More nonsense from Congress about user-pay credit ratings:
“We are not going to correct this problem if in the future they can let us down again by the user paying the ratings agency for the value of their valuation,” Mr. Kanjorski said.
…
While Mr. Kanjorsky did not go into specifics on how the ratings agencies might be compensated for their analysis in the future — currently, they get paid by the debt issuers, which many see as a huge conflict of interest — the lawmaker did mention that in the past, it was the user that paid for the rating.
CIT’s problems are two-fold: first, it has to deal with deteriorating credit quality of its assets – like every other lender, particularly in America – and second, it has been shut out of the bond market for well over a year. The second is usually related to the first, of course, but the descent to hell was so swift, so deep, so thorough and so extended that I think there’s other things going on. The bond market simply isn’t all that smart, y’know? I suggest technical factors like, f’rinstance, forced liquidation of CPDOs (they’ve been out of the news for a while, since 2008-9-4): CIT was a favoured ingredient of CDOs and I assume the same could be said for CPDOs – although that thought must be marked “speculative”. The potential for a near-term credit event could have widespread impact:
CIT Group Inc (CIT.N) tops the list of names in portfolios of European synthetic CDOs rated by Standard & Poor’s, which would mean widespread default losses in the nearly $600 billion market if it files for bankruptcy.
S&P said in late 2008 that 1,053 European synthetic collateralised debt obligations (CDOs) — 66 percent — included CIT, a New York-based lender to small and mid-sized businesses, in their portfolios of credit default swaps (CDS).
…
Meanwhile, in the underlying CDS market, net notional exposure to CIT amounted to $3.465 billion in the week ended July 3, according to data from the Depository Trust and Clearing Corp (DTCC).Given that CIT is a member of the CDX IG, which is the main U.S. investment-grade CDS index, “further developments are likely to be a focus for the market in the near term”, Deutsche Bank credit strategists wrote.
Out of the 1,000 top reference entities in the CDS market listed by the DTCC, CIT ranked 34th in net notional exposure.
Excluding sovereign CDS, it ranked 19th among corporate names after General Electric Capital Corp (GEA.N) and mostly banks including Deutsche Bank (DBKGn.DE), Morgan Stanley (MS.N) and Goldman Sachs (GS.N).
DBRS downgraded CIT today.
I’ve been reporting the CIT news as it comes in, but California is also dreamin’:
California had its credit rating, already the lowest of all U.S. states, cut for the second time in as many weeks over lawmakers’ failure to close a $26 billion deficit that left the most-populous U.S. state issuing IOUs to creditors.
Moody’s Investors Service said it lowered California’s credit rating two steps to Baa1 from A2 and said it could be reduced further if legislators don’t quickly address the state’s cash problem. The new grade is three levels above non-investment grade. Fitch Investors on July 6 lowered its evaluation of California’s general obligation bonds by two steps to BBB from A-, placing the debt two ranks above so-called high-yield, high- risk junk ratings.
…
Even with the credit rating tumbling, investors say there is little risk of default. California Controller John Chiang resorted to issuing IOUs to insure that the state would have enough cash to make payments that have the highest priority under the state constitution, including those on its bonds, if there is a prolonged battle over the budget. Chiang said the IOUs mean the state should have funds to meet those obligations through September.
All the way through September, eh? Wow.
A rip-roaring day for the preferred share market, with PerpetualDiscounts regaining ground vs. the somewhat-less-strong-but-still-quite-strong FixedResets, on good volume throughout.
| 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 | 0.0000 % | 1,154.8 |
| FixedFloater | 7.20 % | 5.43 % | 35,826 | 16.72 | 1 | 0.0000 % | 2,132.4 |
| Floater | 3.30 % | 3.88 % | 74,449 | 17.68 | 3 | 0.0000 % | 1,442.7 |
| OpRet | 4.99 % | -0.65 % | 122,282 | 0.09 | 15 | 0.1651 % | 2,214.2 |
| SplitShare | 6.11 % | 4.04 % | 93,096 | 4.15 | 4 | 0.2288 % | 1,917.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1651 % | 2,024.7 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4169 % | 1,765.6 |
| Perpetual-Discount | 6.28 % | 6.29 % | 160,222 | 13.48 | 71 | 0.4169 % | 1,626.1 |
| FixedReset | 5.56 % | 4.27 % | 556,679 | 4.25 | 40 | 0.1945 % | 2,068.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.B | Floater | -1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 10.10 Evaluated at bid price : 10.10 Bid-YTW : 3.92 % |
| PWF.PR.G | Perpetual-Discount | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 22.08 Evaluated at bid price : 22.32 Bid-YTW : 6.63 % |
| SLF.PR.C | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 6.62 % |
| CM.PR.J | Perpetual-Discount | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 17.80 Evaluated at bid price : 17.80 Bid-YTW : 6.35 % |
| GWO.PR.F | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 23.07 Evaluated at bid price : 23.31 Bid-YTW : 6.38 % |
| GWO.PR.I | Perpetual-Discount | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 18.23 Evaluated at bid price : 18.23 Bid-YTW : 6.24 % |
| ELF.PR.G | Perpetual-Discount | 1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 16.90 Evaluated at bid price : 16.90 Bid-YTW : 7.08 % |
| RY.PR.L | FixedReset | 1.21 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.67 Bid-YTW : 4.23 % |
| RY.PR.F | Perpetual-Discount | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 6.09 % |
| BAM.PR.O | OpRet | 1.26 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 6.01 % |
| MFC.PR.B | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 19.06 Evaluated at bid price : 19.06 Bid-YTW : 6.18 % |
| HSB.PR.C | Perpetual-Discount | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 20.86 Evaluated at bid price : 20.86 Bid-YTW : 6.18 % |
| TRI.PR.B | Floater | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 2.55 % |
| NA.PR.N | FixedReset | 1.37 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-14 Maturity Price : 25.00 Evaluated at bid price : 25.85 Bid-YTW : 4.33 % |
| MFC.PR.E | FixedReset | 1.44 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-19 Maturity Price : 25.00 Evaluated at bid price : 26.01 Bid-YTW : 4.89 % |
| POW.PR.D | Perpetual-Discount | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 19.74 Evaluated at bid price : 19.74 Bid-YTW : 6.38 % |
| W.PR.J | Perpetual-Discount | 1.59 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 22.08 Evaluated at bid price : 22.36 Bid-YTW : 6.29 % |
| RY.PR.D | Perpetual-Discount | 1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 19.13 Evaluated at bid price : 19.13 Bid-YTW : 5.99 % |
| RY.PR.C | Perpetual-Discount | 2.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 19.76 Evaluated at bid price : 19.76 Bid-YTW : 5.92 % |
| CL.PR.B | Perpetual-Discount | 2.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 24.77 Evaluated at bid price : 25.01 Bid-YTW : 6.30 % |
| MFC.PR.C | Perpetual-Discount | 2.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 18.04 Evaluated at bid price : 18.04 Bid-YTW : 6.32 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.I | FixedReset | 61,928 | National bought 49,500 from Nesbitt at 25.51. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 25.51 Evaluated at bid price : 25.56 Bid-YTW : 4.47 % |
| GWO.PR.X | OpRet | 52,782 | Scotia crossed 25,000 at 26.20, then another 22,400 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2009-10-30 Maturity Price : 26.00 Evaluated at bid price : 26.26 Bid-YTW : 1.79 % |
| TD.PR.G | FixedReset | 47,616 | Nesbitt bought 10,000 from National at 27.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.60 Bid-YTW : 3.88 % |
| GWO.PR.I | Perpetual-Discount | 43,950 | Scotia crossed 40,000 at 18.04. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 18.23 Evaluated at bid price : 18.23 Bid-YTW : 6.24 % |
| RY.PR.W | Perpetual-Discount | 43,231 | RBC crossed 21,900 at 20.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 20.22 Evaluated at bid price : 20.22 Bid-YTW : 6.17 % |
| GWO.PR.F | Perpetual-Discount | 41,993 | Scotia crossed 37,100 at 23.29. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-14 Maturity Price : 23.07 Evaluated at bid price : 23.31 Bid-YTW : 6.38 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||