Bloomberg’s Matt Levine writes a nice piece on Lloyds bank and regulatory par calls. Looks like a bit more of OSFI-style capital-markets-as-a-cooperative-game legitimate-expectations-of-security-holders garbage:
So Lloyds’s ECNs, like most capital securities, had an explicit regulatory par call, which provided that Lloyds could redeem them at par upon a “Capital Disqualification Event,” which would occur if they didn’t count as tier 2 capital or if they “cease to be taken into account ” by the U.K.’s Prudential Regulation Authority “for the purposes of any ‘stress test’ applied by the PRA in respect of the Consolidated Core Tier 1 Ratio.” And, earlier this year, that happened. (Maybe!)6
So Lloyds can just call them at par. Or, not quite; regulators would probably get mad if Lloyds just got rid of even not-so-good old-timey capital, and anyway that wouldn’t do anything to improve Lloyds’s capital position. Lloyds would have to sell new capital things — 7-percent trigger cocos, most efficiently, or I guess common stock but hahaha who issues common stock? — and use the proceeds to pay off the old ECNs at par.
Alternately Lloyds can buy the old ECNs for their current trading levels, which seem not to take into account the fact that they’re callable at par, which boggles me but is sort of par for the course.[Footnote]
[Footnote reads] Here is Tracy Alloway at FT Alphaville on Credit Suisse’s similarly callable, similarly above-par “Claudius” capital instruments. The link in the text is me making fun of the people buying Claudiuseses at above par, and judging by the reader e-mails I got from that linkwrap I suspect I’m not the only one who’s boggled.
I’ve sent Mr. Levine an eMail alerting him to the Canadian version of the mind-boggler.
The Parakeet has assured us that the lousy economy is not his boss’ fault – it’s those darn boomers again. Who would have thought they’d ever get old?:
We continue to believe that the world economy is healing, and that Canada will benefit in the form of stronger exports. From there, we expect to see more investment and new firm creation. This will permit the emergence of a natural, sustained growth trajectory for Canada, and a return of inflation to our 2 per cent target.
But the demographic forces that are in play suggest that the growth trajectory that we converge on after the recovery period will be slower than our historical trend, and it will also be associated with lower equilibrium rates of interest than we are used to. Fortunately, global policy-makers have the ability to redefine the limits to growth by removing growth impediments, but as business people and investors, we must keep those efforts in perspective.
The dollar dived, since boomers in the US remain youthful:
The loonie, as Canada’s dollar coin is known, was at 90.5 cents when the Bank of Canada posted the governor’s speech on its website, noted chief currency strategist Camilla Sutton of Bank of Nova Scotia.
Within a few minutes, it slipped to 90.2 cents. And by the time he had finished a question-and-answer session, during which he said he couldn’t rule out the possibility of an interest rate cut, the loonie was down to 89.75 cents.
It weakened further from there later in the day.
Spend-every-Penny is approaching his reward:
Yesterday, I informed the Prime Minister that I am resigning from Cabinet. This was a decision I made with my family earlier this year, as I will be returning to the private sector.
I suppose “private sector” means cushy job at a bank.
The touted replacement is probably too old to run for Conservative leadership:
Natural Resources Minister Joe Oliver will become the federal government’s new finance minister, replacing Jim Flaherty who announced his resignation earlier on Tuesday, CBC News has learned.
Oliver will be named finance minister on Wednesday in Ottawa.
Joe Oliver does not yet have an official PrefBlog nickname; he is best known from his days at the IDA, for giving money that should be regarded as public funds to a buddy’s start-up business; that money is all gone now, but what the hell – there’s more where that came from. The buddy was an ex-Executive Director of the OSC – by an amazing coincidence Oliver is also an ex-Executive director of the OSC.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 5bp, FixedResets gaining 13bp and DeemedRetractibles off 2bp. Volatility was average, but uniformly positive. 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 | -0.2984 % | 2,432.0 |
| FixedFloater | 4.73 % | 4.33 % | 37,932 | 17.70 | 1 | 0.7018 % | 3,588.8 |
| Floater | 2.99 % | 3.09 % | 52,363 | 19.52 | 4 | -0.2984 % | 2,625.9 |
| OpRet | 4.66 % | -0.03 % | 93,209 | 0.25 | 3 | -0.0129 % | 2,682.7 |
| SplitShare | 4.81 % | 4.22 % | 63,054 | 4.32 | 5 | 0.5112 % | 3,080.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0129 % | 2,453.1 |
| Perpetual-Premium | 5.63 % | -0.71 % | 93,739 | 0.08 | 11 | -0.1000 % | 2,352.8 |
| Perpetual-Discount | 5.45 % | 5.56 % | 121,770 | 14.41 | 26 | -0.0483 % | 2,439.0 |
| FixedReset | 4.71 % | 3.54 % | 214,989 | 6.83 | 79 | 0.1295 % | 2,506.2 |
| Deemed-Retractible | 5.06 % | 2.15 % | 157,139 | 0.19 | 42 | -0.0231 % | 2,466.4 |
| FloatingReset | 2.57 % | 2.63 % | 197,959 | 7.09 | 5 | 0.0966 % | 2,439.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IFC.PR.A | FixedReset | 1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.22 % |
| BAM.PF.A | FixedReset | 1.03 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 4.09 % |
| BAM.PR.X | FixedReset | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-03-18 Maturity Price : 21.18 Evaluated at bid price : 21.18 Bid-YTW : 4.25 % |
| CGI.PR.D | SplitShare | 1.14 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 3.85 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BAM.PF.E | FixedReset | 308,110 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-03-18 Maturity Price : 22.89 Evaluated at bid price : 24.40 Bid-YTW : 4.24 % |
| SLF.PR.G | FixedReset | 111,900 | Desjardins crossed 102,400 at 22.00. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.12 Bid-YTW : 4.51 % |
| TRP.PR.B | FixedReset | 103,916 | RBC crossed two blocks of 50,000 each, both at 20.06. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-03-18 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 3.68 % |
| TRP.PR.E | FixedReset | 68,915 | Scotia crossed 25,000 at 25.12; RBC crossed 10,000 at 25.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-03-18 Maturity Price : 23.17 Evaluated at bid price : 25.13 Bid-YTW : 3.92 % |
| ENB.PF.A | FixedReset | 65,788 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-03-18 Maturity Price : 23.12 Evaluated at bid price : 25.00 Bid-YTW : 4.18 % |
| BMO.PR.J | Deemed-Retractible | 65,022 | RBC crossed 50,000 at 25.75. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-17 Maturity Price : 25.50 Evaluated at bid price : 25.73 Bid-YTW : -3.43 % |
| There were 36 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| GWO.PR.L | Deemed-Retractible | Quote: 25.35 – 25.68 Spot Rate : 0.3300 Average : 0.2093 YTW SCENARIO |
| GWO.PR.M | Deemed-Retractible | Quote: 25.67 – 25.95 Spot Rate : 0.2800 Average : 0.1746 YTW SCENARIO |
| CU.PR.G | Perpetual-Discount | Quote: 21.50 – 21.90 Spot Rate : 0.4000 Average : 0.2947 YTW SCENARIO |
| CU.PR.E | Perpetual-Discount | Quote: 23.23 – 23.57 Spot Rate : 0.3400 Average : 0.2435 YTW SCENARIO |
| BNA.PR.E | SplitShare | Quote: 25.50 – 25.86 Spot Rate : 0.3600 Average : 0.2695 YTW SCENARIO |
| TD.PR.O | Deemed-Retractible | Quote: 25.42 – 25.65 Spot Rate : 0.2300 Average : 0.1414 YTW SCENARIO |