There is a kerfuffle in the UK regarding the FSA’s attempt to increase the bank’s liquidity requirements, in accordance with the Turner Review (previously discussed on PrefBlog):
Similarly, if banks have to hold more assets in liquid form, and more of those in super-liquid form, like cash or government bonds, their income will decline. The FSA’s proposals on the subject accept these increased costs, though they are only sketchily estimated. Against these vague costs it sets a massive “reduction in the costs of systemic instability” of “3 billion to 5 billion bounds on an annualised basis.”
The problem for the banks is that, in contrast to the past, they will bear the costs of increased stability, while the taxpayer will enjoy the benefits.
The BBA’s tactic of playing the UK competitiveness card to stall the unilateral introduction of liquidity requirements is a clever one: international agreements can take years to complete.
It is also politically astute to play up the tension for banks between increasing their liquidity reserves at a time when the government is pressing them to increase lending to homeowners and businesses.
While Knight did not exactly put it like this, the FSA is asking banks to lend to government at the expense of the private sector. But the government is very strapped for cash right now. With regulatory and political interests fully aligned in favour of reform, this looks like a battle the banks will lose.
Those interested in hedging hyperinflation may wish to follow the strategy of Excelsior Fund:
The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies — France, Germany, Japan, the U.K. and the U.S. — should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.
…
36 South’s Excelsior Fund will buy long-dated options it considers cheap and that “stand a good chance of outperforming in an inflationary environment,” Haworth said. Options are contracts to buy or sell a security by a certain date at a specific price.The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.
“It’s a very high-risk, high-return fund,” said Haworth, who has been trading derivatives for more than 20 years as the former head of equity derivatives at Johannesburg-based Investec Ltd., and co-founder of Peregrine Holdings Ltd., a South African money manager and stockbroker.
The General Secretary of United Soviet Socialist America gave an indication of his plans today:
“Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected,” Obama said in an interview with Bloomberg Television today at the White House. “All we’re doing is cleaning up after the mess that was made.”
…
Crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, Obama’s plan would put the Federal Reserve in charge of regulating companies whose collapse could damage the entire financial system. It would also create a new agency for overseeing consumer financial products, such as mortgages and credit cards.The proposal encompasses areas ranging from derivatives to executive pay to the mortgage-backed securities that helped fuel the housing boom and then touch off the credit crisis.
…
Obama called the derivatives market “an entire shadow system of enormous risk” and pledged to make it more transparent.“Derivatives are a huge potential risk to the system,” he said. “We are going to make sure that they have to register, that they are regulated, that you have clearinghouses.”
However, I like this bit, somewhat:
Financial firms deemed too-big-to-fail will be required to maintain extra capital cushions, which are designed to curb the excessive risk taking that led to the collapse of last year of Bear Stearns Cos. and Lehman Brothers Holdings Inc. and the government seizure of insurer American International Group Inc.
I would like it a lot more if it was rules based … with a progressive risk-weight surcharge applied to risk-weighted assets in excess of a manageable level.
I find it most interesting that political culpability in the crisis has been ignored. If prime mortgages had yielded a little more, maybe the banks wouldn’t have plunged so heavily into sub-prime. But prime mortgages were wink-wink NOT guaranteed by Treasury nudge-nudge and hence traded at razor-thin spreads to Treasuries.
PrefBlog’s One-Born-Every-Minute Department passes on this SEC news release:
The Securities and Exchange Commission today obtained a court order halting an $11 million Ponzi scheme in which a Chicago-based promoter who is a convicted felon promised investors unusually high returns from purported investments in payday advance stores.
The SEC alleges that David J. Hernandez, who was convicted in 1998 for wire fraud arising from his previous employment at a bank, sold “guaranteed investment contracts” through his company that, unbeknownst to investors, was actually out of business. Hernandez promised returns of 10 percent to 16 percent per month and made false and misleading statements about his background, the use of investor proceeds, and the safety of the investment.
Actually, I only looked at the SEC site hoping for a definitive statement regarding a rumoured Madoff settlement, but nothing shows up yet.
Good performance from preferreds of all classes (well … except the single member of the FixedFloater subindex) with continued elevated volume.
| 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 | 0.5719 % | 1,304.4 |
| FixedFloater | 7.04 % | 5.52 % | 33,095 | 16.27 | 1 | -0.3226 % | 2,143.2 |
| Floater | 2.92 % | 3.27 % | 82,420 | 19.07 | 3 | 0.5719 % | 1,629.6 |
| OpRet | 4.97 % | 3.79 % | 138,548 | 0.92 | 14 | 0.1951 % | 2,193.3 |
| SplitShare | 5.81 % | 6.14 % | 56,283 | 4.23 | 3 | 0.0915 % | 1,876.9 |
| Interest-Bearing | 5.99 % | 7.61 % | 22,781 | 0.52 | 1 | 0.0999 % | 1,991.2 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2050 % | 1,740.6 |
| Perpetual-Discount | 6.31 % | 6.34 % | 158,122 | 13.44 | 71 | 0.2050 % | 1,603.1 |
| FixedReset | 5.67 % | 4.83 % | 541,660 | 4.36 | 39 | 0.1425 % | 2,014.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.B | Perpetual-Discount | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 18.42 Evaluated at bid price : 18.42 Bid-YTW : 6.36 % |
| ELF.PR.F | Perpetual-Discount | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 18.52 Evaluated at bid price : 18.52 Bid-YTW : 7.32 % |
| PWF.PR.L | Perpetual-Discount | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 19.64 Evaluated at bid price : 19.64 Bid-YTW : 6.61 % |
| CM.PR.J | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 18.41 Evaluated at bid price : 18.41 Bid-YTW : 6.22 % |
| RY.PR.H | Perpetual-Discount | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 23.41 Evaluated at bid price : 23.58 Bid-YTW : 6.06 % |
| PWF.PR.K | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 19.01 Evaluated at bid price : 19.01 Bid-YTW : 6.63 % |
| BAM.PR.N | Perpetual-Discount | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 15.67 Evaluated at bid price : 15.67 Bid-YTW : 7.62 % |
| BAM.PR.B | Floater | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 12.01 Evaluated at bid price : 12.01 Bid-YTW : 3.27 % |
| BAM.PR.O | OpRet | 1.89 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 6.47 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.B | Perpetual-Discount | 63,109 | Desjardins crossed 50,000 at 18.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 18.42 Evaluated at bid price : 18.42 Bid-YTW : 6.36 % |
| BAM.PR.P | FixedReset | 55,685 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 6.56 % |
| MFC.PR.E | FixedReset | 45,714 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 25.28 Bid-YTW : 5.45 % |
| TD.PR.I | FixedReset | 43,775 | National Bank crossed 33,000 at 27.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.04 Bid-YTW : 4.68 % |
| CM.PR.H | Perpetual-Discount | 38,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 18.87 Evaluated at bid price : 18.87 Bid-YTW : 6.47 % |
| SLF.PR.E | Perpetual-Discount | 36,785 | RBC crossed 25,000 at 17.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-06-16 Maturity Price : 17.03 Evaluated at bid price : 17.03 Bid-YTW : 6.64 % |
| There were 39 other index-included issues trading in excess of 10,000 shares. | |||