{"id":10131,"date":"2010-03-17T19:45:41","date_gmt":"2010-03-17T23:45:41","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=10131"},"modified":"2010-03-17T19:45:41","modified_gmt":"2010-03-17T23:45:41","slug":"march-17-2010","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=10131","title":{"rendered":"March 17, 2010"},"content":{"rendered":"

Former Lehman executives (and note that an “executive” can be anybody with a title) who, it would seem, prefer to remain anonymous, are trying to play down Repo 105<\/a>, discussed on PrefBlog on March 12<\/a>. But it’s a tangled web we weave…:<\/p>\n

The only people who would worry about using an old trick to reduce leverage from 13.9 to 12.1, the second executive said, are \u201cyappers who don\u2019t know anything.\u201d<\/p>\n

Again, the examiner\u2019s report takes pains to show otherwise. It quotes a senior vice president calling Lehman\u2019s leverage targets \u201ca very hot topic.\u201d The firm\u2019s own definition of a material leverage shift was one-tenth of a point.<\/p><\/blockquote>\n

In my experience, 95% of the sell-side are yappers who don’t know anything, and the other 5% are simply disingenuous.<\/p>\n

And, of course, blind faith in the regulators is misplaced<\/a>:<\/p>\n

Securities and Exchange Commission Chairman Mary Schapiro said her agency\u2019s oversight of Lehman Brothers Holdings Inc. was \u201cterribly flawed,\u201d days after a bankruptcy examiner found the SEC didn\u2019t try to stop the firm\u2019s exaggeration of liquid assets.<\/p>\n

\u201cIt was so terribly flawed in design and execution,\u201d Schapiro testified to a Congressional committee today, referring to SEC examinations aimed at monitoring the soundness of Wall Street\u2019s biggest investment banks. \u201cWe were ill-suited because of our enforcement and disclosure mentality.\u201d
…<\/b>
Valukas\u2019s March 11 report describes a gap between how Lehman and the SEC viewed the firm\u2019s so-called liquidity pool, used to pay bills in a pinch, in the firm\u2019s final months. Behind the scenes, the SEC questioned how quickly some assets could really be tapped. Still, Lehman didn\u2019t tell investors that a growing share of the pool was being pledged as collateral to clearing firms, the report found.<\/p>\n

The SEC deemed assets to be liquid only if they were convertible to cash within 24 hours. Lehman afforded itself five days. The SEC told Lehman it preferred the shorter limit and never enforced it, according to the report.<\/p>\n

In another instance, the SEC didn\u2019t take action after determining in June 2008 that Lehman had counted a $2 billion deposit at Citigroup Inc. among cash-like assets available in an emergency, according to the report. SEC analysts deemed the deposit\u2019s designation as \u201cproblematic,\u201d because withdrawing the money could have impaired Lehman\u2019s trading.
…<\/b>
The silence of examiners, who focused more on stability than honesty with investors, was invoked as a defense as Valukas quizzed more than 100 executives and other witnesses about the financial health and reporting at Lehman, based in New York.<\/p><\/blockquote>\n

The Bloomberg story doesn’t explore the regulators’ obsession with “stability” in detail, or even define what it is. Stability of the Financial System? Stability of Lehman? Stability of their jobs? What? One way or another … so much for the third pillar<\/a>!<\/p>\n

Greece is still trying to extract better terms for its EU bail-out<\/a>:<\/p>\n

As long as \u201cGreece is still borrowing at an unreasonably high interest rate, over 6 percent,\u201d the country will keep \u201call options open\u201d while preferring an EU solution, Papandreou said at a press conference in Brussels today with European Commission President Jose Barroso.<\/p><\/blockquote>\n

Bad news at the trough on St. Patrick’s day! The little green piggies haven’t spent enough on lobbying<\/a>:<\/p>\n

\u201cUntil government policies favor renewable energy over dirty coal, solar may seem too risky now for some investors,\u201d said Landis, whose $260 million fund include SunPower Corp. and Suntech Power Holdings Co. \u201cCoal may make sense short term.\u201d<\/p>\n

Solar companies\u2019 profitability is falling because of competition from China and cuts to state support in Germany and Spain, where about 72 percent power-producing photovoltaic panels were installed in 2008.
…<\/b>
Germany may install 3,000 megawatts, or about a third of the world\u2019s total, Simonek said. In the Czech Republic, a country of 10 million people, about 900 megawatts of solar power will be deployed, almost matching existing U.S. installations.<\/p>\n

The rising global demand will help some companies weather the slump in panel prices caused by Chinese manufacturers stepping up production and cuts in solar subsidies in Germany and Spain known as feed-in tariffs, said Richard Caldwell, chairman of Australia\u2019s Dyesol Ltd., which makes a conductive dye that produces electricity on glass and sheet metal.<\/p>\n

\u201cCompanies in the industry like First Solar have had a shocker,\u201d he said. \u201cThe Chinese have been flooding the market with cheap product. And we\u2019re still getting over the change to the German feed-in tariff. It hasn\u2019t been a good market.\u201d <\/p><\/blockquote>\n

Who woulda thunk it? Competition in solar panels! And there we all were, thinking it was all about peace, love, granola and subsidized green jobs to replace all those subsidized auto jobs that have evaporated! Just think, if they can cut costs by another 90%, maybe it will even be worth thinking about!<\/p>\n

Volume was good in the Canadian preferred share market today, but PerpetualDiscounts fell by 7bp. FixedResets gained 2bp to take yields to within a hairsbreadth of their all-time lows … another tenth of a beep in yield and we’ve got a new record.<\/p>\n

PerpetualDiscounts now yield 5.97%, equivalent to 8.36% interest at the standard equivalency factor of 1.4x. Long Corporates<\/a> now yield about 5.7% (maybe a little bit more) so the pre-tax interest equivalent spread (also called the seniority spread) now sits at about 265bp, a significant widening from the 245bp reported on March 10<\/a>. I consider it highly peculiar that the spread should be so wide in the absence of any serious credit-based panics; I can only conclude that retail has decided that massive inflation is imminent – which is consistent with low yields on FixedResets – contrary to the beliefs of institutional bond investors. I note that Long Canadas<\/a> now yield 4.02% while long RRBs yield 1.57% real, for a breakeven of 245bp.<\/p>\n

<\/a>
Click for Big<\/i><\/div>\n

…. and you can call the recent rocketing in the breakeven spread either a return to normalcy or a harbinger of hyperinflation, depending on what answer you want to get … or what your client wants to hear<\/a>.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices<\/strong>
Values are provisional and are finalized monthly<\/td>\n<\/tr>\n
Index<\/td>\nMean
Current
Yield
(at bid)<\/td>\n		Median
YTW<\/td>\n		Median
Average
Trading
Value<\/td>\n		Median
Mod Dur
(YTW)<\/td>\n		Issues<\/td>\nDay’s Perf.<\/td>\nIndex Value<\/td>\n<\/tr>\n
Ratchet<\/td>\n2.63 %<\/td>\n2.78 %<\/td>\n56,234<\/td>\n20.84<\/td>\n1<\/td>\n-0.5090 %<\/td>\n2,103.6<\/td>\n<\/tr>\n
FixedFloater<\/td>\n5.14 %<\/td>\n3.25 %<\/td>\n44,807<\/td>\n19.87<\/td>\n1<\/td>\n-1.1677 %<\/td>\n3,076.3<\/td>\n<\/tr>\n
Floater<\/td>\n1.93 %<\/td>\n1.73 %<\/td>\n45,279<\/td>\n23.23<\/td>\n4<\/td>\n-0.2320 %<\/td>\n2,394.0<\/td>\n<\/tr>\n
OpRet<\/td>\n4.90 %<\/td>\n2.62 %<\/td>\n100,267<\/td>\n0.20<\/td>\n13<\/td>\n-0.0149 %<\/td>\n2,309.3<\/td>\n<\/tr>\n
SplitShare<\/td>\n6.43 %<\/td>\n6.53 %<\/td>\n127,694<\/td>\n3.68<\/td>\n2<\/td>\n-0.4198 %<\/td>\n2,121.1<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.0149 %<\/td>\n2,111.6<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.88 %<\/td>\n5.92 %<\/td>\n119,405<\/td>\n6.86<\/td>\n7<\/td>\n0.0908 %<\/td>\n1,891.5<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n5.90 %<\/td>\n5.97 %<\/td>\n179,272<\/td>\n13.94<\/td>\n71<\/td>\n-0.0675 %<\/td>\n1,789.2<\/td>\n<\/tr>\n
FixedReset<\/td>\n5.36 %<\/td>\n3.47 %<\/td>\n341,924<\/td>\n3.69<\/td>\n43<\/td>\n0.0161 %<\/td>\n2,202.4<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n
Performance Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nChange<\/td>\nNotes<\/td>\n<\/tr>\n
GWO.PR.H<\/td>\nPerpetual-Discount<\/td>\n-1.41 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2040-03-17
\nMaturity Price : 20.21
\nEvaluated at bid price : 20.21
\nBid-YTW : 6.03 %<\/td>\n<\/tr>\n
HSB.PR.D<\/td>\nPerpetual-Discount<\/td>\n-1.33 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2040-03-17
\nMaturity Price : 20.72
\nEvaluated at bid price : 20.72
\nBid-YTW : 6.06 %<\/td>\n<\/tr>\n
BAM.PR.G<\/td>\nFixedFloater<\/td>\n-1.17 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2040-03-17
\nMaturity Price : 25.00
\nEvaluated at bid price : 21.16
\nBid-YTW : 3.25 %<\/td>\n<\/tr>\n
BNA.PR.C<\/td>\nSplitShare<\/td>\n-1.08 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2019-01-10
\nMaturity Price : 25.00
\nEvaluated at bid price : 19.30
\nBid-YTW : 8.08 %<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n\n
Volume Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nShares
Traded<\/td>\n		Notes<\/td>\n<\/tr>\n
BAM.PR.O<\/td>\nOpRet<\/td>\n127,900<\/td>\nNesbitt crossed 124,400 at 25.85. Nice ticket!
\nYTW SCENARIO
\nMaturity Type : Option Certainty
\nMaturity Date\t: 2013-06-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.85
\nBid-YTW : 3.85 %<\/td>\n<\/tr>\n
TRP.PR.B<\/td>\nFixedReset<\/td>\n112,157<\/td>\nRecent new issue<\/a>.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2040-03-17
\nMaturity Price : 24.92
\nEvaluated at bid price : 24.97
\nBid-YTW : 3.94 %<\/td>\n<\/tr>\n
TD.PR.N<\/td>\nOpRet<\/td>\n82,165<\/td>\nNational sold 10,000 to Desjardins at 26.00 and 25,000 to RBC at the same price. RBC crossed 25,000 at the same price again.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2010-05-30
\nMaturity Price : 25.75
\nEvaluated at bid price : 26.00
\nBid-YTW : 2.46 %<\/td>\n<\/tr>\n
TD.PR.E<\/td>\nFixedReset<\/td>\n66,812<\/td>\nNesbitt crossed 35,000 at 28.20, then bought 10,000 from TD at the same price.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-05-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 28.11
\nBid-YTW : 3.32 %<\/td>\n<\/tr>\n
NA.PR.L<\/td>\nPerpetual-Discount<\/td>\n66,616<\/td>\nNational crossed 61,300 at 20.77.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2040-03-17
\nMaturity Price : 20.72
\nEvaluated at bid price : 20.72
\nBid-YTW : 5.93 %<\/td>\n<\/tr>\n
W.PR.H<\/td>\nPerpetual-Discount<\/td>\n47,100<\/td>\nScotia crossed 20,000 at 22.50; RBC crossed 25,000 at the same price.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2040-03-17
\nMaturity Price : 22.12
\nEvaluated at bid price : 22.50
\nBid-YTW : 6.22 %<\/td>\n<\/tr>\n
There were 41 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

Former Lehman executives (and note that an “executive” can be anybody with a title) who, it would seem, prefer to remain anonymous, are trying to play down Repo 105, discussed on PrefBlog on March 12. …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-10131","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/10131","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10131"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/10131\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10131"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10131"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10131"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}