July 3, 2009

The FDIC – which shut down a boatload of banks yesterday – has published draft rules for private equity buyers interested in sniffing around the assets. Very, very stringent, and at first glance, I have to agree with the statement:

“The FDIC’s proposed guidance would deter future private investments in banks that need fresh capital,” Douglas Lowenstein, president of the industry group the Private Equity Council, said in a statement yesterday.

The rules that catch my eye have to do with a 15% minimum Tier 1 Capital Ratio, three year ownership lockup and cross-guarantees from other depository institutions owned by the investor. Unfortunately, the proposals are presented in bald, finished form without discussion, so I am at a loss to determine whether there is any real purpose being served by the proposals.

There was some more some more Chinese mischief-making today:

“There should be a system to maintain the stability of the major reserve currencies,” Zeng, the head of a Chinese research center, said in Beijing today. He advocated supervision of fiscal and current-account deficits, adding that “your currency is likely to become my problem.”

Premier Wen Jiabao said in March that he was “worried” about his nation’s holdings of Treasuries as spiraling U.S. debt threatens the value of the dollar. China, the owner of the world’s biggest foreign-exchange reserves, called yesterday for a stable dollar and damped speculation that it is seeking talks on a new international reserve currency at next week’s Group of Eight meeting.

If China doesn’t like the USD as a reserve currency, that’s an easy problem to solve: don’t hold it. They can keep their reserves in gold, if they like, although copper or oil would probably be a better choice. And making their currency freely exchangeable and doing so much business with the rest of the world that the remnimbi becomes a reserve currency is another option.

And the idea of solemnly going into the G-8 meeting proposing to elect a new reserve currency is utter nonsense. It’s like having a vote to determine who’s tallest. I’m convinced that this is all just posturing to put the US on notice China won’t be pushed around at the meeting … but there’s a better way to do that, too … aircraft carriers.

Sabre-rattling aside, looks like they’re going for the asset-backed reserve currency idea:

Teck Resources Ltd., Canada’s largest diversified mining company, sold a 17 percent stake to China’s $200 billion fund sovereign wealth fund for C$1.74 billion ($1.5 billion) to reduce debt.

China Investment Corp., also known as CIC, will buy 101.3 million Class B subordinate voting shares for C$17.21 each, Vancouver-based Teck Resources said today in a statement. Teck said the deal will give CIC a 6.7 percent voting interest.

There’s some talk about an Argentinian oil deal, too.

Macroblog‘s John Robertson was kind enough to mention an old PrefBlog post in his commentary, A funny thing happened on the way to the federal funds market. While the institution of the Excess Balance Account will relieve some of the leverage-driven selling of Fed Funds, there’s yet another nuance:

Technically, the FHLBs [Federal Home Loan Banks], like other government-sponsored enterprises, are ineligible to earn interest on their own reserve balances held at the Fed, but the FHLBs were given an exemption under the interim rule published last year, which did not distinguish between an FHLB’s own reserve balances and those of their respondents. With the amended Reg. D, the pooling of reserves will no longer be allowed. Thus, the FHLBs will not be able to earn interest on their own reserve balances.

Will this change matter to them? A look at the FHLB consolidated balance sheet suggests it could. For instance, as of Sept. 30, 2008, the FHLBs were sellers of some $94 billion of fed funds and held zero on deposit at the Fed. But as of Dec. 31, 2008, after the Fed started paying interest on reserves, the FHLBs sold only $40 billion of fed funds and held $47 billion on deposit at the Fed.

Fed funds market nerds stay tuned.

I object! I’m not a Fed Funds nerd; I’m a Fed Funds geek!

Another strong day for preferreds – especially FixedResets! – on reduced volume; probably due to the US holiday.

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 -0.5670 % 1,187.7
FixedFloater 7.08 % 5.47 % 34,811 16.36 1 -0.3245 % 2,130.7
Floater 3.21 % 3.70 % 81,989 18.10 3 -0.5670 % 1,483.8
OpRet 4.97 % 2.34 % 118,588 0.09 15 0.1777 % 2,213.8
SplitShare 5.75 % 6.40 % 68,952 4.19 3 0.0151 % 1,895.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1777 % 2,024.3
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.1561 % 1,750.0
Perpetual-Discount 6.31 % 6.37 % 159,489 13.42 71 0.1561 % 1,611.8
FixedReset 5.60 % 4.49 % 474,879 4.34 40 0.2274 % 2,045.0
Performance Highlights
Issue Index Change Notes
PWF.PR.E Perpetual-Discount -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 6.53 %
BNS.PR.T FixedReset 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 27.51
Bid-YTW : 3.92 %
PWF.PR.K Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 19.10
Evaluated at bid price : 19.10
Bid-YTW : 6.62 %
NA.PR.L Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 20.38
Evaluated at bid price : 20.38
Bid-YTW : 6.05 %
BAM.PR.O OpRet 1.34 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 24.20
Bid-YTW : 5.96 %
TD.PR.A FixedReset 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 25.44
Evaluated at bid price : 25.49
Bid-YTW : 4.56 %
BAM.PR.M Perpetual-Discount 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 16.01
Evaluated at bid price : 16.01
Bid-YTW : 7.49 %
W.PR.H Perpetual-Discount 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 21.04
Evaluated at bid price : 21.04
Bid-YTW : 6.57 %
PWF.PR.M FixedReset 2.45 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-02
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 4.16 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.E FixedReset 103,060 Scotia bought 19,100 from anonymous at 25.40, then crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-19
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.35 %
TD.PR.S FixedReset 72,350 RBC bought 18,800 from anonymous at 25.04; then crossed 18,400 at 25.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 24.96
Evaluated at bid price : 25.01
Bid-YTW : 4.35 %
BMO.PR.P FixedReset 54,257 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 23.23
Evaluated at bid price : 25.35
Bid-YTW : 4.89 %
GWO.PR.X OpRet 40,162 RBC crossed two blocks, 25,000 and 12,000 shares, both at 26.11.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2010-10-30
Maturity Price : 25.67
Evaluated at bid price : 26.10
Bid-YTW : 3.42 %
TD.PR.O Perpetual-Discount 36,851 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 20.16
Evaluated at bid price : 20.16
Bid-YTW : 6.14 %
RY.PR.W Perpetual-Discount 29,603 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-07-03
Maturity Price : 19.83
Evaluated at bid price : 19.83
Bid-YTW : 6.28 %
There were 25 other index-included issues trading in excess of 10,000 shares.

2 Responses to “July 3, 2009”

  1. […] July 3 I remarked on the idiocy of solemn discussions about “What Should be the World’s […]

  2. […] FDIC’s proposals on rules regarding private-equity purchases of banks, discussed on July 3, have drawn fire from a player: “I assure you that my firm will never again bid if the proposed […]

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