The US is taking effective action on bank capital ratios:
Capital standards at the biggest U.S. lenders would rise to 5 percent of assets for parent companies and 6 percent for their banking units under a plan proposed today by federal regulators.
The Office of the Comptroller of the Currency proposed a leverage ratio that’s 2 percentage points more than the 3 percent international minimum for holding companies, the agency said in a statement. Capital at U.S.-backed deposit and lending units must be twice the global standard at 6 percent, according to the OCC. The Federal Deposit Insurance Corp. is set to vote on the proposal later today.
…
The changes would affect the eight U.S. institutions already tagged as globally important, according to the Federal Reserve. The Financial Stability Board, a group of international central bankers that coordinates financial rules, identified them as JPMorgan (JPM) Chase & Co., Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc., Bank of America Corp. (BAC), Morgan Stanley (MS), State Street Corp. (STT) and Bank of New York Mellon Corp.Based on the largest banks’ September data, the holding companies fell short of the new leverage requirement by $63 billion, FDIC staff said in a meeting with reporters today. The insured lending units would need $89 billion more in capital.
Banks would have until Jan. 1, 2018 to comply, according to today’s statement. The proposal faces a 60-day public comment period and needs final approvals from the three agencies.
The NYSE is taking over LIBOR:
NYSE Euronext (NYX) will replace the British Bankers’ Association as Libor’s administrator in early 2014, the London-based lobby group that started the benchmark more than two decades ago said in a statement today. The U.K.’s Financial Conduct Authority began regulating Libor, the benchmark for more than $300 trillion of securities, in April as part of the overhaul.
The New York-based purchaser already operates Liffe, Europe’s second-largest derivatives exchange, which offers derivatives based on Libor. A government review recommended last year that the BBA should be stripped of responsibility for Libor after regulators found banks had tried to manipulate it to profit from bets on derivatives.
“The fact they are handing this to a derivatives exchange is a surprise,” Peter Lenardos, a financials and exchange analyst at RBC Capital Markets in London, said by telephone today. “It just doesn’t seem independent enough. They are taking the setting of Libor from the banks and giving it to an exchange not known as a benchmark provider.”
Americans, unlike everybody else on earth, are well known for meticulous attention to routine government bullshit:
Anthony J. Domico, a former contractor hired to check the backgrounds of U.S. government workers, filed a 2006 report with the results of an investigation.
There was just one snag: A person he claimed to have interviewed had been dead for more than a decade. Domico, who had worked for contractors CACI International Inc. (CACI) and Systems Application & Technologies Inc., found himself the subject of a federal probe.
Domico is among 20 investigators who have pleaded guilty or have been convicted of falsifying such reports since 2006. Half of them worked for companies such as Altegrity Inc., which performed a background check on national-security contractor Edward Snowden. The cases may represent a fraction of the fabrications in a government vetting process with little oversight, according to lawmakers and U.S. watchdog officials.
Hats off to the NYSE for its eagerness to feast at the government trough!
The IMF is full of cheer:
World economic growth will struggle to accelerate this year as a U.S. expansion weakens, China’s economy levels off and Europe’s recession deepens, the International Monetary Fund said.
Global growth will be 3.1 percent this year, unchanged from the 2012 rate, and less than the 3.3 percent forecast in April, the Washington-based fund said today, trimming its prediction for this year a fifth consecutive time. The IMF reduced its 2013 projection for the U.S. to 1.7 percent growth from 1.9 percent in April, while next year’s outlook was trimmed to 2.7 percent from 3 percent initially reported in April.
So there continues to be a tug of war in the Fixed Income markets between the presumed tapering of Quantitative Easing and a really lousy global economy.
BNS was confirmed at Pfd-1(low) by DBRS:
Scotiabank continues to expand its footprint, both geographically and within business lines, by leveraging organic growth opportunities while still favouring an acquisition-oriented strategy. The Bank has made over 30 acquisitions since 2007, including sizable acquisitions, most notably the acquisition of ING Bank of Canada (ING) in August 2012 and the addition of a 51% stake in Colombian-based Banco Colpatria in January 2012. As a result of the aforementioned acquisitions, as well as organic growth, Scotiabank has grown in size at a more rapid pace than its Canadian banking peers. While offering greater growth opportunities and potentially higher returns, Scotiabank’s investments in the Caribbean, Central America, South America and Asia have inherently higher risk profiles relative to developed markets, resulting in additional political, economic, currency and operational risks.
The asset quality profile of the Bank remains good with particular strength in the Canadian market, although provisions in Latin America increased, in line with portfolio growth and a shift in portfolio mix. In May 2013, Scotiabank announced an upcoming leadership change: Rick Waugh will retire as CEO on November 1, 2013, and Brian Porter, the Bank’s current president, will assume the CEO role. Mr. Porter has extensive experience with the Bank and has held a number of high-level roles across several of its operating units; a smooth transition is expected, with no shift in strategic direction anticipated as a result of the change.
DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.
DBRS confirmed CM at Pfd-1(low), with the NVCC-compliant issues still under review-negative:
CIBC has one of the larger multi-pronged distribution networks in Canada to service its retail customers. The Bank also has one of the largest wealth management platforms in Canada relative to its large Canadian peers, positioning CIBC to benefit from longer-term demographic shifts as the domestic population ages. DBRS believes that CIBC’s Canadian retail markets strategy – to increase product penetration using a relationship-based approach – will be challenging given the Bank’s below-average customer satisfaction scores. CIBC continues to have the lowest customer satisfaction index ranking among the five largest Canadian banks, according to J.D. Power and Associates’ 2012 Canadian Retail Banking Customer Satisfaction Study.
It has been almost a year since CIBC ceased mortgage originations from its FirstLine broker channel on July 31, 2012. CIBC has focused its efforts on transitioning FirstLine customers to branch-based mortgages where the Bank benefits from higher margins and deeper client relationships, offering cross-sell opportunities. Thus far, the Bank has successfully executed on its retention of FirstLine clients, exceeding the initial 25% customer retention target.
CIBC remains engaged in discussions with Aimia Inc. (Aimia), the parent company of Aeroplan, regarding negotiations over the contract renewal of Aeroplan co-branded credit cards. It remains unclear whether CIBC will choose to renew its contract with Aimia, as The Toronto-Dominion Bank has put forth a competitive bid for the contract, which CIBC has the right of first refusal to match. CIBC has been extensively evaluating the prospect of developing its own loyalty travel card, which it is prepared to invest heavily in. The Bank’s ability to create an in-house credit card offering as compelling as the Aeroplan co-branded card remains unclear, although its intention is to leverage customer information to provide an industry-leading travel rewards card.
DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.
The ratings on the Non-Cumulative Class A Preferred Shares, Series 26, 27 and 29 remain Under Review with Negative Implications. DBRS hopes to resolve this rating in the near future after the publication of the results from DBRS’s recent Request for Comments on Rating Subordinated, Hybrids and Preferred Bank Capital Securities.
DBRS confirmed BMO at Pfd-1(low):
BMO’s integration of its 2011 acquisition of Marshall and Ilsley Corporation (M&I) has thus far proved successful, with the Bank achieving a large portion of the forecasted synergies. The strong credit performance of the acquired portfolio has led to substantial recoveries over the past two years. DBRS notes that while the acquisition of M&I materially increased the scale of BMO’s U.S. operation, it further exposes the Bank to the U.S. economy, real estate market, and interest rate and regulatory environments.
In the current environment of high consumer leverage, BMO has chosen to key in on products that, in management’s opinion, offer good risk-return tradeoffs, and reduced exposure in areas with less attractive risk-adjusted returns. As a result, BMO actively promoted a specific residential mortgage product – a five-year term 25-year amortization fixed-rate mortgage – that it believes has attractive fundamentals and low credit risk. At the same time, the Bank pulled back slightly on unsecured lending, which would likely be the first product to suffer delinquencies if consumer leverage stresses were to materialize, as well as on commercial real estate lending, where BMO has continued to limit the amount of its exposure in this highly competitive market.
DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.
DBRS confirmed NA at Pfd-2:
National continues to maintain its strong regional franchise in Québec, with particular emphasis on its retail, small business and commercial banking units as well as its wealth management business and national financial markets franchise. While strong market shares in the home province remain a key strength of the Bank, the ratings reflect the Bank’s regional concentration in Québec.
National delivered strong earnings growth in its Wealth Management and Financial Markets units in the first six months of 2013, as the Bank has begun to reap the benefits of a greater national presence outside of its core Québec market. National is leveraging the interprovincial acquisitions it has made over the past few years to establish a broader domestic presence in Wealth Management and Financial Markets.
National’s efficiency ratio (operating expenses over operating revenue) continues to sit above the average of its peer group, partly as a result of the high cost structure in the Bank’s Wealth Management segment. Given the number of acquisitions undertaken in Wealth Management over the past five years, most recently the acquisitions in 2012 of HSBC Securities (Canada) Inc. and Wellington West Holdings Inc., the Bank will now have to focus on aligning the different pieces of the business unit. The broader domestic presence of the Wealth Management segment and the alignment of the different pieces of the business should create the potential for the Bank to lower the expense base of the operating segment.
DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.
DBRS confirmed TD at Pfd-1(low):
Given revenue headwinds posed by the low interest rate environment and global uncertainty, TD, like its Canadian banking peers, has looked to expense management as a core focus of earnings growth. Contributions from Canadian personal banking will likely moderate as revenue growth slows, with households limiting new borrowing, and as the federal government’s tightening of mortgage rules continues to weigh on residential mortgage activity. TD continues to see earnings growth from its U.S. Personal and Commercial Banking (P&C) unit in 2013, supported by strong organic loan growth in personal and business lending relative to the prior year period (excluding the acquisition of Target Corporation’s U.S. credit card portfolio).
TD has created a retail banking north-south corridor in the eastern United States as a result of acquisitions and organic growth across its expanding network, providing the Bank with scale advantages. However, the U.S. P&C unit will be challenged by regulatory headwinds, margin pressures and the still-recovering economy within the United States.
In April of 2013, TD announced that its long-standing CEO, Ed Clark, will be stepping down in late 2014 and that Bharat Masrani, who leads the Bank’s U.S. P&C group, will assume the role of CEO. The long transition period for Masrani provides ample time for a smooth transition; no change in strategy or culture is anticipated. Additionally, TD closed two transactions in the second quarter of 2013, Target Corporation’s U.S. credit card portfolio and Epoch Holding Corporation, and entered into an agreement to acquire HSBC Retail Services Limited’s private label credit card portfolio. All transactions are consistent with the Bank’s strategy to grow assets within the United States.
DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.
It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 40bp, FixedResets off 10bp and DeemedRetractibles down 18bp. The larger-than-average Performance Highlights table is, unsurprisingly enough, dominated by PerpetualDiscount losers. Volume was quite high.
| 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 | -0.0519 % | 2,575.0 |
| FixedFloater | 4.23 % | 3.56 % | 43,424 | 18.13 | 1 | 0.2229 % | 3,887.8 |
| Floater | 2.73 % | 2.91 % | 77,941 | 19.99 | 4 | -0.0519 % | 2,780.2 |
| OpRet | 4.81 % | 2.02 % | 75,264 | 0.71 | 4 | -0.1355 % | 2,615.9 |
| SplitShare | 4.66 % | 4.21 % | 65,402 | 3.96 | 6 | 0.0614 % | 2,973.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1355 % | 2,392.0 |
| Perpetual-Premium | 5.63 % | 4.58 % | 102,312 | 0.79 | 12 | -0.0795 % | 2,279.8 |
| Perpetual-Discount | 5.38 % | 5.37 % | 139,102 | 14.81 | 26 | -0.3956 % | 2,394.7 |
| FixedReset | 4.96 % | 3.40 % | 239,511 | 3.39 | 83 | -0.0966 % | 2,483.2 |
| Deemed-Retractible | 5.05 % | 4.51 % | 175,564 | 6.92 | 43 | -0.1790 % | 2,388.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.J | Perpetual-Discount | -3.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.24 Evaluated at bid price : 23.55 Bid-YTW : 5.09 % |
| CU.PR.D | Perpetual-Discount | -1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.42 Evaluated at bid price : 23.75 Bid-YTW : 5.21 % |
| PWF.PR.L | Perpetual-Discount | -1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.13 Evaluated at bid price : 23.60 Bid-YTW : 5.39 % |
| PWF.PR.K | Perpetual-Discount | -1.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 22.84 Evaluated at bid price : 23.25 Bid-YTW : 5.31 % |
| HSE.PR.A | FixedReset | -1.59 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.07 Evaluated at bid price : 24.11 Bid-YTW : 3.77 % |
| CU.PR.E | Perpetual-Discount | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.42 Evaluated at bid price : 23.75 Bid-YTW : 5.21 % |
| MFC.PR.F | FixedReset | -1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.34 Bid-YTW : 3.84 % |
| BAM.PF.C | Perpetual-Discount | 1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 21.31 Evaluated at bid price : 21.60 Bid-YTW : 5.64 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| W.PR.H | Perpetual-Discount | 132,112 | Nesbitt crossed 125,000 at 24.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 24.16 Evaluated at bid price : 24.42 Bid-YTW : 5.65 % |
| MFC.PR.D | FixedReset | 96,846 | Nesbitt crossed 85,000 at 25.93. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-19 Maturity Price : 25.00 Evaluated at bid price : 25.91 Bid-YTW : 3.09 % |
| POW.PR.G | Perpetual-Premium | 61,395 | RBC crossed 48,700 at 25.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 5.49 % |
| POW.PR.D | Perpetual-Discount | 61,235 | RBC crossed 49,000 at 23.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.43 Evaluated at bid price : 23.69 Bid-YTW : 5.29 % |
| PWF.PR.S | Perpetual-Discount | 60,601 | TD crossed 25,000 at 23.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-09 Maturity Price : 23.01 Evaluated at bid price : 23.42 Bid-YTW : 5.11 % |
| TD.PR.S | FixedReset | 52,246 | Reset rate recently reported. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.86 Bid-YTW : 3.53 % |
| There were 52 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| HSE.PR.A | FixedReset | Quote: 24.11 – 24.62 Spot Rate : 0.5100 Average : 0.3687 YTW SCENARIO |
| GWO.PR.L | Deemed-Retractible | Quote: 25.45 – 25.95 Spot Rate : 0.5000 Average : 0.3913 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 22.48 – 22.86 Spot Rate : 0.3800 Average : 0.2752 YTW SCENARIO |
| FTS.PR.J | Perpetual-Discount | Quote: 23.55 – 23.91 Spot Rate : 0.3600 Average : 0.2647 YTW SCENARIO |
| FTS.PR.F | Perpetual-Discount | Quote: 23.92 – 24.34 Spot Rate : 0.4200 Average : 0.3394 YTW SCENARIO |
| BMO.PR.L | Deemed-Retractible | Quote: 26.18 – 26.44 Spot Rate : 0.2600 Average : 0.1884 YTW SCENARIO |