Apparently, having the world’s most intrusive bonus rules is a Good Thing:
U.K. banks face the toughest bonus regime in the world if proposals outlined in a government- commissioned report are accepted, according to its author, Morgan Stanley Senior Adviser David Walker.
Banks should delay bonus payments for as much as five years and have the power to “claw back” awards, Walker, 69, said in his final report on improvements to U.K. corporate governance released today. The government strongly supports Walker’s recommendations “and will take steps to implement them as soon as possible,” according to a statement from Chancellor of the Exchequer Alistair Darling.
Meanwhile, Andrew Willis of The Globe and Mail speculates that the nudge-and-wink Canadian version might lead to new independent dealers:
As this bonus season begins, there are enormous tensions within the ranks of the six largest and most profitable houses. The bank-owned firms had great years. Yet it’s not at all clear the wealth will be shared with employees the way it was in the past. Bonus cheques may be trimmed, even chopped.
Bank executives, and the folks in HR departments, are taking a New England Patriots approach to talent: They are concluding it’s the franchise, the massive machine, that earns the profits, not any one individual. This attitude does not sit well with the more self-assured of bankers and traders.
To a large extent this is true; investment banking is simply the latest area of investment activities to get hit. The banks can, if they wish, create good products run by superb staff, but it doesn’t matter. Since moving into brokerage and wealth management, they have found that they can make just as much money with barely acceptable products run by high school students, such is their franchise.
I’m not sure where this will end – and it might not end. An internal contradiction can last a long time and either degrade slowly or spectacularly. It’s interesting to speculate just what might trigger a spectacular paradigm shift, but I haven’t got any answers for that one. Bre-X didn’t do it. Nortel didn’t do it. And small shops sell out to big shops when the proprietors retire, which takes care of the slow pathway.
Ultimately, a reversal of the process will occur only when performance actually becomes a selling feature – which isn’t going to happen any time soon. Avner Mandelman had a good piece in Saturday’s Globe regarding what is actually being sold. One thing that would be good would be increased regulatory emphasis on performance: investment managers are required to state their experience in prospectuses, but not performance. Many trading rules in UMIR are designed to protect morons – simply rescinding those would be a great leap forward. But guess which segment of the industry has captured the regulators – nothing will happen.
Some might argue that the consequences of an incompetent culture have already been felt, in the shape of the Credit Crunch. Maybe. It is very hard to read the SEC Inspector-General’s report on Bear Stearns and not get the feeling that the smiley-boys had taken over management completely and that they deserved to fail.
Not much action in the preferred share market on American Thanksgiving, but up-days are always welcome! PerpetualDiscounts gained 4bp and FixedResets were up 6bp.
| 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 | 0.5684 % | 1,518.0 |
| FixedFloater | 6.06 % | 4.17 % | 41,842 | 18.59 | 1 | 0.0557 % | 2,573.0 |
| Floater | 2.57 % | 2.99 % | 92,188 | 19.69 | 3 | 0.5684 % | 1,896.4 |
| OpRet | 4.80 % | -6.38 % | 122,871 | 0.09 | 14 | 0.0734 % | 2,311.2 |
| SplitShare | 6.30 % | -17.93 % | 317,814 | 0.09 | 2 | 0.5245 % | 2,131.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0734 % | 2,113.4 |
| Perpetual-Premium | 5.86 % | 5.17 % | 125,238 | 2.40 | 4 | 0.2375 % | 1,875.4 |
| Perpetual-Discount | 5.83 % | 5.91 % | 184,225 | 13.99 | 70 | 0.0366 % | 1,781.4 |
| FixedReset | 5.45 % | 3.86 % | 377,573 | 3.92 | 41 | 0.0572 % | 2,145.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| RY.PR.Y | FixedReset | -1.59 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-24 Maturity Price : 25.00 Evaluated at bid price : 27.21 Bid-YTW : 4.21 % |
| PWF.PR.O | Perpetual-Discount | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-11-26 Maturity Price : 24.30 Evaluated at bid price : 24.50 Bid-YTW : 6.01 % |
| TRI.PR.B | Floater | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-11-26 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 2.02 % |
| ELF.PR.G | Perpetual-Discount | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-11-26 Maturity Price : 18.01 Evaluated at bid price : 18.01 Bid-YTW : 6.70 % |
| IGM.PR.A | OpRet | 1.38 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2009-12-26 Maturity Price : 26.00 Evaluated at bid price : 26.81 Bid-YTW : -34.83 % |
| CU.PR.B | Perpetual-Premium | 1.92 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-07-01 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 5.17 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PR.N | OpRet | 139,190 | TD crossed blocks of 52,900 and 40,400 and 35,000 shares, all at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2009-12-26 Maturity Price : 26.00 Evaluated at bid price : 26.24 Bid-YTW : -2.94 % |
| GWO.PR.E | OpRet | 49,168 | Nesbitt crossed 41,300 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2009-12-26 Maturity Price : 25.50 Evaluated at bid price : 25.81 Bid-YTW : -1.57 % |
| BMO.PR.J | Perpetual-Discount | 41,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-11-26 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 5.62 % |
| MFC.PR.D | FixedReset | 37,194 | Nesbitt bought 10,200 from CIBC at 27.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 27.74 Bid-YTW : 3.95 % |
| BMO.PR.L | Perpetual-Discount | 29,765 | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-24 Maturity Price : 25.00 Evaluated at bid price : 25.02 Bid-YTW : 5.83 % |
| RY.PR.D | Perpetual-Discount | 24,985 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-11-26 Maturity Price : 20.25 Evaluated at bid price : 20.25 Bid-YTW : 5.60 % |
| There were 19 other index-included issues trading in excess of 10,000 shares. | |||