The downgrade of Spain’s debt only one day after Portuguese bond yields hit record highs is putting extra pressure on euro zone leaders to find a solution to the resurgent euro zone debt crisis.
Moody’s, the credit ratings agency, downgraded Spain’s sovereign debt by one notch, to Aa2. While the move was expected – Moody’s signalled in December that it would probably lower Spain’s rating – the Spanish government and some economists said it was unwarranted because of the progress the country has made in reducing its deficit and recapitalizing its banks.
There is some kind of push going on to increase regulation:
In a report issued Thursday, the Mutual Fund Dealers Association of Canada (MFDA) recommended securities commissions expand protection for investors because the two key funds – the Investor Protection Corp. for mutual fund clients, and the Canadian Investor Protection Fund for brokerage industry clients – have significant gaps.
Both funds protect investors’ assets up to coverage limits in the event that financial firms go bankrupt.
But failed investment firms such as Portus Alternative Asset Management Inc. and Norshield Asset Management (Canada) Ltd. were not licensed as mutual fund dealers, which are covered by the IPF. Rather, they were licensed as portfolio and mutual fund managers, which are not covered at all, the report notes.
The MFDA recommends that both the fund manager and portfolio manager categories of firms be required to join either the IPC or the CIPF to ensure seamless coverage.
…
A spokeswoman for the Ontario Securities Commission said its staff do not agree that there are gaps in the regulation and oversight of fund managers and portfolio managers. “While mutual fund assets are not held at mutual fund dealers, these assets are held at qualified custodians which are IIROC members or Canadian financial institutions, such as banks,” Susan Silma said in an e-mail statement.Last month, the Canadian Foundation for Advancement of Investor Rights issued a report looking at the country’s worst financial frauds. It called for all regulated firms – including portfolio managers and fund managers – to become members of a self-regulatory organization so they would be subject to more oversight and their clients would be covered by investor protection funds.
The MFDA report was written in 2008 at the request of the Canadian Securities Administrators (CSA), an umbrella organization of provincial securities commissions, but was not released publicly until now. It was prepared as part of a project to examine regulatory gaps in Canada.
I haven’t looked into this much – it sounds like just another way for the big players to ensure the cost of entry into the business is increased as much as possible.
Spanish banks that together need as much as 15.2 billion euros ($21 billion) to meet minimum capital levels now must persuade investors that their battered balance sheets offer the potential return to match the risk.
Twelve lenders, including eight savings banks and the Spanish units of Deutsche Bank AG (DBK) and Barclays Plc (BARC), are among the lenders that fell short of government-set capital requirements, the Bank of Spain said yesterday. The institutions whose levels are furthest from the required minimums include Bankia, which needs 5.8 billion euros, Novacaixagalicia, which requires 2.6 billion euros, CatalunyaCaixa and Unnim.
Yesterday’s announcement sets in motion a timetable that gives lenders as long as a year to raise funds or risk being taken over by a government bailout fund. Investors may be skeptical that the Bank of Spain’s estimates of how much capital the banks need fully reflect losses hidden on balance sheets, putting the onus on them find investors quickly, said Inigo Lecubarri, a fund manager at Abaco Financials Fund in London.
BIS has released a working paper by Ugo Albertazzi, Ginette Eramo, Leonardo Gambacorta and Carmelo Salleo titled Securitization is not that evil after all:
A growing number of studies on the US subprime market indicate that, due to asymmetric information, credit risk transfer activities have perverse effects on banks’ lending standards. We investigate a large part of the market for securitized assets (“prime mortgages”) in Italy, a country with a regulatory framework analogous to the one prevalent in Europe. Information on over a million mortgages consists of loan-level variables, characteristics of the originating bank and, most importantly, contractual features of the securitization deal, including the seniority structure of the ABSs issued by the Special Purpose Vehicle and the amount retained by the originator. We borrow a robust way to test for the effects of asymmetric information from the empirical contract theory literature (Chiappori and Salanié, 2000). Overall, our evidence suggests that banks can effectively counter the negative effects of asymmetric information in the securitization market by selling less opaque loans, using signaling devices (i.e. retaining a share of the equity tranche of the ABSs issued by the SPV) and building up a reputation for not undermining their own lending standards.
OSFI has released its newsletter Pillar, Winter 2011. Nothing new or interesting.
A gloomy day for the Canadian preferred share market, with PerpetualDiscounts down 25bp, FixedResets losing 19bp and DeemedRetractibles getting off lightly with a loss of 7bp. Volume was high.
| 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 | 0.3102 % | 2,404.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3102 % | 3,615.9 |
| Floater | 2.50 % | 2.27 % | 41,436 | 21.54 | 4 | 0.3102 % | 2,595.9 |
| OpRet | 4.90 % | 3.65 % | 54,220 | 1.18 | 9 | 0.0529 % | 2,391.1 |
| SplitShare | 5.08 % | 2.81 % | 192,957 | 1.03 | 5 | 0.1315 % | 2,487.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0529 % | 2,186.4 |
| Perpetual-Premium | 5.74 % | 5.55 % | 135,002 | 6.24 | 10 | 0.1332 % | 2,033.4 |
| Perpetual-Discount | 5.54 % | 5.65 % | 124,036 | 14.48 | 14 | -0.2478 % | 2,112.1 |
| FixedReset | 5.18 % | 3.60 % | 224,729 | 2.98 | 56 | -0.1888 % | 2,277.1 |
| Deemed-Retractible | 5.25 % | 5.34 % | 357,634 | 8.31 | 53 | -0.0743 % | 2,073.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CIU.PR.B | FixedReset | -1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-01 Maturity Price : 25.00 Evaluated at bid price : 27.50 Bid-YTW : 3.60 % |
| SLF.PR.F | FixedReset | -1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 26.70 Bid-YTW : 3.79 % |
| BAM.PR.O | OpRet | 1.02 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 3.52 % |
| SLF.PR.D | Deemed-Retractible | 1.17 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.59 Bid-YTW : 6.19 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.Q | FixedReset | 388,199 | New issue settled today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.80 Bid-YTW : 3.92 % |
| MFC.PR.F | FixedReset | 203,885 | New issue settled today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.93 Bid-YTW : 4.14 % |
| TRP.PR.C | FixedReset | 126,416 | Desjardins bought 100,000 from anonymous at 25.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 4.14 % |
| RY.PR.I | FixedReset | 93,556 | RBC crossed blocks of 50,000 and 30,000 shares, both at 25.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 25.96 Bid-YTW : 3.71 % |
| PWF.PR.M | FixedReset | 63,469 | RBC crossed 50,000 at 27.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-02 Maturity Price : 25.00 Evaluated at bid price : 26.95 Bid-YTW : 3.45 % |
| HSB.PR.D | Deemed-Retractible | 54,909 | CIBC bought blocks of 10,500 and 31,000 from Desjardins, both at 24.05. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.85 Bid-YTW : 5.57 % |
| There were 46 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRI.PR.B | Floater | Quote: 23.01 – 24.99 Spot Rate : 1.9800 Average : 1.4365 YTW SCENARIO |
| BAM.PR.T | FixedReset | Quote: 24.46 – 24.84 Spot Rate : 0.3800 Average : 0.2380 YTW SCENARIO |
| ALB.PR.B | SplitShare | Quote: 22.15 – 22.44 Spot Rate : 0.2900 Average : 0.1744 YTW SCENARIO |
| POW.PR.D | Perpetual-Discount | Quote: 22.81 – 23.14 Spot Rate : 0.3300 Average : 0.2211 YTW SCENARIO |
| ELF.PR.F | Deemed-Retractible | Quote: 22.40 – 22.87 Spot Rate : 0.4700 Average : 0.3738 YTW SCENARIO |
| TDS.PR.C | SplitShare | Quote: 10.48 – 10.84 Spot Rate : 0.3600 Average : 0.2679 YTW SCENARIO |