February 25, 2011

The details remain obscure, but the joke of the day is that BoA will have to pay government agencies a chunk of money for not foreclosing fast enough:

Bank of America’s agreements with Fannie Mae and Freddie Mac “provide for timelines to resolve delinquent loans through workout efforts or liquidation, if necessary,” the Charlotte, North Carolina-based lender said today in its annual report to the Securities and Exchange Commission. “In the fourth quarter of 2010, we recorded an expense of $230 million for compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure delays.”

They’re also having increasing problems with obstreperous securitization holders:

Bank of America Corp. said a bondholder group pressuring the lender to repurchase soured mortgages has almost doubled the number of securitizations on which it is challenging the company.

There are 225 securitizations in dispute with the group, compared with 115 as of Oct. 18, the Charlotte, North Carolina- based bank said today in a regulatory filing. In October, the dispute covered about $46 billion in bonds.

The group includes Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York, people familiar with the matter said in October. The group said then in a letter that the bank failed in its role as a loan servicer to provide required notice of faults in the underlying mortgages.

I’m not a big fan of them in general, but IIROC deserves applause for its short-selling decision:

The Investment Industry Regulatory Organization of Canada (IIROC) has completed two studies examining trends in trading activity, short sales and failed trades between 2007 and 2010. It has concluded that rates of short selling have been relatively constant and that there has been no negative change in the pattern of short selling in Canadian markets.

As a result, IIROC has decided it is safe to eliminate the current rule – known as the “tick test” – that prohibits short selling in a company’s shares at a price lower than the last sale price. The rule has meant short selling is not allowed while a stock is declining in price.

“Studies by IIROC support the premise that the tick test has no appreciable impact on price,” the regulator said on Friday.

It was a strong day in the Canadian preferred share market with all HIMIPref™ indices gaining ground. PerpetualDiscounts were up 13bp, FixedResets gained 20bp and DeemedRetractibles advanced 23bp. Volatility was low, with only three entries in the Performance Highlights table; volume was heavy.

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 0.1194 % 2,391.1
FixedFloater 4.74 % 3.46 % 15,357 19.09 1 0.0000 % 3,592.3
Floater 2.50 % 2.27 % 48,333 21.56 4 0.1194 % 2,581.7
OpRet 4.82 % 3.81 % 87,727 2.19 8 0.2613 % 2,391.8
SplitShare 5.31 % 0.55 % 242,164 0.79 4 0.2460 % 2,486.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2613 % 2,187.1
Perpetual-Premium 5.74 % 5.47 % 122,338 1.29 9 0.1722 % 2,034.7
Perpetual-Discount 5.54 % 5.62 % 128,140 14.41 15 0.1302 % 2,111.9
FixedReset 5.22 % 3.58 % 192,776 3.01 54 0.2015 % 2,274.1
Deemed-Retractible 5.20 % 5.26 % 385,316 8.24 53 0.2297 % 2,084.4
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.68
Bid-YTW : 5.73 %
BNA.PR.E SplitShare 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 5.07 %
HSB.PR.E FixedReset 1.45 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 28.00
Bid-YTW : 3.27 %
Volume Highlights
Issue Index Shares
Traded
Notes
IAG.PR.F Deemed-Retractible 173,617 Desjardins crossed blocks of 146,800 and 25,000, both at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.49 %
BNS.PR.R FixedReset 112,000 Desjardins crossed 30,000 at 26.08. Desjardins then bought 50,000 from Nesbitt and crossed 20,000, both at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 3.55 %
HSB.PR.D Deemed-Retractible 63,895 Nesbitt crossed 40,000 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 5.75 %
NA.PR.P FixedReset 62,410 Issuer bid.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 28.26
Bid-YTW : 2.30 %
BMO.PR.N FixedReset 60,532 Nesbitt crossed 43,000 at 27.27.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-27
Maturity Price : 25.00
Evaluated at bid price : 27.27
Bid-YTW : 3.40 %
RY.PR.A Deemed-Retractible 57,543 RBC crossed 47,100 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 5.11 %
There were 57 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
W.PR.H Perpetual-Discount Quote: 24.21 – 24.64
Spot Rate : 0.4300
Average : 0.3023

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-25
Maturity Price : 23.26
Evaluated at bid price : 24.21
Bid-YTW : 5.71 %

RY.PR.L FixedReset Quote: 26.54 – 26.86
Spot Rate : 0.3200
Average : 0.2117

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 26.54
Bid-YTW : 3.48 %

W.PR.J Perpetual-Discount Quote: 24.50 – 24.76
Spot Rate : 0.2600
Average : 0.1666

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-02-25
Maturity Price : 24.21
Evaluated at bid price : 24.50
Bid-YTW : 5.79 %

TRP.PR.A FixedReset Quote: 25.51 – 25.75
Spot Rate : 0.2400
Average : 0.1646

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 3.93 %

BNA.PR.C SplitShare Quote: 22.28 – 22.54
Spot Rate : 0.2600
Average : 0.1888

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 22.28
Bid-YTW : 6.12 %

GWO.PR.G Deemed-Retractible Quote: 24.51 – 24.73
Spot Rate : 0.2200
Average : 0.1531

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 5.58 %

2 Responses to “February 25, 2011”

  1. pugwash says:

    Hello Mr Hymas,

    LFE.PR.A wrote to me via my discount broker offering the chance to retract.

    1) It does not seem to make sense at the current price
    2) If I did want to retract why do I have to buy the “equity units”

    Your thoughts are always welcome

    Puggy

  2. jiHymas says:

    According to the prospectus:

    Commencing in March, 2006, shareholders who concurrently retract a Preferred Share and a Class A Share on the Retraction Date in the month of March in each year will be entitled to receive an amount equal to the Net Asset Value per Unit calculated as of that date, less any related commissions and other costs (to a maximum of 1% of the Net Asset Value per Unit) related to liquidating the Portfolio to pay such redemption amount. Payment for any shares so retracted will be made within 15 business days of the March Retraction Date.

    The Reorg department at your discount broker will have put this privilege on its system in case anybody wants to do it – the ‘phone guys need a box to tick when the clients call! My presumption is that this has generated an automatic letter to you.

    Given a recent whole-unit NAV of $15.85 and prices of $6.90 for the capital units and $10.10 for the preferreds, you are correct: it currently doesn’t make much sense. However, during the crisis you may have thought otherwise, even with respect to the less favourable monthly retraction privilege!

    With respect to (2), they are maintaining the integrity of the “whole units”: for each capital unit outstanding, there must be exactly one preferred share outstanding. Therefore, if a holder only wants to retract one, the company must take steps to cancel the other, whether by a redemption call or market purchase.

    There are other ways to manage a split share corporation, but this is most convenient – it means that the “Whole Unit Value” remains a meaningful term.

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