On May 11 I unwisely remarked on the “fine price” CI got for a chunk of its US operation. Oops! I forgot that when the Bay Street Smiley Boys start bragging, it’s time to run:
In a regulatory filing Thursday, CI said that if a future IPO doesn’t meet certain conditions, including size, the company has guaranteed the buyers of the preferred shares a new, higher value for them.
That value increases over time, giving CI an incentive to take the U.S. wealth business public sooner. In three years, the new “stated” price of the preferred shares will jump to 150 per cent of their original price – or a total of $2-billion. It will continue to grow after that, and in six years, it will be 225 per cent of the original price, or $3-billion.
That means the new capital could cost CI at least 14 per cent annually, each year it remains in place.
The buyers of the debt also have the right to force an IPO or sale of the U.S. wealth business within five years and nine months after the closing.
So, people are running:
As Thursday’s trading continued, however, the share price began to slide, and it collapsed Friday to nearly the predeal levels. The swoon in CI’s share price has left its shares shockingly cheap: According to S&P Global Market Intelligence, the stock trades at less than four times the estimate of the company’s next 12 months’ earnings per share, and a little more than six times its EBITDA, or earnings before interest, taxes, depreciation and amortization.
I don’t have an interest, even at three times EBITDA. When a company starts crap like this, you know their back’s up against the wall.
Real estate has started bubbling again:
National home sales jumped by 11.3 per cent between March and April as the real estate market picked up again, but supply remained at a 20 year-low, the Canadian Real Estate Association said Monday.
Seasonally-adjusted sales for the month totalled 38,164 compared with 34,277 in March.
The actual number of homes sold last month amounted to 44,059, down 19.5 per cent from a year prior.
The year-over-year sales decline was markedly smaller than the drops reported in recent months, the association said, attributing the return of sales to home prices, which many feel have bottomed out in recent months as interest rates climbed eight times over the last year.
…
Those who waded into the market last month found last month’s seasonally-adjusted average price hit $695,887, up 5.7 per cent from March.The actual average home price was roughly $716,000 in April, down 3.9 per cent from April 2022, but up $103,500 from January 2023.
CREA attributed the gains seen since January to “outsized sales rebounds” in the Greater Toronto Area (GTA) and B.C.’s Lower Mainland, which tend to be hot markets.
Excluding the GTA and Greater Vancouver from the calculation cuts more than $144,000 from the actual national average price, CREA said.
The BoC has released a Staff Discussion Paper by Toni Gravelle, Ron Morrow and Jonathan Witmer titled (deep breath) Reviewing Canada’s Monetary Policy Implementation System: Does the Evolving Environment Support Maintaining a Floor System?:
At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. This decision was informed by the analysis and assessment of the two frameworks in this paper. We provide a comprehensive analysis of both frameworks and assess their relative merits based on five key criteria that define a sound framework. Our evaluation includes a discussion of how these relative merits have changed since the pandemic began. Specifically, we examine the evolving regulatory landscape, changes in payment systems, and the Bank’s quantitative easing program to understand their implications for the relative strengths of the two frameworks for monetary policy implementation.
…
Engert, Gravelle and Howard (2008) describe the corridor system used by the Bank.In a corridor system, the central bank needs to carefully judge the amount reserves needed to incentivize trading near its target for the overnight interest rate. This can be seen in Figure 1 (panel a), where the demand curve is inelastic around the target interest rate. That is, relatively small changes in the supply of reserves (or small shifts in the demand curve, holding supply constant) can cause a large change in the overnight market rate, given the steepness of the demand curve near the target interest rate. Because of this, the effective implementation of a corridor system (i.e., overnight rate trading near target) requires a central bank to have a good ability to forecast demand and the capacity to adjust the supply of reserves in a precise and timely way. The central bank adjusts the supply of reserves in a corridor system through its fine-tuning operations. In Canada, before the COVID-19 pandemic, the amount of settlement balances needed to keep the overnight market rate near the target rate was quite low, roughly $250 million.
In a floor system, the overnight market rate trades at or close to the central bank’s deposit rate (the interest rate for deposited reserves at the central bank). This is because the supply of reserves is more than enough to satisfy financial institutions’ demand for these reserves. Figure 1 (panel b) illustrates how a sufficiently large supply of reserves will cross the lower, elastic part of the demand curve, causing the overnight market rate to be equal to the deposit rate. Financial institutions that participate in the wholesale payments system (i.e., they can earn the deposit rate on their excess reserves) lend out their excess reserves, which lowers the overnight market rate until it is at or near the deposit rate—the so-called floor of the corridor.2 The simple demand curve above assumes that access to the central bank deposit facility is broad and that overnight trading is unsecured. We explain in section 4.1 how these factors may result in a leaky floor where the overnight market rate trades below the deposit rate.
…
Bindseil (2016) and others have advanced several criteria for evaluating different operational frameworks
for monetary policy. Drawing on this work, we believe the following criteria capture the key characteristics
that are desirable in an operational framework:
- • Effective control of the target interest rate—The framework should achieve the target interest rate for monetary policy with a high degree of certainty and limited variability. To this end, systematic deviations of the overnight rate from the target should be within the desired tolerance level.
- • Operational simplicity—Implementation of the framework should require a small number of simple tools. In addition, simplicity means that operations should rely primarily on rules rather than on discretion. The framework should function effectively with a high degree of operational transparency and be easily understood by market participants.
- • Robustness across different operating environments—The framework should function effectively regardless of whether the central bank is implementing conventional or unconventional monetary policy measures. Further, the framework should operate effectively when the central bank is taking policy actions to support financial stability (e.g., exceptional market-wide liquidity operations or emergency lending assistance).
- • Resilience to the evolution of market infrastructure—The framework should be able to accommodate new payment, clearing and settlement systems as well as changes to existing systems that settle in central bank money and that can affect the central bank’s balance sheet.
- • Minimal distortion of market functioning and relative prices—The framework should minimize the extent to which it distorts markets (e.g., creating disincentives for trading or price discovery) or relative prices
Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, gave a speech titled The Evolving Nature of Banking, Bank Culture, and Bank Runs:
On Thursday, March 9, SVB experienced a deposit outflow of more than $40 billion, and more than $100 billion was anticipated in queue for outflow on Friday, March 10. Let’s consider this in comparison to past bank failures and the pace and size of deposit outflows. Prior to SVB, the largest bank failure in U.S. history was the failure of Washington Mutual, which experienced two periods of large deposit outflows, the first lasted 23 days with outflows of $9.1 billion, and the second $18.7 billion over 16 days. In other bank failures resulting from deposit runs, deposits flowed out of the bank in significantly smaller volumes and over much longer time horizons than SVB experienced on March 9 and 10.
…
Back-end money transfer systems have been gradually shifting to real-time payments, which are immediately available to customers upon transfer, rather than being subject to a waiting period while it is processed between financial institutions. Many bank websites provide capabilities that appear to allow customers to initiate funds transfers in real time. Sophisticated customers that hold uninsured deposits also have tools at their disposal—like the ability to initiate wire transfers between financial institutions—that allow faster transfers of funds. The capacity to initiate transfers, and even the changed perceptions of customers that they can move their funds at any time of day or night, have caused important structural shifts. Large depositors may have less incentive to act as a force for market discipline, even for banks where they hold large uninsured deposits in their operational accounts. These depositors have a cheaper and more efficient mechanism at their disposal to protect against credit risk—they can pull their money out in banking’s new normal. These changes have exacerbated the potential flight risks of uninsured deposits, while changing some of the incentives for depositors imposing market discipline.
The BoC has released highlights from the 2023 Financial System Survey:
- Respondents believe the risk of a shock that could impair the Canadian financial system has decreased since the last survey. Their confidence in the resilience of the Canadian financial system is at its highest since the first FSS in 2018.
- Cyber incidents remain the top risk that organizations face. Geopolitical risks are the second most important risk. In addition to posing risks to individual organizations, these risks are relevant for the broader Canadian financial system:
- A successful cyber attack on a financial institution or a major financial market infrastructure could result in system-wide disruptions.
- Geopolitical tensions could weigh on the pricing of risk assets globally, affecting a range of investors and issuers.
- For many of their non-centrally cleared derivatives agreements, respondents indicated that they can pledge both cash and a range of securities to meet their initial and variation margin requirements.
- Many respondents conduct stress tests to assess their ability to meet increases in margin requirements using a range of both historical and hypothetical scenarios.
- Respondents would meet increases in margin requirements smaller than those anticipated in stress tests primarily by pledging assets and cash on hand. If increases in margin requirements were larger than those produced from stress tests, respondents would rely more on other funding sources to raise cash in addition to pledging assets and cash on hand. These funding sources include asset sales, securities financing markets and lines of credit. The 2021 Financial System Review discusses how such increases in margin requirements could contribute to scenarios where the demand for cash exceeds the supply provided by banks, adding to strains on market liquidity.
| 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 | 6.1596 % | 2,186.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 6.1596 % | 4,193.4 |
| Floater | 10.31 % | 10.55 % | 55,359 | 9.05 | 2 | 6.1596 % | 2,416.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3867 % | 3,353.1 |
| SplitShare | 5.01 % | 7.39 % | 42,757 | 2.55 | 7 | 0.3867 % | 4,004.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3867 % | 3,124.4 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0358 % | 2,737.9 |
| Perpetual-Discount | 6.23 % | 6.30 % | 43,911 | 13.46 | 34 | 0.0358 % | 2,985.5 |
| FixedReset Disc | 5.94 % | 7.80 % | 86,416 | 11.85 | 63 | -0.2542 % | 2,094.0 |
| Insurance Straight | 6.08 % | 6.22 % | 60,748 | 13.55 | 19 | -0.1391 % | 2,957.8 |
| FloatingReset | 10.61 % | 11.19 % | 47,799 | 8.60 | 2 | 0.1034 % | 2,357.9 |
| FixedReset Prem | 6.94 % | 6.50 % | 323,016 | 12.84 | 1 | 0.3172 % | 2,327.4 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2542 % | 2,140.5 |
| FixedReset Ins Non | 6.06 % | 7.31 % | 75,965 | 12.11 | 11 | -0.6593 % | 2,302.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IFC.PR.C | FixedReset Disc | -5.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 7.93 % |
| BN.PF.D | Perpetual-Discount | -3.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 6.93 % |
| MFC.PR.I | FixedReset Ins Non | -2.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 21.74 Evaluated at bid price : 22.10 Bid-YTW : 6.80 % |
| MFC.PR.L | FixedReset Ins Non | -2.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 8.07 % |
| BN.PR.X | FixedReset Disc | -1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 13.98 Evaluated at bid price : 13.98 Bid-YTW : 8.69 % |
| BIP.PR.E | FixedReset Disc | -1.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 21.12 Evaluated at bid price : 21.12 Bid-YTW : 7.53 % |
| CU.PR.C | FixedReset Disc | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 7.28 % |
| MFC.PR.N | FixedReset Ins Non | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 16.04 Evaluated at bid price : 16.04 Bid-YTW : 8.11 % |
| MFC.PR.M | FixedReset Ins Non | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 16.45 Evaluated at bid price : 16.45 Bid-YTW : 8.06 % |
| BN.PF.J | FixedReset Disc | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 21.45 Evaluated at bid price : 21.45 Bid-YTW : 7.31 % |
| BN.PF.A | FixedReset Disc | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 17.80 Evaluated at bid price : 17.80 Bid-YTW : 8.47 % |
| TRP.PR.C | FixedReset Disc | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 10.70 Evaluated at bid price : 10.70 Bid-YTW : 9.46 % |
| TRP.PR.A | FixedReset Disc | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 13.52 Evaluated at bid price : 13.52 Bid-YTW : 8.97 % |
| PWF.PR.H | Perpetual-Discount | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 22.71 Evaluated at bid price : 23.00 Bid-YTW : 6.30 % |
| BN.PR.B | Floater | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 11.40 Evaluated at bid price : 11.40 Bid-YTW : 10.55 % |
| PWF.PF.A | Perpetual-Discount | 1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 6.15 % |
| BN.PR.K | Floater | 11.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 11.35 Evaluated at bid price : 11.35 Bid-YTW : 10.60 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MIC.PR.A | Perpetual-Discount | 108,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 6.54 % |
| RY.PR.O | Perpetual-Discount | 51,100 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 5.73 % |
| BN.PR.X | FixedReset Disc | 42,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 13.98 Evaluated at bid price : 13.98 Bid-YTW : 8.69 % |
| BN.PF.I | FixedReset Disc | 36,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 19.77 Evaluated at bid price : 19.77 Bid-YTW : 8.32 % |
| BN.PR.B | Floater | 18,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 11.40 Evaluated at bid price : 11.40 Bid-YTW : 10.55 % |
| BN.PR.T | FixedReset Disc | 17,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-15 Maturity Price : 13.48 Evaluated at bid price : 13.48 Bid-YTW : 9.25 % |
| There were 6 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CM.PR.Q | FixedReset Disc | Quote: 17.17 – 18.95 Spot Rate : 1.7800 Average : 1.1704 YTW SCENARIO |
| BN.PF.D | Perpetual-Discount | Quote: 18.00 – 18.99 Spot Rate : 0.9900 Average : 0.6273 YTW SCENARIO |
| CM.PR.P | FixedReset Disc | Quote: 16.30 – 17.50 Spot Rate : 1.2000 Average : 0.8956 YTW SCENARIO |
| PWF.PR.P | FixedReset Disc | Quote: 12.04 – 12.78 Spot Rate : 0.7400 Average : 0.4404 YTW SCENARIO |
| BIK.PR.A | FixedReset Disc | Quote: 22.70 – 23.48 Spot Rate : 0.7800 Average : 0.5242 YTW SCENARIO |
| MFC.PR.I | FixedReset Ins Non | Quote: 22.10 – 22.79 Spot Rate : 0.6900 Average : 0.4607 YTW SCENARIO |
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