September 26, 2007

Manor & Mendelson, co-founders of Portus Alternative Asset Management Inc., are being charged:

with 12 counts of fraud, money laundering, and possession of property obtained by crime on Wednesday, the result of a lengthy international investigation.

It has been quite some time since I saw Boaz – I look forward to seeing him in the dock. Regardless of guilt or innocence of these particular charges, he ran away from 26,000 customers, 100 employees, and me. That’s not cricket.

Inquiries into the Credit Rating Agencies has begun:

The SEC wants to know whether issuers pushed credit raters to “diverge from their stated methodologies and procedures,” Cox said in testimony prepared for the Senate Banking Committee today. In particular, the commission is “examining” whether firms were “unduly influenced by issuers and underwriters,” he said.

I have posted further detail of the hearings and will continue to plough through the testimony. Alex Cukierman has written an essay on VoxEU regarding central bank independence, which may possibly be a move in the Trichet / Sarkozy game. And this game is just simply a part of the markets / politicians tournament, just like the credit ratings agency investigations. I am attempting to form a troupe of attractive Swedish cheerleaders to encourage the Markets faction … if you qualify, drop me a line!

In somewhat related news, Larry Summers has (quite correctly) warned against giving the Feds too many hats to wear.

“I think it’s clear that when you vest regulation for consumer protection with agencies like the Federal Reserve whose primary mandate is the health of the financial system or the health of the lenders, you are going to get insufficient vigilance with respect to consumer protection,” he said during a panel discussion for the Brookings Institution’s Hamilton Project.

The next US jobs number, due a week Friday, will be closely watched – especially as there are some concerns that the last one might have been distorted:

Many economists suspect the drop in August payrolls was exaggerated by a fluky fall in local government payrolls, and new data from the Bureau of Labor Statistics supports that.

On Tuesday the BLS released state payroll data for August. If you sum up the changes across the 50 states and the District of Columbia, the total rose 159,000, compared to the decline of 4,000 in the national data.

With all the worries in the High-Yield market and concerns over the stability of the banking system,  yesterday’s news release regarding large loans syndicated in the US was a good sign.

The volume of Shared National Credits (SNC) rose by 21% in 2006, the fastest pace since 1998, reflecting, in part, significant merger and acquisition lending, according to the SNC2 review results released today by federal bank and thrift regulators.

Criticized commitments rose to $114 billion, but still remain less than half of their peak dollar level in 2002. Criticized credits represent a modest 5.0 percent of total commitments, about the same rate experienced over the past three SNC reviews.

Which is not to say, of course, that everything is unfolding as one might have thought six months ago. It looks like the Sallie Mae takeover will not proceed as originally planned, if at all:

SLM Corp. said a group led by J.C. Flowers & Co. won’t complete the $25.3 billion purchase of the largest U.S. student loan company. The group said it’s open to negotiation.

The group doesn’t expect to complete the $60-a-share acquisition, Reston, Virginia-based SLM, known as Sallie Mae, said today in a statement. Under an agreement announced in April, SLM was to be sold for $60 a share to an entity 50.2 percent- owned by Flowers, with JPMorgan Chase & Co. and Bank of America Corp. each holding 24.9 percent.

Shake-ups in the Very Big Brokerage segment are coming! The Chinese brokerage, Citic, is now number eight globally, although that’s with rankings by market capitalization and:

The S&P 500’s measure of seven U.S. securities firms is valued at 8.8 times estimated profit, about a quarter of the 38 times for their four listed Chinese peers. Citic trades at 34 times estimated earnings, compared with 10 times profit for Bear Stearns, 7.9 times for Morgan Stanley, and Lehman’s 8 times. Haitong Securities trades at 52 times estimated profit, Hong Yuan is at 39 times, while Northeast Securities is at 28 times profit.

Still, it’s not too long since no such qualification would have been necessary. And it looks like Warren Buffet, saviour of Salomon, is sniffing around Bear Stearns:

Bank of America Corp., Wachovia Corp., and two Chinese companies, Citic Group and China Construction Bank Corp., also are among the potential bidders, the New York Times reported, citing unidentified sources.

I can just imagine the consternation if a Chinese firm takes over an iconic trader like the Bear – particularly given concern about the Chinese government’s commitment to the free flow of information. But then, the big brokerages have had a few problems recently:

Merrill Lynch & Co., the third biggest U.S. securities firm, may record losses of as much as $4 billion on fixed-income assets, resulting in the lowest quarterly earnings in almost six years, Goldman Sachs Group Inc. analyst William Tanona said.

And, in late news, it was announced that Canada’s getting into the act:

Australian investment bank Macquarie Bank Ltd will buy Canadian investment and brokerage firm Orion Financial Ltd for about C$147 million ($146 million) in cash and stock.

Menzie Chinn of Econbrowser notes that the latest dust-up in American politics is over a relatively picayune $5-billion for children’s health; suggesting there are other exposures that have been recklessly undertaken in the past five years. It is clear that some hard measures will need to be taken if the dollar is to retain value, a matter that Accrued Interest notes is of increasing concern. I’m just happy that the GAO is now referring to the decline of the Roman Empire as opposed to the fall of the Roman Republic as a metaphor. If we’re going to decline and fall all over the place, let’s at least get the metaphors right!

US Equities had a good day, with financials leading the way – attributed to the idea that Warren Buffett might possibly like the sector.

If it turns out that the sector does poorly, will there be a Senate Inquiry?

Tech stocks led Canadian equities up a bit.

Treasuries did almost nothing, but did it while attracting lots of bids to the quarterly refunding (it was the two-year today). One has to feel sorry for a reporter so abjectly desperate to make things sound interesting that she writes:

The benchmark 10-year note’s yield rose almost 1 basis point to 4.63

The only thing worse is having to quote such a report! Canadas were weak, but nothing out of the ordinary.

The preferred share market normalized a bit after yesterday’s repricing, but the PerpetualDiscount sector continued to fall. Volume returned to the light-but-still-reasonable levels that have been in effect all month.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.72% 4.68% 1,062,629 15.88 1 -0.0816% 1,043.7
Fixed-Floater 4.86% 4.76% 95,952 15.87 8 +0.3998% 1,034.6
Floater 4.48% 1.82% 81,047 10.76 3 +0.0410% 1,049.0
Op. Retract 4.85% 4.05% 77,146 3.24 15 -0.0869% 1,027.8
Split-Share 5.14% 4.77% 96,837 3.84 13 +0.0674% 1,046.9
Interest Bearing 6.31% 6.61% 65,532 4.26 3 +0.1386% 1,040.1
Perpetual-Premium 5.54% 5.29% 91,082 7.06 24 -0.0300% 1,024.7
Perpetual-Discount 5.15% 5.19% 240,616 14.78 38 -0.4355% 967.9
Major Price Changes
Issue Index Change Notes
SLF.PR.C PerpetualDiscount -1.8295% Now with a pre-tax bid-YTW of 5.08% based on a bid of 22.00 and a limitMaturity.
CIU.PR.A PerpetualDiscount -1.6196% Now with a pre-tax bid-YTW of 5.47% based on a bid of 21.26 and a limitMaturity.
GWO.PR.H PerpetualDiscount -1.5306% Now with a pre-tax bid-YTW of 5.26% based on a bid of 23.16 and a limitMaturity.
GWO.PR.I PerpetualDiscount -1.2860% Now with a pre-tax bid-YTW of 5.08% based on a bid of 22.26 and a limitMaturity.
CM.PR.I PerpetualDiscount -1.1112% Now with a pre-tax bid-YTW of 5.22% based on a bid of 22.51 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
CM.PR.A OpRet 495,700 Went ex-Dividend today for $0.33125. Global crossed 247,700 for cash at $26.21, then 247,700 for regular settlement at 25.87. Now with a pre-tax bid-YTW of 2.32% based on a bid of 25.76 and a call 2007-11-30 at 25.75.
SLF.PR.B PerpetualDiscount 106,032 Now with a pre-tax bid-YTW of 5.12% based on a bid of 23.53 and a limitMaturity.
SLF.PR.C PerpetualDiscount 66,100 Desjardins crossed 60,000 at 22.28. Now with a pre-tax bid-YTW of 5.08% based on a bid of 22.00 and a limitMaturity.
PWF.PR.E PerpetualPremium 35,725 RBC bought 10,000 from Nesbitt at 25.40. Now with a pre-tax bid-YTW of 5.39% based on a bid of 25.38 and a call 2013-03-02 at 25.00.
MFC.PR.A OpRet 26,700 Nesbitt crossed 25,000 at 25.83. Now with a pre-tax bid-YTW of 3.76% based on a bid of 25.65 and a softMaturity 2015-12-18 at 25.00.

There were eight other $25-equivalent index-included issues trading over 10,000 shares today.

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