One way of recruiting in a bonus-hostile environment is to double base pay:
London’s investment banks are luring back traders and analysts they lost to brokerage firms during the credit crisis, compensating for lower bonuses by as much as doubling base salaries.
…
The hires show how London’s investment banks are regrouping after boutique firms poached traders during the credit crisis with the promise of greater job security and a bonus. London’s investment banks cut about 49,000 jobs and logged more than $560 billion of writedowns during the credit crisis, according to data compiled by Bloomberg. Brokers including Eden Financial Ltd. and Liberum Capital Ltd. added sales traders and analysts to win clients from rivals that had received taxpayer bailouts.
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While bankers are considering their options on relocating to Germany or Switzerland to avoid the tax, [headhunter Jason] Kennedy said the bonus levy isn’t an issue for traders and bankers looking to move after April to larger firms because the government has said the charge will apply only to this year’s bonuses.
Holy smokes, this market’s on wheels. PerpetualDiscounts were up 46bp today and FixedResets gained 11bp, this being accomplished in a fairly well-behaved manner – there are only eight entries on the performance highlights table. Volume eased off a bit, but was still reasonably respectable.
| 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 | 0.4864 % | 1,715.4 |
| FixedFloater | 5.70 % | 3.85 % | 35,752 | 18.95 | 1 | -1.0886 % | 2,733.5 |
| Floater | 2.29 % | 2.64 % | 110,041 | 20.70 | 3 | 0.4864 % | 2,143.0 |
| OpRet | 4.81 % | -10.64 % | 110,011 | 0.09 | 13 | 0.0792 % | 2,334.1 |
| SplitShare | 6.36 % | -6.46 % | 172,588 | 0.08 | 2 | 0.2199 % | 2,111.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0792 % | 2,134.3 |
| Perpetual-Premium | 5.76 % | 5.58 % | 147,017 | 2.28 | 12 | 0.0230 % | 1,904.9 |
| Perpetual-Discount | 5.72 % | 5.75 % | 183,881 | 14.28 | 63 | 0.4589 % | 1,835.4 |
| FixedReset | 5.39 % | 3.48 % | 318,752 | 3.87 | 41 | 0.1120 % | 2,184.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| NA.PR.N | FixedReset | -1.97 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-09-14 Maturity Price : 25.00 Evaluated at bid price : 26.32 Bid-YTW : 3.65 % |
| BAM.PR.G | FixedFloater | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 25.00 Evaluated at bid price : 19.08 Bid-YTW : 3.85 % |
| BAM.PR.K | Floater | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 14.91 Evaluated at bid price : 14.91 Bid-YTW : 2.65 % |
| MFC.PR.C | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 5.76 % |
| MFC.PR.B | Perpetual-Discount | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 20.45 Evaluated at bid price : 20.45 Bid-YTW : 5.75 % |
| ELF.PR.F | Perpetual-Discount | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 6.62 % |
| RY.PR.C | Perpetual-Discount | 1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 21.37 Evaluated at bid price : 21.37 Bid-YTW : 5.46 % |
| POW.PR.D | Perpetual-Discount | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 21.60 Evaluated at bid price : 21.94 Bid-YTW : 5.71 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.A | FixedReset | 190,721 | Nesbitt crossed blocks of 50,000 and 70,000 at 25.90, then bought blocks of 23,700 and 10,600 from National at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-30 Maturity Price : 25.00 Evaluated at bid price : 25.90 Bid-YTW : 3.85 % |
| BNS.PR.R | FixedReset | 64,040 | Scotia sold 10,000 to TD at 26.46, then another 14,400 at 26.45, then crossed 25,700 at 26.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.00 Evaluated at bid price : 26.50 Bid-YTW : 3.35 % |
| GWO.PR.H | Perpetual-Discount | 56,329 | RBC sold 12,700 to Scotia at 20.72, then crossed 30,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 20.72 Evaluated at bid price : 20.72 Bid-YTW : 5.90 % |
| RY.PR.X | FixedReset | 37,476 | RBC crossed 25,000 at 28.17. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-23 Maturity Price : 25.00 Evaluated at bid price : 28.16 Bid-YTW : 3.55 % |
| BAM.PR.B | Floater | 31,393 | Nesbitt crossed 19,200 at 14.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 14.99 Evaluated at bid price : 14.99 Bid-YTW : 2.64 % |
| IGM.PR.B | Perpetual-Discount | 29,725 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-01-08 Maturity Price : 24.54 Evaluated at bid price : 24.75 Bid-YTW : 6.03 % |
| There were 27 other index-included issues trading in excess of 10,000 shares. | |||
Hello James:
A few observations / comments /questions:
The fact that the floaters are doing se well seem to confirm the market’s accute fear toward inflation. Would you agree with that?
On the other hand, the good performance of the straits perps in relation since the end of 2009 (after the capital gain / loss taking season), even outperfroming the resetables, rather seems to indicate that there is still time before the feared interest rate increase to fight inflation.
Those are contradictory statements don’t you find (or maybe I am simple erring making one or both of those)? However, is it possible that due to strength of its currency toward the USD and nature of its economy (whatever is left of our Eastern manufacturing industry has the US for its market) that the market is realising that Canada will have to keep low interest rate for much longer than the US such that we could end up with inflation but no better fix income return than what we currently can get? No doubts, gold, commodities and oil will probably do well when the inflation comes but could it be that interest rate will have to remain fairly low due to the above as well as the public sector high indebtedness. I was too young and did not have money in the days interest rates were above 15%. Was it the result of bad monetary policy or just unavoidable in the prevailing circumstances at the time? Is it possible that high inflation might not necessarily translate into high return on fix income products? In other words, could it be possible to end up as losing with fix income products, without doing anything wrong, after taking into account inflation or is this can just not happen for reasons I don’t know and that yo might be able to explain? Thks
The fact that the floaters are doing se well seem to confirm the market’s accute fear toward inflation. Would you agree with that?
It’s one explanation! I reviewed the situation in my essay Some Preferreds to Float Your Boat, but I’m afraid that I find determining whether something is rich or cheap is quite hard enough; figuring out why it’s rich or cheap is quite beyond me!
On the other hand, the good performance of the straits perps in relation since the end of 2009 (after the capital gain / loss taking season), even outperfroming the resetables, rather seems to indicate that there is still time before the feared interest rate increase to fight inflation.
You should always remember that the market is not homogeneous. It could well be that there is one block of buyers who think inflation is about to go to a permanent 10% and another block who think that we will return, more or less, to 2006.
I was too young and did not have money in the days interest rates were above 15%. Was it the result of bad monetary policy or just unavoidable in the prevailing circumstances at the time?
Me too. Most economists I’ve read are of the view that it was poor monetary policy; the central banks at the time thought that the oil price shock was not inflation in and of itself, but was a permanent price readjustment. So they took it out of their measures of inflation. Then they figured transportation was a permanent, non-inflationary price adjustment. So they took that out. And on and on until … hey, EVERYTHING’s readjusting!
Is it possible that high inflation might not necessarily translate into high return on fix income products?
High inflation will lead to lousy returns on existing fixed income products, but new issues will reflect market expectations of how permanent it is. I don’t think anybody will buy a long Canada at 4% if inflation is 10% with no end in sight.
I hope this helps – feel free to ask for clarification.
I would add that another possible reason floaters are doing well is that SHORT TERM interest rates could rise soon in Canada, as they have in some other resource economies (Norway, Australia). This would increase the ongoing dividends.
A third reason is that many floater prices do not make sense in terms of the price of the fixed rate pref into which they are convertible every 5 years (the floaters have been mostly undervalued).
These explanations for the behaviour of floaters in the current environment do not require inflation to be gathering steam — and are therefore more consistent with broader data, some of which James pointed out.