Appalled by the huge outbreak of suicide bombers in Canadian office buildings, the wise folks in charge of Commerce Court in Toronto judiciously decided a few years ago to institute a visa policy – just like the big shots in New York! If you want to enter the building a tenant has to make an appointment for you with security so you can get a pass – see the February 24, 2010 post for more details. It’s working out as expected:
The four buildings and underground space that make up Commerce Court currently have a 27-per-cent vacancy rate, far above the overall rate in downtown Toronto, which hovers just above 5 per cent, according to commercial real estate company Avison Young.
There’s some cheery news from the breadbasket:
The drought in the U.S. Midwest that has pushed up corn prices 28 percent since June 15 may eventually rival a dry period in 1988 that cost agriculture $78 billion, a government meteorologist said.
This year’s weather pattern, which settled into the Great Plains and the Southwest last year and has spread into the Corn Belt, resembles those of a quarter century ago, Matthew Rosencrans, a drought specialist with the National Weather Service, said today at a forum in Washington. Sparse rainfall may drive crop costs up further, destroying livestock profits and raising food prices, said David Anderson, an agricultural economist at Texas A&M University.
Barclays was naughty during the crisis:
Barclays Plc (BARC) was fined 290 million pounds ($451.4 million), the largest penalties ever imposed by regulators in the U.S. and U.K., after admitting it submitted false London and euro interbank offered rates.
…
In February 2007, one of the Barclays traders wrote in an instant message to a trader at another bank:“If you know how to keep a secret I’ll bring you in on it, we’re going to push the cash downwards on the imm day, if you breathe a word of this I’m not telling you anything else, I know my treasury’s firepower… which will push the cash downwards, please keep it to yourself otherwise it won’t work.”
…
“The senior U.S. dollar submitter emailed his supervisor, ‘following on from my conversation with you I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested,” the CFTC said. “I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”
That’s a hell of a position for a guy to be in, particularly if he knows that at that moment there are NO JOBS anywhere else. But he must have been making enough at the time to make obtaining independent legal advice quite reasonable – maybe he did. Maybe that’s why there’s so much documentation available, with such explicit statements to his supervisor (among others). But look what happens when you’re honest:
He recognized, at times, that if he were to submit higher, accurate LIBORs, then the market or press would report that Barclays was experiencing difficulty in funding itself.
On September 3, 2007, Bloomberg featured Barclays in a news article entitled “Barclays Takes a Money-Market Beating.” The atiicle speculated that Barclays may have been having liquidity problems, because on two occasions Barclays had to borrow Sterling from the emergency lending facility of the Banle of England,2 and because of Barclays’ relatively high LIBOR submissions in Sterling, Euro and U.S. Dollar. The article posed the question, “So what the hell is happening at Barclays and its Barclays Capital securities unit that is prompting its peers to charge it premium interest in the money market?” Other newspapers, including the U.K. Financial Times and the Standard, ran similar articles about LIBOR and Barclays.
On the day of the Bloomberg article, Barclays’ U.S. Dollar LIB OR submissions in at least three tenors were the highest submissions of all panel banks, and were over six to nine basis points higher than the official BBA LIBOR fixing at those tenors. Barclays believed that its high LIBOR submissions caused its financial condition to be misperceived by the public and the media.
The negative media speculation caused significant concern within Barclays and was discussed among high levels of management within Barclays Bank. As a result, certain senior managers within Barclays Bank Treasury (“senior Barclays Treasury managers”) instructed the U.S. Dollar LIBOR submitters and their supervisor to lower Barclays’ LIBOR submissions, so that they were closer in range to the submitted rates by other banl(s but not so high as to attract
media attention.
It gets even more interesting:
One of the senior Barclays Treasury managers called a BBA representative and stated that he believed that LIBOR panel banks, including Barclays, were submitting rates that were too low because they were afraid to “stick their heads above the parapet,” and that “no one will get out of the pack, the pack sort of stays low.” He also relayed his belief that other panel banks relied too much on information from voice brokers to determine appropriate rates in the market, instead of making independent determinations for their own institutions. He encouraged the BBA to react and be heavy handed, suggesting the sanction that banles involved in such conduct be removed from the panel. In apparent response to Barclays’ call, the BBA sent an email to the Steering Committee of the BBA, which is comprised of certain panel bank members including Barclays, requesting views on whether rates were artificially low and how to address this.
…
The Barclays senior compliance officer subsequently had a conversation with the U.K. Financial Services Authority (“FSA”) in which LIBOR was discussed. The senior compliance officer stated in an internal email directed to several levels of Barclays’ senior management that he informed FSA of the following: that Barclays believed that LIBOR submissions by the panel banks were distorted due to market illiquidity; that Barclays had been consistently the highest or one of the two highest submitters but was concerned to go higher given the negative media reporting about Barclays; that Barclays had concerns about the trillions of dollars of derivatives fixed off LIBOR; and that there were “problematic actions” by some banks. However, the Barclays’ senior compliance officer did not inform the FSA that Barclays was making its LIBOR submissions based on considerations of negative market or press perceptions of Barclays or that its LIBOR submitters’ assessments of the appropriate rates for submission were being altered to adhere to the directive to be below “the parapet.” After this conversation, the same Barclays senior compliance officer did not follow up internally with the LIBOR submitters or their supervisor to confirm that Barclays was making its LIBOR submissions properly in accordance with the BBA’s definition and criteria for LIBOR.
…
Throughout the financial crisis period, Barclays’ employees, including the submitters, received routine surveillance telephone calls from staff members of the FSA, the Bank of England and the Federal Reserve Bank of New York. These conversations concerned the deepening global financial crisis and were to gauge the level of liquidity in the markets. These calls increased in frequency as the crisis worsened. In these calls, LIBOR was discussed as a measure of the severe illiquidity in the markets, and in that context, in some calls, Barclays’ employees expressed their opinion that Barclays and other panel banks were submitting rates that were too low given the market conditions. However, in those conversations, the Barclays’ employees did not explain that Barclays was not determining its LIBOR submissions in accordance with the BBA’s definition and criteria for LIBOR but instead was making its submissions in a manner to avoid negative market and media attention.
Helluva situation to be in – remember what happened to the boy who shouted that the Emporor had no clothes? He was instantly executed, his family was imprisoned for life and the village where he lived was burnt to the ground. Despite all the CFTC’s self-serving “Howevers”, it seems clear to me that the regulators were either grossly negligent or willfuly blind.
What should Barclays’ have done? Sitting here and looking at the situation in hindsight, with my own company and my own reputation not at risk in any way (in the same position as a regulator imposing a fine!), I’d guess the most honourable course would have been to have resigned from the BBA panel. And how would the markets have interpreted that? Are you sure? Would you be willing to bet the bank on it – literally?
It wasn’t much of a day for the Canadian preferred share market, with PerpetualPremiums gaining 3bp, FixedResets off 1bp and DeemedRetractibles up 1bp, but there was a surprisingly average amount of volatility considering the lack of excitement in the major indices. Volume was a little below 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 | -0.3609 % | 2,295.7 |
| FixedFloater | 4.57 % | 3.95 % | 21,389 | 17.36 | 1 | -0.5742 % | 3,448.4 |
| Floater | 3.17 % | 3.16 % | 75,669 | 19.32 | 3 | -0.3609 % | 2,478.7 |
| OpRet | 4.80 % | 2.51 % | 36,015 | 0.98 | 5 | -0.0541 % | 2,513.8 |
| SplitShare | 5.25 % | -7.35 % | 42,914 | 0.48 | 4 | 0.0992 % | 2,725.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0541 % | 2,298.6 |
| Perpetual-Premium | 5.43 % | 3.61 % | 83,789 | 0.55 | 27 | 0.0339 % | 2,240.8 |
| Perpetual-Discount | 5.03 % | 5.01 % | 118,585 | 15.39 | 7 | 0.3907 % | 2,462.6 |
| FixedReset | 5.04 % | 3.17 % | 193,676 | 7.77 | 71 | -0.0101 % | 2,399.1 |
| Deemed-Retractible | 5.01 % | 3.91 % | 141,044 | 1.81 | 45 | 0.0097 % | 2,309.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.I | FixedReset | -1.18 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 4.06 % |
| CIU.PR.A | Perpetual-Discount | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-27 Maturity Price : 23.98 Evaluated at bid price : 24.42 Bid-YTW : 4.73 % |
| MFC.PR.C | Deemed-Retractible | 1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 5.87 % |
| IGM.PR.B | Perpetual-Premium | 1.23 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.05 Bid-YTW : 5.07 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.H | Deemed-Retractible | 128,235 | National crossed blocks of 25,000 and 50,000, both at 25.75. RBC crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-02-25 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 2.30 % |
| RY.PR.Y | FixedReset | 59,200 | TD crossed 49,300 at 26.90. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 26.78 Bid-YTW : 3.27 % |
| IAG.PR.G | FixedReset | 57,545 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 4.21 % |
| BAM.PR.K | Floater | 52,118 | Nesbitt crossed 50,000 at 16.63. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-27 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 3.16 % |
| BNA.PR.C | SplitShare | 34,825 | Nesbitt crossed 30,000 at 22.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 22.55 Bid-YTW : 6.28 % |
| ENB.PR.H | FixedReset | 34,470 | Scotia crossed 30,000 at 25.37. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-06-27 Maturity Price : 23.21 Evaluated at bid price : 25.35 Bid-YTW : 3.38 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| W.PR.J | Perpetual-Premium | Quote: 25.20 – 25.75 Spot Rate : 0.5500 Average : 0.3817 YTW SCENARIO |
| CIU.PR.A | Perpetual-Discount | Quote: 24.42 – 24.99 Spot Rate : 0.5700 Average : 0.4127 YTW SCENARIO |
| FTS.PR.E | OpRet | Quote: 26.37 – 26.80 Spot Rate : 0.4300 Average : 0.3371 YTW SCENARIO |
| ELF.PR.F | Perpetual-Discount | Quote: 24.69 – 25.00 Spot Rate : 0.3100 Average : 0.2250 YTW SCENARIO |
| POW.PR.A | Perpetual-Premium | Quote: 25.37 – 25.70 Spot Rate : 0.3300 Average : 0.2474 YTW SCENARIO |
| BNS.PR.Q | FixedReset | Quote: 25.55 – 25.79 Spot Rate : 0.2400 Average : 0.1605 YTW SCENARIO |
[…] Everybody’s ducking blame. As I stated on June 27, it seems quite clear to me that the regulators were either grossly negligent or willfuly blind. I […]