Geez, I hate it when the Financial Post gets desperate for copy. They consult their Journalists’ Handbook, and see that if somebody says “white is white”, it’s an interesting angle to dig up somebody who’ll say “white is black”.<\/p>\n
They did it last year<\/a> and now they’ve done it again: a short piece titled The ‘risk’ of Preferred Shares<\/a>, by John Greenwood, pointing out that dividends are not guaranteed.<\/p>\n You can almost hear the journalist’s leading questions, which are not reported:<\/p>\n What would happen if a bank were to skip a payment on its preferred dividend?<\/i><\/p>\n If a bank were to skip one, the market for the shares would “be vaporized,” said Blackmont Capital analyst Brad Smith.<\/p><\/blockquote>\n How many banks would have to skip payments before the market was adversely affected?<\/i><\/p>\n “All that would have to happen would be for one bank to miss a payment and the whole market would shut down,” said another analyst who asked not to be named.<\/p><\/blockquote>\n Particularly irksome is:<\/p>\n Some European banks have been forced to cut back on dividends after accepting government bailouts.<\/p><\/blockquote>\n Can he name any? I’m sure there have been some preferred defaults, but I can’t remember seeing anything about government money being conditional on a preferred dividend cut. Common dividend cuts, sure, that has happened in the States too … let’s just say I want more details.<\/p>\n If he wants to talk about preferred share defaults, he can look at Nortel & Quebecor World right here in Canada!<\/p>\n The only saving grace is:<\/p>\n Preferred shares rank senior to common, so even if the dividend on the common is sacrificed, holders of preferred shares could still collect. According to Sherry Cooper, senior economist at BMO Nesbitt Burns, aside from National Bank, none of the major banks has cut a dividend since the Great Depression. (National chopped twice, most recently in the early 1990s.)<\/p><\/blockquote>\n … but still, I find the article annoying in the extreme. Particularly since I don’t understand why the word “risk” in the title is in quotes!<\/p>\n Yes, preferred shares can have their dividend cut. We know that. But if somebody’s going to talk about it in the newspaper, can we PLEASE have some kind of indication of how likely they think that might be? As for myself, I consider the probability immeasurably small for Canadian banks right now …the banks are well capitalized and profitable … anything imminent would be in the nature of a black swan event, immeasurable by definition.<\/p>\n Let the banks here get into trouble and sure, I’ll be happy – eager! – to start taking a view on the chances of them getting into more trouble. But could we at least wait to see some actual signs of definite trouble before discussing the effects on the market of a skipped payment?<\/p>\n I mean, geez, what’s next? A banner headline announcing that a giant asteroid smashing into earth could ruin our whole day?<\/p>\n","protected":false},"excerpt":{"rendered":" Geez, I hate it when the Financial Post gets desperate for copy. They consult their Journalists’ Handbook, and see that if somebody says “white is white”, it’s an interesting angle to dig up somebody who’ll …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-5295","post","type-post","status-publish","format-standard","hentry","category-miscellaneous-news"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/5295","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=5295"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/5295\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5295"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5295"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5295"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}