March 26, 2013

In a move sure to be applauded by crypto-Stalinists everywhere BMO will not advertise its prices:

Bank of Montreal will not extend its 2.99 per cent five-year fixed mortgage rate offer past its expiry on March 28, with the country’s lenders under pressure from Finance Minister Jim Flaherty not to engage in a mortgage price war.

Consumers can still obtain lower rates than this from a variety of mortgage lenders, including other large banks, which routinely offer discounts from their posted or advertised rates. But Bank of Montreal was the only one of the big five banks to cut its posted rate on five-year fixed mortgages below 3 per cent, a move that it advertised heavily.

The bank has long lagged rivals when it comes to market share in the mortgage arena, and has been seeking to get ahead. Mr. Flaherty appeared to be concerned that borrowers would be persuaded to take on more debt than they can chew, potentially heating up the housing market, which he has been seeking to cool.

Some might argue that posted rates affect everybody, including those who are in the twentieth year of their twenty-five year amortization and have loan-to-value ratios of 10% and that seeking to avoid heating up the housing market might best be done through broad-brush monetary, economic and regulatory levers (such as reducing the immense supply of mortgage insurance; such as imposing capital surcharges on bank asset proportions that are widely divergent from historical norms) is preferable to micromanaging; but those people are probably just old poops who don’t appreciate the awesome toughness of our beloved federal finance minister.

The BRICS are going ahead with their own bank:

With just a couple of small gestures at their annual summit, the world’s biggest emerging economies have made the West seem a little less indispensable.

On the summit’s first day, the BRICS bloc of nations has approved a new development bank to compete with Western-dominated institutions such as the World Bank. And on the sidelines, China and Brazil announced a currency-swap agreement worth $30-billion (U.S.) that will allow them to conduct trade in each other’s currencies without needing the U.S. dollar.

The new BRICS-led bank, designed to lend money for infrastructure projects across the developing world, is the biggest step that BRICS have taken to challenge the global financial system since the bloc’s first formal summit in 2009. Another key step could be an agreement on a currency crisis fund, based on pooled foreign-exchange reserves of up to $240-billion, which the BRICS nations are negotiating.

The new BRICS bank is seen as a potentially crucial source of funds for African infrastructure projects. It is often touted, for example, as a likely financier for a massive expansion of nuclear energy in South Africa, a goal of many politicians here. And it could be useful for cross-border projects, which tend to be neglected by traditional creditors.

This is good news. It is clearly better engineering to have a variety of relatively small points of failure, rather than just one.

Taxing depositors was a novel idea and has given the Egyptians the idea of taxing takeovers:

gypt rattled investors on the Cairo stock market on Tuesday by unexpectedly announcing that a takeover of its second biggest private bank would be subject to a new capital markets tax.

Shares in the bank, National Société Générale Bank, which is being taken over by Qatar National Bank, tumbled by their legal limit of 10 per cent and helped pushed Cairo’s benchmark index down to its lowest level since December.

Is it any wonder that Egypt’s in trouble?

Moody’s Investors Service Inc. cut Egypt’s credit rating on Thursday, citing unsettled political conditions and public finances, which it said raised the chance of a default within five years to nearly 40 per cent.

The Egyptian economy has been in crisis since the overthrow of Hosni Mubarak in 2011, with Islamist President Mohamed Mursi’s cash-strapped government grappling with sliding currency reserves, dwindling tourism, a soaring budget deficit and a wave of often violent street protests.

DBRS commented on the Cypriot deposit tax:

However, the announcement that insured Cypriot depositors would be taxed was new and wholly unexpected. (Senior bondholders were also written down, representing a significant shift in ECB policy.) If the proposal had targeted only uninsured depositors holding accounts of over EUR100,000 – the proposal was to tax them at 9.9% – it may still have led to deposit flight. But targeting both large and small depositors represented the first time that depositors in the Euro zone would take losses to shore up failing banks. The taxation of depositors in a Euro zone country is not a credit event, since Cyprus continues to honor its debt payments. However, the surprise announcement of the imposition of losses on legislation that was considered safe recalls the losses imposed on sovereign bondholders during last year’s Greek restructuring, the first default of a Euro zone country.

The rapid spread of bank runs, bankruptcies and systemic crisis that culminated in the failure of Lehman Brothers in the fall of 2008 led to the introduction of extraordinary deposit insurance in Europe. Insurance provided the protection to small depositors needed to reestablish calm following the panic of 2008 and 2009. The notion that small Cypriot depositors could be taxed implied that Cyprus was viewed by the troika as being not systemic, and therefore that a run on Cypriot deposits was unlikely to spread to other Euro zone countries. Nothing could be further from the truth. During the current period of low to no growth in Europe, it is certainly possible that a run on Cypriot deposits could spread, in spite of existing or future controls on capital.

It was a good day for the Canadian preferred share market, with PerpetualPremiums up 10bp, FixedResets winning 16bp and DeemedRetractibles gaining 7bp. Volatility was minor. Volume was above average.

In the wake of yesterday’s DBRS downgrade to Pfd-4(high), INE.PR.A, a FixedReset, was down 5.56% (total return – it went ex-dividend) and INE.PR.C, a PerpetualDiscount, was down 4.05%.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
(at bid)
Mod Dur
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0096 % 2,637.9
FixedFloater 4.09 % 3.44 % 28,085 18.38 1 0.8696 % 3,971.7
Floater 2.53 % 2.82 % 82,530 20.17 5 0.0096 % 2,848.2
OpRet 4.81 % 0.81 % 57,597 0.23 5 0.0620 % 2,604.8
SplitShare 4.29 % 4.03 % 633,856 4.18 4 -0.1216 % 2,935.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0620 % 2,381.8
Perpetual-Premium 5.20 % -2.32 % 93,761 0.10 31 0.0992 % 2,370.0
Perpetual-Discount 4.75 % 4.83 % 164,270 15.54 5 0.1211 % 2,674.9
FixedReset 4.88 % 2.58 % 288,452 3.28 80 0.1585 % 2,518.0
Deemed-Retractible 4.85 % 2.69 % 131,285 0.51 44 0.0659 % 2,454.5
Performance Highlights
Issue Index Change Notes
RY.PR.C Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-25
Maturity Price : 25.75
Evaluated at bid price : 26.10
Bid-YTW : -7.40 %
IFC.PR.C FixedReset 1.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 26.30
Bid-YTW : 2.63 %
Volume Highlights
Issue Index Shares
PWF.PR.S Perpetual-Discount 160,983 Recent new issue.
Maturity Type : Call
Maturity Date : 2022-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 4.74 %
TRP.PR.D FixedReset 132,310 Recent new issue.
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.98
Bid-YTW : 3.34 %
CU.PR.F Perpetual-Discount 66,287 Recent new issue.
Maturity Type : Call
Maturity Date : 2022-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 4.46 %
BMO.PR.J Deemed-Retractible 61,995 RBC crossed 47,400 at 26.10.
Maturity Type : Call
Maturity Date : 2013-04-25
Maturity Price : 25.75
Evaluated at bid price : 25.95
Bid-YTW : -0.86 %
ENB.PR.P FixedReset 61,350 National crossed 49,400 at 25.75.
Maturity Type : Call
Maturity Date : 2019-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.78
Bid-YTW : 3.48 %
ENB.PR.H FixedReset 60,820 TD sold 13,900 to anonymous at 25.80.
Maturity Type : Limit Maturity
Maturity Date : 2043-03-26
Maturity Price : 23.38
Evaluated at bid price : 25.80
Bid-YTW : 3.24 %
There were 37 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: 50.76 – 51.29
Spot Rate : 0.5300
Average : 0.3445

Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 50.76
Bid-YTW : 1.89 %

CIU.PR.A Perpetual-Premium Quote: 25.05 – 25.34
Spot Rate : 0.2900
Average : 0.1871

Maturity Type : Limit Maturity
Maturity Date : 2043-03-26
Maturity Price : 24.77
Evaluated at bid price : 25.05
Bid-YTW : 4.62 %

W.PR.J Perpetual-Premium Quote: 25.55 – 25.92
Spot Rate : 0.3700
Average : 0.2695

Maturity Type : Call
Maturity Date : 2013-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : -7.62 %

GWO.PR.J FixedReset Quote: 25.71 – 26.00
Spot Rate : 0.2900
Average : 0.1949

Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 2.12 %

POW.PR.G Perpetual-Premium Quote: 26.95 – 27.24
Spot Rate : 0.2900
Average : 0.2036

Maturity Type : Call
Maturity Date : 2017-04-15
Maturity Price : 26.00
Evaluated at bid price : 26.95
Bid-YTW : 4.34 %

W.PR.H Perpetual-Premium Quote: 25.95 – 26.19
Spot Rate : 0.2400
Average : 0.1704

Maturity Type : Call
Maturity Date : 2013-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : -25.34 %

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