Banks are pushing back against proposed capital rules:
The Clearing House Association and the Institute of International Bankers, whose members include JPMorgan Chase & Co (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), Citigroup Inc. (C), Deutsche Bank AG (DBK) and ING Groep NV (INGA), said in a letter that capital surcharges agreed to by the Federal Reserve and international regulators are “deeply flawed” and “reflexively based on the notion that size alone creates prudential concerns.”
…
Bloomberg News obtained an Aug. 25 draft of the letter, which will be filed as a comment on proposed capital surcharges for big banks agreed on by the Basel Committee on Banking Supervision in June. The Fed, which is part of the Basel Committee, is also preparing to release its own proposals under the Dodd-Frank Act for stricter standards for the largest U.S. banks sometime in the next five weeks.Tighter international and U.S. standards on capital, liquidity and risk management are likely to alter competition in the U.S., the banking groups said in their letter. The Basel capital surcharge will “lead to unjustified competitive inequities between large banks” subject to the charge and others that aren’t, they said.
A bit more detail regarding TRE. Sino-Forest announced the resignation of its chairman:
Sino-Forest Corporation (“Sino-Forest” or the “Company”)
(TSX:TRE) announced that Allen Chan has voluntarily resigned as Chairman, Chief Executive Officer and Director, pending completion of the review by the Independent Committee of the allegations made by Muddy Waters.
…
Mr. Chan will become Founding Chairman Emeritus of the Company and will be fully available to assist Mr. Martin with operational matters and with the Independent Committee review as requested.
The Globe reported on the sequence of events :
Mr. Chan’s resignation follows a tumultuous week of allegations and confrontations. Shortly after the company alerted the OSC about its discovery of what sources described as irregular deals involving Mr. Chan, the OSC caught the company off guard on Friday by slapping a cease trade order on its stock and ordering the resignation of Mr. Chan and the four executives.
I have not yet seen any updated commentary from Richard Kelertas of Dundee Securities, whose changing views on the topic were discussed here on June 20.
S&P withdrew ratings after a downgrade to CCC-:
- We expect China-based commercial forest operator Sino-Forest’s business
to rapidly deteriorate following additional fraud allegations and senior management resignations.- We are lowering the corporate credit rating on Sino-Forest and the issue rating on its senior unsecured notes and convertible bonds to ‘CCC-‘ from ‘B’. We removed all the ratings from CreditWatch.
- We are also withdrawing the ratings due to heightened information risks.
- The negative outlook prior to the rating withdrawal reflected our view that the company’s operations were likely to deteriorate further in the
next 12 months, at least.
Moody’s also downgrade, but did not withdraw the rating:
Moody’s Investors Service has downgraded to Caa1 from B1 the corporate family and senior unsecured debt ratings of Sino-Forest Corporation (“Sino-Forest”).
At the same time, Moody’s continues its review for further downgrade.
What a surprise! The Maple-TMX deal may well fail!
TMX Group Inc., which has gained the most of any exchange involved in the industry’s biggest wave of acquisitions, is now in danger of being left without a buyer.
Since reaching a three-year high in June as the London Stock Exchange Group Plc and a group of Canadian banks waged a bidding contest, the owner of the Toronto bourse has now fallen more than 10% with the LSE scrapping its agreement. TMX is trading almost $10 below the $50-a-share unsolicited bid from Maple Group Acquisition Corp., close to the widest gap since it was announced in May and indicating that traders are growing increasingly concerned the takeover will also fail.
While more than US$30-billion in acquisitions for exchanges have been announced in the past year, only one deal — Deutsche Boerse AG’s takeover of NYSE Euronext — has been approved by shareholders. Macquarie Group Ltd. says Maple’s attempt to buy TMX may not overcome antitrust scrutiny because it would combine Canada’s largest bourse with its biggest rival, Alpha Group, and create an entity controlling 85 percent of the nation’s trading. That may make TMX, one of the least valuable market venues versus earnings, fall further, said WallachBeth Capital LLC.
Of course, that all depends on what you mean by the word “fail”. If you define success as “scuttling an international acquisition that would create an entity with enough size to talk back to the banks”, then it’s already a success!
The Globe & Mail blog had a good post titled Ms. Lagarde’s recapitalization plan makes sense:
Freed of her government shackles, the former French finance minister pulled no punches Saturday in her first major speech to the august audience. Ms. Lagarde declared flatly that European banks “need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.”
Her proposal: “Mandatory substantial recapitalization — seeking private resources first, but using public funds if necessary.”
…
The response, predictably, has been howls of indignation in European political and banking circles. A Reuters headline summed up the attitude: “Europe snubs IMF call to force-feed bank capital.”
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But there is a saying that a nation’s banking system is only as sound as its government. And that is particularly true in Europe, where banks hold an inordinate amount of government debt on their books. The reason is simple: Loans to your friendly local government count as a risk-free asset under Basel rules. Too bad the markets don’t agree.
Golly – substitute “AAA subprime paper” for “loans to your friendly local government” and that last paragraph could have been written in 2008!
Her published remarks also include an exhortation for the US:
So the United States needs to move on two specific fronts.
….
Second—halting the downward spiral of foreclosures, falling house prices and deteriorating household spending. This could involve more aggressive principal reduction programs for homeowners, stronger intervention by the government housing finance agencies, or steps to help homeowners take advantage of the low interest rate environment.
See the post titled Redefault on Modified Mortgages for more on that idea.
There’s more commentary at BusinessInsider.com
The Italians aren’t hurting enough yet:
The Italian government backtracked on parts of its widely criticized austerity package on Monday, scrapping a tax on high earners and scaling back cuts to local authority funding.
In a statement after seven hours of talks at Prime Minister Silvio Berlusconi’s home outside Milan, the government said it would also exclude years spent at university and military service from retirement age calculations, delaying retirement for some people.
The statement contained little detail on the funding impact of the changes or how the government would make up for revenue lost from the €45.5-billion ($66-billion U.S.) austerity package now making its way through parliament which is aimed at balancing the budget by 2013.
There was also no mention of any increase in value-added tax, a measure which had been widely mooted in the media before the meeting.
It was a good day overall for the Canadian preferred share market, with PerpetualDiscounts gaining 21bp, FixedResets down 3bp and DeemedRetractibles up 10bp. Volatility was reasonable. Volume was a little on the soft side of average.
| 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 | -0.2681 % | 2,148.0 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2681 % | 3,230.5 |
| Floater | 2.82 % | 2.54 % | 26,150 | 20.96 | 4 | -0.2681 % | 2,319.3 |
| OpRet | 4.88 % | 2.86 % | 59,794 | 0.57 | 9 | -0.0817 % | 2,444.5 |
| SplitShare | 5.38 % | 0.97 % | 62,037 | 0.50 | 4 | 0.1771 % | 2,491.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0817 % | 2,235.3 |
| Perpetual-Premium | 5.66 % | 4.69 % | 128,585 | 1.13 | 14 | 0.1043 % | 2,108.2 |
| Perpetual-Discount | 5.34 % | 5.46 % | 98,163 | 14.64 | 16 | 0.2093 % | 2,236.7 |
| FixedReset | 5.15 % | 3.23 % | 213,196 | 2.67 | 60 | -0.0275 % | 2,318.9 |
| Deemed-Retractible | 5.07 % | 4.69 % | 255,975 | 7.96 | 46 | 0.0982 % | 2,183.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.E | OpRet | -1.37 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-06-01 Maturity Price : 25.75 Evaluated at bid price : 26.58 Bid-YTW : 2.86 % |
| TRI.PR.B | Floater | -1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-29 Maturity Price : 21.49 Evaluated at bid price : 21.75 Bid-YTW : 2.40 % |
| NA.PR.P | FixedReset | -1.06 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-15 Maturity Price : 25.00 Evaluated at bid price : 27.06 Bid-YTW : 3.22 % |
| SLF.PR.A | Deemed-Retractible | 1.05 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.14 Bid-YTW : 5.69 % |
| PWF.PR.L | Perpetual-Discount | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-08-29 Maturity Price : 24.28 Evaluated at bid price : 24.57 Bid-YTW : 5.23 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.I | Deemed-Retractible | 241,086 | RBC crossed four blocks: 47,500 shares, two of 50,000 each, and one of 49,500, all at 25.20. Nesbitt crossed 25,000 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 4.66 % |
| RY.PR.P | FixedReset | 86,179 | TD crossed 50,000 at 27.00; Scotia crossed 35,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.90 Bid-YTW : 3.11 % |
| HSB.PR.E | FixedReset | 71,667 | RBC crossed 65,600 at 27.68. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 27.42 Bid-YTW : 3.42 % |
| MFC.PR.D | FixedReset | 67,314 | RBC crossed blocks of 50,000 and 13,000, both at 27.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 26.89 Bid-YTW : 3.64 % |
| MFC.PR.B | Deemed-Retractible | 62,082 | Scotia crossed 25,000 at 22.18; TD crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.16 Bid-YTW : 6.14 % |
| CM.PR.J | Deemed-Retractible | 56,203 | TD crossed blocks of 25,000 and 24,500, both at 25.10. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.02 Bid-YTW : 4.56 % |
| There were 29 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| IAG.PR.C | FixedReset | Quote: 26.15 – 26.95 Spot Rate : 0.8000 Average : 0.5909 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 20.76 – 22.00 Spot Rate : 1.2400 Average : 1.0681 YTW SCENARIO |
| BAM.PR.B | Floater | Quote: 15.99 – 16.48 Spot Rate : 0.4900 Average : 0.3348 YTW SCENARIO |
| BAM.PR.M | Perpetual-Discount | Quote: 22.01 – 22.49 Spot Rate : 0.4800 Average : 0.3332 YTW SCENARIO |
| ELF.PR.F | Perpetual-Discount | Quote: 23.01 – 23.38 Spot Rate : 0.3700 Average : 0.2579 YTW SCENARIO |
| NA.PR.P | FixedReset | Quote: 27.06 – 27.38 Spot Rate : 0.3200 Average : 0.2083 YTW SCENARIO |