PrefBlog

Placeholder won’t interfere with mortgage rates:

In contrast, when Mr. Oliver spoke to [BMO CEO] Mr. [Bill] Downe this week, he told the bank CEO that the government wants to be less involved in the mortgage market, and gave him the tacit go-ahead to cut rates.

Mr. Oliver went so far as to tell reporters in Ottawa Thursday that he would not be concerned if other banks followed suit, suggesting it was a private sector decision.

“There’s a market, and the bank made its decision,” he said.

“The chief executive officer of the Bank of Montreal informed me about it. I listened to his explanation, his reasons. I reiterated what I just stated, which is the government is gradually reducing its involvement in the mortgage market.”

Assiduous Readers will be used to, and perhaps even tired of, my complaints about SEDAR – a bank-owned (via the Canadian Depository for Securities) outfit that has been granted a monopoly on the publication of public documents that issuers are required to file, and which abuses that monopoly to an appalling extent with the smiling approval of the Canadian Securities Administrators.

But I don’t care if you’re tired of my complaints! I recently had occasion to require some information on CI Income Fund … and turned to SEDAR. So, the first thing on the document list found after a preliminary search is:

Jan 3 2014 16:06:24 ET Amended and restated final fund facts – English

So, let’s look at the precious Fund Facts, shall we? The wise securities administrators keep chanting about how vital and important Fund Facts are, so let’s start off by taking a peek at them.

Open the file and what do we find? There are actually quite a few:

• CI Canadian Dividend Growth Fund (Class A units): Fund Facts
• CI Canadian Dividend Growth Fund (Class D units): Fund Facts
• CI Canadian Dividend Growth Fund (Class F units): Fund Facts
• CI Canadian Dividend Growth Fund (Class I units): Fund Facts
• CI Canadian Dividend Growth Fund (Class O units): Fund Facts
• CI U.S. Dividend Growth Fund (Class A units): Fund Facts
• CI U.S. Dividend Growth Fund (Class AT6 units): Fund Facts
• CI U.S. Dividend Growth Fund (Class D units): Fund Facts
• CI U.S. Dividend Growth Fund (Class F units): Fund Facts
• CI U.S. Dividend Growth Fund (Class I units): Fund Facts
• CI U.S. Dividend Growth Fund (Class O units): Fund Facts

Nothing – not a single damned thing – about CI Income Fund. Well done!

It was a good, if mixed, day for the Canadian preferred share market, which some might consider surprising because TMXMoney reports that TXPR was off 12bp and TXPL was down 17bp. A lot of issues went ex-dividend today … maybe somebody forgot to accrue? Anyway, PerpetualDiscounts were up 21bp, FixedResets were off 1bp and DeemedRetractibles gained 7bp. The Performance Highlights table is of average length, but notable for the inclusion of both Westcoast issues, which went ex-dividend but didn’t lose much bid. Volume was low, but block trading held up well.

The world is about to end – banks are competing on price:

Just one week after Jim Flaherty stepped down, Bank of Montreal is shaking up the mortgage market, aggressively cutting its five-year rate to levels that caused the former finance minister to intervene last year.

BMO is now offering five-year fixed mortgages at 2.99 per cent, slashing its rate from 3.49 per cent. While that’s not the lowest rate in the market, BMO is the first big bank to move below the sensitive 3-per-cent threshold.

The last time a Canadian bank’s mortgage rates fell this low, in March of 2013, Mr. Flaherty stepped in and publicly called for “responsible lending” because he worried about an overheated housing market.

BMO’s rate cut comes after Toronto-Dominion Bank lowered its four-year rate to 2.97 per cent earlier in March. Last week, shortly after Mr. Flaherty stepped down, Bank of Nova Scotia also slashed its mortgage rates, and instituted a special 2.94-per-cent four-year rate.

At least one credit union also moved its five-year rate to 2.99 per cent in February.

Meanwhile, the Feds are defending their data:

Federal Employment Minister Jason Kenney defended his government’s use of Kijiji, but acknowledged there are technical concerns with the data including the need to weed out repeated postings for the same position.

“People are laughing at Kijiji, but it’s the new classified ads,” he told CTV’s Power Play. “I would just invite some of these economists – who sit in front of their spreadsheets of inadequate data trying to figure out the world – I wish they would actually go out into the real world and talk to employers like I do all the time.”

Mr. Kenney said critics should recognize the challenge of producing reliable labour data in a world of online job boards.

Let’s all square our rots for a good boo-hoo-hoo about how analysis is hard. It’s easier than reviewing the strengths and weaknesses of our analysis.

David Parkinson of the Globe points out:

Finance’s dramatic numbers don’t pass a basic sniff test. Specifically, if Canada really was suffering from acute skills shortages across a broad swath of the economy, it would manifest in significant upward pressure on wages. Those wage pressures, in general, simply aren’t there.

Year-over-year increases in Canadians’ average weekly wages have trended downward over much of the past two years, even as the country added more than 400,000 jobs. Average year-over-year wage growth last year was just 2 per cent, well below the 10-year average of 2.9 per cent and the five-year average of 2.5 per cent.

That said, there is certainly evidence of pockets where wage pressures are significant, indicative of possible skills shortages.

In Alberta, average weekly wages were up 4.6 per cent year over year in December. Two other oil-industry-heavy provinces, Newfoundland and Saskatchewan, posted increases of 3.8 per cent and 3.6 per cent, respectively. Skills- and education-heavy segments of the economy – such as business management; professional, scientific and technical services; mining and oil and gas extraction; and construction – have, indeed, shown some of the biggest year-over year wage gains.

It was a soft day for the Canadian preferred share market, with PerpetualDiscounts down 4bp, FixedResets off 1bp and DeemedRetractibles flat. Given the overall move, the Performance Highlights table is surprisingly lengthy, with a fair number of losers. Volume was average, but with some very nice block trades.

Some civil servant claims that we need more civil servants:

Accordingly, in January, OSFI announced that, consistent with its mandate and expertise, it will supervise the effectiveness of governance and risk controls surrounding banks’ CDOR submission processes. Subsequently, in its recent budget, the federal government announced its intention to include a regulation-making authority in the Bank Act covering bank submissions to financial benchmarks.

Furthermore, the banks on the CDOR panel should, fairly soon, release a submitters’ code of conduct that they have developed in consultation with IIROC and the Bank of Canada. In addition to providing a formal definition of CDOR and requirements for being a submitter, the code will specify minimum standards for submission methodology, internal oversight and records retention.

Work continues to strengthen other aspects of the governance of CDOR to meet the principles established by IOSCO. For instance, we have discussed with industry the need for it to establish more formal administrative arrangements for CDOR, and the industry has begun work to take this forward.

Yeah, right. This guy works for the Bank of Canada, which reports 5-year GICs at 1.63%, and 5-year mortgages at 4.99%, in addition to problems with the housing price/rent ratio.

But there’s no shortage of questionable statistics:

Economists have been scratching their heads for weeks as to how the Conservative government could claim on budget day that Canada’s job vacancy rate was on the rise when Statistics Canada said it was declining.

The answer, it appears, is that Finance Canada’s numbers were thrown off by data from a surprising place: questionable job postings on Kijiji, a popular classified site used by Canadians to buy and sell everything from rarely used exercise bikes to old electronics.

Officials with the Parliamentary Budget Office say Kijiji is so unreliable as a job site that it can single-handedly explain away the government’s claims. With the simple removal of that one site from the search, the steep rise Ottawa flagged becomes much closer to a flat line.

The Fed’s regulators have determined that Citigroup doesn’t employ enough ex-regulators:

Citigroup Inc.’s capital plan was among five that failed Federal Reserve stress tests, while Goldman Sachs Group Inc. and Bank of America Corp. passed only after reducing their requests for buybacks and dividends.

Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of qualitative concerns about their processes, the Fed said today in a statement. Zions Bancorporation was rejected as its capital fell below the minimum required. The central bank approved plans for 25 banks.
…
The central bank identified multiple deficiencies in Citigroup’s planning practices, including areas the Fed had flagged previously. The regulator expressed concern with the New York-based company’s ability to project losses in “material parts of its global operations” and to reflect all business exposures in its internal stress test.

“Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process,” the Fed said.

Mike Corbat, the bank’s chief executive officer, said in a statement that Citigroup is “deeply disappointed” by the rejection and said the company will “work closely with the Fed to better understand their concerns so that we can bring our capital planning process in line with their expectations.” The timing of any resubmission hasn’t been decided, he said.

Osler has a chapter in their Capital Markets 2013 report titled Canada’s Technology Renaissance. It seems a successful entrepreneurs are mainly successful at sucking the public tit:

In addition, the Business Development Bank of Canada provides further funding to each successful accelerator graduate in the form a $150,000 convertible note.

The federal government has demonstrated its strong commitment to the sector by announcing (as part of the 2012 budget) that it would set aside $400 million for investment in Canadian venture capital funds. The Ontario government demonstrated a similar commitment by announcing in March 2013 that it would set aside $50 million for a new Ontario venture capital fund. In addition, the Ontario government continues to be an active direct investor through initiatives such as the Ontario Capital Growth Corporation (which matches investments made by qualified investors) and MaRS Innovation Accelerator Fund (which provides seed investments of up to $500,000 to promising Ontario-based start-ups).

The other point, in the chapter The Leading Role of Canadian Pension Funds at Home and Abroad is that returns look better when you mark to make-believe:

Pension funds have increased their direct investments in private equity, infrastructure and real estate as they continue to seek to align fund investment horizons with their long-term liability profile and reap the rewards of higher returns. Preliminary results from an ongoing survey by global consultant Mercer LLC reveal that the percentage of Canadian pension funds investing in alternative investments climbed to 38% from 25% over the past three years and that the average allocation to alternatives has increased to 18% from 15% in 2010.1 As their allocations to these areas have increased, Canadian pension funds have become highly visible in these markets. Smaller Canadian pension funds have also demonstrated an inclination towards alternative asset investing, guided by the expertise of Canadian pension consultants.

Yes, sir, if you want good investment advice, you really can rely on the expertise of Canadian pension consultants, all right! This isn’t going to turn out well.

Hedge funds are helping the US housing market renormalize. Of course, it helps when somebody else takes the first loss:

Louis Ragusa, who hasn’t paid his mortgage in two years, says he now has a chance to save his Blackwood, New Jersey, home from foreclosure after a hedge fund bought the loan.

American Homeowner Preservation, a Chicago-based investment firm, purchased the mortgage for less than half of what Ragusa owed. Chief Executive Officer Jorge Newbery called the father of three in August with an offer: Pay $5,000 and the company will drop the foreclosure case and erase the more than $100,000 of unpaid principal and penalties amassed.
…
The firms are making deep cuts to loan balances so borrowers can afford to pay again and the mortgages can be sold as more valuable “performing” notes. Another strategy is to offer thousands of dollars to those who agree to hand over keys without a fight. While borrowers seeking foreclosure alternatives from large banks have complained of lengthy processes and lost paperwork, Newbery says his company requires little or no documentation to approve a sale or loan workout.
…
Lenders are selling pools of soured mortgages as they face new regulations that make bad debt more expensive to hold. Banks sold $34.7 billion in nonperforming loans last year, up from $13.1 billion in 2012, according to Mission Capital Advisors, a New York-based real estate loan broker.
…
A delinquent mortgage in [judicial] New Jersey [where foreclosures need court approval] will cost about 60 percent of the property’s current value, compared with as much as 80 percent for a similar loan in California, a nonjudicial state, according to Derek Katz, managing director of Denver-based MountainView Capital Holdings, a residential whole-loan investor and sale adviser.

It is interesting to note that Enbridge has issued 50-year paper at 4.56%. This may be contrasted with their recent issue of ENB.PF.A, a FixedReset, 4.40%+266. I like the preferred better – and I didn’t like the preferred much!

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets gaining 3bp and DeemedRetractibles off 2bp. Volatility was nothing special. Volume was slightly below average, but there were some nicely sized block trades.

PerpetualDiscounts now yield 5.47%, equivalent to 7.11% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 260bp, a significant tightening from the 275bp reported March 19 … although that figure is now suspect, given that the March 12 calculation resulted in an estimate of 265bp.

Geez, much more of this and I’ll have to go work for the Bank of Canada.