John Greenwood of the Financial Post wrote a piece titled Former darling hybrid capital still in limbo. I can’t say the published quote constitutes my deepest thinking on the subject, but it was nice to be mentioned:
The problem is that more than $3-billion of the capital was raised in the form of innovative Tier 1 instruments or hybrid capital around the crisis but under pressure from international regulators, the Canadian financial watchdog is forcing banks to redeem those securities well before they are scheduled to mature.
Result: Markets for these normally stable fixed income investments has whipsawed, even evaporated in some cases, leaving a few investors wishing they kept their money in their pockets.
“When the rules came out from [the Basel Committee on Banking Supervision] a lot of hybrid capital came under significant selling pressure,” said Todd Johnson, who helps manage about $100-million at BCV Asset Management in Winnipeg. (Mr. Johnson does not expect to lose money on his investment.)
…
The Basel Committee, the top standard setter for banks globally, lays out broad policy but it’s up to national regulators such as Canada’s Office of the Superintendent of Financial Institutions to interpret and institute that policy.However, for its part, OSFI has stayed mysteriously absent from the discussion, declining to provide any public guidance at all and increasing uncertainty — which of course is bad for markets. Greater clarity is expected shortly, possibly as soon as Friday.
“Basically, some of these holders are looking at large capital losses,” said James Hymas, president of Hymas Investment Management Inc. and editor of a popular internet blog on preferred shares.
For more, see BIS Finalizes Tier 1 Loss Absorbancy Rules.