PrefBlog

Ireland’s decision to rewrite bankruptcy law on the fly has had a surprising effect:

The cost of insuring bonds sold by European banks rose for a sixth day on concern other governments will follow Ireland in forcing investors to share the cost of bailouts.

The Markit iTraxx Financial Index of credit-default swaps on subordinated debt of 25 European banks and insurers rose 4 basis points to a five-month high of 272 as of 3:30 p.m. in London, according to JPMorgan Chase & Co.
…
Markit Group Ltd.’s index of subordinated financial swaps is up from 225.5 on Nov. 19, setting it on pace for the biggest weekly increase since March 2009, JPMorgan Chase data show. The senior index rose 1.5 basis points to 159 today, up from 135.5 at the end of last week.

The Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose 3 basis points to a record 184, according to CMA. Spain increased 8 basis points to an all-time high based on closing prices of 303 and Ireland jumped 11.5 basis points to 591, after earlier reaching a record.

Ireland has also pledged to impose losses on junior bondholders at Irish Nationwide Building Society.

By me, this is just one more argument in favour of contingent capital that converts well before the business has reached the point of non-viability. If it converts when things are bad but not yet horrific, then at least holders will have the comfort that their contractual rights will be honoured.

I had a look at the Canadian Bankers Association recommendations for legislative review:

In our view, the federal government should ensure that financial institutions under the federal oversight system (including Crown lending agencies such as Farm Credit Canada) operate under equivalently strict capital, prudential and risk management standards as banks operating in Canada.

I wonder if that applies to the CDIC as well.

Given the complexity of both the regulatory system and the domestic/international marketplace in which financial institutions operate, the potential for significant and negative unintended consequences of regulatory changes is large. In light of this, we are strongly urging that the government adopt, as its standard practice, the practice of prior consultations with the industry and other stakeholders before any new regulatory requirements are initiated, to better determine the scope and nature of the issue to be addressed, and to explore if there are more effective alternatives to regulation.

That’s one for you, OSFI!

in its 2008-2009 Global Competitiveness Report, the World Economic Forum placed Canada at the top of the list of sound banks.

A tired old canard, as I have previously discussed. There were no comparisons made in the preparation of the WEF report.

Recommendation #2 – Bring the single securities regulator to completion: The banking industry commends the federal government for its efforts to create a national securities regulator. Given the importance of the initiative for the future strength of the Canadian economy, for improved consumer protection, and for stronger influence on international policy development, the industry urges the government to stay the course in its strong efforts to gain the support of provinces and territories.

Then they’ll be able to capture the regulators with one fat salary, rather than the present thirteen.

For example, in 2008 it came to light that the BEA allows for cheque writers to “cross” a cheque (putting two diagonal lines through the cheque) to make the instrument non-negotiable so that the only option for the payee is to deposit the cheque at his/her branch. While common in some other countries, the practice is virtually unknown now in Canada. As such, if cheque-crossing had suddenly come in vogue, it would have created a number of technical challenges and would have required a massive education effort on the part of institutions and the government to ensure that both cheque writers and cheque recipients understood the ramifications of crossing a cheque (since there are implications for both).

I didn’t know that!

Recommendation #12 – Critical need for stakeholder engagement in policy/regulatory planning: Given the complexity of both the regulatory system and the domestic/international marketplace in which financial institutions operate, the potential for significant and negative unintended consequences of regulatory changes is large. In light of this, it is critical that the government undertake prior consultations with the industry and other stakeholders before any new regulatory requirements are initiated, to better determine the scope and nature of the problem to be addressed, and to explore if there are more effective alternatives to regulation.

Hear, hear!

In addition, the federal government should be active in working with the provinces to ensure that financial literacy is part of the school curriculum.

The school curriculum is like a prospectus … things get added continually for very good reason until the system as a whole collapses under the weight of its own box-ticking uselessness.

Currently there is a limitation in the Insurance Companies Act which limits the amount of debt and preferred shares to 2% of overall balance sheet. Under Basel III requirements, banks that own an insurance company may want to have more debt and preferred shares. The limit is believed to be an historical restriction which pre-dates when insurance capital regulations were changed to mimic the banks capital structure, and which therefore is not only no longer necessary, but is also inconsistent with the Tier 1 / Tier 2 insurance capital structure.

Recommendation #32 – Remove limit on debt and preferred shares from Insurance Companies Act: Removing the limit would make the Insurance Companies Act consistent with capital requirements for banks.

The National Securities Regulator pipedream is coming to its predictable end. I’ve said it before … I’ll say it again: like-minded provinces should merge their regulation. Maybe if the OSC merges with the PEISC that won’t be much of a step forward, but you know something? It’ll be better than what we have now.

The SIU investigation of police conduct during the G20 meeting is just another whitewash. Since wrong was clearly done and no line officers are being punished, Chief Blair is clearly obliged to resign. But I’m not holding my breath while waiting for a bit of integrity in the service of the public.

A mixed day on pretty good volume for the Canadian preferred share market, with PerpetualDiscounts up 12bp and FixedResets losing 6bp.

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	0.0000 %	2,257.0
FixedFloater	4.83 %	3.48 %	28,249	19.13	1	1.2601 %	3,480.2
Floater	2.64 %	2.36 %	55,790	21.35	4	0.0000 %	2,437.0
OpRet	4.76 %	3.05 %	60,171	2.41	8	0.0810 %	2,393.2
SplitShare	5.42 %	-0.23 %	119,625	1.04	3	-0.1126 %	2,483.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0810 %	2,188.4
Perpetual-Premium	5.67 %	5.32 %	158,908	5.41	24	0.0690 %	2,014.6
Perpetual-Discount	5.34 %	5.35 %	278,677	14.90	53	0.1217 %	2,046.6
FixedReset	5.21 %	3.16 %	351,065	3.16	51	-0.0581 %	2,278.1

Performance Highlights
Issue	Index	Change	Notes
CM.PR.K	FixedReset	-1.30 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 26.60 Bid-YTW : 3.59 %
ELF.PR.G	Perpetual-Discount	-1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 20.25 Evaluated at bid price : 20.25 Bid-YTW : 5.95 %
TRP.PR.C	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 3.90 %
PWF.PR.K	Perpetual-Discount	1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 22.82 Evaluated at bid price : 23.03 Bid-YTW : 5.42 %
SLF.PR.F	FixedReset	1.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 27.50 Bid-YTW : 2.97 %
BAM.PR.G	FixedFloater	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 25.00 Evaluated at bid price : 22.50 Bid-YTW : 3.48 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.I	Perpetual-Discount	85,390	RBC crossed blocks of 25,000 and 50,000, both at 21.31. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 21.40 Evaluated at bid price : 21.40 Bid-YTW : 5.35 %
NA.PR.L	Perpetual-Discount	73,394	RBC crossed blocks of 20,000 and 15,200, both at 23.25. Desjardins crossed 20,000 at 23.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 22.97 Evaluated at bid price : 23.20 Bid-YTW : 5.26 %
CM.PR.I	Perpetual-Discount	65,310	Desjardins crossed 25,000 at 23.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 22.75 Evaluated at bid price : 22.93 Bid-YTW : 5.17 %
RY.PR.F	Perpetual-Discount	60,961	RBC sold three blocks of 10,000 shares each to anonymous, all at 22.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-11-25 Maturity Price : 22.31 Evaluated at bid price : 22.45 Bid-YTW : 4.98 %
CL.PR.B	Perpetual-Premium	60,540	Called for redemption YTW SCENARIO Maturity Type : Call Maturity Date : 2011-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 2.40 %
BNS.PR.R	FixedReset	56,000	RBC crossed 45,000 at 26.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 26.60 Bid-YTW : 3.00 %
There were 40 other index-included issues trading in excess of 10,000 shares.

This entry was posted on Friday, November 26th, 2010 at 12:47 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.