August 26, 2011

Three cheers for Muddy Waters!

The Ontario Securities Commission said it ordered five executives of Sino-Forest Corp. (TRE) including Chief Executive Officer Allen Chan to resign because the forestry operator may have misrepresented revenue and exaggerated its timber holdings.

Canada’s main securities regulator also ordered the shares to cease trading, it said in an e-mailed statement today. Stan Neve, an external spokesman for the Hong Kong- and Mississauga, Ontario-based company, declined to comment. OSC spokesman Dylan Rae didn’t immediately return a phone call seeking comment.

The OSC Cease Trade / Suspension Order states in part:

12. Sino-Forest, through its subsidiaries, appears to have engaged in significant non-arm’s length transactions which may have been contrary to Ontario securities laws and the public interest;

13. Sino-Forest and certain of its officers and directors appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings by providing information to the public in documents required to be filed or furnished under Ontario securities laws which may have been false or misleading in a material respect contrary to section 122 or 126.2 of the Act and contrary to the public interest;

14. Sino-Forest and certain of its officers and directors including Chan appear to be engaging or participating in acts, practices or a course of conduct related to its securities which it and/or they know or reasonably ought to know perpetuate a fraud on any person or company contrary to section 126.1 of the Act and contrary to the public interest;

Let’s take a vote … would the Madoff Ponzi scheme have done so much damage if it had been possible to short-sell his fund?

The OSC later rescinded the order regarding the executives because, um, they don’t have that authority:

The Ontario Securities Act doesn’t allow the commission to force the resignation of a corporate officer in a temporary order without a hearing.

Well, one way or another, it looks like Sino-Forest was actually doing something naughty – just how naughty, is currently impossible to tell, but I don’t think the OSC would take this step unless they could actually point to something meaningful. Fearless Forecast: the usual pack of clowns will claim that (a) this is the regulators’ fault, and (b) it never would have happened if we had a national regulator.

US banks have a problem – too much money:

U.S. regulators have asked some banks to take more deposits from large investors even if it’s unprofitable, and lenders in return are seeking relief on insurance premiums and leverage ratios, according to six people with knowledge of the talks.

Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably.

While the Fed has been paying 0.25 percent interest on deposits placed with the central bank, known as interest on excess reserves, since late 2008, it may not be enough to erase the cost to banks of holding the deposits, said Robert Eisenbeis, a former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist for Sarasota, Florida-based Cumberland Advisors Inc.

FDIC insurance fees for large banks typically average more than 0.1 percent, three of the people said. In addition, large banks also may apply an internal capital charge of at least 0.1 percent to such reserves, one bank executive estimated.

The Greek government has announced terms for its COMPLETELY VOLUNTARY exchange offer:

“Greece shall not be obliged to proceed with any portion of the transaction described in this letter unless holders of eligible GGBs tender, in response to Greece’s eventual Invitation to Tender, eligible GGBs having a principal amount equal to not less than 90% of all eligible GGBs, including 90% of that portion of the eligible GGBs maturing during the period from June 30, 2011 through August 31, 2014. If these thresholds (or either of them) are not met, Greece shall not proceed with any portion of the transaction described in this letter if it determines, in consultation with the official sector, that the total contribution of private sector creditors towards the financing needs of Greece and Greece’s debt sustainability resulting from this transaction is insufficient to permit the official sector to support the new multi-year adjustment program for Greece announced on July 21, 2011.”

The interest rate (which will comprise of an initial rate applicable to years 1–5 increasing by 0.50% p.a. for years 6-10 and a further 0.50% p.a. for years 11-30) will be determined at or about the time of launch of the liability management transaction (the “Rate Fixing Date”) to result in a net present value of 79% of the face value of eligible GGBs tendered.

Merkel continued to ratchet up the inflammatory language:

German Chancellor Angela Merkel said investors are trying to “blackmail” governments into helping debt-strapped European countries, underscoring the need for all euro-area governments to reduce debt.

You tell ’em, Merkel! You tell the financial markets: ‘We won’t pay your extortionate interest rates because we don’t need to borrow any money!’ That’ll fix ’em.

Hurricanes affect markets:

Rates for borrowing and lending securities in the repurchase-agreement market rose and investors sought to extend maturities on concern power outages and closings of mass transit will keep traders home after Hurricane Irene strikes.

Overnight general collateral Treasury repurchase, or repo, rates, opened today at 0.10 percent and traded at 0.13 percent at 10 a.m. New York time, according to data from ICAP Plc, the world’s largest inter-dealer broker.

Securities dealers use repos to finance holdings and increase leverage. The majority of repo transactions take place on an overnight basis, with those current funding positions maturing on Aug. 29. Diminished staffing and computer-related problems following the hurricane may make it difficult to roll over such transactions.

BC voted in favour of increasing the cost of tax collection:

British Columbian voters have rejected the province’s controversial harmonized sales tax in an unprecedented referendum – a decision that will complicate efforts by the province’s Liberal government to manage B.C.’s finances and may also head off the prospect of a fall election.

Adrian Dix, leader of the opposition BC New Democrats, urged the provincial government to move quickly to restore the 7 per cent B.C. provincial sales tax., and also urged the Liberals to focus on the economy, jobs, health, education and the environment.

It was a quiet day for the Canadian preferred share market, with PerpetualDiscounts down 1bp, FixedResets flat, and DeemedRetractibles losing 4bp. Volatility was reasonable; volume was low.

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 0.7836 % 2,153.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.7836 % 3,239.2
Floater 2.82 % 2.54 % 27,276 20.96 4 0.7836 % 2,325.5
OpRet 4.88 % 2.03 % 58,388 0.57 9 0.1205 % 2,446.5
SplitShare 5.39 % 1.84 % 64,606 0.51 4 -0.2286 % 2,487.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1205 % 2,237.1
Perpetual-Premium 5.66 % 4.76 % 127,514 1.18 14 0.1072 % 2,106.0
Perpetual-Discount 5.35 % 5.47 % 99,055 14.61 16 -0.0052 % 2,232.0
FixedReset 5.14 % 3.18 % 206,879 2.71 60 0.0000 % 2,319.5
Deemed-Retractible 5.07 % 4.71 % 258,276 7.99 46 -0.0412 % 2,181.2
Performance Highlights
Issue Index Change Notes
CIU.PR.B FixedReset -1.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 27.17
Bid-YTW : 3.38 %
FTS.PR.G FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 23.84
Evaluated at bid price : 25.81
Bid-YTW : 3.50 %
GWO.PR.M Deemed-Retractible -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.69 %
RY.PR.H Deemed-Retractible 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 26.00
Evaluated at bid price : 26.73
Bid-YTW : 3.78 %
BAM.PR.K Floater 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 15.91
Evaluated at bid price : 15.91
Bid-YTW : 3.33 %
TRI.PR.B Floater 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 21.81
Evaluated at bid price : 22.05
Bid-YTW : 2.37 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 233,426 Nesbitt crossed 50,000 at 27.00; RBC crossed blocks of 50,000 and 98,200 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 3.65 %
CM.PR.I Deemed-Retractible 154,300 Nebitt crossed 34,900 at 25.15; Desjardins crossed 50,000 at 25.20; RBC crossed 50,000 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.60 %
MFC.PR.F FixedReset 114,085 RBC crossed two blocks of 50,000 each, both at 24.65.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.61
Bid-YTW : 3.69 %
CM.PR.L FixedReset 112,862 Nesbitt crossed 52,100 at 27.45; RBC crossed 28,000 at 27.45; Nesbitt crossed 25,000 at 27.46.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.46
Bid-YTW : 2.85 %
RY.PR.T FixedReset 96,400 RBC crossed blocks of 75,000 and 20,000, both at 27.26.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.19 %
TD.PR.C FixedReset 58,861 Scotia crossed 50,000 at 26.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 3.18 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 20.76 – 21.99
Spot Rate : 1.2300
Average : 0.8796

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 2.54 %

CIU.PR.B FixedReset Quote: 27.17 – 27.86
Spot Rate : 0.6900
Average : 0.5033

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 27.17
Bid-YTW : 3.38 %

GWO.PR.G Deemed-Retractible Quote: 25.05 – 25.49
Spot Rate : 0.4400
Average : 0.3060

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 5.31 %

NA.PR.N FixedReset Quote: 26.20 – 26.64
Spot Rate : 0.4400
Average : 0.3183

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 2.96 %

IAG.PR.E Deemed-Retractible Quote: 25.52 – 25.97
Spot Rate : 0.4500
Average : 0.3370

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.60 %

GWO.PR.M Deemed-Retractible Quote: 25.52 – 25.87
Spot Rate : 0.3500
Average : 0.2487

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.69 %

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