Red letter day! For the first time in a long time, somebody’s talking about the flip side of safe banking:
Mr. Flaherty boasts about Ottawa’s strict supervision and holds up the banks’ conservative lending culture as a virtue. What he fails to mention to his audiences in places such as Istanbul, London and Washington is that Canada’s entrepreneurs and smaller businesses are starved for cash.
…
According to the Organization for Economic Co-operation and Development, the outstanding debt of Canadian small and medium-sized enterprises (SMEs) essentially has been unchanged since 2000. Lending to smaller companies decreased 0.1 per cent in 2008, increased 3.7 per cent in 2009 and dropped 0.9 per cent in 2010, the 34-member OECD said earlier this year in its first annual scorecard of financing for SMEs and entrepreneurs.
…
While there is no longer an outright ban on international lenders setting up in Canada, the rules are structured in such a way that there is little incentive to do so. No investor can hold more than 20 per cent of the voting shares in a bank with equity of more than $12-billion and a majority of the directors must be Canadians.So the lenders that are large enough to shake the Canadian banks’ entrenched position – the Wells Fargos of the world – either stay small in Canada, or avoid the country altogether.
…
There are more than 7,000 banks in the United States insured by the Federal Deposit Insurance Corp. Most of those institutions are small, confining their lending to a specific community. The result is a more competitive credit market. SMEs accounted for 29 per cent of all business lending in the United States in 2010, compared with 18 per cent in Canada.
Canada’s banks were left relatively unscathed by the Credit Crunch and that’s a good thing. But next time you hear a regulator boasting about how wonderful the safe Canadian system is, ask what the costs are. All the costs, all the indirect costs of a comfortable oligopoly, not the relatively trivial direct costs. A Lamborghini is a great car … but I wouldn’t pay $10-million for one.
You can talk about billions, and you can talk about percentages, but sometimes it’s most graphic to talk about the impact on the average guy:
The average American family lost 38.8 percent of its wealth from 2007 to 2010, with the biggest losses concentrated among households with the most assets tied to their homes, a Federal Reserve study shows.
Median net worth declined to $77,300 in 2010, an 18-year low, from $126,400 in 2007, the central bank said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine-year low of $498,800 from $584,600, the central bank said today in Washington.
I do enjoy taking pokes at CalPERS, the $200-billion+ fund that doesn’t do its own credit analysis! Their ten-year 90bp underperformance vs. their benchmark makes it easy, as the press has noticed:
The California Public Employees’ Retirement System, the largest U.S. pension, has seen its market value decline 4.8 percent this year after stocks fell amid the brewing fiscal crisis in Europe and slowing of the U.S. economic recovery.
…
If the trend continues, it would mark the third time in five years that the fund has lost money, including a 23 percent decline in fiscal 2009, the worst on record. While Calpers spreads its return over 15 years to smooth taxpayers’ burden, another loss may make it hard for the fund to meet its assumption of 7.5 percent earnings annually to cover benefits to 1.6 million retired employees and their families.
It was rather a dull day for the Canadian preferred share market, with PerpetualPremiums down 3bp, FixedResets flat and DeemedRetractibles off 2bp. Volatility was muted. Volume was quite 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 | -0.4375 % | 2,294.8 |
| FixedFloater | 4.49 % | 3.86 % | 25,788 | 17.53 | 1 | 0.0000 % | 3,508.1 |
| Floater | 3.15 % | 3.17 % | 69,898 | 19.23 | 3 | -0.4375 % | 2,477.8 |
| OpRet | 4.79 % | 1.92 % | 38,288 | 1.02 | 5 | 0.0848 % | 2,509.3 |
| SplitShare | 5.28 % | -4.19 % | 47,301 | 0.52 | 4 | 0.0449 % | 2,711.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0848 % | 2,294.5 |
| Perpetual-Premium | 5.45 % | 3.21 % | 78,274 | 0.58 | 26 | -0.0256 % | 2,228.6 |
| Perpetual-Discount | 5.02 % | 5.06 % | 122,910 | 15.26 | 7 | 0.1888 % | 2,452.6 |
| FixedReset | 5.05 % | 3.20 % | 189,679 | 7.81 | 71 | -0.0027 % | 2,388.5 |
| Deemed-Retractible | 5.03 % | 3.92 % | 145,859 | 2.89 | 45 | -0.0194 % | 2,298.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.B | Deemed-Retractible | -1.51 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.14 Bid-YTW : 6.27 % |
| BAM.PR.B | Floater | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-11 Maturity Price : 16.57 Evaluated at bid price : 16.57 Bid-YTW : 3.20 % |
| POW.PR.D | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-11 Maturity Price : 24.57 Evaluated at bid price : 24.90 Bid-YTW : 5.08 % |
| GWO.PR.H | Deemed-Retractible | 1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.41 Bid-YTW : 5.16 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| PWF.PR.G | Perpetual-Premium | 154,340 | TD crossed 150,000 at 25.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-07-11 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : -5.65 % |
| VNR.PR.A | FixedReset | 51,183 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-11 Maturity Price : 23.20 Evaluated at bid price : 25.20 Bid-YTW : 3.99 % |
| FTS.PR.G | FixedReset | 37,286 | RBC crossed blocks of 29,000 and 14,900, both at 25.67. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-11 Maturity Price : 23.99 Evaluated at bid price : 25.43 Bid-YTW : 3.33 % |
| RY.PR.N | FixedReset | 32,747 | National crossed 31,000 at 26.33. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.33 Bid-YTW : 3.22 % |
| RY.PR.E | Deemed-Retractible | 31,915 | TD crossed 25,000 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : 3.93 % |
| ENB.PR.B | FixedReset | 31,825 | RBC crossed 30,000 at 25.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-11 Maturity Price : 23.25 Evaluated at bid price : 25.26 Bid-YTW : 3.57 % |
| There were 17 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.B | Floater | Quote: 16.57 – 17.88 Spot Rate : 1.3100 Average : 0.7444 YTW SCENARIO |
| BAM.PR.C | Floater | Quote: 16.74 – 18.14 Spot Rate : 1.4000 Average : 1.0716 YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | Quote: 22.14 – 22.50 Spot Rate : 0.3600 Average : 0.2410 YTW SCENARIO |
| W.PR.J | Perpetual-Premium | Quote: 25.45 – 25.75 Spot Rate : 0.3000 Average : 0.1839 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 23.68 – 23.96 Spot Rate : 0.2800 Average : 0.1889 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 25.43 – 25.74 Spot Rate : 0.3100 Average : 0.2299 YTW SCENARIO |