Archive for August, 2011

August 31, 2011

Wednesday, August 31st, 2011

Yesterday I reported on the optimistic accounting at BNP Paribas. The Danes are cracking down on optimism:

The Financial Supervisory Authority will restrict the flexibility it gives banks to calculate writedowns under international financial reporting standards, FSA Director General Ulrik Noedgaard said in an interview in Copenhagen. The regulator wants to curb “an optimistic approach” to writedowns displayed by some banks, he said.

Amagerbanken A/S and Fjordbank Mors A/S collapsed this year after the FSA told the two regional lenders to write down 1.9 billion kroner ($371 million) more in property and farming loans than stated in their accounts. The insolvencies triggered the European Union’s first senior creditor losses within a resolution framework, and prompted Moody’s Investors Service in May to downgrade six Danish banks, including Danske Bank A/S, the country’s biggest. Proper accounting could have helped deal with the losses in a less disruptive way, Noedgaard said.

This one will drive the slogan-chanters nuts:

Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government.

S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties. New York-based S&P stripped the U.S. of its top rank on Aug. 5, saying Washington politics were making the country less creditworthy.

S&P has awarded AAAs to more than $36 billion of securities in the U.S. this year that were created by bankers who continue to gather thousands of loans, bundle them into bonds of varying risk and pay ratings firms a fee to assign credit rankings.

The ambulance-chasers are after Sino-Forest … and anybody else they can blame for their investment:

Sino-Forest Corp. (TRE-T4.81—-%), the TSX-listed Chinese forestry company whose shares have collapsed following fraud allegations, repeatedly misrepresented its financial statements, backdated stock options and engaged in unusual and undisclosed related-party transactions, according to fresh allegations levelled in a proposed class-action lawsuit seeking more than $7-billion in damages.

The notice of action, filed on behalf of a group of Sino-Forest shareholders who purchased shares in various offerings between 2007 and 2011, is seeking more than $6.5-billion in damages from Sino-Forest, its top management, directors, and auditors Ernst & Young LLP, as well as the Beijing office of Pöyry Consulting Co. Ltd., which published reports about the size and value of the company’s forestry assets.

A host of investment banks … that underwrote Sino-Forest’s equity offerings were also named as proposed defendants in the action, which seeks an additional $824-million related to the stock sales.

Say what you like about US Republicans, they’re rugged individualists who scorn government hand-outs:

When Texas billionaire Harold Simmons wanted to build a radioactive waste dump, one data point that would loom large in the permitting process wasn’t required on the application: He is a major donor to Governor Rick Perry.

Perry has a public record of rewarding his political donors with jobs and state contracts. He has appointed about 4,000 people — including many donors — to commissions, boards and other posts, according to Texans for Public Justice, an Austin- based, nonpartisan group that tracks state political donations.

The campaign to eliminate humour in the western world scored another victory:

The department store said in its statement: “We agree that the ‘Too pretty’ T-shirt does not deliver an appropriate message, and we have immediately discontinued its sale. Our merchandise is intended to appeal to a broad customer base, not to offend them.”

YLO did not file any Insider MTN purchases on SEDI today, but the Normal Course Issuer Bid for the preferreds continued – in fact, it appears that the company bought a block, as some insider (presumably the company) bought a block of 57,100 YLO.PR.B at 9.15, total value $522,465. The common traded somewhere north of 179-million shares on the month – about a third of the entire float, although a lot of that will be double-counted, what with day-traders and all.

The Canadian preferred share market closed the month on a mixed note, with PerpetualDiscounts losing 16bp, FixedResets up 2bp and DeemedRetractibles winning 18bp. Volatility was average. Volume was average.

PerpetualDiscounts now yield 5.39%, equivalent to 7.01% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.00%, so the pre-tax interest-equivalent spread (also called the seniority spread) is now 201bp, a tightening from the 210bp reported August 24 as yields converged slightly.

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 -0.2134 % 2,160.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.2134 % 3,249.2
Floater 2.81 % 2.54 % 25,740 20.95 4 -0.2134 % 2,332.7
OpRet 4.88 % 3.46 % 61,131 0.80 9 -0.1589 % 2,444.9
SplitShare 5.37 % 0.07 % 59,059 0.49 4 0.1295 % 2,498.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1589 % 2,235.7
Perpetual-Premium 5.66 % 4.80 % 131,628 0.65 14 -0.0829 % 2,109.1
Perpetual-Discount 5.34 % 5.39 % 109,784 14.74 16 -0.1565 % 2,234.7
FixedReset 5.14 % 3.16 % 210,341 2.67 60 0.0187 % 2,323.2
Deemed-Retractible 5.06 % 4.67 % 263,932 7.83 46 0.1797 % 2,189.3
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -2.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-31
Maturity Price : 20.75
Evaluated at bid price : 20.75
Bid-YTW : 2.54 %
FTS.PR.C OpRet -1.49 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-09-30
Maturity Price : 25.50
Evaluated at bid price : 25.86
Bid-YTW : -11.57 %
FTS.PR.E OpRet -1.23 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.51
Bid-YTW : 3.03 %
GWO.PR.L Deemed-Retractible 1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 5.45 %
IAG.PR.C FixedReset 1.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 27.00
Bid-YTW : 2.45 %
Volume Highlights
Issue Index Shares
Traded
Notes
IFC.PR.C FixedReset 221,464 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 4.28 %
GWO.PR.N FixedReset 135,340 RBC crossed blocks of 80,000 and 50,000, both at 24.65.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 3.47 %
PWF.PR.M FixedReset 135,200 TD crossed 135,000 at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.71
Bid-YTW : 3.27 %
SLF.PR.H FixedReset 126,045 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.73
Bid-YTW : 4.02 %
TD.PR.Q Deemed-Retractible 105,662 TD crossed 100,000 at 26.70.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-31
Maturity Price : 26.00
Evaluated at bid price : 26.58
Bid-YTW : 4.09 %
MFC.PR.A OpRet 63,796 Nesbitt crossed 50,000 at 25.50.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 3.66 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 20.75 – 22.00
Spot Rate : 1.2500
Average : 0.9591

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-31
Maturity Price : 20.75
Evaluated at bid price : 20.75
Bid-YTW : 2.54 %

CIU.PR.C FixedReset Quote: 25.00 – 25.49
Spot Rate : 0.4900
Average : 0.3258

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-31
Maturity Price : 23.18
Evaluated at bid price : 25.00
Bid-YTW : 3.02 %

FTS.PR.E OpRet Quote: 26.51 – 27.00
Spot Rate : 0.4900
Average : 0.3268

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.51
Bid-YTW : 3.03 %

MFC.PR.E FixedReset Quote: 26.33 – 26.73
Spot Rate : 0.4000
Average : 0.2468

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.33
Bid-YTW : 3.67 %

BAM.PR.P FixedReset Quote: 27.00 – 27.38
Spot Rate : 0.3800
Average : 0.2388

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-30
Maturity Price : 25.00
Evaluated at bid price : 27.00
Bid-YTW : 4.64 %

BNS.PR.Z FixedReset Quote: 24.85 – 25.49
Spot Rate : 0.6400
Average : 0.5289

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 3.43 %

ES.PR.B Redemption Date Confirmed

Wednesday, August 31st, 2011

Scotia Managed Companies has announced:

The Board of Directors of Energy Split Corp. Inc. (the “Company”) today declared a return of capital distribution of $0.23625 per Class B Preferred Share payable on September 16, 2011 to holders of record at the close of business on September 15, 2011.
In addition, the Board of Directors of the Company has declared a capital gains distribution of $0.1700 per Capital Yield Share, payable on September 16, 2011 to holders of record at the close of business on September 15, 2011.

Holders of Class B Preferred Shares are entitled to receive quarterly fixed cumulative distributions equal to $0.23625 per Preferred Share. The Capital Yield Shareholders are provided with a leveraged play on the yield and price performance from a fixed portfolio consisting of 15 oil and gas royalty trusts listed on the Toronto Stock Exchange. The Company’s Capital Yield Share distribution policy is to pay a quarterly distribution on the Capital Yield Shares equal to the excess of the distributions received on the royalty trust portfolio minus the Class B Preferred Share distributions and all administrative and operating expenses provided the net asset value per Unit at the time of declaration, after giving effect to the distribution, would be greater than the original issue price of the Class B Preferred Shares.

The Capital Yield Shares and Class B Preferred Shares will be redeemed by the Company on September 16, 2011 in accordance with the redemption provisions as detailed in the prospectus dated September 7, 2006. Pursuant to these provisions, the Class B Preferred Shares will be redeemed at a price per share equal to the lesser of $21.00 and the Net Asset Value per Unit. The Capital Yield Shares will be redeemed at a price equal to the amount by which the Net Asset Value per Unit exceeds $21.00. The Net Asset Value per Unit was $37.74 as at August 30, 2011.

A further press release will be issued by the Company in connection with the redemption prices on September 15, 2011. Payment of the amounts due to holders of Capital Yield Shares and Class B Preferred Shares will be made by the Company on September 16, 2011.

Capital Yield Shares and Class B Preferred Shares of Energy Split Corp. Inc. are listed for trading on The Toronto Stock Exchange under the symbols ES and ES.PR.B respectively.

ES.PR.B was last mentioned on PrefBlog when it was upgraded to Pfd-3 by DBRS in April. ES.PR.B is not tracked by HIMIPref™.

Update 2011-9-15: Redemption Prices:

Redemption Price per Class B Preferred Share: $21.00
Redemption Price per Capital Yield Share: $15.19

August 30, 2011

Tuesday, August 30th, 2011

I sincerely hope that the banks have shot themselves in the foot:

The Bay Street firms that weren’t invited into the Maple Group plan to buy TMX Group Inc. (X-T39.94-0.42-1.04%) are lining up their options to ensure that competition and low-priced trading services remain should the deal to create a market-dominating company goes through.

The Maple plan would combine the two biggest players in the country in trading, and create a for-profit system to replace the current not-for-profit clearing system for shuttling cash between buyers and sellers of stocks after trades take place.

That’s why sources said some brokerages are already mulling the idea of starting a new trading system to compete in the business of matching stock buy-and-sell orders, and pushing regulators to adopt a strict cost control system for the clearing business based on the utility industry.

Eric Reguly of the Globe speculates that the LSE might come back with a new offer.

European debt problems are causing a little bit of what some might call hanky panky:

It appears that some companies are not following IAS 39 when determining whether the Greek government bonds that they classify as AFS are impaired. They are using the assessed impact on the present value of future cash flows arising from the proposed restructure of those bonds, rather than using the amount reflected by current market prices as required in IAS 39.

In addition, some companies holding Greek government bonds classified as AFS have stated that they are relying on internal valuation methodologies, rather than on market prices, to measure the fair value of the assets as at 30 June 2011. The reason generally given for using models rather than market prices is that the market for Greek government bonds is currently inactive (and therefore, in their view, does not provide reliable pricing information).

One bank pulling a fast one is BNP Paribas:

However, you wouldn’t normally discover government bonds in Level 3.

BNP Paribas’ argument seems to be that the market for Greek debt is now so illiquid that this accounting shift is justified. The bank explains its determination of fair value and what it counts as an ‘active’ market from page 23 of the full Q2 consolidated financial statements onwards.

Greek debt is hugely illiquid, but the price also reflects a market bet on a massive haircut at some point, and it has done for a while. The influence of Level 3 is in a way appropriate more than you’d think however, as it seems that mathematical modelling has been used during the construction of the Greece bond swap itself. Option 4′s valuation seems to depend on stochastic modelling in some way, for instance.

But for now we’ll just wonder if BNP’s Level 3 will be a guide to other banks taking their Greek impairments medicine…

On a brighter note, sovereign debt is sometimes upgraded:

Peru had its foreign debt rating raised one level by Standard & Poor’s, which said it expects recently elected President Ollanta Humala to continue policies that support the country’s economic expansion.

S&P raised Peru to BBB, the second-lowest investment grade, from BBB-. The outlook is stable. S&P also lifted Paraguay’s rating to BB-, three steps below investment grade, from B+, because an agreement with Brazil to boost its revenue share from a hydroelectric power plant has improved the country’s “fiscal flexibility.”

No new YLO MTN buy-backs but the Normal Course Issuer Bid for the preferreds is still being pursued vigorously, with the fund spending its usual $80,000+ today.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets winning 17bp and DeemedRetractibles gaining 9bp. Volatility was OK, with several BAM issues doing well. Volume was a little on the light side of average.

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 0.7930 % 2,165.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.7930 % 3,256.2
Floater 2.80 % 2.48 % 26,019 21.12 4 0.7930 % 2,337.6
OpRet 4.88 % 3.68 % 59,362 0.81 9 0.1764 % 2,448.8
SplitShare 5.37 % 0.98 % 59,574 0.49 4 0.1456 % 2,495.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1764 % 2,239.2
Perpetual-Premium 5.65 % 4.49 % 127,866 1.12 14 0.1267 % 2,110.9
Perpetual-Discount 5.34 % 5.36 % 98,091 14.78 16 0.0679 % 2,238.2
FixedReset 5.14 % 3.19 % 212,000 2.67 60 0.1691 % 2,322.8
Deemed-Retractible 5.06 % 4.71 % 266,166 7.99 46 0.0893 % 2,185.3
Performance Highlights
Issue Index Change Notes
FTS.PR.F Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 24.02
Evaluated at bid price : 24.31
Bid-YTW : 5.05 %
BAM.PR.N Perpetual-Discount 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 22.01
Evaluated at bid price : 22.37
Bid-YTW : 5.38 %
BAM.PR.T FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 22.90
Evaluated at bid price : 24.38
Bid-YTW : 4.16 %
BAM.PR.M Perpetual-Discount 2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 22.11
Evaluated at bid price : 22.45
Bid-YTW : 5.36 %
IAG.PR.C FixedReset 2.03 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.68
Bid-YTW : 2.99 %
PWF.PR.A Floater 2.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 2.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.N Deemed-Retractible 161,172 Nesbitt crossed 50,000 at 25.80 and two blocks of 35,000 each at the same price. RBC crossed 24,400 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-01-27
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 4.77 %
BMO.PR.K Deemed-Retractible 109,343 Desjardins crossed 103,000 at 25.91.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-11-25
Maturity Price : 25.00
Evaluated at bid price : 25.84
Bid-YTW : 4.56 %
MFC.PR.B Deemed-Retractible 83,844 TD crossed 75,400 at 22.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.14
Bid-YTW : 6.16 %
SLF.PR.D Deemed-Retractible 82,343 Desjardins crossed 25,000 at 21.77; TD crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.85
Bid-YTW : 6.09 %
BNS.PR.P FixedReset 80,320 RBC crossed 17,000 at 25.90; Nesbitt crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.81
Bid-YTW : 3.26 %
IFC.PR.C FixedReset 57,155 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.30 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNS.PR.Z FixedReset Quote: 24.86 – 25.45
Spot Rate : 0.5900
Average : 0.4071

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.86
Bid-YTW : 3.42 %

FTS.PR.G FixedReset Quote: 25.80 – 26.60
Spot Rate : 0.8000
Average : 0.6192

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-01
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 3.59 %

FTS.PR.F Perpetual-Discount Quote: 24.31 – 24.75
Spot Rate : 0.4400
Average : 0.3013

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 24.02
Evaluated at bid price : 24.31
Bid-YTW : 5.05 %

ELF.PR.F Perpetual-Discount Quote: 22.85 – 23.34
Spot Rate : 0.4900
Average : 0.3793

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-30
Maturity Price : 22.56
Evaluated at bid price : 22.85
Bid-YTW : 5.87 %

BAM.PR.I OpRet Quote: 25.42 – 25.98
Spot Rate : 0.5600
Average : 0.4738

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 4.59 %

GWO.PR.J FixedReset Quote: 26.80 – 27.20
Spot Rate : 0.4000
Average : 0.3174

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.24 %

FCS.PR.B: Warrant Offering for Capital Unitholders

Tuesday, August 30th, 2011

Faircourt Asset Management has announced:

that it has filed a final short form prospectus for an offering of warrants to unitholders of the Trust (the “Offering”). Each unitholder will receive one whole Series A warrant (each, a “Series A Warrant”) for each unit of the Trust (each, a “Unit”) on the record date of September 23, 2011.

Each Series A Warrant will entitle the holder thereof to purchase one Unit, one half of a 6.25% preferred security of the Trust (each, a “Preferred Security”) and one Series B warrant (each, a “Series B Warrant”) upon payment of the subscription price of $10.92 (which is the sum of (a) the most recently calculated NAV per Unit prior to the date of the preliminary short form prospectus, (b) $5.00 (which is one-half of the principal amount of a Preferred Security) and (c) the estimated per Unit fees and expenses of the Offering). The Series A Warrants may be exercised on a weekly basis every Friday commencing on September 30, 2011 and ending on December 2, 2011.

Each Series B Warrant will entitle the holder on and only on June 27, 2012 to subscribe for one Unit at the subscription price of $7.25. The Series B Warrants may be only exercised on June 27, 2012.

The TSX has conditionally approved this listing of the Series A Warrants distributed pursuant to the Offering, and the Units, Preferred Securities and Series B Warrants issuable upon the exercise thereof, on the TSX.

Successful completion of the Offering will (a) provide the Trust with additional capital that can be used to take advantage of attractive investment opportunities; (b) increase the trading liquidity of the Units; (c) reduce the leverage associated with the Preferred Securities of the Trust which has increased in recent years due to market conditions and the redemption of Units; (d) bring the Trust closer to achieving a matched position where the number of outstanding Units and Preferred Securities are equal; and (e) reduce the management expense ratio of the Trust.

Asset coverage for this issue has been a continuing matter of interest, with an unmatched retraction of capital units on June 30 being followed by a a matching redemption of preferred securities shortly afterwards. As with many other investment vehicles, the fund is now slightly behind where it was on May 31, the effective date of the retraction.

FCS.PR.B is tracked by HIMIPref™, but is relegated to the Scraps index on credit concerns.

August 29, 2011

Monday, August 29th, 2011

Banks are pushing back against proposed capital rules:

The Clearing House Association and the Institute of International Bankers, whose members include JPMorgan Chase & Co (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), Citigroup Inc. (C), Deutsche Bank AG (DBK) and ING Groep NV (INGA), said in a letter that capital surcharges agreed to by the Federal Reserve and international regulators are “deeply flawed” and “reflexively based on the notion that size alone creates prudential concerns.”

Bloomberg News obtained an Aug. 25 draft of the letter, which will be filed as a comment on proposed capital surcharges for big banks agreed on by the Basel Committee on Banking Supervision in June. The Fed, which is part of the Basel Committee, is also preparing to release its own proposals under the Dodd-Frank Act for stricter standards for the largest U.S. banks sometime in the next five weeks.

Tighter international and U.S. standards on capital, liquidity and risk management are likely to alter competition in the U.S., the banking groups said in their letter. The Basel capital surcharge will “lead to unjustified competitive inequities between large banks” subject to the charge and others that aren’t, they said.

A bit more detail regarding TRE. Sino-Forest announced the resignation of its chairman:

Sino-Forest Corporation (“Sino-Forest” or the “Company”)
(TSX:TRE) announced that Allen Chan has voluntarily resigned as Chairman, Chief Executive Officer and Director, pending completion of the review by the Independent Committee of the allegations made by Muddy Waters.

Mr. Chan will become Founding Chairman Emeritus of the Company and will be fully available to assist Mr. Martin with operational matters and with the Independent Committee review as requested.

The Globe reported on the sequence of events :

Mr. Chan’s resignation follows a tumultuous week of allegations and confrontations. Shortly after the company alerted the OSC about its discovery of what sources described as irregular deals involving Mr. Chan, the OSC caught the company off guard on Friday by slapping a cease trade order on its stock and ordering the resignation of Mr. Chan and the four executives.

I have not yet seen any updated commentary from Richard Kelertas of Dundee Securities, whose changing views on the topic were discussed here on June 20.

S&P withdrew ratings after a downgrade to CCC-:

  • We expect China-based commercial forest operator Sino-Forest’s business
    to rapidly deteriorate following additional fraud allegations and senior management resignations.
  • We are lowering the corporate credit rating on Sino-Forest and the issue rating on its senior unsecured notes and convertible bonds to ‘CCC-’ from ‘B’. We removed all the ratings from CreditWatch.
  • We are also withdrawing the ratings due to heightened information risks.
  • The negative outlook prior to the rating withdrawal reflected our view that the company’s operations were likely to deteriorate further in the
    next 12 months, at least.

Moody’s also downgrade, but did not withdraw the rating:

Moody’s Investors Service has downgraded to Caa1 from B1 the corporate family and senior unsecured debt ratings of Sino-Forest Corporation (“Sino-Forest”).

At the same time, Moody’s continues its review for further downgrade.

What a surprise! The Maple-TMX deal may well fail!

TMX Group Inc., which has gained the most of any exchange involved in the industry’s biggest wave of acquisitions, is now in danger of being left without a buyer.

Since reaching a three-year high in June as the London Stock Exchange Group Plc and a group of Canadian banks waged a bidding contest, the owner of the Toronto bourse has now fallen more than 10% with the LSE scrapping its agreement. TMX is trading almost $10 below the $50-a-share unsolicited bid from Maple Group Acquisition Corp., close to the widest gap since it was announced in May and indicating that traders are growing increasingly concerned the takeover will also fail.

While more than US$30-billion in acquisitions for exchanges have been announced in the past year, only one deal — Deutsche Boerse AG’s takeover of NYSE Euronext — has been approved by shareholders. Macquarie Group Ltd. says Maple’s attempt to buy TMX may not overcome antitrust scrutiny because it would combine Canada’s largest bourse with its biggest rival, Alpha Group, and create an entity controlling 85 percent of the nation’s trading. That may make TMX, one of the least valuable market venues versus earnings, fall further, said WallachBeth Capital LLC.

Of course, that all depends on what you mean by the word “fail”. If you define success as “scuttling an international acquisition that would create an entity with enough size to talk back to the banks”, then it’s already a success!

The Globe & Mail blog had a good post titled Ms. Lagarde’s recapitalization plan makes sense:

Freed of her government shackles, the former French finance minister pulled no punches Saturday in her first major speech to the august audience. Ms. Lagarde declared flatly that European banks “need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.”

Her proposal: “Mandatory substantial recapitalization — seeking private resources first, but using public funds if necessary.”

The response, predictably, has been howls of indignation in European political and banking circles. A Reuters headline summed up the attitude: “Europe snubs IMF call to force-feed bank capital.”

But there is a saying that a nation’s banking system is only as sound as its government. And that is particularly true in Europe, where banks hold an inordinate amount of government debt on their books. The reason is simple: Loans to your friendly local government count as a risk-free asset under Basel rules. Too bad the markets don’t agree.

Golly – substitute “AAA subprime paper” for “loans to your friendly local government” and that last paragraph could have been written in 2008!

Her published remarks also include an exhortation for the US:

So the United States needs to move on two specific fronts.
….
Second—halting the downward spiral of foreclosures, falling house prices and deteriorating household spending. This could involve more aggressive principal reduction programs for homeowners, stronger intervention by the government housing finance agencies, or steps to help homeowners take advantage of the low interest rate environment.

See the post titled Redefault on Modified Mortgages for more on that idea.

There’s more commentary at BusinessInsider.com

The Italians aren’t hurting enough yet:

The Italian government backtracked on parts of its widely criticized austerity package on Monday, scrapping a tax on high earners and scaling back cuts to local authority funding.

In a statement after seven hours of talks at Prime Minister Silvio Berlusconi’s home outside Milan, the government said it would also exclude years spent at university and military service from retirement age calculations, delaying retirement for some people.

The statement contained little detail on the funding impact of the changes or how the government would make up for revenue lost from the €45.5-billion ($66-billion U.S.) austerity package now making its way through parliament which is aimed at balancing the budget by 2013.

There was also no mention of any increase in value-added tax, a measure which had been widely mooted in the media before the meeting.

It was a good day overall for the Canadian preferred share market, with PerpetualDiscounts gaining 21bp, FixedResets down 3bp and DeemedRetractibles up 10bp. Volatility was reasonable. Volume was a little on the soft side of average.

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 -0.2681 % 2,148.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.2681 % 3,230.5
Floater 2.82 % 2.54 % 26,150 20.96 4 -0.2681 % 2,319.3
OpRet 4.88 % 2.86 % 59,794 0.57 9 -0.0817 % 2,444.5
SplitShare 5.38 % 0.97 % 62,037 0.50 4 0.1771 % 2,491.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0817 % 2,235.3
Perpetual-Premium 5.66 % 4.69 % 128,585 1.13 14 0.1043 % 2,108.2
Perpetual-Discount 5.34 % 5.46 % 98,163 14.64 16 0.2093 % 2,236.7
FixedReset 5.15 % 3.23 % 213,196 2.67 60 -0.0275 % 2,318.9
Deemed-Retractible 5.07 % 4.69 % 255,975 7.96 46 0.0982 % 2,183.4
Performance Highlights
Issue Index Change Notes
FTS.PR.E OpRet -1.37 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.58
Bid-YTW : 2.86 %
TRI.PR.B Floater -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-29
Maturity Price : 21.49
Evaluated at bid price : 21.75
Bid-YTW : 2.40 %
NA.PR.P FixedReset -1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 27.06
Bid-YTW : 3.22 %
SLF.PR.A Deemed-Retractible 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.14
Bid-YTW : 5.69 %
PWF.PR.L Perpetual-Discount 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-29
Maturity Price : 24.28
Evaluated at bid price : 24.57
Bid-YTW : 5.23 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.I Deemed-Retractible 241,086 RBC crossed four blocks: 47,500 shares, two of 50,000 each, and one of 49,500, all at 25.20. Nesbitt crossed 25,000 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.66 %
RY.PR.P FixedReset 86,179 TD crossed 50,000 at 27.00; Scotia crossed 35,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 3.11 %
HSB.PR.E FixedReset 71,667 RBC crossed 65,600 at 27.68.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 27.42
Bid-YTW : 3.42 %
MFC.PR.D FixedReset 67,314 RBC crossed blocks of 50,000 and 13,000, both at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.89
Bid-YTW : 3.64 %
MFC.PR.B Deemed-Retractible 62,082 Scotia crossed 25,000 at 22.18; TD crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.16
Bid-YTW : 6.14 %
CM.PR.J Deemed-Retractible 56,203 TD crossed blocks of 25,000 and 24,500, both at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 4.56 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.C FixedReset Quote: 26.15 – 26.95
Spot Rate : 0.8000
Average : 0.5909

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.91 %

PWF.PR.A Floater Quote: 20.76 – 22.00
Spot Rate : 1.2400
Average : 1.0681

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-29
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 2.54 %

BAM.PR.B Floater Quote: 15.99 – 16.48
Spot Rate : 0.4900
Average : 0.3348

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-29
Maturity Price : 15.99
Evaluated at bid price : 15.99
Bid-YTW : 3.31 %

BAM.PR.M Perpetual-Discount Quote: 22.01 – 22.49
Spot Rate : 0.4800
Average : 0.3332

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-29
Maturity Price : 21.67
Evaluated at bid price : 22.01
Bid-YTW : 5.47 %

ELF.PR.F Perpetual-Discount Quote: 23.01 – 23.38
Spot Rate : 0.3700
Average : 0.2579

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-29
Maturity Price : 22.72
Evaluated at bid price : 23.01
Bid-YTW : 5.83 %

NA.PR.P FixedReset Quote: 27.06 – 27.38
Spot Rate : 0.3200
Average : 0.2083

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 27.06
Bid-YTW : 3.22 %

YLO MTN BuyBacks: Filings 2011-8-29

Monday, August 29th, 2011

Details are available at SEDI.

YLO MTN Buybacks Disclosed 8/29
Issue Trade
Date
(?)
Face Value Price Yield
?
5.25% Feb 15, 2016 8/24 47,000 39,105 83.14 10.03%
Total for Issue to Date 67,486,350 56,277,068  
5.71% April 21, 2014 8/25 18,211,000 16,821,381 90.32 9.96%
Total for Issue to Date 42,767,000 40,112,149  
7.3% Feb 2, 2015 8/24 15,000 14,181 94.00 9.38%
Total for Issue to Date 121,900,000 115,136,576  
Grand Total to Date 238,081,350 215,234,727  
Yields have been calculated (using MS-Excel) assuming that the “Transaction Date” reported on SEDI is the Trade Date and that all trades were executed for normal settlement

The odd number for the total face value (a non-integral multiple of 1,000) has been previously discussed, so don’t start, OK? Totals include all filings commencing August 18.

The price paid for the 5.71% April 21, 2014 is considerably lower than they have paid before.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.

WFS.PR.A: 11H1 Semi-Annual Report

Saturday, August 27th, 2011

World Financial Split Corp has released its Semi-Annual Report to June 30, 2011:

Distributions to Class A shareholders remained suspended in accordance with the terms of the prospectus which states: “No distribution will be paid to the Class A shares if (i) the distributions payable on the Preferred shares are in arrears; or (ii) after the payment of the distribution by the Fund, the net asset value per unit would be less than $15.00”.

During the six months ended June 30, 2011, the total return of the Fund was negative 4.1 percent reflecting a decline in value of the securities in the portfolio. The MSCI World Financials Index (the “Financials Index”) total return in Canadian dollar terms during the same period was negative 1.1 percent. As a result of the Fund being limited to a specific universe of stocks and utilizing a covered call writing strategy to generate income, comparison with a market index may not be appropriate. The Financials Index is calculated without the deduction of management fees and fund expenses, whereas the performance of the Fund is calculated after deducting such fees and expenses.

MER:

The MER for 2011 excluding warrant exercise fees and special resolution expense
is 1.65%.

Average Net Assets: This is difficult to calculate from the financial statements, but if we accept that MER is based on the average, and that the expenses used for this calculation were the “Subtotal Expenses” on the income statment, we arrive at Average Net Assets of 56.5-million, which looks like a reasonable figure.

Underlying Portfolio Yield: Investment income (sum of interest, dividends and withholding taxes) of $1.244-million received multiplied by two (since it’s a six month figure) divided by average net assets of $56.5-million is 4.40%.

Income Coverage: Net investment income of $1.244-million less expenses before special resolution expense of $0.932-million is $0.312-million, to cover preferred dividends of 1.894-million is about 16%.

With respect to the Monthly Retraction Right, the Special Resolution (which was approved) states:

If the Reorganization is approved and implemented, shares will have to be surrendered for retraction by a holder of Class A Shares or Preferred Shares at least ten business days prior to a Valuation Date in order to be retracted on such Valuation Date and such shareholder will receive payment on or before the tenth business day following such Valuation Date.

Shareholders whose Preferred Shares are retracted on a Valuation Date will be entitled to receive a retraction price per share (the “Preferred NAV Retraction Price”) equal to 96% of the lesser of (a) the NAV per Unit as of the applicable Valuation Date less the cost to the Fund of purchasing a Class A Share in the market for cancellation and (b) 10.00.

Under the Reorganization, the monthly retraction price for the Preferred Shares will be changed and shareholders whose Preferred Shares are retracted on a Valuation Date will be entitled to receive a retraction price per share equal to the lesser of:
(a) the Preferred NAV Retraction Price; and
(b) 96% of the lesser of (i) the Unit Market Price less the cost to the Fund of purchasing a Class A Share in the market for cancellation and (ii) $10.00.

For this purpose, the cost of the purchase of a Preferred Share or a Class A Share will include the purchase price of the share, commission and such other costs, if any, related to the liquidation of any portion of the Portfolio to fund the purchase of such share. Any declared and unpaid distributions payable on or before a Valuation Date in respect of Class A Shares or Preferred Shares tendered for retraction on such Valuation Date will also be paid on the retraction payment date. In addition, the following terms have the meanings set forth below.

Class A Market Price: means the weighted average trading price of the Class A Shares on the principal stock exchange on which the Class A Shares are listed (or, if the Class A Shares are not listed on any stock exchange, on the principal market on which the Class A Shares are quoted for trading) for the 10 trading days immediately preceding the applicable Valuation Date.

Preferred Market Price: means the weighted average trading price of the Preferred Shares on the principal stock exchange on which the Preferred Shares are listed (or, if the Preferred Shares are not listed on any stock exchange, on the principal market on which the Preferred Shares are quoted for trading) for the 10 trading days immediately preceding the applicable Valuation Date.

Unit Market Price: means the sum of the Class A Market Price and the Preferred Market Price.

This is somewhat more complex than it used to be! Using current figures from the Mulvihill site:
NAV: 10.29
Preferred Share Price: 8.66
Class A Share Price: 1.07

And assuming that the average trading price (determined after the shares are tendered) is equal to the current price and that the NAV also doesn’t change (always a risk with this type of retraction; sometimes significant!) we may derive:

Preferred NAV Retraction Price = 96% of lesser of (a) 10.29 – 1.07 and (b) 10.00
= 96% of 9.22
= 8.85

The Unit Market Price is 8.66+1.07 = 9.73; the cost to the fund of purchasing a class A share is assumed to be 1.07; so part (b) of the calculation is now
96% of the less of (i) 9.73 – 1.07 = 8.66
and (ii) 10.00
= 96% * 8.66
= 8.31

So, careful examination of the above will reveal that the monthly retraction privilege is now useless for preferred shareholders: the price you get may be assumed (given prudence) to be 96% of what you would get on the market, so what’s the point? Very clever, Mr. Mulvihill … but “Clever Dick came to a bad end” is a Victorian nursery proverb that comes to mind.

James Hymas Quoted in Winnipeg Free Press

Saturday, August 27th, 2011

Joel Schlesinger of the Winnipeg Free Press was kind enough to quote me in a piece titled Roller-coaster times, published 2011-8-20:

Surprisingly, the rating agencies still have enough authority to give markets a good shake as S&P demonstrated, recently downgrading U.S. debt from AAA, its highest rating, to AA+, the second highest credit rating.

The downgrade really means nothing in terms of default risk, says James Hymas, president of Hymas Investment Management, Inc., a Toronto-based fixed income investment firm.

“The chance of default has increased from 0.01 per cent to 0.015 per cent,” he says. “The difference between AAA and AA+ is something that’s more a matter of perception than something that can actually be measured.”

Call it a shot across the bow of U.S. lawmakers.

The U.S. debt downgrade was only a side dish to the main course of financial worries that have driven markets over the past few weeks, Hymas says.

“The real story was the debt crisis in Europe with the European Central Bank starting purchases of Spanish and Italian bonds,” he says. “That had the effect of forcing people to focus their attention on the bond portfolios and to a large extent they decided that Europe was getting too risky for them and they wanted to hold the U.S. debt.”

At the moment, the market is selling these bonds, not buying them. European banks and other large investors have these bonds on their books and want to unload them. The ECB is stepping in to buy up the unwanted bonds to help stabilize the European banks because just the prospect of default on Spanish and Italian bonds affects their ability to do business, Hymas says.

“A big piece of the puzzle is liquidity because a bank keeps a liquid reserve of investments and in the course of its business it might need to borrow $100 million for a short term and it might want those bonds as collateral to get a loan from another institution,” he says.

“The trouble is, what if you own Greek bonds, for instance, and your usual counterparties aren’t accepting those as collateral?”

And liquidity is important to banks. Greek bond defaults are one thing, but default worries about Italy and Spain’s bonds — much larger fish — are another. If financial institutions become worried enough about one another’s investment books, liquidity in markets can dry up — as we saw in 2008.

But Hymas says while the problems are real, they don’t necessarily lead to a major calamity until there’s a major shift in perception all at once. It’s a ‘Wile E. Coyote moment’ — to quote New York Times financial columnist and economist Paul Krugman.

“You’ll remember from the cartoons that Wile E. Coyote is always running off cliffs, but he doesn’t start falling until he looks down,” he says. “The way crises finally come to light is when investors as a group suddenly look down.”

Arguably, we have been having those moments every other day in the markets of late, Hymas says. This has led to volatility in both the bond and stock markets.

“We have this daily risk on and risk off in the marketplace,” Graham says.

Stock indices can be up 500 points one day — the risk is on — and down 400 points the next — the risk is off.

August 26, 2011

Friday, August 26th, 2011

Three cheers for Muddy Waters!

The Ontario Securities Commission said it ordered five executives of Sino-Forest Corp. (TRE) including Chief Executive Officer Allen Chan to resign because the forestry operator may have misrepresented revenue and exaggerated its timber holdings.

Canada’s main securities regulator also ordered the shares to cease trading, it said in an e-mailed statement today. Stan Neve, an external spokesman for the Hong Kong- and Mississauga, Ontario-based company, declined to comment. OSC spokesman Dylan Rae didn’t immediately return a phone call seeking comment.

The OSC Cease Trade / Suspension Order states in part:

12. Sino-Forest, through its subsidiaries, appears to have engaged in significant non-arm’s length transactions which may have been contrary to Ontario securities laws and the public interest;

13. Sino-Forest and certain of its officers and directors appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings by providing information to the public in documents required to be filed or furnished under Ontario securities laws which may have been false or misleading in a material respect contrary to section 122 or 126.2 of the Act and contrary to the public interest;

14. Sino-Forest and certain of its officers and directors including Chan appear to be engaging or participating in acts, practices or a course of conduct related to its securities which it and/or they know or reasonably ought to know perpetuate a fraud on any person or company contrary to section 126.1 of the Act and contrary to the public interest;

Let’s take a vote … would the Madoff Ponzi scheme have done so much damage if it had been possible to short-sell his fund?

The OSC later rescinded the order regarding the executives because, um, they don’t have that authority:

The Ontario Securities Act doesn’t allow the commission to force the resignation of a corporate officer in a temporary order without a hearing.

Well, one way or another, it looks like Sino-Forest was actually doing something naughty – just how naughty, is currently impossible to tell, but I don’t think the OSC would take this step unless they could actually point to something meaningful. Fearless Forecast: the usual pack of clowns will claim that (a) this is the regulators’ fault, and (b) it never would have happened if we had a national regulator.

US banks have a problem – too much money:

U.S. regulators have asked some banks to take more deposits from large investors even if it’s unprofitable, and lenders in return are seeking relief on insurance premiums and leverage ratios, according to six people with knowledge of the talks.

Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably.

While the Fed has been paying 0.25 percent interest on deposits placed with the central bank, known as interest on excess reserves, since late 2008, it may not be enough to erase the cost to banks of holding the deposits, said Robert Eisenbeis, a former head of research at the Federal Reserve Bank of Atlanta and now chief monetary economist for Sarasota, Florida-based Cumberland Advisors Inc.

FDIC insurance fees for large banks typically average more than 0.1 percent, three of the people said. In addition, large banks also may apply an internal capital charge of at least 0.1 percent to such reserves, one bank executive estimated.

The Greek government has announced terms for its COMPLETELY VOLUNTARY exchange offer:

“Greece shall not be obliged to proceed with any portion of the transaction described in this letter unless holders of eligible GGBs tender, in response to Greece’s eventual Invitation to Tender, eligible GGBs having a principal amount equal to not less than 90% of all eligible GGBs, including 90% of that portion of the eligible GGBs maturing during the period from June 30, 2011 through August 31, 2014. If these thresholds (or either of them) are not met, Greece shall not proceed with any portion of the transaction described in this letter if it determines, in consultation with the official sector, that the total contribution of private sector creditors towards the financing needs of Greece and Greece’s debt sustainability resulting from this transaction is insufficient to permit the official sector to support the new multi-year adjustment program for Greece announced on July 21, 2011.”

The interest rate (which will comprise of an initial rate applicable to years 1–5 increasing by 0.50% p.a. for years 6-10 and a further 0.50% p.a. for years 11-30) will be determined at or about the time of launch of the liability management transaction (the “Rate Fixing Date”) to result in a net present value of 79% of the face value of eligible GGBs tendered.

Merkel continued to ratchet up the inflammatory language:

German Chancellor Angela Merkel said investors are trying to “blackmail” governments into helping debt-strapped European countries, underscoring the need for all euro-area governments to reduce debt.

You tell ‘em, Merkel! You tell the financial markets: ‘We won’t pay your extortionate interest rates because we don’t need to borrow any money!’ That’ll fix ‘em.

Hurricanes affect markets:

Rates for borrowing and lending securities in the repurchase-agreement market rose and investors sought to extend maturities on concern power outages and closings of mass transit will keep traders home after Hurricane Irene strikes.

Overnight general collateral Treasury repurchase, or repo, rates, opened today at 0.10 percent and traded at 0.13 percent at 10 a.m. New York time, according to data from ICAP Plc, the world’s largest inter-dealer broker.

Securities dealers use repos to finance holdings and increase leverage. The majority of repo transactions take place on an overnight basis, with those current funding positions maturing on Aug. 29. Diminished staffing and computer-related problems following the hurricane may make it difficult to roll over such transactions.

BC voted in favour of increasing the cost of tax collection:

British Columbian voters have rejected the province’s controversial harmonized sales tax in an unprecedented referendum – a decision that will complicate efforts by the province’s Liberal government to manage B.C.’s finances and may also head off the prospect of a fall election.

Adrian Dix, leader of the opposition BC New Democrats, urged the provincial government to move quickly to restore the 7 per cent B.C. provincial sales tax., and also urged the Liberals to focus on the economy, jobs, health, education and the environment.

It was a quiet day for the Canadian preferred share market, with PerpetualDiscounts down 1bp, FixedResets flat, and DeemedRetractibles losing 4bp. Volatility was reasonable; volume was low.

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 0.7836 % 2,153.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.7836 % 3,239.2
Floater 2.82 % 2.54 % 27,276 20.96 4 0.7836 % 2,325.5
OpRet 4.88 % 2.03 % 58,388 0.57 9 0.1205 % 2,446.5
SplitShare 5.39 % 1.84 % 64,606 0.51 4 -0.2286 % 2,487.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1205 % 2,237.1
Perpetual-Premium 5.66 % 4.76 % 127,514 1.18 14 0.1072 % 2,106.0
Perpetual-Discount 5.35 % 5.47 % 99,055 14.61 16 -0.0052 % 2,232.0
FixedReset 5.14 % 3.18 % 206,879 2.71 60 0.0000 % 2,319.5
Deemed-Retractible 5.07 % 4.71 % 258,276 7.99 46 -0.0412 % 2,181.2
Performance Highlights
Issue Index Change Notes
CIU.PR.B FixedReset -1.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 27.17
Bid-YTW : 3.38 %
FTS.PR.G FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 23.84
Evaluated at bid price : 25.81
Bid-YTW : 3.50 %
GWO.PR.M Deemed-Retractible -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.69 %
RY.PR.H Deemed-Retractible 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-24
Maturity Price : 26.00
Evaluated at bid price : 26.73
Bid-YTW : 3.78 %
BAM.PR.K Floater 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 15.91
Evaluated at bid price : 15.91
Bid-YTW : 3.33 %
TRI.PR.B Floater 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 21.81
Evaluated at bid price : 22.05
Bid-YTW : 2.37 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 233,426 Nesbitt crossed 50,000 at 27.00; RBC crossed blocks of 50,000 and 98,200 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 3.65 %
CM.PR.I Deemed-Retractible 154,300 Nebitt crossed 34,900 at 25.15; Desjardins crossed 50,000 at 25.20; RBC crossed 50,000 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.60 %
MFC.PR.F FixedReset 114,085 RBC crossed two blocks of 50,000 each, both at 24.65.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.61
Bid-YTW : 3.69 %
CM.PR.L FixedReset 112,862 Nesbitt crossed 52,100 at 27.45; RBC crossed 28,000 at 27.45; Nesbitt crossed 25,000 at 27.46.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 27.46
Bid-YTW : 2.85 %
RY.PR.T FixedReset 96,400 RBC crossed blocks of 75,000 and 20,000, both at 27.26.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.20
Bid-YTW : 3.19 %
TD.PR.C FixedReset 58,861 Scotia crossed 50,000 at 26.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.51
Bid-YTW : 3.18 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 20.76 – 21.99
Spot Rate : 1.2300
Average : 0.8796

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-08-26
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 2.54 %

CIU.PR.B FixedReset Quote: 27.17 – 27.86
Spot Rate : 0.6900
Average : 0.5033

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 27.17
Bid-YTW : 3.38 %

GWO.PR.G Deemed-Retractible Quote: 25.05 – 25.49
Spot Rate : 0.4400
Average : 0.3060

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 5.31 %

NA.PR.N FixedReset Quote: 26.20 – 26.64
Spot Rate : 0.4400
Average : 0.3183

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 2.96 %

IAG.PR.E Deemed-Retractible Quote: 25.52 – 25.97
Spot Rate : 0.4500
Average : 0.3370

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.60 %

GWO.PR.M Deemed-Retractible Quote: 25.52 – 25.87
Spot Rate : 0.3500
Average : 0.2487

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 5.69 %

YLO MTN BuyBacks: Filings 2011-8-26

Friday, August 26th, 2011

Details are available at SEDI.

YLO MTN Buybacks Disclosed 8/26
Issue Trade
Date
(?)
Face Value Price Yield
?
5.25% Feb 15, 2016 8/22 72,000 59,864 83.09 10.04%
Total for Issue to Date 67,439,350 56,237,936  
7.3% Feb 2, 2015 8/18 1,258,000 1,188,307 94.00 9.38%
  8/23 200,000 188,960 94.00 9.38%
Total for Issue to Date 121,885,000 115,122,386  
Grand Total to Date 219,808,350 198,360,061  
Yields have been calculated (using MS-Excel) assuming that the “Transaction Date” reported on SEDI is the Trade Date and that all trades were executed for normal settlement

The odd number for the total face value (a non-integral multiple of 1,000) has been previously discussed, so don’t start, OK? Totals include all filings commencing August 18.

Readers of the August edition of PrefLetter will understand that I am bitterly disappointed with the company’s decision to pursue buybacks by private contract; I feel that a Dutch Auction Tender, for all issues in one big pot (with conversion factors on the prices of different issues to reflect differing desirability to the company of purchasing the issues) would be a far better way to go.

YLO has the following preferred issues outstanding: YLO.PR.A, YLO.PR.B, YLO.PR.C and YLO.PR.D; the Normal Course Issuer Bid for these issues is still being pursued vigorously.