83
Evaluated at bid price : 22.16
Bid-YTW : 5.15 %
BMO.PR.P FixedReset 79,610 Nesbitt crossed blocks of 26,000 and 50,000, both at 26.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.18
Bid-YTW : 2.93 %
GWO.PR.I Deemed-Retractible 75,815 TD crossed 70,000 at 22.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.57
Bid-YTW : 5.73 %
CM.PR.M FixedReset 66,165 TD crossed 60,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 2.19 %
MFC.PR.K FixedReset 57,951 National crossed blocks of 23,000 and 24,900 at 24.85.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.86
Bid-YTW : 3.95 %
There were 42 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.F FixedReset Quote: 23.20 – 24.45
Spot Rate : 1.2500
Average : 0.8250

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 4.24 %

GWO.PR.N FixedReset Quote: 23.90 – 24.25
Spot Rate : 0.3500
Average : 0.2224

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 3.64 %

MFC.PR.J FixedReset Quote: 25.10 – 25.40
Spot Rate : 0.3000
Average : 0.2008

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.02 %

BAM.PR.T FixedReset Quote: 25.06 – 25.35
Spot Rate : 0.2900
Average : 0.2045

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-07-25
Maturity Price : 23.30
Evaluated at bid price : 25.06
Bid-YTW : 3.97 %

SLF.PR.G FixedReset Quote: 24.15 – 24.47
Spot Rate : 0.3200
Average : 0.2351

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.15
Bid-YTW : 3.70 %

SLF.PR.I FixedReset Quote: 25.55 – 25.90
Spot Rate : 0.3500
Average : 0.2725

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 3.67 %