RBC issued sub-debt at 3.45%+112:
Royal Bank of Canada (RY on TSX and NYSE) today announced an offering of $1 billion of subordinated debentures (“the Notes”) through its Canadian Medium Term Note Program.
The Notes bear interest at a fixed rate of 3.45 per cent per annum (paid semi-annually) until September 29, 2021, and at the three-month Banker’s Acceptance Rate plus 1.12 per cent thereafter until their maturity on September 29, 2026 (paid quarterly). The expected closing date is September 29, 2014. RBC Capital Markets is acting as lead agent on the issue.
The bank may, at its option, with the prior approval of the Office of the Superintendent of Financial Institutions Canada, redeem the Notes on or after September 29, 2021 at par, in whole at any time or in part from time to time, on not less than 30 days and not more than 60 days notice to registered holders.
Net proceeds from this transaction will be used for general business purposes.
Rumblings about corporate bond liquidity are getting more frequent:
Index fund managers are finding it hard to secure the bonds they need at the prices they want, forcing them to make trade-offs that can hurt investors and leave managers vulnerable in a market downturn.
Bond liquidity has all but dried up for corporate issues after new regulations and capital requirements forced Wall Street banks to slash their inventories of fixed-income products following the financial crisis. That’s especially challenging for index fund managers who must acquire certain bonds to be able to track specific benchmarks.
The lack of liquidity also means funds may have trouble selling bonds in the event interest rates rise and the investors who have sunk about $1.2-trillion (U.S.) in net deposits into long-term bond funds since the end of 2004 head for the exits.
The Financial Stability Board (FSB) is examining whether exchange-traded funds pose a risk to the global financial system for precisely that reason, according to the Bank of Canada’s representative to the committee at the Bank for International Settlements.
“There’s been investments and positions taken that may not have the liquidity there that people expect, especially as interest rates start to normalize,” Carolyn Wilkins, senior deputy governor at Canada’s central bank, told Bloomberg News in an interview. “So the liquidity illusion, if you want to put it that way, is something that we’re worried about.”
I certainly hope she was misquoted in the Bloomberg story regarding that interview:
The efforts of the Basel Committee are helping to restore faith in the financial system, Wilkins said.
“People are going to have the knowledge that the banks not only in Canada, but globally are safer,” she said. “That means that the probability of something going wrong that they’ll be on the hook for later as taxpayers will be lower.”
While additional regulatory requirements may translate into extra transaction costs for the banks and businesses and customers they deal with, “those costs should be worth it because they’re reducing the chances that something goes pear shaped,” she said.
Well, of course there are benefits to increased capital levels, although I don’t have quite the same certainty with respect to some regulatory requirements. And anybody will agree there are costs. The hard part is – and what has been consistently ignored by OSFI, the Bank of Canada, and every apparatchik in the apparatus – is balancing the two. We have a very safe banking system in Canada – and it has come at the expense of innovation and economic growth.