Sorry this is so late, folks! Summertime and the living is easy!
Federal Reserve Chairman Ben S. Bernanke called for maintaining accommodation even as the minutes of policy makers’ June meeting showed them debating whether to stop bond buying by the Fed in 2013.
“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday in response to a question after a speech in Cambridge, Massachusetts.
The Fed chairman spoke just three hours after the central bank released minutes of the June 18-19 gathering showing that about half of the 19 participants in the Federal Open Market Committee wanted to halt $85 billion in monthly bond purchases by year end. At the same time, the minutes showed many Fed officials wanted to see more signs employment is improving before backing a trim to bond purchases known as quantitative easing.
The debate underscores Bernanke’s challenge in affirming that, even after starting to reduce monthly bond buying, policy makers plan to maintain unprecedented stimulus with a record-high balance sheet and near-zero target interest rate.
The persecution of Fabulous Fab for doing his job is entering a new stage:
After the allegations, he kept his head down. He testified succinctly before Congress, left his job to enroll in a doctoral program, and popped up in Africa doing charity work.
This is the new Fabrice Tourre who will walk into Manhattan federal court July 15.
…
In 2010, the Securities and Exchange Commission sued New York-based Goldman Sachs and Tourre for fraud for concealing the role of the hedge fund Paulson & Co., founded by billionaire John Paulson, in selecting the assets inside the Abacus portfolio — assets Paulson wanted to fail.Goldman Sachs paid a then-record $550 million fine to settle the allegations. Tourre chose to fight them. U.S. District Judge Katherine Forrest, who will oversee the trial, summed up the SEC’s case like this: “Tourre handed Little Red Riding Hood an invitation to grandmother’s house while concealing the fact that it was written by the Big Bad Wolf.”
…
Tourre’s court date threatens to undo some of the progress Goldman Sachs has made in rehabilitating its image. In the lead-up to his trial, the bank and its former employee have exhibited an awkward arm’s-length relationship. Goldman Sachs is paying for Tourre’s defense and for the use of a sophisticated public-relations team from Sard Verbinnen & Co., but the bank is limited by the terms of its SEC settlement in what it can say publicly about the Abacus deal.
…
“This is so clearly a case of scapegoating,” said Dennis Kelleher, CEO of Better Markets, an advocacy group that has lobbied for the overhaul of financial regulations. “It’s one of the most egregious misuses of SEC power I’ve ever seen.”
If he loses – and he could go to jail over this – one lesson must be learned by all fund sponsors: it must be stated in the offering materials, in big bright red letters, that all the assets of the fund were bought from somebody else. Somebody who will not, presumably, be too upset if they subsequently decline in value.
As an aside, the HR departments are taking over:
Valerie Thompson went from a childhood hawking fish, fruit and vegetables in London’s run-down East End to a Eurobond star at Salomon Brothers Inc. when it was the world’s biggest trading firm. Like the successful trader she was, she got out at the top.
Eurobonds, international securities with untaxed interest payments, were only a decade old in 1973 when Thompson, who left school at age 15, landed a clerical job typing orders into a telex machine. She prospered as the market surged and was running new-issue strategy and managing the risk generated on London’s biggest bond trading floor when she left, just before the 1987 stock crash and as market returns began to diminish.
For all her acumen, Thompson, 57, says someone with her background couldn’t get a job in today’s financial industry.
“They closed the door,” she said in a lunchtime interview at Coya, the Peruvian restaurant on London’s Piccadilly, last month. “And they said, ‘You know what? To work in the City now you need three degrees.’ I find it downright wrong.”
When I got into this industry in 1986, I was working for Merrill Lynch as a temp; I applied for one of the posted jobs. HR told me they weren’t hiring … a chemistry degree? Why would we hire somebody with a chemistry degree? I don’t see any beakers around here, do you, Edna? My manager kicked ass and I got a new call offering me my pick of all the jobs in operations.
Tim Kiladze of the Globe has a very good article on the Canadian implications of the Basel 3 leverage ratio, titled How Canada’s banks benefit from OSFI’s leverage ratio:
While that might be a problem outside Canada, the Big Six argue that they already comply with OSFI’s asset-to-capital multiple, which limits a bank’s assets to 20 times their capital. Reverse that equation, and you get a 5-per-cent leverage ratio.
In other words, they should already exceed the coming 3-per-cent minimum, and even would be close to the 5- and 6-per-cent levels the U.S. just proposed for its own banks, depending on their size.
But it isn’t that easy. The way OSFI calculates leverage and capital differs from the new Basel standards. If you update OSFI’s model to abide by the new rules, our banks aren’t as well off.
The key difference, according to analyst Brad Smith at Stonecap Securities, is rooted in how you classify capital. Under OSFI’s model, Tier 1 and Tier 11 capital are included, whereas the Basel model has much stricter definitions. (Explaining these nuances gets incredibly wonky, but the main message is that OSFI is more lenient.)
By including Tier 2 capital, OSFI offers the Big Six a 26-per-cent leverage benefit – meaning their total capital jumps to $178-billion from just $141-billion of straightforward Tier 1 capital.
Mr. Smith also noted that OSFI’s calculation strips $167-billion of estimated securitized mortgages out of the Big Six’s asset exposure, lowering their asset total.
Removes these benefits and Mr. Smith calculates that Canadian banks would still meet the new Basel leverage requirements, but “fall well below” the proposed U.S. measure.
In order to meet a 5-per-cent minimum, “domestic banks would either have to reduce on-balance sheet exposure by over $700-billion (20 per cent) or add additional Tier 1 capital of approximately $35-billion even before considering the impact of off-balance sheet exposure levels,” Mr. Smith noted.
It may actually be worse than that. As I frequently complain, OSFI can boost the allowable leverage to 23x, and neither OSFI nor the bank benefitting has to give any explanation at all for the increased ceiling. I suspect it’s all just arranged over a friendly lunch.
A very nice day for the Canadian preferred share market, with PerpetualDiscounts winning 59bp, FixedResets gaining 9bp and DeemedRetractibles up 19bp. The Performance Highlights table is comprised entirely of winners, dominated by PerpetualDiscounts and PerpetualPremiums. Volume was above 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 | 0.1044 % | 2,564.6 |
| FixedFloater | 4.27 % | 3.55 % | 41,853 | 18.31 | 1 | 0.2117 % | 3,889.1 |
| Floater | 2.74 % | 2.92 % | 86,387 | 19.94 | 4 | 0.1044 % | 2,769.1 |
| OpRet | 4.61 % | 2.04 % | 74,273 | 0.71 | 3 | 0.0335 % | 2,617.1 |
| SplitShare | 4.67 % | 4.33 % | 69,829 | 3.95 | 6 | 0.0042 % | 2,969.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0335 % | 2,393.0 |
| Perpetual-Premium | 5.62 % | 4.30 % | 101,098 | 0.79 | 12 | 0.2721 % | 2,283.9 |
| Perpetual-Discount | 5.36 % | 5.35 % | 140,889 | 14.77 | 26 | 0.5984 % | 2,403.2 |
| FixedReset | 4.96 % | 3.48 % | 236,060 | 3.57 | 83 | 0.0929 % | 2,483.5 |
| Deemed-Retractible | 5.05 % | 4.52 % | 187,306 | 7.03 | 43 | 0.1937 % | 2,389.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.Z | FixedReset | 1.09 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.88 Bid-YTW : 3.99 % |
| PWF.PR.K | Perpetual-Discount | 1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-11 Maturity Price : 23.28 Evaluated at bid price : 23.54 Bid-YTW : 5.26 % |
| PWF.PR.L | Perpetual-Discount | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-11 Maturity Price : 23.50 Evaluated at bid price : 23.83 Bid-YTW : 5.35 % |
| MFC.PR.F | FixedReset | 1.41 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.50 Bid-YTW : 3.77 % |
| FTS.PR.J | Perpetual-Discount | 1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-11 Maturity Price : 23.42 Evaluated at bid price : 23.75 Bid-YTW : 5.05 % |
| CIU.PR.A | Perpetual-Discount | 1.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-11 Maturity Price : 22.64 Evaluated at bid price : 22.96 Bid-YTW : 5.06 % |
| ELF.PR.H | Perpetual-Premium | 1.88 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-11 Maturity Price : 24.49 Evaluated at bid price : 24.90 Bid-YTW : 5.53 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.E | Deemed-Retractible | 115,298 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 4.49 % |
| RY.PR.C | Deemed-Retractible | 107,266 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 4.54 % |
| RY.PR.B | Deemed-Retractible | 84,844 | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 4.44 % |
| RY.PR.F | Deemed-Retractible | 79,654 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 4.46 % |
| ENB.PR.H | FixedReset | 73,840 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-07-11 Maturity Price : 22.89 Evaluated at bid price : 24.30 Bid-YTW : 4.02 % |
| BNS.PR.A | FixedReset | 64,326 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-08-10 Maturity Price : 25.50 Evaluated at bid price : 25.95 Bid-YTW : -20.20 % |
| There were 37 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.H | Perpetual-Premium | Quote: 24.90 – 25.49 Spot Rate : 0.5900 Average : 0.4098 YTW SCENARIO |
| BAM.PF.A | FixedReset | Quote: 25.34 – 25.69 Spot Rate : 0.3500 Average : 0.2021 YTW SCENARIO |
| CU.PR.C | FixedReset | Quote: 25.62 – 25.97 Spot Rate : 0.3500 Average : 0.2559 YTW SCENARIO |
| BAM.PR.X | FixedReset | Quote: 24.25 – 24.47 Spot Rate : 0.2200 Average : 0.1301 YTW SCENARIO |
| PWF.PR.E | Perpetual-Discount | Quote: 24.75 – 24.99 Spot Rate : 0.2400 Average : 0.1594 YTW SCENARIO |
| MFC.PR.I | FixedReset | Quote: 25.81 – 26.10 Spot Rate : 0.2900 Average : 0.2154 YTW SCENARIO |