The BoC rate statement was dovish:
Core inflation has been lower than expected in recent months, reflecting somewhat softer prices across a wide range of goods and services. Core inflation is expected to increase gradually over coming quarters, reaching 2 per cent by the middle of 2013 as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well-anchored. Total CPI inflation has fallen noticeably below the 2 per cent target, as expected, and is projected to return to target by the end of 2013, somewhat later than previously anticipated.
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.
RBC & TD announced major acquisitions:
Royal Bank of Canada and Toronto- Dominion Bank (TD) announced purchases today of almost $20 billion in combined assets from U.S. companies to bolster profit ahead of a slowdown in domestic consumer lending.
Royal Bank, the nation’s largest lender, plans to buy Ally Financial Inc. (ALLY)’s Canadian auto-finance and deposit business in a deal that Ally said will generate $4.1 billion for the Detroit- based lender. Toronto-Dominion agreed to acquire Target Corp. (TGT)’s $5.9 billion U.S. credit-card portfolio for an amount equal to the gross value of the outstanding loans at the time the deal is completed, the firms said.
DBRS commented on the TD / Target deal:
The acquired credit card portfolio is stated to have credit quality in line with industry benchmarks. The quality of credit card clients is believed to be above average in regards to credit risk characteristics. The acquisition will have a moderate impact on capital, with the Bank expecting to see a 20 basis point decrease in its Tier 1 capital ratio and a 14 basis point drop in its Basel III common equity Tier 1 (CET1) ratio upon closing of the transaction. The drop in capital metrics still positions TD comfortably in regards to regulatory limits, with the Bank reporting a CET1 ratio of 7.7% at July 30, 2012, well above the regulatory requirement of 7% targeted for the first quarter of 2013.
… and on the RBC / Ally deal:
The net investment for RBC is $1.4 billion after deducting excess capital.Including the excess capital, and subject to certain closing adjustments, will result in total consideration of approximately $3.1 to $3.8 billion, depending on the dividend taken out by the seller prior to closing. The transaction is expected to generate earnings in the first 12 months after closing of $120 million after tax (excluding integration costs, amortization of intangibles and transaction costs, which are expected to be approximately $50 million). The Basel III common equity Tier 1 ratio is estimated to decrease by approximately 30 to 40 bps immediately following the close of the acquisition, but to remain in excess of 8%. The deal is subject to closing conditions, including regulatory approvals, and is expected to close in the first calendar quarter of 2013.
There was a downdraft in the Canadian preferred share market today, with PerpetualPremiums and FixedReset both off 9bp and DeemedRetractibles losing 14bp. Volatility was negligible. Volume was well above average and only of the highlighted issues (ENB.PR.N) was affected by the recent TXPR rebalancing.
| 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 | -0.2072 % | 2,466.8 |
| FixedFloater | 4.16 % | 3.49 % | 35,540 | 18.38 | 1 | -0.0875 % | 3,870.3 |
| Floater | 2.97 % | 3.00 % | 68,668 | 19.73 | 3 | -0.2072 % | 2,663.4 |
| OpRet | 4.62 % | 1.96 % | 38,991 | 0.67 | 4 | -0.2376 % | 2,571.2 |
| SplitShare | 5.39 % | 4.78 % | 67,843 | 4.49 | 3 | 0.0656 % | 2,846.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2376 % | 2,351.1 |
| Perpetual-Premium | 5.29 % | 0.64 % | 85,279 | 0.23 | 27 | -0.0852 % | 2,307.0 |
| Perpetual-Discount | 5.01 % | 4.90 % | 46,489 | 15.47 | 4 | 0.0205 % | 2,581.1 |
| FixedReset | 4.98 % | 3.03 % | 198,331 | 3.82 | 73 | -0.0874 % | 2,443.0 |
| Deemed-Retractible | 4.95 % | 3.49 % | 133,034 | 0.99 | 47 | -0.1375 % | 2,380.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IAG.PR.A | Deemed-Retractible | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 5.22 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.P | FixedReset | 288,703 | Nesbitt crossed blocks of 200,000 and 60,000, both at 25.08. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.08 Bid-YTW : 3.44 % |
| IFC.PR.A | FixedReset | 167,082 | RBC crossed 163,900 at 25.35. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 3.63 % |
| TD.PR.K | FixedReset | 91,795 | TD crossed 79,500 at 26.76. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 2.14 % |
| MFC.PR.H | FixedReset | 59,389 | RBC crossed 55,300 at 26.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.94 Bid-YTW : 3.79 % |
| ENB.PR.N | FixedReset | 54,620 | TD crossed blocks of 19,900 and 16,000, both at 25.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-10-23 Maturity Price : 23.26 Evaluated at bid price : 25.50 Bid-YTW : 3.83 % |
| RY.PR.F | Deemed-Retractible | 52,685 | Nesbitt crossed 40,000 at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-05-24 Maturity Price : 25.00 Evaluated at bid price : 25.76 Bid-YTW : 3.44 % |
| There were 39 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TCA.PR.X | Perpetual-Premium | Quote: 51.62 – 52.00 Spot Rate : 0.3800 Average : 0.2674 YTW SCENARIO |
| BMO.PR.P | FixedReset | Quote: 26.70 – 26.98 Spot Rate : 0.2800 Average : 0.1765 YTW SCENARIO |
| GWO.PR.J | FixedReset | Quote: 25.90 – 26.20 Spot Rate : 0.3000 Average : 0.2079 YTW SCENARIO |
| SLF.PR.I | FixedReset | Quote: 25.71 – 25.95 Spot Rate : 0.2400 Average : 0.1599 YTW SCENARIO |
| FTS.PR.F | Perpetual-Premium | Quote: 25.76 – 26.01 Spot Rate : 0.2500 Average : 0.1874 YTW SCENARIO |
| HSB.PR.C | Deemed-Retractible | Quote: 25.51 – 25.75 Spot Rate : 0.2400 Average : 0.1807 YTW SCENARIO |