S&P’s chief economist has more tapering chatter:
- That the Fed did not announce tapering in September did not surprise us, as we have stuck to our December call.
- Starting to taper was conditional on U.S. growth moving up a notch, which has not happened; in fact, the Fed has lowered its growth outlook.
- In the wake of a financial crisis and deep recession, central banks face asymmetric risks: Tightening policy too early carries higher risks than leaving policy loose for too long.
- Forward guidance attempts to guide markets, but, by incentivizing markets to hang on every central bank utterance, and react in a globally synchronized way, it risks amplifying the policy signals and creating volatility.
- The new Fed chair should resist the temptation to overengineer forward guidance, but rather double down on the core message: The Fed has the requisite tools and is determined to use them.
Julie Dickson of OSFI made a speech to the 2013 National Insurance Conference of Canada:
Given that catastrophic risk seems to be growing, going forward we may also see insurers more actively expanding risk transfer mechanisms through Insurance Linked Securities (ILS). Catastrophe bonds can be used to help companies to reduce exposure to certain risks, including earthquakes. Cat bonds are an effective way to transfer risk to capital markets, instead of reinsurance markets, and to spread risks. At the same time, they do not eliminate all risk. For example, basis risk, where the trigger for a claim might not be directly matched to the losses of the insurer, could result in the insurer experiencing losses with no protection. From a capital perspective, if the link is not one-for-one with the expected losses, there is no capital benefit. But such catastrophe bonds can be a good addition to an insurer’s risk management program.
While issuance of catastrophe bonds may be a good addition to a company’s risk management tools, investments in catastrophe bonds could present risks to investors, particularly if the investments are being made in a search for yield, without regard to an understanding of the risks involved.
Another example of search for yield, which has recently been expressed in international circles [Footnote], is concern about too much capital from institutional investors (such as pension funds) entering the insurance system in search of yield. Such excess funding or capital can put downward pressure on premium rates, and assuming those rates were properly reflective of risk, this is not what should be happening (for example, where the increased severity and frequency of actual catastrophe risk is on the rise).
While we have not seen similar behaviours in Canada thus far, it is important to continue to be on the lookout for any evidence of a search for yield and unintended consequences.
[Footnote reads]:September 4, 2013, Lloyd’s chairman warns on ‘systemic risk’ of capital rush, Alistair Gray, Financial Times. The article can be found at the following link (subscription required): http://www.ft.com/intl/cms/s/0/04b80c2e-15aa-11e3-b519-
00144feabdc0.html
There’s a report on the report referenced in the footnote here.
I don’t consider this a big deal, but it’s one of the more precious initiatives around:
We are proposing amendments to Item 402 of Regulation S-K to implement Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 953(b) directs the Commission to amend Item 402 of Regulation S-K to require disclosure of the median of the annual total compensation of all employees of an issuer (excluding the chief executive officer), the annual total compensation of that issuer’s chief executive officer and the ratio of the median of the annual total compensation of all employees to the annual total compensation of the chief executive officer. The proposed disclosure would be required in any annual report, proxy or information statement or registration statement that requires executive compensation disclosure pursuant to Item 402 of Regulation S-K. The proposed disclosure requirements would not apply to emerging growth companies, smaller reporting companies or foreign private issuers.
On the other hand, this one is just stupid:
The OCC, Board, FDIC, Commission, FHFA, and HUD (the agencies) are seeking comment on a joint proposed rule (the proposed rule, or the proposal) to revise the proposed rule the agencies published in the Federal Register on April 29, 2011, and to implement the credit risk retention requirements of section 15G of the Securities Exchange Act of 1934 (15. U.S.C. 78o-11), as added by section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Section 15G generally requires the securitizer of asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the asset-backed securities. Section 15G includes a variety of exemptions from these requirements, including an exemption for asset-backed securities that are collateralized exclusively by residential mortgages that qualify as “qualified residential mortgages,” as such term is defined by the agencies by rule.
It was credit risk retention by the brokerages that sparked the crisis in the first place!
Power Corporation, proud issuer of POW.PR.A, POW.PR.B, POW.PR.C, POW.PR.D, POW.PR.F and POW.PR.G, was confirmed at Pfd-2(high) by DBRS:
The credit strength of POW is directly tied to its roughly two-thirds equity interest in Power Financial Corporation (PWF), which represents a substantial majority of the Company’s earnings and cash flow, as well as the Company’s estimated net asset value.
…
As the controlling shareholder of PWF, and, by extension, of GWO and IGM, POW defines the strategic vision for its financial services investments, while setting the “tone from the top” in terms of conservative management style and risk analysis and tolerance. The Company’s senior officers and delegates exercise a greater degree of influence through their active participation on the respective boards and board committees of POW’s various subsidiaries than is generally the case at more widely held companies. Such an integrated management and governance approach is seldom encountered and has served the Company’s stakeholders well. On a stand-alone basis, POW’s financial profile is conservative, with debt and preferred shares representing just over 13% of capitalization. Financial leverage appears to be used to fund a portfolio of cash and short-term investments and a modest level of working capital. The Company’s liquidity is strong, with nearly $700 million in cash and short-term securities at June 30, 2013.
Power Financial Corporation, proud issuer of PWF.PR.A, PWF.PR.E, PWF.PR.F, PWF.PR.G, PWF.PR.H, PWF.PR.I, PWF.PR.K, PWF.PR.L, PWF.PR.M, PWF.PR.O, PWF.PR.P, PWF.PR.R and PWF.PR.S, has also been confirmed at Pfd-1(low) by DBRS:
The financial strength of PWF is largely derived from its controlling interests in two of Canada’s leading financial service providers: Great-West Lifeco Inc. (GWO; rated AA (low), Stable), one of the three largest life insurance concerns in Canada, and IGM Financial Inc. (IGM; rated A (high), Stable), one of the largest mutual fund complexes in Canada.
…
The Company’s almost 30% indirect equity interest in Pargesa Holding S.A. (Pargesa), a Geneva-based holding company, provides some additional geographic and industry diversification. While Pargesa does pay a small dividend, which is normally passed through to the Company, it is primarily managed to maximize net asset value over the long term.The Company’s financial leverage has been maintained at a reasonable level for the past ten years. The Company’s capitalization remains conservative, with a less than 20% unconsolidated total debt (including preferred shares) ratio at the end of June 2013. Fixed charge coverage ratios are similarly strong relative to both earnings and cash flow. Liquidity is not a source of concern, with approximately $800 million in cash and short-term securities at the holding company level at June 30, 2013, in addition to stores of liquidity at both GWO and IGM.
I’m sure we’ll soon be seeing some commentary on FFH, in the wake of their big deal:
BlackBerry Ltd. (BB) reached a tentative agreement for a $4.7 billion buyout by a group led by its biggest shareholder, forging a path to go private after years of losing ground to Apple (AAPL) Inc.’s iPhone and Google Inc.’s Android.
The group led by Fairfax Financial Holdings Ltd. (FFH) would offer $9 a share in cash, according to a statement today — a 3.1 percent premium over BlackBerry’s closing price last week. The consortium is still seeking financing for the offer, which will be subject to due diligence and further negotiation.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts and FixedResets both off 3bp, while DeemedRetractibles were up 14bp. The performance highlights table is surprisingly lengthy, given the modest overall moves. 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 | -0.5460 % | 2,579.9 |
| FixedFloater | 4.19 % | 3.50 % | 29,486 | 18.29 | 1 | 0.6652 % | 3,967.8 |
| Floater | 2.62 % | 2.86 % | 63,714 | 20.09 | 5 | -0.5460 % | 2,785.5 |
| OpRet | 4.63 % | 2.57 % | 65,856 | 0.08 | 3 | 0.0129 % | 2,635.1 |
| SplitShare | 4.75 % | 4.62 % | 57,743 | 4.06 | 6 | 0.0163 % | 2,947.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0129 % | 2,409.5 |
| Perpetual-Premium | 5.86 % | 5.87 % | 123,746 | 13.98 | 2 | -0.2750 % | 2,263.7 |
| Perpetual-Discount | 5.55 % | 5.63 % | 138,720 | 14.35 | 36 | -0.0313 % | 2,346.8 |
| FixedReset | 4.92 % | 3.65 % | 239,366 | 3.68 | 85 | -0.0303 % | 2,460.6 |
| Deemed-Retractible | 5.13 % | 4.59 % | 194,537 | 6.88 | 43 | 0.1383 % | 2,375.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRI.PR.B | Floater | -1.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 22.01 Evaluated at bid price : 22.25 Bid-YTW : 2.33 % |
| FTS.PR.H | FixedReset | -1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 4.24 % |
| HSE.PR.A | FixedReset | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 22.75 Evaluated at bid price : 23.42 Bid-YTW : 4.04 % |
| BNS.PR.Y | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 3.88 % |
| CU.PR.G | Perpetual-Discount | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 5.33 % |
| CU.PR.C | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 23.20 Evaluated at bid price : 24.77 Bid-YTW : 4.28 % |
| PWF.PR.K | Perpetual-Discount | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 22.16 Evaluated at bid price : 22.56 Bid-YTW : 5.55 % |
| POW.PR.G | Perpetual-Discount | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 24.09 Evaluated at bid price : 24.49 Bid-YTW : 5.71 % |
| TRP.PR.C | FixedReset | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 22.62 Evaluated at bid price : 23.15 Bid-YTW : 3.93 % |
| PWF.PR.E | Perpetual-Discount | 1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 24.15 Evaluated at bid price : 24.40 Bid-YTW : 5.72 % |
| IAG.PR.A | Deemed-Retractible | 1.30 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.85 Bid-YTW : 6.19 % |
| GWO.PR.N | FixedReset | 1.79 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 4.42 % |
| CIU.PR.C | FixedReset | 1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 22.15 Evaluated at bid price : 22.51 Bid-YTW : 3.78 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.Q | FixedReset | 65,851 | Nesbitt crossed 25,000 at 25.18. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 3.71 % |
| BNS.PR.L | Deemed-Retractible | 59,650 | Nesbitt crossed 50,000 at 25.39. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.38 Bid-YTW : 4.40 % |
| CU.PR.F | Perpetual-Discount | 58,700 | Nesbitt crossed blocks of 20,000 and 25,000, both at 21.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-23 Maturity Price : 21.26 Evaluated at bid price : 21.54 Bid-YTW : 5.26 % |
| TD.PR.S | FixedReset | 32,273 | RBC crossed 17,000 at 24.85. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.80 Bid-YTW : 3.65 % |
| BNS.PR.Z | FixedReset | 26,246 | TD crossed 11,600 at 24.15. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.17 Bid-YTW : 4.00 % |
| PWF.PR.M | FixedReset | 24,500 | TD crossed 22,000 at 25.43. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 3.84 % |
| There were 33 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.B | FixedReset | Quote: 20.50 – 20.96 Spot Rate : 0.4600 Average : 0.2756 YTW SCENARIO |
| BNS.PR.Y | FixedReset | Quote: 23.90 – 24.30 Spot Rate : 0.4000 Average : 0.2358 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 23.37 – 23.97 Spot Rate : 0.6000 Average : 0.4369 YTW SCENARIO |
| CIU.PR.A | Perpetual-Discount | Quote: 21.76 – 22.39 Spot Rate : 0.6300 Average : 0.4742 YTW SCENARIO |
| FTS.PR.J | Perpetual-Discount | Quote: 22.52 – 22.90 Spot Rate : 0.3800 Average : 0.2752 YTW SCENARIO |
| FTS.PR.K | FixedReset | Quote: 24.45 – 24.75 Spot Rate : 0.3000 Average : 0.1998 YTW SCENARIO |