The goose that laid the golden eggs is looking a little green around the gills:
Banks in Europe are exploring ways to cut costs by routing more of their trades and other business through overseas subsidiaries, a plan that may shift tax revenue away from London and loosen European regulators’ influence over the lenders.
…
Banks could record as much as 30 percent of the value of their trades through Hong Kong, Singapore and other jurisdictions instead of hubs such as London and New York without running into trouble with regulators, Matten said. Such a move would hurt traditional hubs such as London because assets are treated for tax and regulatory purposes in the country where they are booked. It would also allow banks to sidestep the U.K. bank levy, introduced last year to raise 2.5 billion pounds ($4.1 billion) from lenders operating in Britain, as well as any financial transaction tax imposed by the European Union.
Haresh Sapra, professor of accounting at the University of Chicago Booth School of Business, writes an interesting piece on Bloomberg titled More Transparency May Hurt Markets:
Standard setters have argued that fair-value accounting would alleviate information asymmetry between insiders and outsiders. Yet insiders of many financial institutions have complained that rather than enhancing market discipline, fair- value accounting would introduce volatility into their reported numbers, thereby inducing suboptimal decisions.
…
The recent financial crisis is a case in point. When liquidity started drying up, some banks began to sell their illiquid loans, putting downward pressure on prices. Anticipating the fall in prices, other banks started selling their loans and prices declined further, leading more banks to sell their loans. The effects were so severe that prices no longer reflected fundamentals but rather the amount of cash or liquidity available to buyers in the market.If information asymmetry were the only friction between insiders and outsiders, the feedback effect would be weak or even nonexistent and prices would play their proper role of providing market discipline. But in strategic environments with multiple imperfections, market participants who try to extract the informational content of current prices distort this very content by adding an extra, nonfundamental component to price fluctuations.
As a result, the choice of an appropriate measurement regime amounts to a dilemma between ignoring price signals — as one would in a historical-cost regime — and relying on their degraded versions, as would be done in a fair-value regime.
Fabulous Fab, the man being persecuted by the SEC for acting as a broker, is in the news again:
Goldman Sachs Group Inc. (GS) trader Fabrice Tourre, accused of misleading investors in a collateralized debt obligation, said in a court filing that IKB Deutsche Industriebank AG (IKB)’s alleged $150 million investment was actually made by two Jersey-based companies.
Tourre wants to take testimony of witnesses at Loreley Financing (Jersey) No. 29 Ltd. and Loreley Financing (Jersey) No. 30 Ltd., according to the filing yesterday in federal court in Manhattan. The U.S. Securities and Exchange Commission has said Duesseldorf, Germany-based IKB made the investment in the CDO, Abacus 2007-AC1.
“Discovery in this matter thus far has shown, however, that IKB’s alleged $150 million investment was, in fact, made by” the Jersey-based companies, Tourre’s lawyers wrote in the filing.
…
“I think what they’re trying to establish here is they have sophistication piled on top of sophistication to show that this was a well-reasoned investment by, yet again, a sophisticated institution,” Jacob S. Frenkel, a former Securities and Exchange Commission lawyer now in private practice in Potomac, Maryland, said in a phone interview today.
The Canadian preferred share market started the month on a happy note, with PerpetualDiscounts winning 25bp, FixedResets up 21bp and DeemedRetractibles gaining 6bp. Volatility was a little bit better than usual, skewed towards positive returns. 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 | 0.1069 % | 2,162.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1069 % | 3,252.7 |
| Floater | 2.80 % | 2.54 % | 24,854 | 20.95 | 4 | 0.1069 % | 2,335.1 |
| OpRet | 4.89 % | 2.88 % | 65,988 | 0.16 | 9 | -0.1119 % | 2,442.2 |
| SplitShare | 5.37 % | 0.07 % | 58,137 | 0.49 | 4 | 0.0104 % | 2,498.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1119 % | 2,233.2 |
| Perpetual-Premium | 5.65 % | 4.76 % | 130,690 | 0.65 | 14 | 0.0605 % | 2,110.4 |
| Perpetual-Discount | 5.33 % | 5.37 % | 98,408 | 14.76 | 16 | 0.2482 % | 2,240.3 |
| FixedReset | 5.13 % | 3.14 % | 207,725 | 2.66 | 60 | 0.2063 % | 2,328.0 |
| Deemed-Retractible | 5.06 % | 4.68 % | 260,969 | 7.99 | 46 | 0.0569 % | 2,190.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.O | OpRet | -1.70 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.46 Bid-YTW : 4.47 % |
| GWO.PR.G | Deemed-Retractible | -1.32 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.72 Bid-YTW : 5.32 % |
| SLF.PR.G | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 3.41 % |
| TRI.PR.B | Floater | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-09-01 Maturity Price : 22.01 Evaluated at bid price : 22.25 Bid-YTW : 2.35 % |
| HSB.PR.C | Deemed-Retractible | 1.28 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.34 Bid-YTW : 5.07 % |
| GWO.PR.J | FixedReset | 1.36 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.86 Bid-YTW : 2.50 % |
| CIU.PR.A | Perpetual-Discount | 1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-09-01 Maturity Price : 23.05 Evaluated at bid price : 23.50 Bid-YTW : 4.90 % |
| FTS.PR.H | FixedReset | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-09-01 Maturity Price : 23.58 Evaluated at bid price : 26.00 Bid-YTW : 2.96 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| IFC.PR.C | FixedReset | 134,028 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 4.26 % |
| SLF.PR.D | Deemed-Retractible | 104,896 | Nesbitt crossed 100,000 at 21.90. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.91 Bid-YTW : 6.05 % |
| MFC.PR.D | FixedReset | 62,816 | Nesbitt crossed 49,300 at 27.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 27.14 Bid-YTW : 3.29 % |
| RY.PR.A | Deemed-Retractible | 53,320 | Nesbitt crossed 14,000 at 24.94; RBC crossed 10,000 at 24.96. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.91 Bid-YTW : 4.53 % |
| TD.PR.K | FixedReset | 43,096 | Scotia crossed 25,000 at 27.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 27.33 Bid-YTW : 3.10 % |
| SLF.PR.H | FixedReset | 35,900 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.79 Bid-YTW : 3.99 % |
| There were 21 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: 20.75 – 22.15 Spot Rate : 1.4000 Average : 1.1897 YTW SCENARIO |
| GWO.PR.G | Deemed-Retractible | Quote: 24.72 – 25.16 Spot Rate : 0.4400 Average : 0.3230 YTW SCENARIO |
| NA.PR.N | FixedReset | Quote: 26.02 – 26.55 Spot Rate : 0.5300 Average : 0.4222 YTW SCENARIO |
| BAM.PR.O | OpRet | Quote: 25.46 – 25.95 Spot Rate : 0.4900 Average : 0.3891 YTW SCENARIO |
| BMO.PR.Q | FixedReset | Quote: 25.21 – 25.49 Spot Rate : 0.2800 Average : 0.1866 YTW SCENARIO |
| CIU.PR.C | FixedReset | Quote: 25.01 – 25.49 Spot Rate : 0.4800 Average : 0.4065 YTW SCENARIO |