Europeans want a rating agency that follows political instructions:
Europe’s leaders are accusing the world’s largest credit-rating agencies of bias in assessing the debt of troubled countries, renewing calls for the creation of a European rating agency.
The complaints were sparked after Moody’s downgraded Portugal by four notches Tuesday to “junk” status, and Standard & Poor’s warned Monday it would consider it a “selective default” if banks and insurers roll over about $42-billion of Greek debt – a move that could derail efforts to restructure Greece’s debt.
German Finance Minister Wolfgang Schaeuble said Wednesday he was surprised by the decision to downgrade Portugal, saying he “can’t decipher” the basis for the evaluation.
“We need to break the oligopoly of rating agencies,” he told reporters in Berlin.
Meanwhile Satyajit Das has a nice piece in the Globe, unsuccessfully attempting to make the numbers add up:
Under the sketchy proposal, for every €100 of maturing bonds, the banks will subscribe to new 30-year securities, but only equal to €70 (70 per cent). The banks will keep €50 and invest the other €20 in 30-year high-quality zero-coupon bonds (via a special purpose vehicle) to secure repayment of the new bonds. The new 30-year Greek debt will carry an interest rate of 5.5 per cent per annum with a bonus element linked to Greek growth of up to an additional 2.5 per cent.
Of the €340-billion in outstanding Greek bonds, banks hold 27 per cent, institutional and retail investors hold 43 per cent and the International Monetary Fund and European Central Bank hold 30 per cent. It is not clear whether non-bank investors are willing to participate in the arrangements. The ECB has previously resisted any debt restructuring, including maturity extension.
The French plan assumes holders of bonds would agree to roll over 50 per cent of their holdings to provide Greece net funding of €30-billion ($41-billion). But under the French banking federation’s own figures, this would be impossible unless all the €60.5-billion (excluding central bank holdings) maturing by mid-2014 is rolled over. This is inconsistent with the proposal’s assumption of investor acceptance of 80 per cent.
…
Greece must find €50 for every €100 debt exchanged under the proposal. Given it has no access to commercial funding, this would have to come from the EU, IMF, EFSF or ECB.Greece’s cost would be between 7.7 per cent and 11.20 per cent per annum, as it only receives €50 of the €70 face value of the new bonds. Assuming the remaining funding is at 6 per cent, then Greece’s blended rate for every €100 of finance would be 6.85-8.60 per cent per annum, compared to the 7-8 per cent per annum considered sustainable by markets.
Most importantly, the overall level of debt, considered unsustainable, of Greece would remain unchanged.
Speaking of numbers that don’t add up, there’s more Sino-Forest related news:
John Paulson lost 11 percent in his biggest fund in June, according to an investor, as the firm sold off Sino-Forest Corp. (TRE) after a short-seller’s allegations.
The drop left Paulson’s Advantage Plus Fund, which uses strategies designed to profit from corporate events such as takeovers and bankruptcies, down 18 percent this year, said the client, who asked not to be named because the information is private. The fund’s gold-denominated share class declined 11 percent in June and 12 percent in 2011.
The crows are feasting on Nortel’s unexpectedly fat corpse:
Two and half years on, the breakup of Nortel Networks Corp. is all but complete save for one last but significant obstacle — how to allocate an unexpectedly large pile of cash of more than US$10-billion.
That job falls on the shoulders of Ontario Chief Justice Warren Winkler, who Wednesday was appointed mediator for all outstanding claims, which could swell in light of the colossal sum raised through last week’s US$4.5-billion patent sale to a consortium of technology giants.
…
Unsecured holders of Nortel’s suddenly hot bonds will also expect to be paid out at 100¢ on the dollar. Bonds maturing in 2013 and 2016 carry coupons of more 10% and are trading well above par. Each class of bond is up more than 650% since hitting bottom in February 2009.
Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.
According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, JPMS, acting as the agent for its affiliated commercial bank, JPMorgan Chase Bank, N.A., at times won bids because it obtained information from the bidding agents about competing bids, a practice known as “last looks.” In other instances, it won bids set up in advance for JPMS to win (“set-ups”) because the bidding agent deliberately obtained non-winning bids from other providers, and it facilitated bids rigged for others to win by deliberately submitting non-winning bids.
Dan Hallett has another nice piece in the Globe, How rising rates may affect bond portfolios.
RBC may be going into the ETF business:
Royal Bank of Canada (RY-T54.57-0.24-0.44%), which owns Canada’s largest mutual fund player, is the second domestic bank to jump into the fast-growing exchange traded fund (ETF) business.
Its fund arm, RBC Global Asset Management, has filed a preliminary prospectus to list eight, target-date maturity corporate bond ETFs on the Toronto Stock Exchange. These ETFs wind up in a specified year ranging from 2013 to 2020, and the cash is distributed to unitholders.
The entry of Canada’s largest bank, RBC, into exchange-traded funds is bound to legitimize the fast-growing ETF industry, just as the banks made mutual funds a household name in the late 1980s.
Yes, sir, that’s what ETFs need! Legitimacy!
Canada nestled deeper into Israel’s pocket:
The committee recommends that police forces across Canada be better trained to deal with anti-Semitism; that universities host conferences to counter events such as “Israeli Apartheid Week”; and that there should be a clear definition of what anti-Semitism entails.
…
The CPCCA countered that it did not want to limit reasonable criticism of Israel. But it also explained that “anti-Semitism is being manifested in a manner which has never been dealt with before. … This problem is especially prevalent on campuses where Jewish students are ridiculed and intimidated for any deemed support for the ‘Nazi’ and ‘apartheid’ State of Israel, which is claimed to have no right to exist.”
Don’t engage in vigorous debate! Not in Canada! The people with whom you vehemently disagree might be fwightened! Some of us believe that criticism of Israel, no matter how vociferous and ignorant, is not anti-Semitism – but perhaps the CPCCA considers that at anti-Semitic viewpoint. At least we can all be joyful that the CPCCA does not want to limit what it deems to be reasonable criticism of Israel. Golly, thanks guys!
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts losing 15bp, FixedResets winning 10bp, and DeemedRetractibles up 1bp. Volatility was good. Volume was fair.
| 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 | -0.7155 % | 2,439.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.7155 % | 3,669.5 |
| Floater | 2.48 % | 2.24 % | 43,047 | 21.71 | 4 | -0.7155 % | 2,634.4 |
| OpRet | 4.87 % | 1.89 % | 63,540 | 0.23 | 9 | 0.0214 % | 2,444.3 |
| SplitShare | 5.23 % | 1.33 % | 53,750 | 0.64 | 6 | -0.0598 % | 2,513.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0214 % | 2,235.1 |
| Perpetual-Premium | 5.70 % | 5.25 % | 137,842 | 0.80 | 13 | 0.0734 % | 2,086.4 |
| Perpetual-Discount | 5.47 % | 5.47 % | 117,853 | 14.70 | 17 | -0.1546 % | 2,188.2 |
| FixedReset | 5.17 % | 3.21 % | 220,429 | 2.69 | 57 | 0.1010 % | 2,318.8 |
| Deemed-Retractible | 5.09 % | 4.86 % | 272,791 | 8.12 | 47 | 0.0121 % | 2,155.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRI.PR.B | Floater | -2.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-07 Maturity Price : 22.98 Evaluated at bid price : 23.25 Bid-YTW : 2.24 % |
| SLF.PR.A | Deemed-Retractible | -1.29 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.01 Bid-YTW : 5.81 % |
| POW.PR.D | Perpetual-Discount | -1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-07 Maturity Price : 23.11 Evaluated at bid price : 23.46 Bid-YTW : 5.33 % |
| SLF.PR.B | Deemed-Retractible | -1.11 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.14 Bid-YTW : 5.80 % |
| PWF.PR.E | Perpetual-Discount | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-07 Maturity Price : 24.20 Evaluated at bid price : 24.50 Bid-YTW : 5.61 % |
| GWO.PR.N | FixedReset | 5.48 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.84 Bid-YTW : 3.69 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.A | OpRet | 113,354 | TD crossed 100,000 at 25.55. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2015-12-18 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.67 % |
| CM.PR.L | FixedReset | 106,138 | TD crossed 100,000 at 27.36. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 27.35 Bid-YTW : 2.86 % |
| HSB.PR.E | FixedReset | 51,113 | RBC crossed 48,500 at 27.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 27.50 Bid-YTW : 3.13 % |
| TRP.PR.C | FixedReset | 49,799 | Scotia crossed 45,000 at 25.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-07-07 Maturity Price : 23.38 Evaluated at bid price : 25.60 Bid-YTW : 3.67 % |
| CU.PR.B | Perpetual-Premium | 26,433 | National crossed 25,000 at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-08-06 Maturity Price : 25.25 Evaluated at bid price : 25.45 Bid-YTW : 3.42 % |
| RY.PR.G | Deemed-Retractible | 23,975 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.33 Bid-YTW : 4.92 % |
| There were 31 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: 23.25 – 24.25 Spot Rate : 1.0000 Average : 0.6787 YTW SCENARIO |
| IAG.PR.E | Deemed-Retractible | Quote: 25.76 – 26.32 Spot Rate : 0.5600 Average : 0.3566 YTW SCENARIO |
| NEW.PR.C | SplitShare | Quote: 14.25 – 14.77 Spot Rate : 0.5200 Average : 0.3188 YTW SCENARIO |
| HSB.PR.C | Deemed-Retractible | Quote: 24.80 – 25.20 Spot Rate : 0.4000 Average : 0.3201 YTW SCENARIO |
| POW.PR.D | Perpetual-Discount | Quote: 23.46 – 23.75 Spot Rate : 0.2900 Average : 0.2120 YTW SCENARIO |
| TD.PR.I | FixedReset | Quote: 27.25 – 27.49 Spot Rate : 0.2400 Average : 0.1622 YTW SCENARIO |