The G-20 summit resulted in a communique of little interest. As always, the interesting parts were not official:
Curtailing bankers’ pay and bonuses has been seen as key by some countries as the current payment culture, considered as having encouraged risky behavior, was blamed for fueling the financial crisis.
Alistair Darling, Britain’s chancellor of the exchequer, or finance minister, and host of the G-20 meeting, said that there must be no more cases in which “people are being rewarded for reckless behavior.” Heading into the talks in the British capital, European countries had pushed for the G-20, which represents 80 percent of the world’s economic output, to enforce an official cap on individual payouts as well as collective bonus pots at financial firms.
Britain supported the general effort to rein in bonuses, but not the cap, while the United States was more intent on pushing its proposal for a global accord to force banks to hold more capital reserves.
During the talks, the G-20 agreed to give the Financial Stability Board, an international body established at the London summit of G-20 leaders in April, the task of drawing up practical proposals on which the leaders meeting in Pittsburgh on Sept. 24 and 25 could agree.
Treasury’s proposals for capital reserves have been previously reported.
I mentioned the latest lawsuit against the CRAs on September 3. Jim Hamilton’s World of Securities Regulation has a better summary of the legal issues:
The court also rejected the defense that the ratings were non-actionable opinions. The investors alleged actionable misrepresentations, said Judge Scheindlin, because they alleged that the rating agencies did not genuinely or reasonably believe that the ratings they assigned to the asset-backed securities were accurate and had a basis in fact. Similarly, disclaimers in the information memorandum that the credit rating was an opinion and not a guarantee or a recommendation to buy were unavailing and insufficient to protect the agencies from liability for promulgating alleged misleading ratings.
…
Also, the rating agencies received fees in excess of their normal fees for rating the securities, noted the court, fees that increased in tandem with the growth of the structured investment vehicle. Unknown to investors, the compensation of the rating agencies was contingent on the receipt of high ratings for the notes.
…
While conceding that the investors were sophisticated, the court found that the market at large, including sophisticated investors, have come to rely on the independence of rating agencies because of their NRSRO status and, as here, their access to non-public information that even sophisticated investors cannot obtain. Thus, the court concluded that the investors stated their reasonable reliance on the alleged false ratings.
Congress has struck a Financial Crisis Inquiry Commission:
The Financial Crisis Inquiry Commission this month will begin probing how the U.S. financial system came perilously close to collapse in the fall of 2008, leading to the worst economic downturn since the Great Depression.
Congress ordered the 10-person commission to examine 22 causes of the debacle, “from A to V” as Angelides puts it. They range from things that were done, like mortgage fraud, to things mostly left undone, like over-the-counter derivatives regulation.
Armed with subpoena power to bring witnesses and spring documents, the panel is supposed to find out what caused the collapse of major financial institutions, like Lehman Brothers Holdings Inc, from August 2007 to April 2009 — as well as those that would have failed without government aid, like American International Group Inc.
The first public meeting is set for September 17, with the group to issue a report to Congress by December 2010.
Consumer credit in the States is under pressure:
Consumer credit fell by a record $21.6 billion, or 10 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $15.5 billion in June, more than previously estimated. Credit fell for a sixth month, the longest series of declines since 1991.
The credit crunch, stagnant incomes and declines in household wealth are casting doubt on the strength of the economic recovery. The arrival of the government’s “cash for clunkers” program in late July wasn’t enough to keep credit that covers car loans from plummeting by a record amount, as consumers delayed other purchases.
There wasn’t much direction in the preferred market today, with PerpetualDiscounts gaining 8bp and FixedResets as close to flat as makes no difference. Volume was relatively light, with FixedResets gaining most of the places on the highlights table.
| 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 | 0.0971 % | 1,432.9 |
| FixedFloater | 5.77 % | 4.03 % | 60,111 | 18.55 | 1 | 0.2127 % | 2,662.0 |
| Floater | 2.55 % | 2.13 % | 30,486 | 22.05 | 4 | 0.0971 % | 1,790.1 |
| OpRet | 4.87 % | -10.36 % | 136,129 | 0.09 | 15 | -0.0562 % | 2,278.0 |
| SplitShare | 6.44 % | 6.48 % | 1,105,495 | 4.07 | 2 | 0.3119 % | 2,053.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0562 % | 2,083.0 |
| Perpetual-Premium | 5.77 % | 5.65 % | 151,238 | 6.16 | 12 | -0.3224 % | 1,877.5 |
| Perpetual-Discount | 5.70 % | 5.76 % | 199,226 | 14.23 | 59 | 0.0789 % | 1,803.2 |
| FixedReset | 5.50 % | 4.09 % | 471,470 | 4.10 | 40 | 0.0028 % | 2,106.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| NA.PR.K | Perpetual-Premium | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 24.51 Evaluated at bid price : 24.82 Bid-YTW : 5.95 % |
| ENB.PR.A | Perpetual-Premium | -1.24 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2009-10-08 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : -14.41 % |
| IAG.PR.A | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 19.76 Evaluated at bid price : 19.76 Bid-YTW : 5.84 % |
| PWF.PR.I | Perpetual-Premium | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 24.81 Evaluated at bid price : 25.11 Bid-YTW : 6.05 % |
| NA.PR.O | FixedReset | -1.08 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-17 Maturity Price : 25.00 Evaluated at bid price : 27.43 Bid-YTW : 4.37 % |
| GWO.PR.F | Perpetual-Premium | -1.07 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-10-30 Maturity Price : 25.00 Evaluated at bid price : 25.03 Bid-YTW : 5.78 % |
| RY.PR.W | Perpetual-Discount | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 22.63 Evaluated at bid price : 22.81 Bid-YTW : 5.41 % |
| GWO.PR.I | Perpetual-Discount | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 19.71 Evaluated at bid price : 19.71 Bid-YTW : 5.72 % |
| BMO.PR.H | Perpetual-Discount | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 22.97 Evaluated at bid price : 24.15 Bid-YTW : 5.47 % |
| BAM.PR.I | OpRet | 1.25 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2010-07-30 Maturity Price : 25.50 Evaluated at bid price : 26.00 Bid-YTW : 4.35 % |
| CU.PR.B | Perpetual-Premium | 1.37 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2009-10-08 Maturity Price : 25.75 Evaluated at bid price : 25.90 Bid-YTW : 0.09 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.X | FixedReset | 79,664 | National crossed two blocks of 15,000 shares each, both at 27.85; RBC bought 19,700 from Scotia at 27.81. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-25 Maturity Price : 25.00 Evaluated at bid price : 27.83 Bid-YTW : 3.83 % |
| TD.PR.R | Perpetual-Discount | 61,501 | RBC bought 36,600 from Scotia at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-09-08 Maturity Price : 24.78 Evaluated at bid price : 25.00 Bid-YTW : 5.67 % |
| MFC.PR.D | FixedReset | 59,132 | RBC bought 15,500 from anonymouse at 27.70, then crossed 23,200 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.65 Bid-YTW : 4.18 % |
| GWO.PR.E | OpRet | 57,765 | RBC crossed 54,500 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2009-10-08 Maturity Price : 25.50 Evaluated at bid price : 25.85 Bid-YTW : -14.79 % |
| RY.PR.R | FixedReset | 52,457 | Desjardins bought 29,500 from anonymous at 27.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.64 Bid-YTW : 3.79 % |
| BAM.PR.P | FixedReset | 37,450 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-30 Maturity Price : 25.00 Evaluated at bid price : 26.82 Bid-YTW : 5.32 % |
| There were 33 other index-included issues trading in excess of 10,000 shares. | |||