PrefBlog

Assiduous Reader JP, who often sends me interesting snippets, unlike youse other bums, brings to my attention a small preferred share issue from China:

Industrial and Commercial Bank of China will issue US$5.7 billion worth of preferred shares in three currencies in what will be the largest offshore issuance of hybrid securities from a mainland firm.

ICBC proposed issuing US$2.94 billion in dollar-denominated shares, €600 million (HK$5.73 billion) and 12 billion yuan (HK$15.13 billion) all priced at 6 per cent, according to a regulatory filing.

The shares will count as additional tier-1 capital, boosting the bank’s capital adequacy ratio as defined by Basel III, an international accord aimed at raising the viability of banks and avoiding public bailouts.

The record deal also marked the first time a mainland bank issued offshore preferred shares denominated in three currencies.

ICBC International was the sole global coordinator and UBS, Bank of America Merrill Lynch and Goldman Sachs were joint book-runners on the deal.

It’s nice to see some real progress on solar power efficiency:

UNSW’s solar researchers have converted over 40% of the sunlight hitting a solar system into electricity, the highest efficiency ever reported.

The world-beating efficiency was achieved in outdoor tests in Sydney, before being independently confirmed by the National Renewable Energy Laboratory (NREL) at their outdoor test facility in the United States.

The work was funded by the Australian Renewable Energy Agency (ARENA) and supported by the Australia–US Institute for Advanced Photovoltaics (AUSIAPV).

“This is the highest efficiency ever reported for sunlight conversion into electricity,” UNSW Scientia Professor and Director of the Australian Centre for Advanced Photovoltaics (ACAP) Professor Martin Green said.

The price wasn’t mentioned, but the basic idea comes first, right? Then give it to the engineers to make it cheap. Too bad this research wasn’t done in Ontari-ari-ari-owe, but we blew our solar budget on political grandstanding.

After posting the MAPF November statements, I posted the following on the Canada Post Facebook Page:

I just sent a batch of letters with Madonna & Child stamps when a thought struck me and caused me to check your website.

I see your “Holiday 2014” collection is dominated by Santa Claus – rather childish in my view, but the important thing is that they are stamps and you stick them on letters and they get delivered.

But why are there no stamps with an Islamic theme? No Jewish stamps? No stamps for Kwanzai, Bohdi Day, Pancha Ganapati or Yule? It would make things more interesting.

It was an awful day for equities:

Oil, bank and raw-materials are the biggest laggards in Canada for the first time since at least 1988, fueling concern the nation’s economy is fading just as the U.S. is taking off.

The three industries, which collectively account for two-thirds of the Standard & Poor’s/TSX Composite Index, are the worst performers among 10 groups this year, according to data compiled by Bloomberg. The nation’s largest banks joined oil and materials in a rout that erased 4.1 percent from the benchmark index in three days, including the biggest one-day retreat since June 2013.

The selloff in the biggest pillars of the Canadian equity market comes as data showing a weaker jobs market coupled with slowing exports suggest a tentative economic recovery. Banks have slumped as earnings last week collectively missed estimates amid declining trading revenue and sluggish consumer borrowing. Meanwhile, the S&P 500 Index has reached all-time highs on signs of accelerating growth.
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The S&P 500/TSX tumbled 329.53 points, or 2.3 percent, to 14,144.17 yesterday as the selloff in oil accelerated, with energy companies plunging the most since August 2011 as crude dropped to a five-year low.
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The Canadian benchmark equity gauge has plunged 9.7 percent since reaching a record on Sept. 3, wiping out more than C$270 billion in market value and reducing its gain for the year to 3.8 percent. The S&P/TSX, which was the second-best performing market among developed nations through the first half of the year, now ranks 16th.

Happy crowds of preferred share investors held parades for their portfolios today.

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And with TXPR and TXPL down 0.76% and 0.96%, why not?

It was an appallingly poor day for the Canadian preferred share market, with PerpetualDiscounts off 24bp, FixedResets losing 85bp and DeemedRetractibles down 36bp. There is a very lengthy list of losers, dominated by FixedResets. Volume was high.

And given these massive changes, let’s have another look at some pictures of Implied Volatility. Remember that all rich /cheap assessments are

• based on Implied Volatility Theory only
• are relative only to other FixedResets from the same issuer
• assume constant GOC-5 yield
• assume constant Implied Volatility
• assume constant spread

Here’s TRP:

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So according to this, TRP.PR.A, bid at 21.36, is $0.57 cheap, but it has already reset. TRP.PR.B, bid at 17.20, is $0.55 cheap, but it resets 2015-6-30. TRP.PR.C, bid at 19.75, is $0.30 expensive, but it resets 2016-1-30. It looks like the market is beginning to realize that TRP.PR.C is overpriced.

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MFC implied volatility is still very high. The low-spread MFC.PR.F looks a little cheap … and it doesn’t reset until 2016-6-19.

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BAM.PR.X, with a +180bp spread, bid at 21.15, looks $0.79 cheap and doesn’t reset until 2017-6-30 – but Implied Volatility is still a little high and is dropping rapidly (a reduction in Implied Volatility flattens the curve and causes low-spread issues to underperform). BAM.PR.R, with a +230bp spread, bid at 25.51, looks $1.56 rich and resets 2016-6-30. So go figure that one out, wise guy.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 20.00, looks $0.41 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.70, looks $0.54 expensive and resets 2019-3-1

Jobs, jobs, jobs!

A November surprise that included a jump in wages as well as the biggest hiring surge in almost three years suggests the world’s largest economy is putting aside doubts about the strength of the expansion.

The 321,000 advance in payrolls followed a 243,000 increase in October that was stronger than previously reported, Labor Department figures showed today in Washington. The jobless rate held at a six-year low of 5.8 percent and earnings rose by the most since June of last year.
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The breadth of industries hiring last month was the broadest since 1998, a sign the benefits of the expansion were rippling through the economy.

Factory payrolls rose by the most in a year, professional and business services companies took on more employees than at any time since November 2010, financial firms boosted payrolls by the most since early 2012 and hiring at retailers picked up.
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The yield on the benchmark 10-year Treasury note rose to 2.31 percent at 2:47 p.m. in New York from 2.24 percent late yesterday. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 trading partners, gained 0.8 percent, and the Standard & Poor’s 500 Index advanced 0.2 percent.

Up north, not so much:

The Canadian dollar reached a five-year low as data showed the economy lost jobs in November while U.S. payrolls swelled, adding to speculation the Federal Reserve will raise interest rates before the Bank of Canada.

The currency erased a weekly gain as the report showed employment fell by 10,700 jobs. The drop bolstered a Bank of Canada statement this week that, while the recovery shows signs of broadening, the labor market “continues to indicate significant slack in the economy.” The nation added 117,200 jobs over the previous two months.
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Canadian government bonds fell, pushing the yield on the benchmark 10-year security up five basis points, or 0.05 percentage point, to 1.96 percent. It reached 1.98 percent, the highest level since Nov. 25. The price of the debt dropped 46 cents to C$104.67.

Employment declined after jumps of 43,100 and 74,100 the last two months, Statistics Canada said today from Ottawa. The unemployment rate rose to 6.6 percent from a six-year low of 6.5 percent. Economists surveyed by Bloomberg News projected employment would be unchanged and the jobless rate would rise to 6.6 percent, according to median forecasts.

And things are still sluggish in Germany:

But Germany’s Bundesbank halved its 2015 growth forecast for Germany to 1.0 per cent and also cut its estimate for this year to 1.4 per cent from a forecast of 1.9 per cent made in June. It also trimmed its prediction for 2016 to 1.6 per cent.

“However, there is reason to hope that the current sluggish phase will prove to be short-lived,” Bundesbank President Jens Weidmann said in a statement, adding that opportunities abroad would likely increase again next year.

He also said that if crude oil prices remained subdued for a longer period, gross domestic product (GDP) could expand by an additional 0.1-0.2 percentage points in both 2015 and 2016.

… and in Italy:

Standard & Poor’s cut Italy’s sovereign credit rating on Friday from triple-B to triple-B-minus, just one notch above junk, saying weak growth and poor competitiveness undermined the sustainability of its huge public debt.

The downgrade is a blow for Prime Minister Matteo Renzi, who came to office in February pledging an ambitious reform agenda to lift Italy out of recession, but has seen the economy continue to shrink.

S&P said the new triple-B-minus rating carried a stable outlook. It forecast Italian economic growth would be just 0.2 per cent in 2015 and would average 0.5 per cent in 2014-2017.

As recently as June, the agency had confirmed Italy’s triple-B rating and forecast average growth of 1.0 per cent over the three-year period.

Italy’s economy is expected to shrink in 2014 for the third consecutive year.

There’s an interesting paper by Gregory Thwaites titled Why are real interest rates so low? Secular stagnation and the relative price of investment goods:

Over the past four decades, real interest rates have risen then fallen across the industrialised world. Over the same period, nominal investment rates are down, while house prices and household debt are up. I explain these four trends with a fifth – the widespread fall in the relative price of investment goods. I present a simple closed-economy OLG model in which households finance retirement in part by selling claims on the corporate sector (capital goods) accumulated over their working lives. As capital goods prices fall, the interest rate must fall to reflect capital losses. And in the long run, a given quantity of saving buys more capital goods. This has ambiguous effects on interest rates in the long run: if the production function is inelastic, in line with most estimates in the literature, interest rates stay low even after relative prices have stopped falling. Lower interest rates reduce the user cost of housing, raising house prices and, given that housing is bought early in life, increasing household debt. I extend the model to allow for a heterogeneous bequest motive, and show that wealth inequality rises but consumption inequality falls. I test the model on cross-country data and find support for its assumptions and predictions. The analysis in this paper shows recent debates on macroeconomic imbalances and household and government indebtedness in a new light. In particular, low real interest rates may be the new normal. The debt of the young provides an alternative outlet for the retirement savings of the old; preventing the accumulation of debt, for example through macroprudential policy, leads to a bigger fall in interest rates.
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This paper fleshes out a new, complementary explanation for the falls in real interest rates, rises in household debt and falling investment rates across the industrialised world. The story is based on the widespread fall in the price of investment goods – the machines, equipment and buildings that firms buy – relative to the prices of other things the economy produces. This fall has reduced the demand for savings, rather than the supply.

This makes sense to me. When you’re starting a business, you don’t (usually) need $100-million for a new factory any more; $10,000 for a couple of new computers will (often) do the trick. Thanks to Ian McGugan of the Globe for writing a review.

It’s a black day … the UK is redeeming some perps:

U.K. Chancellor George Osborne is to repay the state’s century-old war debt. By current standards, the undated stock is expensive for the government to service. Terms give holders of the hard-to-trade bond a decent payoff. It looks like a win-win. Time could prove a harsher judge of the deal.

The British government issued its War Loan in 1917. At first, the undated debt offered a yield of 5 per cent. It was restructured in 1947 to pay 3.5 per cent. Even that lower figure looks expensive by current standards. Weak economic growth and low inflation have suppressed long-dated yields. Ten-year UK government debt gives only 2 per cent at present.

I’ve always been fond of the British perps … fortunately, my all-time favourite, the 2.5% annuities issued in 1853 are still outstanding … all £1-million of them!

BSD.PR.A was confirmed at Pfd-4(low) by DBRS:

As of December 1, 2014, the Portfolio consisted of 72.0% Canadian common stock, 22.0% REITs, 4.0% limited partnerships and 2.0% Canadian preferred stock. The rating was last confirmed in December 2013 and performance has been generally positive in the first half year of 2014, but has since been volatile. Downside protection available to holders of the Preferred Securities rose to 29.9% in June 2014, but has since been volatile, dropping to approximately 20.0% at the end of November 2014 (similar to November 2013 levels). The yield on the Portfolio has decreased slightly, causing the distribution coverage ratio to drop to 0.70 times (as of November 28, 2014). The rating on the Preferred Securities continues to be constrained by the large percentage of underlying securities in the Portfolio that are not rated by any rating agency and the grind on the Portfolio due to distributions exceeding income.

I suggest that preferred share investors stop looking at their monitors and go for a nice walk … like this guy:

It was another awful day for the Canadian preferred share market, with PerpetualDiscounts losing 38bp, FixedResets down 36bp and DeemedRetractibles off 5bp. Another lengthy Performance Report is – again – dominated by losing FixedResets which are – again – predominantly lower spread and Enbridge issues. Despite four issues (recent heavy losers) breaking the 100,000 share barrier, volume was slightly below average.

All this poor performance by the lower-reset issues should imply a decrease in Implied Volatility, so here are some pictures:

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So according to this, TRP.PR.A, bid at 21.40, is $0.74 cheap, but it has already reset. TRP.PR.B, bid at 17.37, is $0.60 cheap, but it resets 2015-6-30. TRP.PR.C, bid at 20.52, is $0.86 expensive, but it resets 2016-1-30. So an alternative way of resolving the differences between these three issues is to expect the GOC-5 yield to stay at 1.48% until TRP.PR.B resets, but to increase to about 1.72% prior to TRP.PR.C resetting.

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MFC volatility is still very high. The low-spread MFC.PR.F looks a little cheap … and it doesn’t reset until 2016-6-19.

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BAM.PR.X, with a +180bp spread, bid at 21.40, looks $1.06 cheap and doesn’t reset until 2017-6-30. BAM.PR.R, with a +230bp spread, bid at 25.71, looks $1.48 rich and resets 2016-6-30. So go figure that one out, wise guy.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 20.01, looks $0.39 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.81, looks $0.56 expensive and resets 2019-3-1.

Europe is inching towards quantitative easing:

Mario Draghi dragged the European Central Bank toward more monetary stimulus with a pledge to assess the need early next year, disappointing some investors seeking faster action.

Even as he unveiled “substantially” lower forecasts for euro-area inflation and economic growth, the ECB president said officials will wait to evaluate whether they’re doing enough to revive the weakest consumer-price growth in five years. They are already intensifying preparations for further measures, including studying the merits of buying government debt.

If policy makers do see a need to combat a prolonged period of low inflation then “this would imply altering early next year the size, pace and composition of our measures,” Draghi told reporters in Frankfurt after his Governing Council met to set policy for the last time in 2014. “We don’t need unanimity” on the 24-member council to act, he said.

The ECB Governing Council expects to consider a proposal for a broad-based asset program including sovereign debt next month, according to two euro-area central-bank officials familiar with deliberations who asked not to be identified because the discussion is private. The package is envisaged to include various types of bonds, but no equities, and has yet to be designed, the people said.

Canadian equities got hammered:

Canadian stocks fell the most in more than a year as the nation’s biggest banks posted results that missed estimates and energy shares resumed a selloff with the price of crude.

Toronto-Dominion Bank (TD), the country’s largest lender by assets, tumbled the most in more than five years after posting fourth-quarter profit short of estimates. Energy stocks tumbled 2.1 percent as a group as oil fell. Canadian Oil Sands Ltd. (COS) sank 16 percent to a decade low after slashing its dividend. Enbridge Inc. jumped 10 percent to a record on plans to transfer C$17 billion ($14.9 billion) in assets to a fund.

The Standard & Poor’s/TSX Composite Index (SPTSX) slumped 284.11 points, or 1.9 percent, to 14,469.95 at 4 p.m. in Toronto, the biggest drop since June 2013. The equities benchmark pared its gain to 6.2 percent this year.
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All of the 10 industries in the S&P/TSX dropped at least 0.6 percent on trading volume 45 percent higher than the 30-day average today. Global equities slumped after the European Central Bank said policy makers will reassess stimulus next quarter, damping hopes for additional bond purchases this year.

And whenever there’s a big market move there’s only one party at fault:

A nearly 1 per cent drop in the S&P/TSX composite index in the final hour of trading Thursday was due to a large order from Goldman Sachs to sell a basket of Canadian stocks, according to a note from the Bank of Montreal.

Canada’s main stock index recorded one of its biggest declines of the year on Thursday, as investors reacted to another push lower in the price of crude oil as well as a disappointing earnings report from Toronto-Dominion Bank.

According to BMO, the Goldman Sachs sell order was for approximately $600-million in a broad selection of Canadian stocks, but many were in the banking and energy sectors. The heaviest volumes sold by Goldman were shares in Royal Bank of Canada, TD Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Natural Resources, Enbridge and Suncor.

The TSX closed down 284.1 points, or 1.93 per cent, at 14,469.95, far outpacing the 0.12 per cent fall in the S&P 500. The Canadian index had been down nearly 1 per cent prior to 3 p.m. (ET), which is around when the Goldman order was believed to be transacted.

The feds are shilling for the Toronto Exchange:

The Canadian government has approved Burger King Worldwide Inc.’s purchase of Tim Hortons Inc. on condition it maintains employment levels and list the company in Toronto.

To win approval under the nation’s foreign takeover law, Burger King has agreed to “work with Tim Hortons (THI) franchisees” to maintain employment levels across Canada, and accelerate expansion of new restaurants outside Canada at a “significantly greater pace than currently planned,” Industry Minister James Moore said in a statement.
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Burger King has also agreed to establish the new company’s headquarters in Oakville, Ontario and list on the Toronto Stock Exchange, according to the statement. Other commitments include managing Tim Hortons as a “distinct brand” that won’t be co-branded with Burger King and the maintenance of franchise rent and royalty structure at current levels for the next five years.

Yay! Micromanagement and central planning! Soon we’ll all be RICH!

Bond salesmen won’t be rich, though (emphasis added):

Four of Canada’s six biggest banks have posted quarterly declines in trading, dragged down by plunging bond markets in October and one-time changes to how lenders value uncollaterized derivatives.

Toronto-Dominion Bank’s trading revenue dropped 14 percent to C$296 million ($260 million) in the period ended Oct. 31 from a year earlier, led by declines in interest-rate and credit trading, the company said today. The lender recorded a C$65 million pretax charge in its wholesale bank tied to the valuation adjustment.
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Bank of Montreal (BMO) trading revenue tumbled 21 percent to C$186 million as fixed-income trading plunged 79 percent from a year earlier, the bank said in a Dec. 2 statement. The valuation adjustment reduced revenue by C$39 million.
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CIBC trading revenue fell 81 percent to C$27 million, with a C$98 million loss in interest-rates trading, the Toronto-based bank said today in a statement. The lender said it recorded an C$82 million after-tax charge tied to funding valuation adjustments.

Trimming Capital

Royal Bank’s total trading revenue slid 43 percent to C$371 million, fueled by a 70 percent drop in trading of interest-rate and credit securities, the Toronto-based bank said yesterday. Royal Bank had a C$51 million after-tax charge tied to the adjustments.

Royal Bank has been trimming the capital devoted to bond trading as global regulations meant to prevent another credit crisis make it one of the lender’s most costly businesses, CFO Janice Fukakusa said.

So bond market liquidity just got a little worse. Just in time for the long-awaited crash due to policy rate changes!

I try to restrain myself from ranting on non-preferred share issues on this soap-box, but every now and then something irritates me enough that I think it would be a shame to deprive you of my views. Today’s rant is about a Bloomberg story titled Princeton Has a Shadow Fraternity System Nobody Controls. So in the first place, the headline is nonsense. The ‘shadow fraternity system’ certainly is under control by somebody, how could it be otherwise? The writer is merely upset that it’s not controlled by people of whom he approves.

When Princeton officials learned that a student had mass-emailed a photo of a woman performing oral sex at one of its 11 eating clubs (social clubs that resemble fraternities), it quietly began investigating the matter. Despite the fact that passing around a photo of a sex act without the consent of those pictured is a crime in New Jersey, the university did not inform local police. The school’s squeamish approach to the incident raises questions about how it can discipline its students — and abide by stricter government guidelines for handling sexual assault — when so much of social life at the institution lives outside the walls of campus.
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“Our investigation began as soon as we received a report, just days after the alleged incident,” says Martin Mbugua, a University spokesman. The Princeton Police Department only found out about the email three weeks later, when an anonymous third party notified the police chief. Any misbehavior at the Tiger Inn, headquartered in a stately mansion on a street just off the main campus, technically falls under the jurisdiction of local police.

In November, the Department of Education found that Princeton botched its response to reports of sexual assault and the University formally agreed to tighten its handling of alleged sexual crimes. New guidelines implemented by the government require schools to investigate sexual violence reports that occur outside of school grounds if the incident has “continuing effects on campus.”

So the university is on the defensive about not being an official informer, and are expected to be Junior Policemen with respect to sexual violence. Sorry, buddies: these are university students we are talking about here – young men and young women. If they want something to be a police matter, they should be expected to know how to contact the police themselves. Junior Police and a Junior Justice System with the power to expel students are not the answer to anything. But meanwhile, the politicians bleat that 20-year olds are old enough to die in Afghanistan, but not old enough to take responsibility for themselves, and drip crocodile tears over the rising cost of tuition due to administrative overload.

There was one cry on the lips of FixedReset investors today:

One thing I can’t help but highlighting, given the horrible (second-worst) performance of TRP.PR.C today, is the Implied Volatility analysis for the TRP FixedResets:

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Assiduous Readers will recognize that the overall appearance of the graph has not changed from the chart published as of the close on December 2, but Alert Assiduous Readers will notice that the fit to theory is much better. On Tuesday I asserted that:

Prices for the TRP issues are very strange: consider that TRP.PR.A, bid at 21.15, is priced lower than TRP.PR.C, which is a FixedReset, 4.40%+154, resetting 2016-1-30, bid at 21.77. … TRP.PR.A is now $1.44 cheap while TRP.PR.C is $1.73 expensive

Well, that was then. Now I say that TRP.PR.A is bid at 21.39 and is $0.89 cheap, while TRP.PR.C is bid at 20.82 and is $1.06 expensive. So according to me, there’s more adjustment yet to come!

Despite that – and despite a reported 42bp decline in TXPR and a 79bp hit for TXPL – it was a mixed day for the Canadian preferred share market today, with PerpetualDiscounts off 6bp, FixedResets down 62bp and DeemedRetractibles gaining 4bp. There is a very lengthy list of performance highlights, just like the old days of 2008, dominated of course by FixedReset losers with a large contingent of Enbridge issues, spooked by the credit muttering. Volume was average.

The BoC announced its rate decision:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Inflation has risen by more than expected. The increase in inflation over the past year is largely due to the temporary effects of a lower Canadian dollar and some sector-specific factors, notably telecommunications and meat prices. Underlying inflation has edged up but remains below 2 per cent.

The U.S. economy has clearly strengthened, particularly business investment, which has benefitted Canada’s exports. Growth in the rest of the world, in contrast, continues to disappoint, leading authorities in some regions to deploy further policy stimulus. Oil prices have continued to fall, due to both supply and demand developments. In this context, global financial conditions have eased further.

Canada’s economy is showing signs of a broadening recovery. Stronger exports are beginning to be reflected in increased business investment and employment. This suggests that the hoped-for sequence of rebuilding that will lead to balanced and self-sustaining growth may finally have begun. However, the lower profile for oil and certain other commodity prices will weigh on the Canadian economy.

The net effect of these recent developments, together with upward revisions to historical data, is that the output gap appears to be smaller than the Bank had projected in the October Monetary Policy Report (MPR). However, the labour market continues to indicate significant slack in the economy.

While inflation is at a higher starting point relative to the October MPR, weaker oil prices pose an important downside risk to the inflation profile. This is tempered by a stronger U.S. economy, Canadian dollar depreciation, and recent federal fiscal measures. Household imbalances, meanwhile, present a significant risk to financial stability. Overall, the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore the target for the overnight rate remains at 1 per cent.

One pundit thinks the bank is preparing for a rate hike in 2015:

RBC Dominion Securities economist Mark Chandler said fading economic slack is “an important part of laying the groundwork for higher rates in 2015.”

… and household debt is increasing:

The central bank has oft cited this threat as household debt burdens rose to record levels. Its latest red flag went up on the same day as two reports underscored the swollen debts among Canadians just as the holiday shopping frenzy begins.

In one report, Equifax Canada said that “Canadian consumers have yet again tipped the scales setting a new benchmark of over $1.513-trillion in debt.”

That third-quarter figure marked an increase from $1.448-trillion in the second quarter and $1.409-trillion a year earlier, according to Equifax, whose numbers are based on more than 25 million unique consumer files.

Excluding mortgages, average debt held by Canadians has increased 2.7 per cent to $20,891.

There is a bright spot, however, in that delinquency rates declined.

Co-operators General Insurance Company, proud issuer of CCS.PR.C was confirmed at Pfd-3(high) by DBRS:

The Co-operators Group, by tradition, has strong presence in rural markets and obtains excellent brand recognition. The property and casualty operations rank in the top six by premiums in Canada. The Group is making efforts to achieve client growth in Québec and is utilizing direct response marketing in Ontario and Alberta. The Group maintains conservative regulatory capital ratios, which supports the rating given the capital raising constraints of a cooperative.

The general insurance business has had difficulty keeping combined ratios at acceptable levels for the rating. The Company is looking at better segmentation to improve results and has been investing in technology and process improvement to achieve a better customer experience. Financial leverage is at reasonable level and supportive of the rating.

Fairfax Financial Holdings Limited, proud issuer of FFH.PR.C, FFH.PR.E, FFH.PR.G, FFH.PR.I and FFH.PR.K, was confirmed at Pfd-3 by DBRS:

Over the long term, Fairfax has generally achieved strong investment results on the investment portfolios it manages for its insurance subsidiaries. With willingness to take advantage of market disruptions and distressed valuations for particular securities and purchase hedges against general market downturns versus the actual portfolio investments, the active investment management generates volatile financial results.

Financial leverage (preferred shares and debt-to-total capital), although declining from September 2013, remains at the upper range for the rating in the mid-thirties. Fixed charge coverage ratios have been very low for the last few years, with low profitability, but the year-to-date (September 2014) results have yielded a desirable ratio. The Company maintains a minimum balance of $1 billion in cash and marketable securities at the holding company for liquidity and contingent subsidiary capital needs, which is viewed as prudent given the earnings volatility.

The Company’s management culture places a high reliance on local management to manage their businesses prudently. The decentralized structure has allowed Fairfax to grow by acquisition globally to take advantage of profitable niches held by existing businesses. DBRS realizes this decentralized management structure contrasts sharply with most Canadian financial institutions, but notes that, if done correctly and with the right businesses and people, it can be a successful strategy, which the Company has been able to demonstrate.

HSBC Bank Canada, proud issuer of HSB.PR.C and HSB.PR.D, has been confirmed at Pfd-2 by DBRS (for NVCC non-compliant shares):

With Canada being a priority market for the HSBC Group, HSBC Bank Canada benefits from the strength of the Parent and the international capabilities and relationships of one of the largest banking groups in the world. HSBC has good intrinsic strengths, including its low cost-to-income ratio and superior customer service model, somewhat offset by geographic and industry concentrations, its historically higher interest-rate risk tolerance and scale challenges in its retail banking and wealth management businesses.

The Bank continues to execute on its strategy of growing its Commercial Banking and its Global Banking and Markets segments. At the same time, HSBC has made strides to increase presence with credit cards, mortgages and wealth products, particularly with its globally affluent customers. Earnings have continued to be good, with ROE in the mid-teens and risk metrics strong, although somewhat lumpy due to the proportions of commercial and wholesale lending.

Notable business changes over the past couple of years are largely complete, allowing the Bank to concentrate on its strategy, although implementing HSBC Group-wide improvements in compliance and risk controls may continue to occupy management attention. The run-off of the consumer finance portfolio is proceeding as planned, as is the repositioning of business banking towards clients with multi-product opportunities and lower compliance risk.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 20bp, FixedResets off 8bp and DeemedRetractibles down 11bp. Volatility was minor, but exciting anyway. Volume was slightly below average.