November 4, 2011

It would seem that nobody can make a decision about Greece:

World leaders failed to agree on increasing the resources of the International Monetary Fund, dashing the hopes of European governments keen to tap more foreign aid to buttress their crisis-fighting efforts.

Governments are awaiting further details of Europe’s week- old rescue package before they commit cash, German Chancellor Angela Merkel said today on the final day of a Group of 20 summit in Cannes, France.

The reluctance of the leaders of the world’s biggest economies to immediately channel funds to the euro area reflects frustration with Europe’s failure to end a crisis that sparked again this week, with Greece’s government lurching towards collapse and Italy facing intensifying pressure to restore fiscal order.

To be frank, I don’t know what is happening in Greece:

Prime Minister George Papandreou won a confidence vote after offering to form a government of national unity that may lead to him stepping down as he sought to reach an accord on European aid needed to avert default.

The premier said he’ll meet with President Karolos Papoulias to discuss his proposal to create a unity government. Main opposition leader Antonis Samaras rejected the offer and called for elections.

Lapdog Carney got his reward:

Mark Carney, governor of the Bank of Canada, has been confirmed as new chairman of the Financial Stability Board, the G20’s global banking watchdog.

Mr. Carney serves as an inspiration to yes-men and sycophants everywhere.

Interesting paper by Rui Zhu, Utpal M. Dholaki, Xinlei Chen and René Algesheimer: Does Online Community Participation Foster Risky Financial Behavior?:

Although consumers increasingly use online communities for various activities, little is known regarding how participation in them affects individuals’ decision making strategies. Through a series of field and laboratory studies, we demonstrate that participation in an online community increases risk seeking tendency of individuals in financial decisions and behaviors. Our results reveal that participation in an online community leads consumers to perceive support from other members, that is they believe they will be helped by other community members should difficulties arise. Such a perception leads online community members to make riskier financial decisions than non-participants. We also discover a boundary condition to the effect: online community members are more risk seeking only when they have relatively strong ties with other members; when ties are weak, they exhibit similar risk preferences as non-members.

As I have suspected all along, it appears that the ‘MF Global Missing Funds’ hysteria was ramped up by the regulators and trustee to serve their own purposes:

Customer funds missing from bankrupt brokerage MF Global Inc. have been located in a custodial account at JPMorgan Chase & Co. (JPM), according to two people with knowledge of the matter.

An MF Global custodial account at JPMorgan contained about $658.8 million of client funds as of Oct. 31, according to one of the people, who declined to be identified because they weren’t authorized to speak publicly.

MF Global’s customer funds had a shortfall of $633 million, or more than 11 percent, out of a segregated fund requirement of about $5.4 billion, regulators said yesterday.

Does anybody think this hasn’t been known all along? But this way, we can praise the extraordinary detective work of the trustee and regulatory authorities, whose hard work, dedication, and extraordinary forensic auditing ability led them to ask the question: “Where’s the $600-million?” and pierce through all the layers of evasions and ambiguity to uncover the truth behind the answer “At JPMorgan. Why?”.

On November 2 I mentioned some projections that some banks would meet their new capital requirements by backing away from non-core lending. Commerzbank steps up to illustrate:

Germany’s second-largest lender Commerzbank AG will refuse loans which don’t help Germany or Poland, as the euro zone crisis makes European banks more protectionist in choosing between writing new business and meeting stringent capital requirements.

“We are not doing business which is not to the benefit of Germany or Poland,” chief financial officer Eric Strutz told analysts on a conference call discussing third-quarter earnings on Friday. “We have to focus on supporting the German economy as other banks pull out.”

Commerzbank, which is 25 per cent owned by the state, is accelerating the pullback from euro zone nations and cutting risky assets to avoid another state bailout after a €798-million ($1.10-billion U.S.) impairment on Greek assets pushed it to a third-quarter operating loss.

Having cut exposure to indebted euro zone countries by more than 20 per cent to €13-billion, including a 52 per cent haircut on Greek debt, the Frankfurt-based lender said it would continue reducing its public sector debt in Portugal, Italy, Spain, Ireland and Greece, mirroring a similar move made by French rival BNP Paribas SA.

Commerzbank said it had a core Tier One ratio of 9.4 per cent at the end of September and needs to raise €2.9-billion to meet tougher capital requirements set out by the European bank regulators.

“We can meet the required capital ratio by, for example, reducing risk assets in non-core areas, selling non-strategic assets or by means of retained earnings and we do not intend to tap new state funds,” Commerzbank said.

Commerzbank will keep its Eastern European BRE Bank unit and its online arm comdirect but may sell other units as it seeks to cut risky assets by a further €30-billion. Its property financing unit Eurohypo will also stop taking new business, the bank said.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts winning 10bp, FixedResets down 5bp and DeemedRetractibles losing 8bp. Lots of volatility, with SLF issues notable amonst the losers. Volume was 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 -0.0644 % 2,125.6
FixedFloater 4.88 % 4.60 % 24,383 17.18 1 -0.5115 % 3,155.1
Floater 3.38 % 3.41 % 72,188 18.71 2 -0.0644 % 2,295.1
OpRet 4.93 % 0.95 % 50,640 1.51 7 0.2465 % 2,484.3
SplitShare 5.73 % 6.24 % 59,903 5.16 3 0.2235 % 2,523.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2465 % 2,271.6
Perpetual-Premium 5.57 % 0.75 % 106,680 0.10 13 -0.0240 % 2,149.7
Perpetual-Discount 5.34 % 5.43 % 108,686 14.74 17 0.1021 % 2,282.7
FixedReset 5.12 % 3.03 % 210,542 2.44 62 -0.0486 % 2,345.4
Deemed-Retractible 5.04 % 4.40 % 214,101 3.91 46 -0.0836 % 2,215.3
Performance Highlights
Issue Index Change Notes
CM.PR.K FixedReset -1.83 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.47 %
SLF.PR.E Deemed-Retractible -1.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 6.55 %
SLF.PR.C Deemed-Retractible -1.71 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.21
Bid-YTW : 6.60 %
SLF.PR.F FixedReset -1.66 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.64
Bid-YTW : 3.65 %
SLF.PR.D Deemed-Retractible -1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.20
Bid-YTW : 6.61 %
SLF.PR.G FixedReset -1.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 3.78 %
MFC.PR.C Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.16
Bid-YTW : 6.71 %
BAM.PR.J OpRet 1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.80
Bid-YTW : 4.09 %
BAM.PR.X FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-04
Maturity Price : 22.89
Evaluated at bid price : 24.35
Bid-YTW : 3.79 %
BAM.PR.H OpRet 1.46 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-12-04
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : -23.09 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.E Perpetual-Discount 652,815 Nesbitt crossed blocks of 250,000 shares, 45,600 shares, 20,000 and 100,000, all at 25.00. TD crossed 100,000 at the same price. Nesbitt sold 24,500 to anonymous at 25.01.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-04
Maturity Price : 24.69
Evaluated at bid price : 24.99
Bid-YTW : 5.63 %
TD.PR.K FixedReset 92,643 TD crossed blocks of 54,400 and 32,000, both at 27.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.36
Bid-YTW : 2.70 %
BAM.PR.Z FixedReset 89,395 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-04
Maturity Price : 23.11
Evaluated at bid price : 25.03
Bid-YTW : 4.56 %
ENB.PR.B FixedReset 68,480 RBC crossed 20,000 at 25.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 3.54 %
SLF.PR.H FixedReset 55,370 Anonymous crossed (?) 10,100 at 24.30.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.35
Bid-YTW : 4.30 %
BMO.PR.J Deemed-Retractible 47,497 TD crossed 37,700 at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 4.09 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.H OpRet Quote: 25.77 – 27.47
Spot Rate : 1.7000
Average : 1.0127

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-12-04
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : -23.09 %

CM.PR.K FixedReset Quote: 26.25 – 26.76
Spot Rate : 0.5100
Average : 0.3292

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.47 %

CM.PR.M FixedReset Quote: 27.48 – 27.84
Spot Rate : 0.3600
Average : 0.2471

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 27.48
Bid-YTW : 2.76 %

MFC.PR.C Deemed-Retractible Quote: 21.16 – 21.50
Spot Rate : 0.3400
Average : 0.2524

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.16
Bid-YTW : 6.71 %

TRP.PR.C FixedReset Quote: 25.60 – 25.84
Spot Rate : 0.2400
Average : 0.1555

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-04
Maturity Price : 23.41
Evaluated at bid price : 25.60
Bid-YTW : 3.18 %

TD.PR.Y FixedReset Quote: 26.15 – 26.37
Spot Rate : 0.2200
Average : 0.1389

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 2.75 %

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