Fitch has opined that German banks should survive a Greek Tragedy:
German banks have “manageable” risks related to Greek sovereign debt and the Mediterranean country’s economy, according to Fitch Ratings, which said it doesn’t foresee any action on the lenders’ credit ratings.
…
“A hypothetical 50 percent haircut of Greek sovereign exposure would not result in such a depletion of banks’ capitalization that a rating action would automatically be triggered, even for the more exposed banks,” Fitch said. “These either have strong owners, sufficient profitability or capital able to absorb potential losses without a structural impact on their business model, funding or franchise.”German banks cut their holdings in Greece to $34 billion in the last quarter of 2010 from more than $40 billion, while the French have reduced claims to about $57 billion from $63 billion, according to figures from the Basel, Switzerland-based Bank for International Settlements. Commerzbank AG (CBK), Germany’s second-biggest lender, said earlier this month that it would be able to absorb any “stress” related to its sovereign-debt holdings, such as a debt restructuring.
With all this stuff about Greece. it’s easy to forget Ireland. But bad things are happening there, too:
DBRS Inc. (DBRS) has today downgraded the subordinated debt ratings, including the Dated Subordinated Debt rating of The Governor and Company of the Bank of Ireland (Bank of Ireland or the Group), to CCC from B (high). The ratings of all subordinated debt of the Bank of Ireland remain Under Review with Negative Implications, where they were placed on 3 December 2010. The rating action reflects the recent actions towards subordinated bondholders at two of Bank of Ireland’s domestic peers, and DBRS’s view that there is an increasing likelihood of similar actions towards the Group’s subordinated bondholders.
The rating action also considers the Minster for Finance’s comments that subordinated bondholders are expected to make noteworthy contributions to the incremental capital requirement under the PCAR results, which were acknowledged by the Bank of Ireland in its 1Q11 Interim Management Statement.
The bank’s Interim Management Statement doesn’t say anything beyond what’s noted by DBRS, but certainly had a strong effect on the market:
Credit-default swaps insuring the subordinated debt of Bank of Ireland Plc surged on concern the government will impose losses on bondholders as it has done with Anglo Irish Bank Corp. and Allied Irish Banks Plc.
Allied Irish this week offered to buy back junior debt at discounts of 75 percent to 90 percent prompting Standard & Poor’s to downgrade the notes to the lowest D for default grade. The “distressed exchange” is similar to that offered to Anglo Irish bondholders last year as the government seeks to share the costs of bailing out its lenders.
“The coerciveness of the Irish government has spread from Anglo to Allied,” said Alexander Plenk, an analyst at UniCredit SpA in Munich. “The offer they made was pretty much the same, and the fear in the market is that they will do the same thing with Bank of Ireland.”
The Anglo-Irish swap was coercive:
ANGLO Irish Bank Corp offered to exchange €1.6 billion of subordinated debt at a discount, paying in new bonds at a rate of 20 cent on the euro as the nationalised lender seeks to generate capital.
…
Anglo Irish will offer bondholders that don’t take up the exchange 1 cent per €1,000 face amount to redeem their floating-rate notes due in 2014, 2016 and 2017, the lender said last night. The new securities will be due 2011 and guaranteed by the Government, according to the statement.
Allied Irish published their similar offer on May 13.
It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets basically flat and DeemedRetractibles up 11bp. Volatility – in the index-included issues! – was low and volume was average.
PerpetualDiscounts now yield 5.55%, equivalent to 7.22% interest at the standard equivalency factor of 1.3x. Long Corporates now yield a little under 5.3% (!) so the pre-tax interest equivalent spread is now about 190bp, a sharp widening from the 180bp reported May 18, as yields have moved in opposite directions.
But the big news of the day was the yellow blood all over the carpet!
| YLO Issues, 2011-5-25 | |||||
| Ticker | Quote 5/24 |
Quote 5/25 |
Bid YTW 5/25 |
YTW Scenario 5/25 |
Performance 5/25 (bid/bid) |
| YLO.PR.A | 24.11-24 | 23.84-95 | 7.85% | Soft Maturity 2012-12-30 |
-1.12% |
| YLO.PR.B | 18.47-54 | 17.85-99 | 11.99% | Soft Maturity 2017-06-29 |
-3.36% |
| YLO.PR.C | 19.80-20 | 18.88-00 | 8.93% | Limit Maturity | -4.65% |
| YLO.PR.D | 19.96-00 | 19.17-34 | 8.95% | Limit Maturity | -3.96% |
Cool!
| 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 | 0.2100 % | 2,464.6 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2100 % | 3,706.7 |
| Floater | 2.44 % | 2.24 % | 44,844 | 21.64 | 4 | 0.2100 % | 2,661.1 |
| OpRet | 4.87 % | 3.49 % | 62,211 | 0.42 | 9 | 0.0730 % | 2,423.0 |
| SplitShare | 5.22 % | -2.15 % | 60,083 | 0.56 | 6 | 0.0245 % | 2,514.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0730 % | 2,215.6 |
| Perpetual-Premium | 5.73 % | 4.78 % | 132,934 | 0.83 | 9 | 0.1807 % | 2,068.6 |
| Perpetual-Discount | 5.48 % | 5.55 % | 123,524 | 14.49 | 15 | 0.0700 % | 2,166.7 |
| FixedReset | 5.15 % | 3.26 % | 193,574 | 2.86 | 57 | -0.0028 % | 2,308.7 |
| Deemed-Retractible | 5.13 % | 4.89 % | 327,069 | 8.09 | 53 | 0.1135 % | 2,144.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| NA.PR.P | FixedReset | -1.02 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 27.27 Bid-YTW : 3.32 % |
| FTS.PR.F | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-05-25 Maturity Price : 23.58 Evaluated at bid price : 23.81 Bid-YTW : 5.16 % |
| IAG.PR.C | FixedReset | 1.62 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.98 Bid-YTW : 2.89 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.G | Deemed-Retractible | 89,472 | RBC crossed blocks of 19,000 and 30,700, both at 25.05. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 5.29 % |
| BAM.PR.M | Perpetual-Discount | 77,173 | Desjardins crossed 60,000 at 21.91. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-05-25 Maturity Price : 21.55 Evaluated at bid price : 21.87 Bid-YTW : 5.50 % |
| BAM.PR.B | Floater | 45,748 | Desjardins crossed 27,200 at 19.45. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-05-25 Maturity Price : 19.49 Evaluated at bid price : 19.49 Bid-YTW : 2.71 % |
| RY.PR.I | FixedReset | 44,831 | RBC crossed 38,000 at 26.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 3.17 % |
| RY.PR.D | Deemed-Retractible | 41,623 | TD crossed 29,300 at 24.32. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.31 Bid-YTW : 4.86 % |
| TRI.PR.B | Floater | 41,000 | Nesbitt crossed 40,000 at 23.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-05-25 Maturity Price : 23.00 Evaluated at bid price : 23.27 Bid-YTW : 2.24 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| POW.PR.D | Perpetual-Discount | Quote: 23.49 – 23.87 Spot Rate : 0.3800 Average : 0.2710 YTW SCENARIO |
| POW.PR.C | Perpetual-Discount | Quote: 25.05 – 25.31 Spot Rate : 0.2600 Average : 0.1771 YTW SCENARIO |
| GWO.PR.F | Deemed-Retractible | Quote: 25.60 – 25.98 Spot Rate : 0.3800 Average : 0.2995 YTW SCENARIO |
| RY.PR.G | Deemed-Retractible | Quote: 24.29 – 24.47 Spot Rate : 0.1800 Average : 0.1264 YTW SCENARIO |
| IGM.PR.B | Perpetual-Premium | Quote: 25.47 – 25.63 Spot Rate : 0.1600 Average : 0.1107 YTW SCENARIO |
| GWO.PR.J | FixedReset | Quote: 27.05 – 27.25 Spot Rate : 0.2000 Average : 0.1508 YTW SCENARIO |
How can you explain such a high return for ylo.pr.a, after all it matures in about 18 months? I can appreciate that the market may be worried about Pr.C and Pr.D that are perpetuals, but the return on pr.a is very close to those!
Actually, I was kinda hoping you’d explain it to me!
check out cm pref redemption…kind of strange choice in series
[…] precipituous decline in these issues has been highly entertaining and was reported on PrefBlog on May 25, May 26, May 27, May 30 and May […]
[…] pre-tax interest-equivalent spread is now about 185bp, a wee bit tighter than the 190bp reported on May 26, as the PerpetualDiscounts play […]