October 22, 2010

The exodus of prop traders to hedge funds continues:

KKR & Co., the buyout firm founded by Henry Kravis and George Roberts, is close to hiring nine members of Goldman Sachs Group Inc.’s U.S. principal-strategies group for a new hedge fund.

Bob Howard, who heads the Goldman Sachs group in the U.S., will join as managing director and report to William Sonneborn, who heads KKR’s asset-management division, Kristi Huller, a spokeswoman for the New York-based firm, said today in a telephone interview. The hedge fund, which will be able to bet on rising and falling stock prices, is scheduled to start raising money next year.

I discussed the Public/Private Investment Plan (PPIP) about a year ago … a year later, it certainly looks as if liquidity, not value, was the toxin in toxic assets:

A U.S. government program aimed at reviving the mortgage-backed securities market returned more than triple what stocks or bonds gained in the past year.

The eight funds created under the Public-Private Investment Program, or PPIP, reported net internal rates of return averaging 36 percent through Sept. 30, the Treasury Department said in a report this week.
…
The Treasury is an equal equity partner in each of the funds and provided debt financing for the $29.4 billion program. The government has gotten $215 million of interest, dividend and other payments, and the funds have more than $1.5 billion in unrealized gains. Under the wider Troubled Asset Relief Program, or TARP, the government has earned $25.2 billion on its investment of $309 billion in banks and insurers, an 8.2 percent return over two years, according to data compiled by Bloomberg.

The OSC has released its 2010 Compliance and Registrant Regulation Branch Annual Report and its 2010 Investment Funds Branch Annual Report.

The Kansas City Fed has released the October 2010 edition of Economic Trends.

There are rumours of a Canadian bank making a US acquisition:

Wilmington Trust Corp., the Delaware bank founded by the du Pont family, has been contacting bigger lenders in recent weeks to gauge their interest in buying the company, said people with knowledge of the matter.

The bank has told potential buyers it is aiming to reach a deal by the end of the month, said the people, who spoke on condition of anonymity because the talks are private. Canada’s Bank of Montreal is among banks that have held talks with Wilmington Trust, and Toronto-Dominion Bank has also been approached, these people said. Lazard Ltd. is advising Wilmington Trust, the people said.
…
The company has plunged 75 percent in the past three years, giving the bank a market value of $834.9 million. The 107-year- old lender has reported five straight quarterly losses, driven in part by soured commercial real estate loans and investments in pools of trust-preferred securities.

Meanwhile, RY is taking a loss to get out of US life & health insurance:

Royal Bank of Canada agreed to sell its U.S. life insurance business to an entity with ties to Apollo Global Management LLC for $628.1 million, taking a loss on a purchase the Canadian lender made a decade ago.

Royal Bank, Canada’s biggest bank, is exiting the U.S. life and health business by selling Liberty Life Insurance to Athene Holding Ltd., the Toronto-based bank said today in a statement. Royal Bank expects to complete the sale by early 2011 and record a loss of about $115 million under Canadian accounting rules, or $405 million under U.S. rules.

Ontario’s Eggfare bums are running a new advertising campaign, which appears aimed at the naifs who place “Farmers Feed Cities” posters in their windows. No purpose in sight at the moment, but when over a third of your gross revenue is a welfare cheque, you have to keep the feel-good drums working.

Click for big

It feeds into retail prices, too:

For eggs, the difference between prices in Montreal and prices in the United States for Grade A large eggs is 55%.

Toronto will be electing a new mayor on Monday as well as the usual crowd of non-entities. We are face with the dreary choice between an incompetent and a buffoon. Smitherman is incompetent: as health minister for over four years, he wears a great deal of the eHealth fiasco; perhaps not as much as Ford tries to make out, but he was responsible for the Health Ministry’s culture. Then, as energy minister, he decided that paying ten times market rate for solar power was a fine idea. What’s more, he wants to throw some city money down that rathole. He is now talking about tax freezes and cuts – but only since Ford made it fashionable to do so. His words would have more credibility if he had said them while he was the clear front-runner … but now? It’s mere fashion. Vote for Smitherman and you’re voting for whatever tomorrow’s fashion is, irrespective of what it might be.

Ford is simply a buffoon. Railing away at councillors’ expense budgets … it’s a trivial non-issue, considering Toronto’s spending mess. I don’t want them to steal the money, obviously, but the budgets are, if anything, skimpy considering the ideal work-load of a councillor and in any case cost me about a buck. I’m also worried about his oft-expressed unconditional support for the police – nobody ever deserves unconditional support, least of all the police after the G-20 abomination. Vote for Ford and you’re voting for a term of chaos, with contracting out garbage likely to be an extremely divisive flashpoint.

But maybe we need chaos. My girlfriend is a nurse who was seriously considering applying for a job driving a school bus – not out of any work satisfaction issues, but because the pay is so much better. Is there anybody other than city council members and school bus drivers who thinks this makes any sense at all? The city’s infrastructure is crumbling and gridlock … well, I won’t say it costs a whole pile of money because those calculations assume that time spent getting to work is paid and otherwise productive. I will say that gridlock is significantly detrimental to the quality of life in Toronto. Meanwhile the TTC can’t even figure out how to run a string of vending machines.

Incompetence costs a lot more money than any ideology. Vote Ford.

It was a strong day in the Canadian preferred share market, with PerpetualDiscounts gaining 16bp and FixedResets up 20bp. Volume was off its peak, but still quite high.