The TD / Chrysler deal got done:
Toronto-Dominion Bank agreed to buy Chrysler Financial Corp. from Cerberus Capital Management LP for $6.3 billion in cash, adding an auto-finance company in its second-largest acquisition.
The purchase includes $5.9 billion in assets and about $400 million in goodwill, Canada’s second-biggest bank said today in a statement. Toronto-Dominion doesn’t intend to issue stock.
and Cerberus investors are relieved:
Cerberus Capital Management LP will recoup about 90 percent of its initial investment in Chrysler after the sale of the automaker’s former lending unit to Toronto-Dominion Bank, according to two people with knowledge of the transaction.
Cerberus will get about 75 cents on the dollar in cash when the sale of Chrysler Financial Corp. closes, said the people, asking not to be identified because the New York-based firm is private. Including about $900 million of assets Cerberus is retaining as part of the deal, the company will be left with a loss of 10 percent on the initial investment in the automaker and its finance arm.
So basically, Chrysler was a finance company with a captive manufacturing arm. I love it.
that TD Bank US Holding Company’s (TD Bank US or the Company) ratings, including its Issuer & Senior Debt rating of AA (low), are unaffected by its announced acquisition of Chrysler Financial’s U.S. operations. The trend on all ratings is Stable.
DBRS believes the acquisition of Chrysler Financial will not have a material impact on the earnings and only a modest impact on the capital of the Company’s parent, The Toronto-Dominion Bank (TD; Deposits & Senior Debt rated AA with a Stable trend). Specifically, TD’s Tier 1 capital ratio is expected to decline by 55 to 60 basis points on a pro forma basis from the 12.2% TD reported at October 31, 2010. Consequently, the risk profile for TD remains solid, notwithstanding the execution risk concerns of growing in the auto finance business. DBRS notes that TD continues to have the resources, motivation and ability to support the Company, if needed. As such, there are no rating implications at this time.
Ernst & Young’s in trouble over Repo 105:
New York Attorney General Andrew Cuomo sued Ernst & Young LLP, accusing the firm of facilitating a “major accounting fraud” by helping Lehman Brothers Holdings Inc. deceive the public about its financial condition.
…
The state seeks to recover more than $150 million in fees collected by Ernst & Young for work performed for Lehman from 2001 to 2008, plus investor damages and equitable relief, Cuomo said. He will be sworn in as New York governor on Jan. 1. His successor will be New York Democratic state Senator Eric T. Schneiderman.
…
Lehman, once the fourth-largest investment bank, failed in September 2008 because of risky real estate bets and too much debt, which it tried to hide from investors, partly by using so- called Repo 105 trades, according to bankruptcy examiner Anton Valukas’s report.
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Responding to the Valukas report in March, Ernst & Young said leverage ratios reported in Lehman’s management discussion and analysis “were the responsibility of management, not the auditor. They are not part of the audited financial statements.”
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Responding to one suit, filed in April on behalf of retirement funds including the Alameda County Employees’ Retirement Association in Oakland, California, Ernst & Young said in court papers that even Valukas “did not find that Lehman’s accounting for the Repo 105 transactions was wrong.”In his report, Valukas faulted the accounting firm because it “did not evaluate the possibility that Repo 105 transactions were accounting-motivated transactions that lacked a business purpose,” and didn’t take a stand on whether Lehman’s extensive use of the device was “material” and should be reported.
“Financial statements may be materially misleading even when they do not violate GAAP,” he wrote in his report.
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Cuomo, who has powers to bring criminal charges, brought a civil suit against Ernst & Young. Arthur Andersen LLP, the accounting firm that was accused of destroying Enron Corp. documents, was convicted of obstructing justice in 2002 and is now largely defunct.“Regulators are concerned there will be no competitors left” to audit U.S. companies, [accountant Barry] Epstein said.
The Valukas report and Repo 105 was discussed on PrefBlog on March 12, 2010.
Patrick Jenkins of the Financial Times points out a rather obvious knock-on effect about the obsession with bonuses … obvious, that is, to all but politicians:
Many US and Swiss banks are considering paying higher salaries and lower bonuses to top bankers based in the European Union, mostly in London, to ensure they comply with new instructions from the Committee of European Banking Supervisors (CEBS), the pan-EU regulator, limiting cash pay-outs.
Some European politicians had expected that non-EU banks would apply their rules globally on a voluntary basis.
But one senior European banker said: “Politicians are naïve if they think we will impose EU rules on a global basis. The ironic effect will be another hike in salaries, which is a fixed cost, which rather makes a nonsense of the idea of pay for performance.”
Speaking of banks, there is some thought that Deutsche is playing a moral hazard game:
Deutsche Bank’s core capital ratio, a buffer against possible losses, may fall to the lowest level among eight competitors under new Basel III rules in 2012, even after it raised 10.2 billion euros ($13.4 billion) in a share sale in October, according to Christopher Wheeler, an analyst at Mediobanca SpA.
[CEO Josef] Ackermann, who shunned German government aid during the credit crisis, warned at a Frankfurt conference in September against a “dangerous race to the top” among banks seeking to lift reserves above Basel III requirements years before the rules kick in. Deutsche Bank, the largest German bank, may be able to hold less capital than peers, and borrow more to enhance returns, because its clients are convinced the government would never let it fail, analysts and investors said.
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Deutsche Bank also relies more than competitors on borrowed funds, or leverage, to increase returns. Its assets amounted to 51 times shareholders’ equity on Sept. 30, up from 48 times at the end of 2006, based on International Financial Reporting Standards. Only Brussels-based Dexia SA has higher leverage among Europe’s 15 biggest listed banks. Investment banks’ extensive use of borrowed funds, which can exaggerate risks, was blamed by Federal Reserve Chairman Ben S. Bernanke for contributing to the financial crisis.
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Deutsche Bank prefers to use U.S. Generally Accepted Accounting Principles, which net out derivatives positions, to measure its leverage. By that standard, its assets at the end of September matched its goal of 25 times equity, up from 23 times a year earlier and down from 38 times in mid-2008, company reports show. By comparison, Goldman Sachs assets were 12 times capital at the end of September.
And the Canadian preferred share market was on wheels … again! PerpetualDiscounts were up 34bp and FixedResets gained 26bp. Volume eased off a little, but remains elevated.
| 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 | 0.3615 % | 2,292.7 |
| FixedFloater | 4.77 % | 3.47 % | 32,068 | 19.05 | 1 | 0.0000 % | 3,526.6 |
| Floater | 2.61 % | 2.39 % | 52,926 | 21.23 | 4 | 0.3615 % | 2,475.5 |
| OpRet | 4.79 % | 3.22 % | 71,304 | 2.37 | 8 | 0.0816 % | 2,393.7 |
| SplitShare | 5.36 % | 1.24 % | 954,424 | 0.96 | 4 | -0.3778 % | 2,437.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0816 % | 2,188.9 |
| Perpetual-Premium | 5.71 % | 5.57 % | 156,568 | 5.41 | 27 | 0.2662 % | 2,007.5 |
| Perpetual-Discount | 5.42 % | 5.45 % | 288,596 | 14.72 | 51 | 0.3374 % | 2,014.4 |
| FixedReset | 5.24 % | 3.49 % | 338,426 | 3.09 | 52 | 0.2580 % | 2,259.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IAG.PR.A | Perpetual-Discount | -2.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 5.44 % |
| ELF.PR.G | Perpetual-Discount | -1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 19.71 Evaluated at bid price : 19.71 Bid-YTW : 6.15 % |
| FTS.PR.F | Perpetual-Discount | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 22.50 Evaluated at bid price : 22.66 Bid-YTW : 5.45 % |
| POW.PR.D | Perpetual-Discount | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 22.19 Evaluated at bid price : 22.35 Bid-YTW : 5.60 % |
| FTS.PR.G | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-01 Maturity Price : 25.00 Evaluated at bid price : 26.35 Bid-YTW : 3.26 % |
| TD.PR.C | FixedReset | 1.16 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 26.94 Bid-YTW : 3.25 % |
| BAM.PR.B | Floater | 1.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 18.23 Evaluated at bid price : 18.23 Bid-YTW : 2.87 % |
| PWF.PR.E | Perpetual-Discount | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 23.38 Evaluated at bid price : 24.59 Bid-YTW : 5.62 % |
| SLF.PR.E | Perpetual-Discount | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 20.19 Evaluated at bid price : 20.19 Bid-YTW : 5.60 % |
| BAM.PR.J | OpRet | 1.51 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 26.00 Evaluated at bid price : 26.85 Bid-YTW : 4.12 % |
| SLF.PR.C | Perpetual-Discount | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 5.59 % |
| GWO.PR.I | Perpetual-Discount | 1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 21.13 Evaluated at bid price : 21.13 Bid-YTW : 5.35 % |
| SLF.PR.D | Perpetual-Discount | 1.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 5.58 % |
| NA.PR.L | Perpetual-Discount | 2.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 23.53 Evaluated at bid price : 23.80 Bid-YTW : 5.14 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| FTS.PR.E | OpRet | 232,500 | Nesbitt bought three blocks from TD, two of 10,000 and one of 20,000, all at 26.80. TD crossed 21,900 at 26.75. Nesbitt bought two more blocks from TD, 25,000 at 26.80 and 15,000 at 26.75. TD crossed 81,200 at 26.76. Desjardins bought three blocks from TD, each of 15,000 shares, all at 26.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-07-01 Maturity Price : 25.75 Evaluated at bid price : 26.78 Bid-YTW : 3.22 % |
| SLF.PR.D | Perpetual-Discount | 124,072 | RBC crossed 116,200 at 19.93. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 5.58 % |
| MFC.PR.C | Perpetual-Discount | 94,565 | RBC crossed 67,800 at 20.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-12-21 Maturity Price : 20.21 Evaluated at bid price : 20.21 Bid-YTW : 5.61 % |
| IGM.PR.B | Perpetual-Premium | 64,410 | Nesbitt crossed 50,000 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 5.89 % |
| BMO.PR.H | Perpetual-Premium | 62,278 | Nesbitt crossed 50,000 at 25.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-03-27 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 5.11 % |
| CM.PR.D | Perpetual-Premium | 59,382 | Nesbitt crossed 50,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-05-30 Maturity Price : 25.00 Evaluated at bid price : 25.54 Bid-YTW : 4.80 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||