There was a most interesting story on Bloomberg about the travails of the brokerage business:
Alex Freemon was so eager to be a stockbroker after graduating from the Georgia Institute of Technology last year that he said he was happy to go door to door selling mutual funds for Edward Jones & Co.
The brokerage flew him to St. Louis, where he practiced knocking on a model door in a classroom of would-be brokers at the company’s headquarters, then sent him back to Atlanta to walk the streets for 10 hours a day for about $30,000 a year plus commissions. Freemon said he quit in March after realizing he would have to spend five years struggling to meet sales goals before he could focus on helping clients make financial plans.
…
Breaking into the brokerage business is getting tougher as declining fees make small accounts less profitable and government restrictions on unsolicited calls make phone sales taboo. That’s leaving big firms struggling to replace a retiring generation of advisers who helped accumulate trillions of dollars of assets and generated steady profits for years.“The only way you can do it is if your dad is rich and he’s got country-club buddies he can send you or you’re a psycho who can work 20 hours a day,” said Josh Brown, who helps oversee about $350 million at Fusion Analytics Investment Partners LLC in New York.
…
The shift to discount brokerages is happening as individual investors return to the stock market. Charles Schwab Corp. (SCHW)’s client assets rose 14 percent in the first quarter, as the Standard & Poor’s 500 Index (SPX) headed toward a record 1633.77 yesterday. That’s more than twice the 6 percent increase for Bank of America Corp. (BAC)’s wealth-management unit.Brokers also are leaving the biggest firms to join or start smaller money-management businesses, known as registered investment advisers, that don’t take commissions. From 2009 to 2012, the ranks of investment advisers increased 7 percent while the number of brokers fell 9 percent, according Aite Group LLC, a financial-research company based in Boston.
Luis Aguilar, the SEC Commissioner I most often quote unfavourably here, was weeping and wailing about credit rating agencies today:
Although AAA-rated securities have historically had less than 1% probability of incurring defaults, over 90% of the AAA ratings given to subprime RMBS securities that originated in 2006 and 2007 were later downgraded by the NRSROs to junk status.[Footnote]
Footnote reads: Id. (Financial instruments bearing below BBB- (or Baa3) ratings are referred to as “below investment grade” or as having “junk” status). [nb: “Id.” refers to the US Senate Report
I find it very interesting to see just how carefully he chooses his words: he discusses the incidence of default of AAA securities, then discusses the downgrades-to-junk of subprime paper – and even then, only of 2006/07 cohorts.
As those familiar with the ratings of Split Share Corporations are aware, a good rule of thumb is that ratings for structured notes will be volatile, but defaults are highly mitigated by a relatively low severity of default. I continue to be fascinated by the question of just what proportion of AAA actually defaulted (broken down by cohort and security type) and what the severity of these defaults was, but I have never seen any figures … the regulators and other hand-wringers are too busy whipping up hysteria about the Evil Credit Rating Agencies to worry about picayune facts. Why is this information being suppressed by people who should know better such as SEC Commissioner Luis Aguilar?
What’s a Grecian Urn? An upgrade from Fitch!
Greece won an upgrade by one level from Fitch Ratings, which cited the country’s progress in rebalancing the economy and bringing its deficits under control.
Greece was raised to B- from CCC and given a stable outlook, according to a statement from Fitch in London today. The ratings company said there is a “semblance of political and social stability” with the government showing more ownership over its adjustment program and a lower risk of exit from the euro area.
It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 7bp, FixedResets down 7bp and DeemedRetractibles gaining 3bp. Volatility was low. Volume was 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 | -0.8760 % | 2,550.0 |
| FixedFloater | 3.88 % | 3.10 % | 32,472 | 18.86 | 1 | 0.3276 % | 4,237.2 |
| Floater | 2.73 % | 2.96 % | 82,046 | 19.79 | 4 | -0.8760 % | 2,753.3 |
| OpRet | 4.80 % | -1.18 % | 69,652 | 0.13 | 5 | 0.1549 % | 2,613.8 |
| SplitShare | 4.79 % | 4.04 % | 105,718 | 4.06 | 5 | 0.0235 % | 2,969.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1549 % | 2,390.1 |
| Perpetual-Premium | 5.21 % | 2.74 % | 90,767 | 0.42 | 31 | 0.0688 % | 2,380.2 |
| Perpetual-Discount | 4.85 % | 4.89 % | 196,002 | 15.62 | 4 | -0.1015 % | 2,681.5 |
| FixedReset | 4.88 % | 2.61 % | 253,918 | 3.35 | 81 | -0.0658 % | 2,521.2 |
| Deemed-Retractible | 4.87 % | 3.28 % | 132,930 | 0.52 | 44 | 0.0291 % | 2,460.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRI.PR.B | Floater | -1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-05-14 Maturity Price : 23.20 Evaluated at bid price : 23.50 Bid-YTW : 2.22 % |
| BAM.PR.B | Floater | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-05-14 Maturity Price : 17.85 Evaluated at bid price : 17.85 Bid-YTW : 2.96 % |
| MFC.PR.F | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.38 Bid-YTW : 2.93 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.O | FixedReset | 220,975 | TD crossed blocks of 100,000 and 10,000 at 26.10; Nesbitt crossed 100,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 26.07 Bid-YTW : 2.07 % |
| BNS.PR.A | FixedReset | 59,600 | RBC crossed 48,400 at 26.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-06-13 Maturity Price : 25.50 Evaluated at bid price : 26.00 Bid-YTW : -20.90 % |
| PWF.PR.S | Perpetual-Premium | 58,150 | RBC crossed 50,000 at 25.38. YTW SCENARIO Maturity Type : Call Maturity Date : 2022-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.38 Bid-YTW : 4.64 % |
| TRP.PR.B | FixedReset | 45,723 | National crossed 29,000 at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-05-14 Maturity Price : 23.50 Evaluated at bid price : 24.85 Bid-YTW : 2.61 % |
| PWF.PR.F | Perpetual-Premium | 42,200 | RBC bought 12,200 from anonymous at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-06-13 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : -9.50 % |
| IAG.PR.A | Deemed-Retractible | 38,450 | National crossed 35,000 at 24.70. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.72 Bid-YTW : 4.82 % |
| There were 34 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: 23.50 – 23.90 Spot Rate : 0.4000 Average : 0.2496 YTW SCENARIO |
| ELF.PR.H | Perpetual-Premium | Quote: 26.12 – 26.45 Spot Rate : 0.3300 Average : 0.1971 YTW SCENARIO |
| IGM.PR.B | Perpetual-Premium | Quote: 26.84 – 27.10 Spot Rate : 0.2600 Average : 0.1796 YTW SCENARIO |
| PWF.PR.M | FixedReset | Quote: 25.60 – 25.86 Spot Rate : 0.2600 Average : 0.1923 YTW SCENARIO |
| BNS.PR.Y | FixedReset | Quote: 24.70 – 24.90 Spot Rate : 0.2000 Average : 0.1469 YTW SCENARIO |
| IAG.PR.G | FixedReset | Quote: 26.43 – 26.65 Spot Rate : 0.2200 Average : 0.1711 YTW SCENARIO |