April 30, 2009

Bloomberg reports that:

American Express Co.’s preferred stock rating was cut to BB, or non-investment grade, from BBB by Standard & Poor’s Ratings Services.

I don’t see anything on the S&P site as yet. Moodys downgraded on April 24:

Moody’s Investors Service downgraded the long-term and short-term ratings of American Express Company (“Amex”). The senior long-term debt rating was lowered to A3 from A2; and the short-term rating was lowered to Prime-2 from Prime-1. The outlook for the Amex long-term ratings is negative.

Moody’s also downgraded the long-term ratings of American Express Travel Related Services (“TRS”) and its rated operating subsidiaries, including American Express Credit Corp. The senior debt and deposit ratings of TRS and subsidiaries were downgraded to A2 from A1. The Bank Financial Strength Ratings of American Express Bank, FSB and American Express Centurion Bank were also lowered to C+ from B-. The Prime-1 short-term ratings for TRS and its rated operating subsidiaries were affirmed. The rating outlook for the TRS debt and deposit ratings is now stable. The outlook on the Banks’ Financial Strength Ratings (“BFSR”) is negative. These rating actions conclude the review initiated on February 25, 2009.

Today’s rating actions reflect the erosion of Amex’s asset quality and weaker revenue trends stemming from the severe U.S. economic recession and the firm’s relatively high credit exposure in the states most heavily affected by home price declines, particularly California and Florida. Moody’s believes that these developments, in combination with structural and regulatory changes in the credit card and consumer lending industry, pose longer term challenges to the company’s franchise.

Chrysler is bust and there could be a fascinating catfight in the works:

The iconic company, third biggest among U.S. automakers, missed a U.S. government deadline to come up with a restructuring plan by today that was rigorous enough to avoid bankruptcy and qualify for more bailout aid. The carmaker tried to negotiate an alliance with Fiat, reduce $6.9 billion in secured loans and cut $10.6 billion owed to a pension fund. Some lenders refused to slash the debt to $2.25 billion.

Bankruptcy can involve uncertainty and delay. Dissident creditors intend to object to the company’s reorganization plan, a person familiar with their thinking said. That might thwart President Barack Obama’s goal of a “surgical” bankruptcy that would put a viable carmaker quickly into the market.

Funny story on credit ratings:

[Retired lawyer Ron] Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating — meaning they were a safe investment — right until Sept. 15, the day Lehman filed for bankruptcy.

“They’re supposed to spot time bombs,” Grassi says. “The bombs exploded before the credit companies acted.”

In the brave new world of credit ratings, there won’t be any of this mealy-mouthed “A” and “A(high)” stuff. Only two ratings will be allowed: “Good as Gold” and “Going Bankrupt Next Week”. Any errors will be prima facie evidence of a crime.

The Bank of Canada has released a new working paper, Price Movements in the Canadian Residential Mortgage Market:

The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting. Their results suggest that the residential mortgage market is imperfectly competitive. They find distinct price leaders and that, as market concentration increases, so does price dispersion – helped by the increased use of discounting from posted prices. The authors also find that, although banks’ pass-through of input price changes to mortgage prices is complete in the long run under reasonable assumptions regarding discounting, there exists some level of pricing asymmetry in the short run.

And the FDIC has circulated a new batch of ticky-boxes:

A number of insured banks with portfolio holdings in private label mortgage-backed securities, collateralized debt obligations (CDOs), or asset-backed securities (ABS) are facing heightened losses as a result of significant investments in these products. Certain structured credit products, particularly private label mortgage-backed securities (MBS) and CDOs, have experienced deteriorating collateral performance, price declines, and credit rating downgrades. Management due diligence regarding purchases of these products was often lacking. This Financial Institution Letter reiterates and clarifies existing supervisory guidance on the purchase and holding of complex structured credit products. It focuses on the various supervisory concerns related to these securities: pre-purchase analysis, suitability determination, risk limits, credit ratings, valuation, ongoing due diligence, adverse classification, and capital treatment.

Whoosh, what a day! The seminar went well (by which I mean, nobody actually threw rocks at me) and I’ll be arranging the next one shortly. The preferred share market roared ahead on good volume.

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 0.6358 % 970.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.6358 % 1,569.7
Floater 4.52 % 4.56 % 71,317 16.29 2 0.6358 % 1,212.6
OpRet 5.09 % 4.38 % 141,660 3.19 15 -0.2930 % 2,137.9
SplitShare 6.55 % 8.13 % 46,232 5.61 3 0.5418 % 1,765.7
Interest-Bearing 6.02 % 7.05 % 28,439 0.65 1 0.4032 % 1,979.3
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.3472 % 1,650.4
Perpetual-Discount 6.63 % 6.80 % 140,745 12.85 71 0.3472 % 1,520.0
FixedReset 5.84 % 5.04 % 593,828 4.54 36 0.4315 % 1,939.5
Performance Highlights
Issue Index Change Notes
BAM.PR.J OpRet -3.44 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 20.76
Bid-YTW : 8.25 %
NA.PR.M Perpetual-Discount -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 22.06
Evaluated at bid price : 22.16
Bid-YTW : 6.80 %
GWO.PR.F Perpetual-Discount -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 6.98 %
BAM.PR.O OpRet -1.27 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 6.95 %
BMO.PR.H Perpetual-Discount 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 6.51 %
NA.PR.O FixedReset 1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 5.06 %
NA.PR.P FixedReset 1.14 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 5.15 %
GWO.PR.J FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 25.35
Evaluated at bid price : 25.40
Bid-YTW : 5.09 %
SLF.PR.B Perpetual-Discount 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 17.17
Evaluated at bid price : 17.17
Bid-YTW : 7.10 %
BAM.PR.M Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 14.45
Evaluated at bid price : 14.45
Bid-YTW : 8.36 %
SLF.PR.C Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 7.06 %
CM.PR.P Perpetual-Discount 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 20.16
Evaluated at bid price : 20.16
Bid-YTW : 6.88 %
PWF.PR.I Perpetual-Discount 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 22.09
Evaluated at bid price : 22.48
Bid-YTW : 6.71 %
RY.PR.B Perpetual-Discount 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 18.78
Evaluated at bid price : 18.78
Bid-YTW : 6.28 %
CM.PR.M FixedReset 1.30 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 5.42 %
BNS.PR.R FixedReset 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 23.46
Evaluated at bid price : 23.51
Bid-YTW : 4.21 %
TD.PR.S FixedReset 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 23.16
Evaluated at bid price : 23.25
Bid-YTW : 4.00 %
TD.PR.P Perpetual-Discount 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 20.85
Evaluated at bid price : 20.85
Bid-YTW : 6.34 %
HSB.PR.E FixedReset 1.55 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 5.70 %
POW.PR.C Perpetual-Discount 1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 21.31
Evaluated at bid price : 21.31
Bid-YTW : 6.88 %
NA.PR.L Perpetual-Discount 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 18.58
Evaluated at bid price : 18.58
Bid-YTW : 6.56 %
TD.PR.Q Perpetual-Discount 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 22.15
Evaluated at bid price : 22.25
Bid-YTW : 6.34 %
BMO.PR.O FixedReset 1.85 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-24
Maturity Price : 25.00
Evaluated at bid price : 26.91
Bid-YTW : 4.99 %
SLF.PR.E Perpetual-Discount 2.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 16.33
Evaluated at bid price : 16.33
Bid-YTW : 6.99 %
BNS.PR.Q FixedReset 2.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 23.89
Evaluated at bid price : 23.95
Bid-YTW : 3.96 %
BNA.PR.C SplitShare 2.66 % Asset coverage of 1.7+:1 as of March 31 according to the company. BAM.A closed at 18.28 today, compared to 17.57 on March 31, so we can estimate the current coverage as 1.8-:1. I wonder how high it has to get before the yield becomes single digit.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 13.51
Bid-YTW : 13.01 %
MFC.PR.C Perpetual-Discount 2.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 17.35
Evaluated at bid price : 17.35
Bid-YTW : 6.59 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.Y FixedReset 294,014 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 25.62
Bid-YTW : 5.62 %
BNS.PR.T FixedReset 226,206 Desjardins crossed 200,000 at 26.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 26.66
Bid-YTW : 4.79 %
CM.PR.A OpRet 113,349 TD bought 50,000 from Desjardins at 25.85, then another 25,000 at the same price. Desjardins crossed 33,800 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2009-05-30
Maturity Price : 25.50
Evaluated at bid price : 25.82
Bid-YTW : -9.75 %
BNS.PR.M Perpetual-Discount 80,521 RBC crossed 11,200 at 17.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 17.84
Evaluated at bid price : 17.84
Bid-YTW : 6.36 %
MFC.PR.B Perpetual-Discount 65,854 Scotia crossed 51,000 at 17.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 17.29
Evaluated at bid price : 17.29
Bid-YTW : 6.84 %
BNS.PR.Q FixedReset 56,860 Anonymous crossed (? not necessarily the same anonymous) 25,000 at 24.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-04-30
Maturity Price : 23.89
Evaluated at bid price : 23.95
Bid-YTW : 3.96 %
There were 41 other index-included issues trading in excess of 10,000 shares.

One Response to “April 30, 2009”

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