PrefBlog

How ’bout that London property market, eh?:

For equity-derivatives broker Andrew Adamson, it was a trade too good to pass up.

In October, he was offered 1,000 pounds ($1,700) per square foot for his London townhouse. Other homes in the area were going for about 30 percent less. Adamson accepted it immediately.

London’s housing market, having outperformed the rest of the U.K. with price gains of more than 50 percent in five years, is cooling as owners like Adamson cash out. They’re leaving the city for less costly suburban and country homes because they expect mortgage rates to rise and new lending rules to damp prices. London estate agents had the largest increase in instructions to sell homes in Britain in June and the biggest drop in people seeking to buy them, according to the Royal Institution of Chartered Surveyors.

“Now is the time people are cashing in,” said Adamson, 46, who used the 2 million pounds he raised from the sale to buy a country manor in Hampshire, southern England, for 400,000 pounds less.

IIROC answers the question: what is the purpose of regulatory requirements for advisors to take CSI courses?

CSI was created in 1970 by one of IIROC’s predecessor organizations, the Investment Dealers Association (IDA), and the Canadian stock exchanges to educate and test the proficiency of individuals entering the industry. In 2002, CSI converted to a for-profit corporation with the IDA as its sole shareholder. The IDA sold CSI to ONCAP II, LP (a private equity fund managed by ONCAP Management Partners) for net proceeds of approximately $57 million in 2005 following a targeted auction. $28.5 million of those proceeds were applied as a membership fee reduction distributed to the IDA membership over two years. $28 million of the proceeds were applied to fund the creation of the Investment Industry Association of Canada.

The document notes that over ten thousand people took the Canadian Securities Course in 2013 at an average price of over $900 a head – and that’s just the biggest bit. Nice work if you can get it! The new generation of regulators is trying to think up another way of extracting money from the industry, so they can be bold entrepreneurs, too.

There’s more news about corporate bond liquidity:

The $8.2 billion of risk-sharing securities sold in the last year by government-controlled Fannie Mae and Freddie Mac can shift their losses from homeowner defaults to bond buyers. One slice of a deal issued in May traded at 95.7 cents on the dollar yesterday, down from 99.7 cents at the end of last month, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

While JPMorgan Chase & Co. analysts say they fail to see “any fundamental reason” for the tumble, investors from CQS U.K. LLP to Calvert Investment Management Inc. are speculating that the drop is mainly about the growing amount of the debt running into limits created by new regulations on bond dealers’ ability to smooth trading by building up their inventories.
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As a few holders continued selling the Fannie Mae and Freddie Mac securities without an immediate emergence of investor demand, most of the dealers active in trading the debt “disappeared,” said Vishal Khanduja, a money manager at Bethesda, Maryland-based Calvert, which oversees about $13 billion.

Until recently, “everybody wanted to trade it: I think there were 10 to 12 dealers messaging me and looking to make markets,” Khanduja said in a telephone interview. “It’s partially indicative of the regulations’ impact on their balance sheets.”

Dealers have reduced their bond holdings in response to rules ranging from the international Basel III accord on banks’ capital to the U.S. Volcker Rule limiting their ability to make bets with their own money. An expansion of Finra’s Trace trade disclosures to more types of debt is also increasing risks and cutting into profits for market makers.

Inventories of corporate securities and other debt without government backing at the biggest dealers fell to $56 billion in March 2013 from as much as $235 billion in 2007, according to the last Federal Reserve data before a change in calculations.

I continue to think there’s an opportunity there for an actively managed fund to make a bit of money pretending to be a trading desk. Call it ‘HFT comes to the bond markets’. You could call these shops by some kind of special name … maybe “investment dealers” or something like that.

Don’t get me wrong! I’m not completely convinced that the new Volcker and capital rules are completely wrong, in and of themselves. What bothers me is that not a single person ever thought about the consequences and how these consequences might impact on the purpose of the capital markets – which is not “To be nice to granny”, by the way, but “To get money from investors to businesses”.

OK now, call it in the air, heads or tails? Risk-On or Risk-Off?

The Dow fell 317.06 points, or 1.9 percent, to 16,563.30 at 4 p.m. in New York, for the largest one-day retreat since Feb. 3. The Standard & Poor’s 500 Index slid 2 percent, the most since April 10, to 1,930.67. The gauge dropped 1.5 percent in July, its first monthly decline since January. The Nasdaq 100 Index lost 2.1 percent. The MSCI All-Country World Index tumbled 1.5 percent for its worst loss in almost six months.
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Concern grew that the improving economy may force the Federal Reserve to raise interest rates sooner than expected.

U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the central bank’s view that a first-quarter contraction was transitory. Data today showed fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years, signaling employers are hanging on to workers as demand improves.

Valener Inc., proud issuer of VNR.PR.A, was confirmed at Pfd-2(low) by DBRS:

DBRS has today confirmed Valener Inc.’s (Valener or the Company) Cumulative Rate Reset Preferred Shares, Series A rating at Pfd-2 (low), with a Stable trend. The rating is based on the credit quality of Valener’s 29%-owned Gaz Métro Limited Partnership (GMLP), which guarantees the First Mortgage Bonds and Senior Secured Notes (rated “A,” Stable) of Gaz Métro inc. (GMi), and Valener’s low non-consolidated leverage. GMi owns the remaining 71% of GMLP.
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Valener’s rating is based on the following factors: (1) continually strong and predictable cash flow from GMLP to Valener. GMLP has made cash distributions to its partners in an amount of over 90% of its net income, excluding non-recurring items, for most of the last 20 years. (2) GMLP is expected to continue to maintain its distributions of at least 85% of its net income, excluding non-recurring items, as set out under the partnership agreement between Valener and GMLP (the Partnership Agreement). In the event that GMi, as general partner of GMLP, intends to distribute less than 85% of its net income, excluding non-recurring items, it would require the approval of at least 90% of GMi’s directors. (3) Valener’s non-consolidated debt-to-capital structure is expected to remain below 20%. If its non-consolidated debt leverage ratio is above 20%, Valener is expected to issue equity to bring the ratio back under the 20% threshold in a timely manner. (4) DBRS expects that the majority of Valener’s cash flow will be derived from GMLP. Any material investment carried out by Valener and not through GMLP could have a negative rating impact. (5) DBRS expects that Valener will maintain its 29% interest in GMLP and its pro rata representation on GMi’s board of directors.

Shaw Communications Inc., proud issuer of SJR.PR.A, was confirmed at Pfd-3 by DBRS:

DBRS has today confirmed Shaw Communications Inc.’s (Shaw or the Company) Issuer Rating at BBB, Senior Notes rating at BBB and Preferred Shares rating at Pfd-3. The confirmation follows the Company’s announcement to acquire ViaWest for USD 830 million, financed with approximately CAD 500 million of cash on hand and approximately CAD 400 million from Shaw’s existing credit facility. Shaw will also assume USD 370 million of borrowings under committed non-recourse debt financing at ViaWest. The purchase price of USD 1.2 billion represents a multiple of approximately 13.0x adjusted EBITDA annualized for the three months ended June 30, 2014, which is consistent with recent market transactions. The acquisition is expected to close in September 2014 and is subject to U.S. regulatory approval.

ViaWest is a privately held provider of data centre infrastructure, cloud technology and managed IT solutions. The company employs over 350 people and services more than 1,300 customers across seven states. ViaWest operates 27 data centers in Colorado, Utah, Oregon, Nevada, Texas, Minnesota and Arizona.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 13bp, FixedResets gaining 11bp and DeemedRetractibles off 4bp. Floaters got hammered, otherwise volatility was a yawn. Volume was average.

The Swedes are serious about bank regulation:

Sweden will start publishing banks’ individual capital requirements in a step designed to reveal risks investors have so far been unable to measure based on reported buffers.

The Swedish Financial Supervisory Authority is planning to follow its Danish counterpart and disclose so-called Pillar 2 requirements as Scandinavia leads Europe in stepping up efforts to improve transparency. In Denmark, which like Sweden has a bank industry whose assets are four times gross domestic product, lenders can be shut down by the regulator if reserves drop below individual requirements.
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Sweden already requires its biggest banks to meet some of the world’s most rigorous capital standards, ranging from 14 percent for Nordea Bank AB (NDA) to 19 percent for Swedbank AB. In May, the FSA said banks should hold a 1 percent counter-cyclical buffer after household debt burdens swelled to a record.

BIS explains pillar 2 requirements:

There are three main areas that might be particularly suited to treatment under Pillar 2: risks considered under Pillar 1 that are not fully captured by the Pillar 1 process (e.g. the proposed operational risk charge in Pillar 1 may not adequately cover all the specific risks of any given institution); those factors not taken into account by the Pillar 1 process (e.g. interest rate risk); and factors external to the bank (e.g. business cycle effects).

Authoritarian governments world-wide are clamping down on housing bubbles:

Singapore and Hong Kong, as a special administrative region of China, have governments with policy-making power over their entire geographic areas, where they are relatively free of political opposition from neighborhood groups or borough councils that stymie directives or mitigate their effectiveness. The Asian cities control the land supply and are the biggest landlords.

That allows them to implement decisive policy measures. For example, in January 2013, the Monetary Authority of Singapore, effectively the central bank and chief regulator, cut the mortgage ratio allowable on purchases of second homes while more than doubling minimum down payments from 10 percent to 25 percent. The banks had no choice but to follow.
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Hong Kong and Singapore haven’t shied away from using taxes to discriminate against foreign buyers — something other locales with surging prices have yet to do. Non-permanent residents in both cities are subject to an additional 15 percent tax when they buy property, except in Singapore where Americans are exempted by treaty.
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The U.K. government has tried some measures. After it increased the stamp duty to 7 percent on high-value properties in March 2012, price increases for homes valued from 5 million pounds to 10 million pounds ($8.5 million to $17 million) slowed from 9.7 percent to 5.8 percent in the subsequent year, according to broker Knight Frank LLP.

Bank of England Governor Mark Carney announced another set of measures last month, citing concerns over household indebtedness and the threat of a property bubble. They limit mortgages to less than 4.5 times a borrowers’ annual income and require banks to refuse loans to those failing to prove they could afford a 3 percentage-point rise in interest rates.

But France wins the prize:

French President Francois Hollande’s government may have made a housing slump worse, pushing the construction market to its lowest in more than 15 years.

Housing starts fell 19 percent in the second quarter from a year earlier, and permits — a gauge of future construction — dropped 13 percent, the French Housing Ministry said yesterday.

The rout stems from a law this year that seeks to make housing more affordable by capping rents in expensive neighborhoods. To protect home buyers, the law also boosted the number of documents that must be provided by sellers, leading to a decline in home sales and longer transaction times.

Meanwhile, the Bank of England is cracking down on the rule of law:

Miscreant bankers face having their bonuses clawed back for up to seven years after their award under measures set out on Wednesday by the Bank of England, as it tightens its regulatory clampdown on wrongdoing in the financial sector.
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Lawyers say enforcing clawbacks is untested in the UK courts if a banker refuses to pay up, and there are also questions over what happens to tax paid on a recovered bonus. But some senior figures in the sector support the idea.
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The Bank and the fellow regulator the Financial Conduct Authority (FCA) also proposed in a new consultation that senior managers face clawbacks of up to 10 years if they are being investigated.

“These proposals are tougher than the industry would have liked, but there was a general resignation that they would be implemented whatever the costs and technical difficulties and however far it puts the UK outside international norms,” said Nicholas Stretch of law firm CMS.

Great, huh? Now the regulators can decide after the fact whether or not something was reckless and impose a fine of whatever they like. Untrammelled by parliament or those old fogeys in the courts! Hurrah!

…and there’s more!

Bank regulators have just given the top people in U.K. corporate life another reason to avoid job offers from domestic banks.
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Requiring bankers to have annual “MOT”-style tests of their fit and proper status, and bringing in a new, tougher “senior manager regime” sounds good for accountability, post-Libor, and chief executives are used to longer deferral periods for their pay.

But incomers will hesitate about being held responsible, perhaps even criminally, for malpractice somewhere in their hugely complex universal bank.

Moreover, some of the BoE proposals are actively disconcerting. Banning so-called buyout clauses – compensation of new employees for deferred income lost by leaving their old jobs – would prevent some of the more outlandish recent payments made to bank bosses. But they also incentivise candidates to stay put.

Also, the ability to demand repayment of awards already paid will almost certainly make UK banks less inviting places to work, even though the minimum period in which bonuses can be clawed back has been cut by two years to seven years.

Today’s FOMC statement is moderately positive:

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.
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To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.
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When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
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Voting against was Charles I. Plosser who objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.

Jeff Kearns of Bloomberg notes:

Since meeting in mid-June, the committee has come closer to achieving its goals for stable prices and full employment. Employers added 288,000 jobs last month, helping push down unemployment to 6.1 percent, the lowest in almost six years.

Today’s Commerce Department report showed gross domestic product expanded at a 4 percent annual pace in the second quarter, confirming the Fed’s view that a first-quarter contraction was transitory.
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Yellen told lawmakers this month that while her view of the economy has turned “more positive,” she’s concerned about signs of job-market “slack” such as low participation in the labor force.

“We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates,” she said in her semi-annual testimony. “There are mixed signals.”

Among them: average hourly earnings fell or were stagnant in the past four months, after adjusting for inflation.

Simon Kennedy of Bloomberg reports on an interesting difference between UK and US mortgage debt:

While investors bet the U.K. central bank will raise its benchmark interest rate as soon as the end of this year, with its U.S. counterpart following six months later, economists at London-based Fathom Consulting aren’t so sure.
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While the International Monetary Fund has called the U.K. the fastest-growing rich economy this year, Fathom says the U.S. household sector may be better placed than that of the U.K. to stomach higher interest rates. No one expects Yellen’s Fed to act on interest rates when policy makers meet today.

A key measure of how vulnerable households are to increased rates is their exposure to variable-rate home loans, known as adjustable rate mortgages or ARMs in the U.S.

In the U.S., the share of mortgage applications based on such loans has declined to fewer than 20 percent from about 50 percent before the financial crisis, according to Fathom’s July 28 report.
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By contrast, about 70 percent of outstanding British mortgages are at a variable rate, meaning the BOE will try to keep increases to a minimum, they said.

After all that we need some comic relief, so let’s mock an unsigned article that came to my attention today:

s we have discussed previously, the Portfolio Turnover Ratio (PTR) for any given mutual or exchange-traded fund is a quick and easy tool to use when you’re trying to figure out which is the better investment for your savings. A fund’s PTR gives you a way to judge how much activity and risk the professional money managers are taking on to generate their investment returns.
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As you can clearly see from the PTRs listed above, and despite the same investment objectives and risk profiles, each fund’s manager has a completely different trading strategy! The PTRs for TD points to a serious disconnect between their managers’ actual trading strategy and their fund’s stated investment objective and risk profile, whereas the PTRs for the RBC managers fits aptly with their stated investment objective and risk profile.

OK, so maybe you bought the TD fund in 2008 and still hold it today thinking that you were staying true to your conservative buy and hold investment strategy. But unfortunately someone forgot to tell the fund’s investment managers at TD what kind of investor you are because, unbeknownst to you, they bought and sold every investment in the fund more than 14 times! Yes, that’s right! On average, they’ve traded your savings over and over again 2.82 times every year since 2008, which appears to be in contrast to the fund’s stated investment objective and risk profile!
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Some of you may want to argue with me that your investment in the TD fund did fine in terms of your over-all rate of returns, and for some investors that’s all that matters – how much did I make? Some investors don’t care about the risks they have to take to get results, and in good markets even risky investments go up in value. But ignoring an investment’s risks can be dangerous when markets are not so good. These particular mutual funds are a good case in point. Look at the difference in losses between these two funds in the 2009 downturn in market: the TD Canadian Equity fund lost 46% in the 12 months ending February 2009 compared to a 23% decline for RBC Canadian Equity Fund. So, what we can learn from this particular case study is that when you take the time to study a fund’s PTR to make more informed investment choices, taking into account good and bad market cycles, you’ll come out the real winner.

Equating portfolio turnover to risk, without examining what those trades actually were, implying that TD’s underperformance in the twelve month’s ending February, 2009, was due to portfolio turnover, and completely ignoring benchmarks is the height of ignorance. According to one source (I can’t be bothered to look it up):

•By comparison, the Toronto Stock Exchange lost money almost 30% of the time. The worst 1 year return was -38% (ending February 2009).

This leads to a suspicion that the RBC fund got very lucky on its market timing, while TD underperformed by what would be a gigantic amount in normal times, but is somewhat less surprising considering the time period. But, of course, it’s only a suspicion. Only a complete idiot would draw any conclusions at all based solely on these numbers; but properly supported investment conclusions – even when it’s only a question of categorization – require a bit of work.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 2bp, FixedResets off 11bp and DeemedRetractibles gaining 1bp. Volatility was minimal, but Assiduous Reader thom4kat will be gratified to see the table includes GWO.PR.N! The issue had 25 trades timestamped after 3:05pm, nothing very big, but it looks like they just kept chip-chip-chipping away at the bid and wore it out. It made the Wide Spreads Table, too, which tells you that … um … it made the Wide Spreads Table. Volume was average.

PerpetualDiscounts now yield 5.16%, equivalent to 6.71% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 250bp, a significant widening from the 240bp reported July 23.

A silly publication titled Virtuous Banking: Placing ethos and purpose at the heart of finance has just hit the streets with a thud:

While it cannot plausibly be argued that a systematically stable system is not to be desired, the current approach focuses far too much on this and ignores the crucial root cause of the banking crisis: a calamity that has its origins in the profligate and irresponsible actions of a significant number of bankers and banking institutions, urged on by a banking culture that was at its core fundamentally self-serving. There was on the part of organisations and people,a systemic disregard for the regulatory system, a belief that the pursuit of individual advantage would act for the advantage of all. The banking sector had, in short, lost its ethos. Instead of a culture that prioritised its own self-interest, it should look towards the fulfilment of a broader common good and its wider social purpose.
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Given the failure of rule following ethics as evinced by the crash and multiple scandals, bankers evidently and most obviously need to be of good character. Bankers need to know the good, do the good and be good.
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In short, if we want to place ethos and virtue firmly at the heart of banking, policy makers will need to ensure that there are suitable internal checks on banking institutions through better governance, and that there are adequate external checks on banking behaviour through improved competition and diversity. The ten recommendations below outline how such a programme for reform could be pursed in the next parliament, regardless of which political party assumes power.

1. Define and enshrine an overarching purpose for banking: A criticism often levelled at the banks is that they either perform no clear social purpose or, if they do, this is often not reflected in the actions of bankers.
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2. Co-design codes of conduct to place customers at the heart of standards:
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3. Require all bankers to swear the Bankers’ Oath::
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4. Toughen shareholder fiduciary duties to promote activism:
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5. Encourage the banks to compete on customer satisfaction:
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6. Reclassify small businesses as consumers:
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7. Launch a competition to kick-start the online advice market:
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8. Conduct an immediate review into the diversity of UK banking:
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9. Localise the British Business Bank through [Local Enterprise Partnerships]:
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10. Utilise public funds to boost the digital finance market: …. we recommend that the Department for Business, Innovation and Skills conduct a review to determine the viability of utilising local government funds to increase lending to small businesses and social enterprises through digital lending platforms.

How sweet. Wency Leung in the Globe quoted one instant rejoinder:

A proposed version of the bankers’ oath reads: “I will remember that I remain a member of society, with special obligations to the financial security and wellbeing of my customers, their families and the communities they reside in.”
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“People pledge allegiance to flags and all sorts of things, but it may or may not affect their behaviour,” says Gini Graham Scott, a Lafayette, Calif.-based consultant specializing in business and work relationships, and author of The Truth About Lying: Why and How We All Do It and What to Do About It.

For some, she says, an oath may simply represent a token formality that doesn’t really have much meaning. And people tend to lie more often in cultures that emphasize competition and monetary, materialistic values, Scott says.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 1bp, FixedResets gaining 7bp and DeemedRetractibles up 9bp. Volatility was minimal. Volume was below average.

A story on regulatory secrecy alerted me to the fact that Joe Oliver is no more honest than his predecessor:

When Finance Minister Joe Oliver went to Europe in June, he boasted about how the country’s financial system has been ranked the world’s soundest by the World Economic Forum for six years running.

The links supporting this assertion are from the Ministry of Finance, 2014-6-23:

◾For the sixth year in a row, the World Economic Forum rated Canada’s banking system as the world’s soundest.

and from the Ministry of Finance, 2013-9-5:

“I am very pleased to see that the World Economic Forum has ranked Canada’s banking system as the soundest in the world for the sixth consecutive year,” said Minister Flaherty.

These liars rely on the fact that nobody actually reads the World Economic Forum’s Global Competitiveness Report. The full report for 2013-14 makes no bones about its methodology:

The World Economic Forum’s Executive Opinion Survey
remains the largest poll of its kind, capturing the insight of more than 13,000 executives into critical drivers of their respective countries’ development. This scale could not be achieved without the tremendous efforts of the Forum’s network of over 160 Partner Institutes in carrying out the Survey at a national level. It gathers valuable information on a broad range of variables for which data sources are scarce or nonexistent. For this reason, and for the integrity of our publication and related research, sampling and comparability across the globe remain an essential and ongoing endeavor of The Global Competitiveness and Benchmarking Network.

It’s a poll – as I have pointed out before. Responses by Canadian interviewees regarding Canada are compared to responses from interviewees from other countries about those countries. In Canada, the poll is administered by The Conference Board of Canada, an organization I consider to be little more than a joke, but that’s beside the point. The point is, it’s a poll. There is no straight-up comparison of Canada’s financial system’s strength vs. the strength of any other country’s financial system. It’s a measure of confidence only, and the blind led the blind into the abyss, trumpeted by sleaze-bag politicians and abetted by shoddy journalism.

However, the Globe and Mail article does illuminate the current government’s desire to politicize everything:

The argument against Mr. Jenkins’s and Mr. Thiessen’s recommendation is a philosophical one: in a democracy, major decisions should be made by elected representatives. “I believe in elected people,” the late Jim Flaherty, Canada’s finance minister during the financial crisis, told me when I asked him in October 2013 whether he thought Canada needed a more rigorous regulatory regime. “I don’t think bureaucrats, and God love them, should run the world.”

DBRS commented on RONA, proud issuer of RON.PR.A:

Going forward, DBRS believes that stabilization of RONA’s earnings profile will remain challenging in the near term, particularly as the Company will continue to face intense competition in an uncertain demand and housing market, highlighted by significant regional disparity. RONA’s typically high inventory balance and working capital position at the end of Q1 traditionally unwinds through the course of the year. DBRS believes that despite the recent decline in balance sheet debt, RONA’s credit risk profile will remain pressured until it displays sustainable growth in organic operating income and cash flow. DBRS will continue to monitor the Company’s operating performance through the disproportionately significant spring and summer periods (Q2 and Q3 F2014), which should provide a greater indication of the impact of RONA’s restructuring and repositioning efforts, key to whether the rating will stabilize in the current BB (high) rating category. Should RONA achieve stabilization of same-store sales and operating income, as well as a modest improvement in key credit metrics through the end of Q3 F2014, the rating outlook could stabilize. However, should RONA’s credit risk profile continue to display deterioration in same-store sales, operating income and key credit metrics through the end of Q3 F2014 (i.e., lease-adjusted debt-to-EBITDAR over 4.0x and lease-adjusted EBITDA coverage below 4.5x), a further downgrade to BB and Pfd-4 could result.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 6bp, FixedResets gaining 7bp and DeemedRetractibles off 4bp. Volatility was minimal. Volume was low.

Algonquin Power & Utilities Corporation, proud issuer of AQN.PR.A and AQN.PR.D, was confirmed at Pfd-3(low) today by DBRS:

APUC’s non-consolidated key financial metrics are in line with the current rating profile. Non-consolidated debt-to-capital has remained minimal (0% as of March 31, 2014) and APUC intends to maintain debt at the HoldCo level well below the 20% threshold. In addition, APUC’s financial profile is also supported by the small size of preferred dividends relative to the cash flow available to the HoldCo. For the year ended December 31, 2013, preferred dividends totalled $5.4 million, while estimated cash flow available to service these dividends totalled approximately $105 million, allowing the remaining cash to service common dividends and partially fund capital expenditure needs.

It was a mixed day for the Canadian preferred share market today, with PerpetualDiscounts off 1bp, FixedResets down 7bp and DeemedRetractibles gaining 5bp. Volatility was low, with two of the three issues mentioned being high-volatility Floaters. Volume was very low.

A paper by Nicholas Labelle, Varya Taylor titled Removal of the Unwinding Provisions in the Automated Clearing Settlement System: A Risk Assessment is interesting:

A default in the Automated Clearing Settlement System (ACSS) occurs when a Direct Clearer is unable to settle its final obligation. In August 2012, the Canadian Payments Association amended the ACSS by-law and rules to repeal the unwinding provisions from the ACSS default framework. Without unwinding, payment items are no longer returned by the defaulter to the other participants as a means of reducing the defaulter’s final obligation. Instead, the other Direct Clearers (survivors) pay only additional settlement obligations to cover the defaulter’s shortfall. To assess the potential exposures of an ACSS default without unwinding, we use simulations to estimate the value of additional settlement obligations for each survivor and compare these exposures to their capital and liquid assets. Results indicate that these exposures are indeed manageable by survivors and, therefore, that the ACSS does not pose systemic risk.

The global economy still looks lousy:

Today’s report from the IMF highlights, in particular, the struggles of the euro zone and the still-uneven recovery in the United States after a brutal winter, as well as the troubles in emerging markets.

In the update to its earlier world economic outlook, released in Mexico City, the IMF now forecasts that Canada’s economy will grow by 2.2 per cent this year, down marginally from its April forecast of 2.3 per cent. It held its 2015 outlook for Canada steady at 2.4 per cent.

Despite the trim, Canada’s economy will be outpaced this year among the G7 nations only by Britain, at 3.2 per cent. Next year, according to the forecast both Britain and the United States will outstrip Canada, at 2.7 per cent and 3 per cent, respectively.

The IMF forecast puts the spotlight on the euro zone, where Germany’s economy is projected to grow by 1.9 per cent this and 1.7 per cent in 2015, France by 0.7 per cent and 1.4 per cent, and Italy, by 0.3 per cent and 1.1 per cent.

Japan will also lag, at 1.6 per cent and 1.1 per cent.

Well, it looks like we have a winner for Quote of the Day!

Click for Big

Yes, that’s right, BAM.PR.G is quoted at 22.81-500.00, 1×9. Timestamped details are not yet available from the Toronto Stock Exchange, so it’s not clear whether this is due to a moronic market-maker, or to the TMX’s moronic practice of reporting the ‘last’ quote rather than the closing quote. I have followed my usual practice in such cases and reset the ask price used by HIMIPref™ to $1 above the bid.

Update: I’ve checked it out, buying all ‘Trades and Quotes’ between 3:55pm and 4:00pm. The only entry in the file is a quote timestamped 15:59:45, 22.81-500.00, 1×1. So what we have here, people, is a lackadaisical market-maker

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets down 8bp and DeemedRetractibles off 3bp. Volatility was negligible. Volume was average.