Another small step in the decline of the West:
Hong Kong companies are issuing a record amount of bonds in Singapore dollars as Europe’s debt crisis boosts relative yields on securities denominated in the U.S. currency, enhancing the city-state’s appeal as a rival financial center.
Singapore-dollar bond sales by borrowers from Hong Kong have risen to $2 billion this year, from $671 million in all of 2010, according to data compiled by Bloomberg. Developers including Henderson Land Development Co. accounted for at least 96 percent of the total. At the same time, Hong Kong companies’ offerings of U.S. dollar notes have shrunk to $1.8 billion from $7 billion in 2010.
Hong Kong borrowers are turning to Singapore as Europe’s deepening debt crisis has driven relative yields on Asian U.S. dollar debt higher. Singapore’s currency market, Asia’s biggest by trading volume, is an additional attraction, enabling efficient conversion to other regional denominations.
To the astonishment of regulators everywhere some banks are bailing out of southern Europe:
BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year.
Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy while generating larger writedowns and capital shortfalls.
Greece might have a new government soon:
Papandreou and Antonis Samaras, leader of New Democracy, “made progress in talks” yesterday “to name a head of a national unity government,” Elias Mosialos, a Greek government spokesman, said in an e-mailed statement. The two men spoke by phone a number of times yesterday, said a Greek government official who declined to be named. Talks will resume in Athens today, the official said.
…
The unity government’s mission will be implementing the European summit decision from Oct. 26 on a second Greek financing package of 130 billion euros ($179 billion) before leading the country to elections, according to an e-mailed statement from the premier’s office. Papandreou, who has agreed to step aside for a new prime minister, spoke yesterday with German Chancellor Angela Merkel; Jean-Claude Juncker, who heads the group of euro area finance ministers; and European Commission President Jose Barroso.
Not much point talking to Juncker, because he’s a liar. Anyway, it’s lovely that the unity government will be implementing the borrowing part of the plan, but it’s unclear to me whether they will be able to deliver on the paying-back part of the plan. Capital flight is becoming a big problem:
Unsparing in its criticism of Greece, Bild launches another broadside against its favourite target: “Greeks stash 200 billion euros in Swiss bank accounts!” headlines the Berlin tabloid, whose influence on the Chancellorship is an open secret. “While Europe struggles to help Greece with multi-billion euro bailout plans, more and more Greeks are transferring their money out of the country” to avoid the consequences of a crash in the national economy, announces Bild. “Stop the capital flight!” insists the tabloid’s editorial, which lambasts the Greek elite for refusing to introduce a tax on money transfers or penalties for tax evasion.
The Globe & Mail reports:
That disenchantment has also been reflected in the flight of capital from the country in recent weeks. The New York Times, citing banking sources in Athens, estimated that €10-billion to €20-billion were whisked away to safer countries in September and October, escalating a trend that saw €46-billion in deposits leave Greek banks since January 2010.
The wealthy have reportedly been paying cash for homes in London, while those with more modest incomes are stuffing euro notes into safe-deposit boxes.
I’m sure that human flight is a problem, too, although I confess I have no evidence to support this. But come on! If you were Greek, aged under, say, 35, and were trained in an actual skill (doctors and nurses, for instance, have highly transportable skills) wouldn’t you be thinking that maybe France, Germany, or the UK would be better places to make a living?
And let’s not even mention Italy, it’s too depressing. Oh, all right, we’ll talk about Italy:
Italy’s cost of borrowing money soared to its highest point since the euro zone was formed, signalling a growing conviction the sovereign debt crisis is about to get worse as the currency union’s third-largest economy creeps closer to a financial cliff.
The yield on 10-year Italian bonds hit 6.68 per cent – a 14-year high – on Monday before narrowing to 6.45 per cent, amid reports that embattled Prime Minister Silvio Berlusconi was about to resign. Greece, Ireland and Portugal each were forced to seek bailouts soon after their bond yields climbed past 7 per cent.
As long as we’re talking about Europe, DBRS has some interesting things to say about Belgian mortgages:
Firstly, according to data from obtained by DBRS, Belgium has owner-occupation levels that are higher than neighbouring European countries at 71%, compared to 55% for France and 53% for the Netherlands. This is partly as a result of the house price growth over the last decade outstripping the commensurate growth in rental return. It is also infl uenced by the fact that Belgium has very high property purchase transaction costs (both buying and selling property) relative to other European jurisdictions. DBRS understands that purchase costs are routinely in the range of 10-20% of the property cost. Both these factors combined have meant that investment in property for speculative purposes is relatively unattractive as the rental yield is, comparative to other European jurisdictions, low, and day one cash outlay is high.
…
In Belgium fi xed rate mortgages represent the majority of the market and the majority of the loans have a fixed rate of interest for 10 years or more or for the entire term of the loan. Variable rate loans also feature and differ from the completely variable rate loans found in other jurisdictions in that their variability is restricted by caps and fl oors in the interest rate. Rate caps offer borrowers some protection from spikes in interest rates by limiting the potential mortgage payments due by borrowers regardless of prevailing interest rates.
As part of the continuing campaign to make it impossible for Bad People to do business by making it impossible for anybody to do business, the federal government has issued a Consultation Paper on Proposed Amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations on Ascertaining Identity. Naturally, no attempt is made to justify the proposed revisions to protocol in terms of actual results; it is sufficient to pick objectives out of the air, say ‘This makes sense!’ and then enforce it.
BIS has issued a working paper by Michael Brei, Leonardo Gambacorta and Goetz von Peter titled Rescue packages and bank lending:
This paper examines whether the rescue measures adopted during the global financial crisis helped to sustain the supply of bank lending. The analysis proposes a setup that allows testing for structural shifts in the bank lending equation, and employs a novel dataset covering large international banks headquartered in 14 major advanced economies for the period 1995–2010. While stronger capitalisation sustains loan growth in normal times, banks during a crisis can turn additional capital into greater lending only once their capitalisation exceeds a critical threshold. This suggests that recapitalisations may not translate into greater credit supply until bank balance sheets are sufficiently strengthened.
A scandal regarding Olympus has been simmering for a while and has now come to a boil – Olympus was naughty:
Olympus Corp. (7733) said it hid losses by paying inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc, the first admission of wrongdoing from the Japanese camera and medical-equipment maker since accusations from its former chief executive officer surfaced four weeks ago.
The stock plunged by the daily limit after the company said it also used three other acquisitions to help hide the losses on investments from the 1990s. Allegations by Michael C. Woodford after he was axed as CEO on Oct. 14 had wiped more than half the value from the company’s stock before today.
Prohibition is drying up in the States:
U.S. states that have kept a tight rein on alcohol sales since the Prohibition era may be loosening their grip.
Lawmakers in Utah, where even high-alcohol beer is sold through state liquor stores, were urged by an advisory panel this year to put the business in private hands. Pennsylvania, Virginia and North Carolina have considered privatizing state liquor outlets. Tomorrow in Washington, votes will be counted on a ballot measure backed by Costco Wholesale Corp. (COST) that would end state control of liquor retailing.
Budget deficits forecast to reach $103 billion this fiscal year are making states more willing to open the taps, to the dismay of some public-health advocates who warn it may exacerbate social ills. Companies including Costco, bourbon maker Beam Inc. and Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which owns food and alcohol distributor McLane Co., may gain a larger share of the $8.5 billion in gross sales last year in the 18 states where liquor is still controlled.
One wonders if Ontario will ever follow!
There was a defense of milkfare in Saturday’s Globe:
[Federal Agriculture Minister Gerry Ritz] noted the Americans approved $450-million (U.S.) last year to backstop their dairy industry.
How much did Ottawa spend on backstopping Canadian dairy farmers?
“Zip,” Mr. Ritz said.
Oh, and how much did consumers pay directly to subsidize the bucolic lifestyle of the favoured few?
Every year the distortions caused by the system grow larger. Canadians may not realize it when they go to the grocery store, but they’re paying twice the world average for dairy products – and up to three times what Americans pay. That’s a hidden $3-billion a year tax on all of us.
Roughly half the money flows back to dairy farmers, making them richer than other farmers, who work just as hard. Bloated government agencies and marketing boards soak up a significant chunk of the rest.
I’d rather make my donation directly, assuming that I have to make one at all. But maybe that’s just me.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets down 9bp and DeemedRetractibles losing 21bp. Good volatility, all losers, with Sun Life notable again for its losses. Volume was light.
| 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 | -0.0967 % | 2,123.5 |
| FixedFloater | 4.88 % | 4.60 % | 24,479 | 17.17 | 1 | 0.0000 % | 3,155.1 |
| Floater | 3.39 % | 3.41 % | 69,476 | 18.70 | 2 | -0.0967 % | 2,292.8 |
| OpRet | 4.94 % | 0.95 % | 50,756 | 1.50 | 7 | -0.0984 % | 2,481.8 |
| SplitShare | 5.75 % | 6.41 % | 59,861 | 5.14 | 3 | -0.3903 % | 2,514.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0984 % | 2,269.4 |
| Perpetual-Premium | 5.56 % | 3.30 % | 107,007 | 0.47 | 13 | 0.0779 % | 2,151.3 |
| Perpetual-Discount | 5.33 % | 5.40 % | 108,518 | 14.74 | 17 | 0.0510 % | 2,283.8 |
| FixedReset | 5.12 % | 3.01 % | 207,994 | 2.51 | 62 | -0.0855 % | 2,343.4 |
| Deemed-Retractible | 5.06 % | 4.45 % | 211,431 | 3.82 | 46 | -0.2119 % | 2,210.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.F | FixedReset | -1.80 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.16 Bid-YTW : 4.41 % |
| SLF.PR.A | Deemed-Retractible | -1.71 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.37 Bid-YTW : 6.26 % |
| IAG.PR.A | Deemed-Retractible | -1.63 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.28 Bid-YTW : 6.15 % |
| BAM.PR.H | OpRet | -1.63 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2011-12-07 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : -3.92 % |
| SLF.PR.B | Deemed-Retractible | -1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.62 Bid-YTW : 6.17 % |
| GWO.PR.J | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.18 Bid-YTW : 4.02 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.G | Perpetual-Discount | 75,245 | Desjardins crossed 27,000 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-07 Maturity Price : 24.58 Evaluated at bid price : 24.90 Bid-YTW : 5.45 % |
| BAM.PR.Z | FixedReset | 35,160 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-07 Maturity Price : 23.11 Evaluated at bid price : 25.02 Bid-YTW : 4.38 % |
| BNS.PR.Z | FixedReset | 33,500 | Recent secondary offering. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.92 Bid-YTW : 3.21 % |
| GWO.PR.J | FixedReset | 30,964 | Scotia crossed 14,000 at 26.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.18 Bid-YTW : 4.02 % |
| RY.PR.W | Perpetual-Discount | 28,355 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-07 Maturity Price : 24.40 Evaluated at bid price : 24.91 Bid-YTW : 4.90 % |
| BMO.PR.N | FixedReset | 27,385 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 27.17 Bid-YTW : 2.47 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TCA.PR.Y | Perpetual-Premium | Quote: 52.62 – 53.34 Spot Rate : 0.7200 Average : 0.4623 YTW SCENARIO |
| SLF.PR.F | FixedReset | Quote: 26.16 – 26.90 Spot Rate : 0.7400 Average : 0.4972 YTW SCENARIO |
| FTS.PR.C | OpRet | Quote: 26.40 – 26.95 Spot Rate : 0.5500 Average : 0.3634 YTW SCENARIO |
| HSB.PR.C | Deemed-Retractible | Quote: 25.15 – 25.56 Spot Rate : 0.4100 Average : 0.2875 YTW SCENARIO |
| IAG.PR.F | Deemed-Retractible | Quote: 25.70 – 26.20 Spot Rate : 0.5000 Average : 0.3802 YTW SCENARIO |
| CM.PR.P | Deemed-Retractible | Quote: 25.85 – 26.21 Spot Rate : 0.3600 Average : 0.2443 YTW SCENARIO |