Pressure on Spain is increasing:
Thirty of Spain’s smaller banks had their senior debt and deposit ratings downgraded, as Moody’s Investors Service reviews whether governments are willing to support all their lenders in a crisis.
Citing heightened financial pressure on the country’s sovereign rating and “many weak banks,” the New York-based ratings firm cut 15 lenders by two levels and five by three or four, according to a statement today. The outlook on most banks’ senior and deposit ratings remains negative, Moody’s said.
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In Denmark, where senior bondholders of Amagerbanken A/S were forced to take losses, the firm cut the grades of five lenders and may cut them again.
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Spain’s credit rating was cut to Aa2 on March 10 by Moody’s, which said the cost of shoring up the banking industry will eclipse government estimates. The ratings company said then that Spanish lenders may need as much as 50 billion euros ($70.3 billion) to meet new capital requirements, a figure that compares with the Bank of Spain’s estimate that 12 lenders will need 15.2 billion euros.
The Amagerbanken failure is causing some debate:
Denmark is trying to persuade the rest of Europe to match rules exposing bondholders to losses after the failure of a regional bank last month left lenders in the Nordic country risking higher funding costs.
The collapse of Amagerbanken A/S on Feb. 6 forced a 41 percent loss on unsecured senior bonds and prompted Moody’s Investors Service 10 days later to cut ratings on five Danish lenders, including Denmark’s biggest, Danske Bank A/S, as it factored out state protection. The insolvency was the first to test rules Denmark put in place in October and set a European Union precedent for senior creditor losses amid a region-wide debate on burden sharing.
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Denmark is arguing the financial crisis hasn’t adequately stemmed risk-taking amongst bond investors and wants the EU to enforce the “possibility of debt writedowns” to discipline markets, according to a March 4 letter sent to the European Commission. EU financial services chiefMichel Barnier in January said bank regulators should be able to write down lenders’ senior debt, though a final agreement has yet to be reached.European leaders are trying to put in place measures to protect taxpayers from having to rescue failing banks after Ireland guaranteed six lenders in 2008.
There are already measures in place to protect taxpayers from having to rescue failing banks: it’s called bankruptcy. The problem only arises because governments are desperate to pretend that everything is normal, and to keep their failed banks lending merrily away – as long as it’s for socially uselful purposes, of course.
But the punchline of the story came, naturally enough, at the end:
Denmark, home to the world’s third-largest mortgage-backed bond market after the U.S. and Germany, is trying to persuade the EU that the debt deserves a higher liquidity grade than the Basel Committee for Banking Supervision agreed on in December.
The covered-bond market may also become more liquid as investors spooked by the threat of losses on other debt classes turn to bonds backed by collateral, according to Fitch Ratings Ltd.
“The growing use of covered bond funding by banks is a trend set to continue,” Fitch analysts Helene M. Heberlein, Bridget Gandy and Jan Seemann said in a March 10 note. Issuers are also adding surplus collateral to the pool backing the bonds to attract investors, leaving less behind to cover other debt classes, Fitch said.
“There must be no doubt that holders of covered bonds and junior covered bonds always will receive timely payment,” Denmark’s government said in the March 4 letter. “It should therefore be made clear that covered bonds and junior covered bonds should not be subject to debt write downs.”
Hey – if the rules can be changed retroactively for senior debt, why can’t they be changed retroactively for covered bonds? What has Denmark done to defend the primacy of the rule of law?
With all that, Europe is taking decisive action:
As speculation swirled that Portugal will be the next victim of the crisis, the leaders bowed to German Chancellor Angela Merkel’s call to pare the fund’s paid-in capital as of 2013 to 16 billion euros ($23 billion), less than the 40 billion euros foreseen in a March 21 accord.
“It was a difficult debate with Germany,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after the first session of an EU summit in Brussels early today. “Germany found that in the compromise agreed last Monday it would have to pay in too much. So we had to tackle that issue.”
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Standard & Poor’s might take struggling countries down another notch, since the future fund — known as the European Stability Mechanism — will outrank private bondholders, said Moritz Kraemer, managing director of European sovereign ratings in Frankfurt.Ratings Reassessment
“We would reassess the ratings specifically of Greece and Portugal, which we think are the most likely potential customers of the ESM,” Kraemer said on Bloomberg Television today.Portuguese bonds fell for a fourth day today, pushing the 10-year yield up 13 basis points to 7.79 percent. The extra yield over German bonds, a sign of the risk of investing in Portugal, rose 10 basis points to 452 basis points.
It’s a bit like problems with US Health Care:
Aetna Inc. (AET) is suing six New Jersey doctors over medical bills it calls “unconscionable,” including $56,980 for a bedside consultation and $59,490 for an ultrasound that typically costs $74.
The lawsuits could help determine what pricing limits insurers can impose on ”out-of-network” physicians who don’t have contracts with health plans that spell out how much a service or procedure can cost.
Shouldn’t be any limits on doctors at all. The limits should be on how much the insurer will reimburse the insuree … “If you need an ultrasound, we’ll reimburse you 100% of the amount under $75 and 50% of the amount between $75 and $125, and 0% of the amount over $125, and here’s a list of places where you can get it done for $74.” But then insurers, companies, doctors, patients and politicians wouldn’t be able to pretend everything was free.
It was another good day on the Canadian preferred share market with PerpetualDiscounts up 11bp, FixedResets gaining 8bp and DeemedRetractibles winning 7bp. Volatility was muted, with only two entries in the Performance Highlights table; volume was anemic. Is it Christmas, or what?
| 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 | 0.0480 % | 2,386.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0480 % | 3,589.8 |
| Floater | 2.52 % | 2.32 % | 43,100 | 21.43 | 4 | 0.0480 % | 2,577.2 |
| OpRet | 4.89 % | 3.71 % | 56,988 | 1.14 | 9 | 0.0172 % | 2,399.2 |
| SplitShare | 5.09 % | 3.00 % | 142,344 | 0.99 | 5 | 0.0412 % | 2,484.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0172 % | 2,193.9 |
| Perpetual-Premium | 5.73 % | 5.56 % | 136,252 | 6.12 | 10 | 0.0754 % | 2,037.3 |
| Perpetual-Discount | 5.51 % | 5.56 % | 124,258 | 14.49 | 14 | 0.1123 % | 2,131.9 |
| FixedReset | 5.16 % | 3.48 % | 239,090 | 2.94 | 57 | 0.0793 % | 2,282.9 |
| Deemed-Retractible | 5.22 % | 5.15 % | 335,421 | 8.27 | 53 | 0.0659 % | 2,087.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.F | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 26.85 Bid-YTW : 3.64 % |
| BAM.PR.R | FixedReset | 2.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-07-30 Maturity Price : 25.00 Evaluated at bid price : 26.15 Bid-YTW : 4.40 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.P | FixedReset | 130,545 | TD crossed 50,000 at 26.16; RBC crossed 75,000 at 26.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-25 Maturity Price : 25.00 Evaluated at bid price : 26.12 Bid-YTW : 3.18 % |
| BMO.PR.Q | FixedReset | 107,050 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.80 Bid-YTW : 3.90 % |
| TD.PR.G | FixedReset | 95,306 | RBC crossed blocks of 50,000 shares, 10,000 and 25,000, all at 27.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.51 Bid-YTW : 3.28 % |
| HSE.PR.A | FixedReset | 49,870 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-03-24 Maturity Price : 24.95 Evaluated at bid price : 25.00 Bid-YTW : 4.30 % |
| BNS.PR.K | Deemed-Retractible | 37,029 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.56 Bid-YTW : 5.13 % |
| NA.PR.P | FixedReset | 28,985 | Issuer bid. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 28.30 Bid-YTW : 2.30 % |
| There were 18 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| POW.PR.C | Perpetual-Discount | Quote: 25.00 – 25.33 Spot Rate : 0.3300 Average : 0.2392 YTW SCENARIO |
| GWO.PR.M | Deemed-Retractible | Quote: 25.15 – 25.63 Spot Rate : 0.4800 Average : 0.3963 YTW SCENARIO |
| POW.PR.D | Perpetual-Discount | Quote: 23.18 – 23.49 Spot Rate : 0.3100 Average : 0.2273 YTW SCENARIO |
| CM.PR.L | FixedReset | Quote: 27.45 – 27.70 Spot Rate : 0.2500 Average : 0.1764 YTW SCENARIO |
| PWF.PR.L | Perpetual-Discount | Quote: 23.88 – 24.25 Spot Rate : 0.3700 Average : 0.2977 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 25.53 – 25.87 Spot Rate : 0.3400 Average : 0.2744 YTW SCENARIO |