May 18, 2012

Never mind Greece and Spain, here’s some commentary about an old friend:

Ireland may be forced into a second bailout by mounting loan losses in its banking system, according to Deutsche Bank AG.

Ireland’s bailed-out banks may need capital to cover as much as 4 billion euros ($5.1 billion) more bad-loan provisions than assumed in stress tests last year, Deutsche Bank analysts David Lock and Jason Napier said in a report published today.

“Although resilient during 2009 and 2010, mortgage arrears have risen sharply over the past year, house prices are continuing to fall, market liquidity is limited, and over half of customers are now in negative equity,” the analysts said. “We fear the size of negative equity balances for some mortgage holders may greatly reduce their incentive to cooperate, pushing them towards default.”

Meanwhile, on the other side of the world:

Australia and New Zealand Banking Group said volatile conditions in global markets have caused the wholesale funding market for Australian banks to freeze again, a worrying echo of the global financial crisis.

“Right now, markets are closed again, and this is what happens in this sort of situation,” ANZ Chief Executive Mike Smith said after a speech to a business group.

Australian banks raise about $100 billion annually from wholesale funding markets to bridge a gap between total loans and deposits.

Here’s a story you don’t see too often:

Investors Group Inc., which sells mutual funds through its own financial adviser network, plans to chop fees on many of its offerings in a bid to woo fee-conscious clients.

The move comes after the company saw net fund sales plunge to $175-million in the first quarter during the key registered retirement savings plan (RRSP) from $504-million a year earlier.

Reductions in management fees will range from .05-to 0.40-per-cent annually on the asset value of select funds, the Winnipeg-based firm said in a statement on Friday.

There’s some alarmist talk from S&P:

In a report last week, Standard & Poor’s said the world faces a mountain of roughly $46-trillion (U.S.) in corporate debt needs between now and the end of 2016. In addition to a $30-trillion “wall” of corporate debt that will come due and require refinancing, S&P estimated that corporations worldwide will need between $13-trillion and $16-trillion of new debt to meet their capital spending and working-capital needs – essentially, to finance growth.

“This demand for funds will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds. These factors, amid the current euro zone crisis, a soft U.S. economic recovery following the Great Recession, and the prospect of slowing Chinese growth, raise the downside risk of a perfect storm for credit markets, in our view,” S&P wrote.

The Canadian preferred share market got thumped today, with PerpetualPremiums off 10bp, FixedResets losing 45bp and DeemedRetractibles down 37bp. There is quite a lengthy list of Performance Highlights, all of them losers – the only pattern I see at first glance is that banks are relatively unscathed. Volume was below 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 -3.2471 % 2,417.6
FixedFloater 4.44 % 3.80 % 29,122 17.72 1 -1.1537 % 3,554.6
Floater 2.99 % 3.02 % 59,452 19.63 3 -3.2471 % 2,610.4
OpRet 4.79 % 2.32 % 50,980 1.08 5 -0.2308 % 2,507.0
SplitShare 5.26 % -4.17 % 53,930 0.58 4 -0.0595 % 2,716.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2308 % 2,292.4
Perpetual-Premium 5.45 % 2.82 % 75,243 0.65 25 -0.0962 % 2,227.6
Perpetual-Discount 5.13 % 5.24 % 88,318 15.03 8 -0.8924 % 2,416.5
FixedReset 5.07 % 3.16 % 175,865 2.34 68 -0.4533 % 2,389.8
Deemed-Retractible 4.97 % 3.65 % 176,465 1.54 45 -0.3713 % 2,321.3
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -6.05 % Not a real loss … the Last Quote was 17.23-18.60, but the issue traded 21,495 shares in a range of 18.00-20. Virtually all the volume was at 18.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 3.07 %
BAM.PR.N Perpetual-Discount -4.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 22.16
Evaluated at bid price : 22.50
Bid-YTW : 5.34 %
BAM.PR.M Perpetual-Discount -2.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 22.27
Evaluated at bid price : 22.59
Bid-YTW : 5.32 %
BAM.PR.C Floater -2.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 3.02 %
MFC.PR.D FixedReset -2.65 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 4.23 %
MFC.PR.B Deemed-Retractible -2.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.26
Bid-YTW : 5.57 %
TCA.PR.X Perpetual-Premium -1.59 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 52.06
Bid-YTW : 2.83 %
SLF.PR.B Deemed-Retractible -1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.11
Bid-YTW : 5.39 %
TRP.PR.C FixedReset -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 23.54
Evaluated at bid price : 25.85
Bid-YTW : 2.99 %
SLF.PR.A Deemed-Retractible -1.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.40 %
BAM.PF.A FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 23.11
Evaluated at bid price : 25.03
Bid-YTW : 4.37 %
BMO.PR.Q FixedReset -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.12 %
MFC.PR.F FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.30
Bid-YTW : 3.81 %
BAM.PR.G FixedFloater -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 22.25
Evaluated at bid price : 21.42
Bid-YTW : 3.80 %
TD.PR.P Deemed-Retractible -1.13 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-11-01
Maturity Price : 26.00
Evaluated at bid price : 26.21
Bid-YTW : 3.81 %
BNS.PR.L Deemed-Retractible -1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-28
Maturity Price : 25.25
Evaluated at bid price : 25.91
Bid-YTW : 3.62 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.L FixedReset 79,450 National crossed 75,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.08
Bid-YTW : 3.03 %
CU.PR.A Perpetual-Premium 52,550 TD crossed 47,400 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-17
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : -11.11 %
MFC.PR.H FixedReset 48,780 Scotia sold 23,100 to anonymous at 25.25, and another 13,500 to RBC at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.68 %
TRP.PR.C FixedReset 46,192 Nesbitt crossed 40,000 at 26.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 23.54
Evaluated at bid price : 25.85
Bid-YTW : 2.99 %
TD.PR.O Deemed-Retractible 41,459 Nesbitt crossed 30,000 at 26.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-06-17
Maturity Price : 25.75
Evaluated at bid price : 25.87
Bid-YTW : 1.86 %
SLF.PR.A Deemed-Retractible 36,400 Nesbitt crossed 29,400 at 24.25.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.40 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.K Floater Quote: 17.23 – 18.60
Spot Rate : 1.3700
Average : 0.9391

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 3.07 %

MFC.PR.D FixedReset Quote: 26.05 – 26.74
Spot Rate : 0.6900
Average : 0.4086

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 4.23 %

BAM.PR.C Floater Quote: 17.51 – 18.35
Spot Rate : 0.8400
Average : 0.5723

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-05-18
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 3.02 %

NA.PR.O FixedReset Quote: 26.68 – 27.25
Spot Rate : 0.5700
Average : 0.3605

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-15
Maturity Price : 25.00
Evaluated at bid price : 26.68
Bid-YTW : 2.68 %

TCA.PR.X Perpetual-Premium Quote: 52.06 – 52.50
Spot Rate : 0.4400
Average : 0.2617

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-15
Maturity Price : 50.00
Evaluated at bid price : 52.06
Bid-YTW : 2.83 %

MFC.PR.B Deemed-Retractible Quote: 23.26 – 23.69
Spot Rate : 0.4300
Average : 0.2522

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.26
Bid-YTW : 5.57 %

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