PrefBlog

The mortgage rep & warranty issue in the States, briefly mentioned on October 25 is getting more interesting:

Total losses from repurchases by the banks, which also include Wells Fargo & Co., Citigroup Inc., PNC Financial Services Group Inc. and U.S. Bancorp, may amount to about $43 billion from 2009 to 2012, Vandana Sharma, an S&P credit analyst, wrote in a report today. The banks have accounted for about $12.4 billion so far, she said.

Fannie Mae, Freddie Mac and bond insurers such as MBIA Inc. are pressing lenders to honor promises to buy back mortgages if they’re later found to be based on inaccurate data. Known as representations and warranties, the promises cover defects such as inflated appraisals or misstatements about borrowers.
…
The repurchases will only become “systemic” and affect credit ratings if more so-called private-label mortgage investors pursue the six lenders, according to the report.

A group of such investors, including Bill Gross’s Pacific Investment Management C
o. and BlackRock Inc., last month moved to use Bank of America’s allegedly faulty mortgage servicing to overcome hurdles blocking them from seeking repurchases. Typically, mortgage bond trustees must make the claim on their behalf.

I trust nobody thinks that you get appointed to a nice job as mortgage bond trustee by making waves and rocking the boat.

The Kansas City Fed has released a working paper by Nada Mora titled Lender Exposure and Effort in
the Syndicated Loan Market:

This paper tests for agency problems between the lead arranger and syndicate participants in the syndicated loan market. One problem comes from adverse selection, whereby the lead arranger has a private informational advantage over participants. A second problem comes from moral hazard, whereby the lead arranger puts less effort in monitoring when it retains a smaller loan portion. Applying an instrumental variables strategy, I find that borrowers’ performance is influenced by the lead’s share. Dynamic tests extract active contributions made by the lead, supporting a monitoring interpretation. Loan covenants serve as a mechanism to induce the lead arranger to monitor.

Monitoring and skin in the game are more important than might be otherwise thought, because nearly half of the borrowers are “opaque”, where opacity is defined as:

Dummy = 1 indicating publicly traded borrowers without a debt rating, and 0 otherwise. This information is from Compustat.

The Republican majority in the House may be seeking to undermine Dodd-Frank:

Hours after Republicans secured control of the U.S. House, the council of federal regulators studying how to implement the so-called Volcker rule received a warning from the lawmaker in line to be their new overseer.

U.S. Representative Spencer Bachus, the Alabama Republican who may become chairman of the House Financial Services Committee, said in a Nov. 3 comment letter to the new Financial Stability Oversight Council that the rule barring bank holding companies from trading on their own accounts will undermine U.S. competitiveness and cut profits at the largest banks.

“Depending on how U.S. regulators choose to implement it, the Volcker rule may spark a mass exodus of clients from U.S. banks to banks based abroad,” wrote Bachus, who offered an amendment during the legislative process that would have disabled the rule until other countries established similar regulation.

I regret to advise that the “Market Action” portion of this report will be delayed. My internet connection has decided to become useless – I can connect to the internet, but I can’t get any data. Thank you, Bell Canada! These words are being typed via my Blackberry, but unfortunately HIMIPref™ is not (yet) an app downloadable for $1.99 from the App Store! I will update this post when Bell replaces the hamsters in the wheel.

Update, 2010-11-5: Sorry for the delays.

November 4 was another red-hot day on the Canadian preferred share market, with PerpetualDiscounts up 23bp and FixedResets gaining 14bp.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.2184 %	2,202.3
FixedFloater	4.96 %	3.54 %	26,300	19.15	1	-0.2727 %	3,393.5
Floater	2.70 %	2.38 %	54,764	21.29	4	-0.2184 %	2,377.9
OpRet	4.79 %	2.87 %	81,466	1.88	9	0.2252 %	2,393.1
SplitShare	5.85 %	-13.84 %	66,140	0.09	2	0.1212 %	2,406.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2252 %	2,188.3
Perpetual-Premium	5.63 %	5.02 %	164,378	3.09	24	0.0685 %	2,022.7
Perpetual-Discount	5.34 %	5.38 %	257,621	14.85	53	0.2321 %	2,043.7
FixedReset	5.20 %	2.88 %	339,797	3.22	50	0.1404 %	2,292.6

Performance Highlights
Issue	Index	Change	Notes
POW.PR.B	Perpetual-Discount	-1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-04 Maturity Price : 23.88 Evaluated at bid price : 24.15 Bid-YTW : 5.58 %
ELF.PR.G	Perpetual-Discount	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-04 Maturity Price : 20.28 Evaluated at bid price : 20.28 Bid-YTW : 5.92 %
BAM.PR.P	FixedReset	1.01 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 28.03 Bid-YTW : 3.87 %
CIU.PR.B	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 28.80 Bid-YTW : 2.67 %
MFC.PR.B	Perpetual-Discount	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-04 Maturity Price : 21.43 Evaluated at bid price : 21.43 Bid-YTW : 5.51 %
TRP.PR.A	FixedReset	1.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 2.96 %
BAM.PR.O	OpRet	1.15 %	YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.50 Bid-YTW : 2.85 %
IAG.PR.C	FixedReset	1.51 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 27.49 Bid-YTW : 3.16 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.N	Perpetual-Discount	213,701	RBC crossed blocks of 123,500 at 25.08 and then 74,100 at 25.14. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-04 Maturity Price : 24.80 Evaluated at bid price : 25.04 Bid-YTW : 5.27 %
RY.PR.I	FixedReset	104,630	Desjardins crossed 98,500 at 26.62. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.62 Bid-YTW : 2.82 %
CM.PR.P	Perpetual-Premium	101,780	Desjardins crossed blocks of 20,000 and 50,000, both at 25.26. RBC crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-11-28 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 5.14 %
MFC.PR.D	FixedReset	57,159	TD crossed 25,000 at 27.85; Nesbitt crossed 12,600 at 28.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.95 Bid-YTW : 3.44 %
BNS.PR.O	Perpetual-Premium	46,270	Desjardins crossed 40,000 at 25.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-05-26 Maturity Price : 25.00 Evaluated at bid price : 25.79 Bid-YTW : 5.08 %
GWO.PR.M	Perpetual-Premium	43,495	Nesbitt crossed blocks of 12,000 and 19,600, both at 25.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 5.69 %
There were 45 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Friday, November 5th, 2010 at 1:09 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.