US regulators are making a a big move to extend their power:
BlackRock Inc. (BLK) and Fidelity Investments will be studied by U.S. regulators who are in the early stages of reviewing whether asset managers pose a potential risk to the financial system, two people with knowledge of the matter said.
The Financial Stability Oversight Council’s discussion Oct. 31 and agreement to review New York-based BlackRock and Boston-based Fidelity don’t necessarily mean the companies will be designated systemically important by the council, according to the people, who requested anonymity because the meeting was closed to the public. The panel didn’t take any formal action regarding the companies.
FSOC’s preliminary talks may presage months of wrangling between the industry and officials charged with trying to prevent a repeat of the 2008 financial crisis. Asset managers are among non-bank financial companies that the council is empowered by law to evaluate to determine whether their failure could threaten the entire system and thus require Federal Reserve oversight. BlackRock, Fidelity and the mutual-fund industry’s trade group have said money managers aren’t a threat.
Political cover for the investigation is provided by an Office of Financial Research (who?) report titled Asset Management and Financial Stability:
Reflecting these issues, this report describes:
- • the activities of asset management firms and the funds they manage;
- • the key factors that make the industry vulnerable to shocks: (1) “reaching for yield” and herding behaviors; (2) redemption risk in collective investment vehicles; (3) leverage, which can amplify asset price movements and increase the potential for fire sales; and (4) firms as sources of risk;
- • the key channels through which shocks can be transmitted: exposures across funds and firms and the impacts of fire sales; and
- • the data available to measure those activities, vulnerabilities, and channels, and the nature of the gaps in those data.
The report does not focus on particular risks posed by money market funds. In November 2012, the Council released a detailed analysis of these funds and their risks, and the Securities and Exchange Commission (SEC) recently proposed additional reforms.2
In addition, the activities and risks posed by hedge funds, private equity, and other private funds are not addressed in detail. Additional analysis will be conducted in conjunction with further analysis of data that these funds have begun to file on Form PF. The OFR, SEC, and Commodity Futures Trading Commission (CFTC) are currently evaluating these data for monitoring purposes.
Assiduous Readers will remember that in the case of Money Market Funds, the much-needed regulatory reform was beaten back by the industry and MMFs can continue to operate as zero-capital banks. I have complete faith in the regulators to get everything backwards and regulate the hell out of asset management firms.
Here’s another region with a lousy economy:
Waning European growth and inflation will put pressure on the European Central Bank (ECB) to cut interest rates in an effort to keep the fragile recovery intact.
The autumn economic update released on Tuesday by the European Commission (EC) showed that the euro-zone economy will return to growth in 2014, after two years of recession, but at a slower pace than was forecast in the spring. Inflation in the euro zone fell to just 0.7 per cent in October, the lowest rate since 2009, when the financial crisis was at its peak.
Sometimes – not very often – there is some justice in the world:
Four Deutsche Bank AG (DBK) traders who won reinstatement of their jobs after they were dismissed following an internal probe into rate-rigging were awarded 365,474 euros ($493,370) in missed salary.
The total monthly pay of the four men, who were fired in February, ranged from 10,833 euros to 22,083 euros on average, according to the written version of the judgment made Sept. 11 and released by the Frankfurt Labor Court today. The men, whose names weren’t disclosed, returned to work on Nov. 4, according to the bank.
…
The traders said that before they were dismissed, their bonuses for 2011 were reduced as a sanction for their allegedly inappropriate behavior and that an unidentified Deutsche Bank official said they would be compensated once “the situation had calmed down,” according to the ruling.Deutsche Bank disputes that account, the document shows. A spokesman for Deutsche Bank, Christian Streckert, declined to immediately comment when reached by phone today.
The court said the total value of the wrongful dismissal claims is 1.9 million euros. That number reflects the pay owed to the plaintiffs, including any potential future earnings under their employment contract.
The poor regulators will have to fill in the notch they made in their red pencil! Well, never mind, there are other careers to destroy and lives to ruin. And after all, the the hysteria helps balance government budgets:
A number of finance firms, including Royal Bank of Scotland and Rabobank face billions of euros in fines next month from European Union regulators for colluding on global benchmark interest rates, reinforcing Brussels’ hard line on the sector after the financial crisis.
EU antitrust chief Joaquin Almunia is set to unveil a record fine of at least €1.5-billion ($2-billion) on six banks, including Barclays and RBS, for rigging the yen Libor interest rate benchmark, a banking source said on Wednesday.
There’s a new wrinkle in the Treasury market:
The U.S. Treasury Department will sell $10 billion to $15 billion of its first floating-rate notes Jan. 29 and said a period of political wrangling over the budget requires a delay in plans to reduce coupon auctions.
The floating-rate notes will have a two-year maturity and be the Treasury’s first new security in 17 years, the department said today in its quarterly refunding announcement. Note and bond sales next week will total $70 billion, the lowest since February 2009 and less than the $72 billion auctioned last quarter, the Treasury said.
…
Floaters are securities with rates set periodically, and the Treasury’s notes will be referenced to the 13-week bill rate. They are the first new U.S. government debt securities since Treasury Inflation-Protected Securities were introduced in 1997.
It was a mildly positive day for the Canadian preferred share market, with PerpetualDiscounts winning 13bp, FixedResets up 10bp and DeemedRetractibles gaining 3bp. The Performance Highlights table is dominated by FixedResets with low Issue Reset Spreads. Volume was well above average.
PerpetualDiscounts now yield 5.54%, equivalent to 7.20% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.7%, so the pre-tax, interest-equivalent spread between the two is now about 250bp, a slight (and perhaps spurious, particularly given the index rebalancing as of October 31) increase from the 245bp reported October 31.
| 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 | 0.6212 % | 2,518.2 |
| FixedFloater | 4.25 % | 3.52 % | 27,477 | 18.33 | 1 | -0.8865 % | 3,950.7 |
| Floater | 2.95 % | 2.96 % | 63,432 | 19.79 | 3 | 0.6212 % | 2,719.0 |
| OpRet | 4.63 % | 3.11 % | 68,501 | 0.60 | 3 | -0.0129 % | 2,636.1 |
| SplitShare | 4.74 % | 5.08 % | 68,938 | 3.66 | 6 | -0.0014 % | 2,962.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0129 % | 2,410.4 |
| Perpetual-Premium | 5.57 % | 2.03 % | 127,777 | 0.09 | 11 | 0.1817 % | 2,308.6 |
| Perpetual-Discount | 5.52 % | 5.54 % | 179,750 | 14.55 | 27 | 0.1287 % | 2,383.3 |
| FixedReset | 5.00 % | 3.57 % | 231,919 | 3.35 | 82 | 0.1046 % | 2,463.4 |
| Deemed-Retractible | 5.08 % | 4.05 % | 197,741 | 1.49 | 42 | 0.0716 % | 2,411.5 |
| FloatingReset | 2.62 % | 2.39 % | 292,554 | 4.51 | 5 | 0.0159 % | 2,456.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.H | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-06 Maturity Price : 21.40 Evaluated at bid price : 21.40 Bid-YTW : 3.91 % |
| MFC.PR.K | FixedReset | 1.01 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 4.43 % |
| BAM.PR.X | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-06 Maturity Price : 21.99 Evaluated at bid price : 22.40 Bid-YTW : 4.21 % |
| SLF.PR.G | FixedReset | 1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.41 Bid-YTW : 4.14 % |
| BNS.PR.O | Deemed-Retractible | 1.34 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-12-06 Maturity Price : 26.00 Evaluated at bid price : 26.40 Bid-YTW : -11.78 % |
| TRP.PR.A | FixedReset | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-06 Maturity Price : 23.50 Evaluated at bid price : 24.00 Bid-YTW : 3.91 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.Y | FixedReset | 118,962 | TD crossed blocks of 50,000 and 25,000 at 25.92. RBC crossed 25,000 at the same price; Scotia crossed 12,100 at 25.95. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 25.95 Bid-YTW : 2.16 % |
| TD.PR.Y | FixedReset | 104,102 | TD crossed 99,900 at 24.87. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.87 Bid-YTW : 3.61 % |
| IAG.PR.C | FixedReset | 77,301 | Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.31 Bid-YTW : 2.15 % |
| ENB.PR.N | FixedReset | 52,348 | Nesbitt crossed 19,700 at 24.50 and sold 10,000 to Scotia at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-11-06 Maturity Price : 22.96 Evaluated at bid price : 24.46 Bid-YTW : 4.37 % |
| BMO.PR.J | Deemed-Retractible | 51,110 | TD crossed 40,000 at 25.62. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-25 Maturity Price : 25.50 Evaluated at bid price : 25.59 Bid-YTW : 2.49 % |
| TD.PR.A | FixedReset | 46,240 | RBC bought 26,500 from Scotia at 25.18. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.19 Bid-YTW : 2.11 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| RY.PR.X | FixedReset | Quote: 25.64 – 26.10 Spot Rate : 0.4600 Average : 0.3626 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 22.36 – 22.79 Spot Rate : 0.4300 Average : 0.3423 YTW SCENARIO |
| TRP.PR.D | FixedReset | Quote: 24.65 – 24.98 Spot Rate : 0.3300 Average : 0.2479 YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | Quote: 21.76 – 22.00 Spot Rate : 0.2400 Average : 0.1628 YTW SCENARIO |
| RY.PR.C | Deemed-Retractible | Quote: 25.49 – 25.83 Spot Rate : 0.3400 Average : 0.2684 YTW SCENARIO |
| ELF.PR.G | Perpetual-Discount | Quote: 21.66 – 21.99 Spot Rate : 0.3300 Average : 0.2619 YTW SCENARIO |
[…] on November 5, while US regulatory moves to extend their power over asset managers was discussed November 6. Does anybody else see a pattern here? Mark my words, there will be enforced ‘gating’ […]
[…] PerpetualDiscounts now yield 5.57%, equivalent to 7.24% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.8%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 245bp, a slight (and perhaps spurious) decline from the 250bp reported November 6. […]