It will be interesting to learn all the unintended consequences:
As France begins collecting its financial-transactions tax this month, it is becoming evident that President Francois Hollande’s levy is hitting all but the people it was aimed at: speculators.
Hollande, who called finance his “main adversary” during his election campaign, pushed through in August a 0.2 percent transaction tax on share purchases, making France the first and only country so far in Europe to have such a levy. Many investors have been escaping the tax using so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares.
“The target was supposed to be finance with a capital F, which is sort of a black box,” said Jacques Porta, who helps manage $627 million at Ofi Patrimoine in Paris. “Instead, we are punishing small investors who aren’t to blame and already are frightened off by losses in the market.”
How about an update on bank bonds?
Case in point: a new report from Moody’s Investors Service found that bank debt issues around the world have been chopped in half since the onset of the financial crisis. After peaking at roughly $2.4-trillion (U.S.) a quarter in 2007, banks globally are now issuing unsecured debt that amounts to just half that.
First it was North American issues – chiefly the U.S. – that plummeted in 2008 and 2009, and more recently it’s been European banks, particularly those on the periphery of the euro zone. The only area of the world seeing an uptick in issuance right now is Asia, where long-term bank debt issues are up 6 per cent over the 12 months ended Sept. 30. (Canada on its own is also faring well.)
The drop-off has a few implications. Chiefly, it affects how much money the banks can lend. For that reason, it’s sparked a push for deposits as a cheap source of funds.
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The slowdown also gives the banks an incentive to ramp up their covered bond offerings.
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To understand just how much covered bond spreads have tightened, making them more favourable, in 2009 they blew out to roughly 240 basis points in the U.K. Now they’re back to about 60 basis points.
With the election out of the way, the Keystone pipeline of TCA and TRP is in the news again:
Environmentalists are reviving their noisy 2011 anti-pipeline campaign, with a demonstration scheduled for Sunday outside the White House, and they have pointed to the decision on the Keystone pipeline as a key test of the President’s resolve to battle climate change during his second term. Former U.S. vice-president Al Gore this week urged Mr. Obama to kill the Keystone XL project.
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On Thursday, TransCanada got a boost when the Building & Construction Trades and the American Petroleum Institute each called on Mr. Obama to move quickly to approve the controversial project, which will carry 1.1-million barrels per day of oil-sands bitumen from Alberta and lighter oil from North Dakota’s Bakken fields to the U.S. Gulf Coast.
Julie Dickson gave a speech titled Substance over Form at the 2012 Life Insurance Invitational Forum, but there wasn’t much in it:
Just as many now recognize that it was a mistake to believe that low rates would be a short-term, transitory phenomenon, it would also be a mistake to assume that we could never again be faced with very high interest rates.
Insurers will remember what happened in the 1980s, when rates spiked to historically high levels and the insurers’ business model came under pressure, as policyholders found life policies with savings features unattractive and decided to turn to banks for savings products. (You may recall that this led to the expression, “Buy term and invest the rest.”)
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Let me switch to banking for a minute to expand on this point. Lately, I have seen a number of articles suggesting that Basel III is too complex and that Basel III capital calculations cannot be relied upon. I think such thinking is misguided. OSFI’s view is that Basel III can be relied upon – if proper risk management and governance at financial institutions is in place, and if supervisors are active and diligent in their work of overseeing Basel III implementation. Combined with a leverage ratio, Basel III, properly implemented, will fundamentally enhance financial stability. It might be better for people to focus more on the quality of supervision, and focus less on Basel III complexity.As we point out in the Life Insurance Regulatory Framework, OSFI expects to consult significantly with industry over the coming years so that major regulatory capital changes can be implemented by 2015. Risk management will form a big part of that consultation.
Naturally, future employment prospects of OSFI personnel are not forgotten:
OSFI recognizes that small- to medium-sized companies, or those of less complexity with predictable and diversifiable risk, may not be able to afford a dedicated CRO to lead the risk management function. In these cases, we accept that the individuals responsible for risk management can also be performing other functions. But even in small, less complex businesses, we want to see a risk management process on which the board of directors, the CEO, senior management team, and policyholders can rely. As an example, we would want the board to meet in camera with the person who owns the risk management role as part of his or her responsibilities.
It was another mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets off 2bp and DeemedRetractibles down 5bp. Volatility was low. Volume was 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 | -0.6545 % | 2,446.7 |
| FixedFloater | 4.18 % | 3.51 % | 30,908 | 18.28 | 1 | -0.4376 % | 3,853.3 |
| Floater | 2.82 % | 3.02 % | 56,145 | 19.63 | 4 | -0.6545 % | 2,641.8 |
| OpRet | 4.60 % | 2.47 % | 65,358 | 1.32 | 4 | -0.1137 % | 2,590.7 |
| SplitShare | 5.35 % | 4.59 % | 55,836 | 4.44 | 3 | -0.1819 % | 2,866.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1137 % | 2,369.0 |
| Perpetual-Premium | 5.25 % | 2.63 % | 74,570 | 0.28 | 30 | 0.0200 % | 2,319.2 |
| Perpetual-Discount | 4.87 % | 4.92 % | 99,670 | 15.57 | 3 | 0.1780 % | 2,612.4 |
| FixedReset | 4.98 % | 2.96 % | 204,250 | 3.90 | 75 | -0.0180 % | 2,449.2 |
| Deemed-Retractible | 4.90 % | 3.43 % | 122,744 | 1.00 | 46 | -0.0532 % | 2,398.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRI.PR.B | Floater | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-11-15 Maturity Price : 21.86 Evaluated at bid price : 22.10 Bid-YTW : 2.36 % |
| MFC.PR.F | FixedReset | 1.77 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.66 Bid-YTW : 3.58 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.N | FixedReset | 276,236 | Nesbitt crossed blocks of 222,700 and 50,000 shares, both at 26.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 26.34 Bid-YTW : 2.11 % |
| FTS.PR.J | Perpetual-Premium | 117,929 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 4.69 % |
| TD.PR.P | Deemed-Retractible | 54,300 | National crossed 50,000 at 26.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2012-12-15 Maturity Price : 26.00 Evaluated at bid price : 26.35 Bid-YTW : -8.54 % |
| RY.PR.W | Perpetual-Premium | 52,125 | National crossed 49,900 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-02-24 Maturity Price : 25.25 Evaluated at bid price : 25.54 Bid-YTW : 0.26 % |
| BNS.PR.P | FixedReset | 31,000 | Desjardins crossed 10,000 at 25.10; Nesbitt crossed 10,000 at 25.11. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.09 Bid-YTW : 3.40 % |
| ENB.PR.F | FixedReset | 30,548 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2042-11-15 Maturity Price : 23.26 Evaluated at bid price : 25.40 Bid-YTW : 3.63 % |
| There were 20 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRI.PR.B | Floater | Quote: 22.10 – 22.44 Spot Rate : 0.3400 Average : 0.2121 YTW SCENARIO |
| TCA.PR.Y | Perpetual-Premium | Quote: 52.00 – 52.37 Spot Rate : 0.3700 Average : 0.2622 YTW SCENARIO |
| SLF.PR.B | Deemed-Retractible | Quote: 24.90 – 25.15 Spot Rate : 0.2500 Average : 0.1534 YTW SCENARIO |
| ELF.PR.H | Perpetual-Premium | Quote: 25.90 – 26.15 Spot Rate : 0.2500 Average : 0.1604 YTW SCENARIO |
| SLF.PR.F | FixedReset | Quote: 26.45 – 26.75 Spot Rate : 0.3000 Average : 0.2213 YTW SCENARIO |
| MFC.PR.I | FixedReset | Quote: 25.83 – 25.99 Spot Rate : 0.1600 Average : 0.0983 YTW SCENARIO |
[…] The imposition of a 20bp transaction charge in France (which has resulted in a greater interest in derivatives such as Contracts For Difference) was discussed on PrefBlog on November 15. […]