Here’s some corporate activism that doesn’t induce nausea:
Caterpillar Inc. (CAT) Chief Executive Officer Doug Oberhelman said he will campaign later this year for a cut in U.S. government debt because the issue affects customers of the largest maker of construction and mining machinery.
“It’s starting to hold us back,” Oberhelman said in an interview yesterday with Bloomberg Television’s “Street Smart” at the company’s demonstration and learning center in Edwards, Illinois. “For the contractor base and customers in this country, it’s worrisome. It has a chill in the air.”
Customers of Caterpillar are “scared to death” that tax rates will rise as public expenditure stalls, he said. Higher taxes and cuts in spending on government programs amounting to $607 billion as measured by the Congressional Budget Office will take effect at year-end without congressional action.
In a continuation of the insane stampede towards central counterparties and single-point failure BIS has proposed:
Where a bank acts as a clearing member of a CCP for its own purposes, a risk weight of 2% must be applied to the bank’s trade exposure to the CCP in respect of OTC derivatives, exchange traded derivative transactions and SFTs. Where the clearing member offers clearing services to clients, the 2% risk weight also applies to the clearing member’s trade exposure to the CCP that arises when the clearing member is obligated to reimburse the client for any losses suffered due to changes in the value of its transactions in the event that the CCP defaults
Capital is charged harshly … but subject to a cap!
Clearing member banks may apply a risk-weight of 1250% to its default fund exposures to the CCP, subject to an overall cap on the risk-weighted assets from all its exposures to the CCP (ie including trade exposures) equal to 20% times the trade exposures to the CCP. More specifically, under this approach, the Risk Weighted Assets (RWA) for both bank i’s trade and default fund exposures to each CCP are equal to:16
Min {(2% * TEi + 1250% * DFi); (20% * TEi)}
where
• TEi is bank i’s trade exposure to the CCP, as measured by the bank according to paragraphs 110 to 112 of this Annex; and
• DFi is bank i’s pre-funded contribution to the CCP’s default fund.
When calculating the required capital of the CCP, its exposures are risk-weighted at 20%, a figure which is far too low. Interconnectedness of banks should be discouraged through the capital rules, not encouraged! Note that under Canadian rules:
- the risk weight of bank exposure is dependent upon the credit quality of the sovereign (i.e., an implicit assumption of cross-border state aid)
- The highest rank for sovereigns is the AA- to AAA category
- The risk weight for exposure banks domiciled in these credit-worthy sovereigns is 20%
- The credit quality scale for these exposures is the same as for corporates
So in other words, if a bank has a choice between lending to a non-financial company or another bank, the risk weighting will generally favour the bank loan, because then they can use the sovereign’s creditworthiness rather than that of the actual borrowing entity. Am I the only person in the world who thinks this is nuts?
It was a mildly positive day for the Canadian preferred share market, with PerpetualPremiums winning 7bp, FixedResets up 6bp and DeemedRetractibles gaining 4bp. Volatility was minimal. There were a few pockets of volume … but basically? Yech.
| 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 | 0.0797 % | 2,319.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0797 % | 3,469.4 |
| Floater | 3.14 % | 3.19 % | 65,443 | 19.23 | 3 | 0.0797 % | 2,504.2 |
| OpRet | 4.76 % | 2.35 % | 34,764 | 0.86 | 5 | 0.0307 % | 2,535.3 |
| SplitShare | 5.46 % | 5.03 % | 65,187 | 4.62 | 3 | 0.1196 % | 2,773.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0307 % | 2,318.3 |
| Perpetual-Premium | 5.30 % | 4.08 % | 102,430 | 1.13 | 28 | 0.0708 % | 2,273.2 |
| Perpetual-Discount | 4.98 % | 4.99 % | 97,301 | 15.46 | 3 | 0.1259 % | 2,512.4 |
| FixedReset | 4.99 % | 3.01 % | 176,015 | 4.11 | 71 | 0.0607 % | 2,423.6 |
| Deemed-Retractible | 4.95 % | 3.38 % | 134,994 | 1.32 | 46 | 0.0366 % | 2,354.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| POW.PR.G | Perpetual-Premium | 1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 26.57 Bid-YTW : 4.80 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| SLF.PR.F | FixedReset | 200,450 | National crossed six blocks: 75,000 shares, 35,000 shares, 40,000 shares, 20,000 and two of 10,000 each, all at 26.23. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.23 Bid-YTW : 3.70 % |
| NA.PR.L | Deemed-Retractible | 160,983 | Desjardins crossed 160,000 at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-09-12 Maturity Price : 25.50 Evaluated at bid price : 25.63 Bid-YTW : -1.75 % |
| SLF.PR.G | FixedReset | 145,231 | National crossed blocks of 13,100 shares, 61,800 shares, 42,000 and 21,300, all at 24.83. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.88 Bid-YTW : 3.40 % |
| BNS.PR.Q | FixedReset | 137,526 | Desjardins crossed 108,200 at 25.40. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 3.18 % |
| TD.PR.O | Deemed-Retractible | 52,729 | TD crossed 50,000 at 25.98. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-31 Maturity Price : 25.50 Evaluated at bid price : 25.94 Bid-YTW : -2.39 % |
| MFC.PR.F | FixedReset | 39,392 | Scotia crossed 14,800 and 16,700, both at 23.90. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.85 Bid-YTW : 4.08 % |
| There were 14 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ENB.PR.A | Perpetual-Premium | Quote: 25.73 – 25.99 Spot Rate : 0.2600 Average : 0.1618 YTW SCENARIO |
| TD.PR.R | Deemed-Retractible | Quote: 26.83 – 27.10 Spot Rate : 0.2700 Average : 0.1803 YTW SCENARIO |
| IAG.PR.C | FixedReset | Quote: 26.28 – 26.64 Spot Rate : 0.3600 Average : 0.2778 YTW SCENARIO |
| SLF.PR.I | FixedReset | Quote: 25.65 – 25.90 Spot Rate : 0.2500 Average : 0.1720 YTW SCENARIO |
| FTS.PR.C | OpRet | Quote: 25.74 – 25.99 Spot Rate : 0.2500 Average : 0.1785 YTW SCENARIO |
| TD.PR.Q | Deemed-Retractible | Quote: 26.70 – 26.89 Spot Rate : 0.1900 Average : 0.1222 YTW SCENARIO |