January 15, 2008

Well, stores didn’t sell anything in December (which attracted a lot of comment, so investors thought they’d fill the need. And the equity infusions just kept coming:

Citigroup, the biggest U.S. bank, is getting $14.5 billion from investors including the governments of Singapore and Kuwait, former Chairman Sanford Weill and Saudi Prince Alwaleed bin Talal, the New York-based company said today in a statement. Merrill, the largest brokerage, will receive $6.6 billion from a group led by Tokyo-based Mizuho Financial Group Inc., the Kuwait Investment Authority and the Korean Investment Corp.

Wall Street banks have now raised $59 billion, mostly from investors in the Middle East and Asia, to shore up balance sheets battered by more than $100 billion of writedowns from the declining values of mortgage-related assets. Citigroup was propped up in November by a $7.5 billion investment from the Abu Dhabi Investment Authority. New York-based Merrill was helped by a $5.6 billion cash infusion last month from Singapore’s Temasek Holdings Pte. and U.S. fund manager Davis Selected Advisors LP.

As was reported on January 11, the capital to bail out Countrywide is actually domestic, but Bank of America is by no mean immune to the shift in fortunes:

Bank of America Corp., the second- largest U.S. bank, plans to cut 650 jobs from its corporate and investment bank and sell the prime brokerage unit that caters to hedge funds.

The bank is slashing its so-called structured products business, which packaged and sold real estate loans to investors, and will reduce investment banking in Europe and the U.S., Chief Executive Officer Kenneth Lewis said in a meeting with reporters today in New York.

Meanwhile, Menzie Chinn of Econbrowser attempts to cheer us up by reminding us of the preferred government response to recessions:

One reason to favor temporary modifications to automatic stabilizers, as opposed to permanent changes in the tax code, is that the current full-employment budget balance is probably around negative one percentage point of GDP, and we are facing an expanding deficit in the future, given the press of demographics and medical costs (see Orszag’s speech [pdf]).

The interesting stories in Canada are, of course, Quebecor and BCE. Quebecor is close enough to crisis that I gave it its own post today; Bloomberg has an interesting filler story:

A telephone repairman for Canada’s BCE Inc. barreled through a red light in May when the brakes on his company truck failed. He managed to stop only by shifting into low gear and hauling on the handbrake.

As investors led by a teachers’ retirement fund prepare to purchase BCE for C$52 billion ($51.1 billion), analysts say the cost of avoiding such perils may require selling all or part of its C$3.5 billion-a-year wireless business. Canada’s largest phone company needs to repair an aging fleet of trucks and add a TV service while paying down about C$34 billion in debt.

The wireless unit, whose growth is second only to the smaller satellite-TV division, may be the only BCE business that could attract investors, said Lawrence Surtees, an analyst at IDC Canada in Toronto who wrote a book on BCE. “Everything else is either flat or declining,” he said. He didn’t have an estimate for what the unit might fetch.

PerpetualDiscounts finally had a down day today, due largely to three issues of a certain bank that will remain nameless. The last down-day for this index was December 21 (the penultimate day of tax loss selling – and the last full day, since Dec 24 was an early-close); since then, the PerpetualDiscount index increased 4.56% to January 14, with thirteen consecutive trading days of gains. 

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 5.36% 5.38% 57,070 14.84 2 -0.0609% 1,070.9
Fixed-Floater 4.92% 5.38% 73,412 15.02 9 -0.0017% 1,037.4
Floater 5.24% 5.28% 90,437 15.07 3 +0.2397% 840.5
Op. Retract 4.83% 2.47% 81,657 2.83 15 +0.1564% 1,043.0
Split-Share 5.25% 5.34% 99,278 4.32 15 +0.1062% 1,044.9
Interest Bearing 6.28% 6.36% 60,126 3.43 4 +0.1783% 1,072.5
Perpetual-Premium 5.76% 4.58% 65,175 5.20 12 +0.2224% 1,024.8
Perpetual-Discount 5.42% 5.45% 339,838 14.10 54 -0.0776% 945.0
Major Price Changes
Issue Index Change Notes
CM.PR.H PerpetualDiscount -2.2222% Now with a pre-tax bid-YTW of 5.57% based on a bid of 21.56 and a limitMaturity.
CM.PR.I PerpetualDiscount -2.0833% Now with a pre-tax bid-YTW of 5.58% based on a bid of 21.15 and a limitMaturity.
CM.PR.J PerpetualDiscount -1.9408% Now with a pre-tax bid-YTW of 5.59% based on a bid of 20.21 and a limitMaturity.
HSB.PR.D PerpetualDiscount -1.7021% Now with a pre-tax bid-YTW of 5.45% based on a bid of 23.10 and a limitMaturity.
HSB.PR.C PerpetualDiscount -1.4675% Now with a pre-tax bid-YTW of 5.47% based on a bid of 23.50 and a limitMaturity.
ELF.PR.G PerpetualDiscount +1.0335% Now with a pre-tax bid-YTW of 5.95% based on a bid of 20.11 and a limitMaturity.
FTU.PR.A SplitShare +1.0571% Asset coverage of 1.7+:1 as of December 31, according to the company. Now with a pre-tax bid-YTW of 6.40% based on a bid of 9.56 and a hardMaturity 2012-12-1 at 10.00.
BAM.PR.G FixFloat +1.0606%  
IAG.PR.A PerpetualDiscount +1.0658% Now with a pre-tax bid-YTW of 5.32% based on a bid of 21.81 and a limitMaturity.
TD.PR.M OpRet +1.1073% Now with a pre-tax bid-YTW of 3.01% based on a bid of 26.48 and a call 2009-5-30 at 26.00. The yield to the softMaturity 2013-10-30 is a mere 3.54% … still less than 5% interest-equivalent.
TCA.PR.X PerpetualPremium +1.1637% Now with a pre-tax bid-YTW of 5.07% based on a bid of 51.29 and a call 2013-11-14 at 50.00.
BAM.PR.B Floater +1.3699%  
Volume Highlights
Issue Index Volume Notes
CM.PR.A OpRet 185,100 ITG (who?) crossed 177,200 at 25.94. Now with a pre-tax bid-YTW of -4.12% based on a bid of 25.90 and a call 2008-2-14 at 25.75. I guess there are some bets out there that it won’t be called!
RY.PR.B PerpetualDiscount 107,050 Now with a pre-tax bid-YTW of 5.27% based on a bid of 22.61 and a limitMaturity.
BMO.PR.I OpRet 85,250 ITG crossed 77,500 at 25.35. Now with a pre-tax bid-YTW of 0.97% based on a bid of 25.24 and a call 2008-2-14 at 25.00.
TD.PR.M OpRet 56,940 ITG crossed 52,200 at 26.78. Now with a pre-tax bid-YTW of 3.01% based on a bid of 26.41 and a call 2009-5-30 at 26.00.
GWO.PR.I PerpetualDiscount 33,565 Scotia bought 21,700 from Nesbitt at 21.45. Now with a pre-tax bid-YTW of 5.29% based on a bid of 21.47 and a limitMaturity.

There were eighteen other index-included $25.00-equivalent issues trading over 10,000 shares today.

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