November 17, 2008

There’s a naked short tempest in the loans market:

At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York- based Goldman is acting against its clients by trying to profit at their expense, the investors said.

Well, boo-hoo-hoo. The so-called fund managers are upset because they bought things that went down, and are distressed to hear that their counterparty was Goldman.

They aren’t fund managers. They aren’t investors. They’re mewling little weenies is what they are; they should apologize to their clients, hand in their licenses, get out of the business and go home and play with their dollies.

There is a novel form of reintermediation going on in the States:

American International Group Inc. and GMAC LLC are among money-losing companies whose banking units are paying higher rates than larger rivals to lure depositors, pressuring bank profits needed to offset rising loan losses.

AIG, the insurer bailed out by the U.S. government, and GMAC, the biggest lender to General Motors Corp. car dealers, are offering yields of more than 4 percent for one-year certificates of deposit. Bank of America, the largest U.S. bank by deposits, is paying 2.75 percent, according to its Web site.

The fight for the $7.4 trillion in U.S. deposits is intensifying as companies gain retail-bank status and unprofitable firms seek a lifeline during a worldwide credit crunch. American Express Co., Goldman Sachs Group Inc. and Morgan Stanley, which have received Federal Reserve approval to become bank-holding companies, may drive the market even higher by paying more to depositors, said David Hendler, a credit analyst at CreditSights Inc. in New York.

So they can’t sell Commercial Paper, therefore they open a bank and take deposits with a FDIC guarantee!

Shell-shocked Assiduous Reader pugwash asked in an unrelated thread:

What happened today – No news and prefs got nailed – is this forced selling by hedge funds etc?

You got me! Long corporates are actually up on the month. I’d be very surprised if it was hedge funds – preferred shares aren’t really their style (I’m still trying to get mine off the ground!). As far as the States is concerned:

Participants in the corporate bond market describe a deadly, dull depressing day. The level of activity from clients was quite subdued.The IG 11 is currently 208/210. It had opened 8 wider this morning on a wide 210214 quote.

Preferreds? Lots of activity, broadly based … I’d say that, for today, preferreds just aren’t fashionable.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30.
The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index.
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet N/A N/A N/A N/A 0 N/A N/A
Fixed-Floater 4.94% 4.86% 70,187 15.77 6 +0.3487% 1,060.9
Floater 8.40% 8.58% 54,673 10.71 2 -2.0026% 416.5
Op. Retract 5.28% 6.09% 135,591 3.94 15 +0.2395% 1,006.5
Split-Share 6.51% 11.53% 58,649 3.87 12 -1.4730% 916.3
Interest Bearing 8.09% 14.27% 55,933 3.18 3 -1.0947% 878.6
Perpetual-Premium N/A N/A N/A N/A N/A N/A N/A
Perpetual-Discount 7.12% 7.20% 176,290 12.34 71 -1.7234% 768.3
Fixed-Reset 5.41% 5.08% 913,034 15.16 12 -0.1051% 1,078.0
Major Price Changes
Issue Index Change Notes
FFN.PR.A SplitShare -7.0000% Asset coverage of 1.6-:1 as of October 31, according to the company. Now with a pre-tax bid-YTW of 14.24% based on a bid of 6.51 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 6.51-74, 5×1. Day’s range of 6.60-94.
BSD.PR.A InterestBearing -6.0956% Asset coverage of 1.0+:1 as of November 7 according to the company. Now with a pre-tax bid-YTW of 18.05% based on a bid of 5.70 and a hardMaturity 2015-3-31 at 10.00. Closing quote of 5.70-74, 1×4. Day’s range of 5.70-96.
BNS.PR.K PerpetualDiscount -5.6875% Now with a pre-tax bid-YTW of 7.11% based on a bid of 17.08 and a limitMaturity. Closing quote 17.08-34, 3×3. Day’s range 17.05-18.11.
MFC.PR.C PerpetualDiscount -5.1233% Now with a pre-tax bid-YTW of 7.52% based on a bid of 15.00 and a limitMaturity. Closing Quote 15.00-09, 8×1. Day’s range of 15.00-16.25.
BNS.PR.L PerpetualDiscount -5.1146% Now with a pre-tax bid-YTW of 7.06% based on a bid of 16.14 and a limitMaturity. Closing Quote 16.14-84, 2×15. Day’s range of 16.20-10.
CL.PR.B PerpetualDiscount -5.0559% Now with a pre-tax bid-YTW of 7.51% based on a bid of 21.22 and a limitMaturity. Closing Quote 21.22-50, 5×15. Day’s range of 21.11-22.25.
PWF.PR.I PerpetualDiscount -4.6512% Now with a pre-tax bid-YTW of 7.41% based on a bid of 20.50 and a limitMaturity. Closing Quote 20.50-30, 5×6. Day’s range of 21.00-22.50.
CM.PR.H PerpetualDiscount -4.3902% Now with a pre-tax bid-YTW of 7.76% based on a bid of 15.68 and a limitMaturity. Closing Quote 15.68-98, 15×7. Day’s range of 15.66-49.
BAM.PR.K Floater -4.2269%  
HSB.PR.C PerpetualDiscount -4.1876% Now with a pre-tax bid-YTW of 7.58% based on a bid of 17.16 and a limitMaturity. Closing Quote 17.16-50, 1×9. Day’s range of 17.50-00.
SLF.PR.E PerpetualDiscount -4.0707% Now with a pre-tax bid-YTW of 7.86% based on a bid of 14.30 and a limitMaturity. Closing Quote 14.30-40, 2×8. Day’s range of 14.17-15.25.
GWO.PR.G PerpetualDiscount -4.0519% Now with a pre-tax bid-YTW of 7.47% based on a bid of 17.76 and a limitMaturity. Closing Quote 17.76-89, 6×4. Day’s range of 17.02-18.55.
BNS.PR.M PerpetualDiscount -4.0118% Now with a pre-tax bid-YTW of 7.00% based on a bid of 16.27 and a limitMaturity. Closing Quote 16.27-56, 4X1. Day’s range of 16.50-90.
POW.PR.B PerpetualDiscount -3.6800% Now with a pre-tax bid-YTW of 7.53% based on a bid of 18.06 and a limitMaturity. Closing Quote 18.06-56, 1×5. Day’s range of 17.76-18.79.
GWO.PR.I PerpetualDiscount -3.6042% Now with a pre-tax bid-YTW of 7.81% based on a bid of 14.71 and a limitMaturity. Closing Quote 14.71-24, 1×4. Day’s range of 14.98-67.
PWF.PR.G PerpetualDiscount -3.4762% Now with a pre-tax bid-YTW of 7.37% based on a bid of 20.27 and a limitMaturity. Closing Quote 20.27-79, 3×8. Day’s range of 20.50-79.
CM.PR.J PerpetualDiscount -3.3481% Now with a pre-tax bid-YTW of 7.45% based on a bid of 15.30 and a limitMaturity. Closing Quote 15.30-50, 14×10. Day’s range of 15.28-92.
BNS.PR.N PerpetualDiscount -3.2577% Now with a pre-tax bid-YTW of 6.78% based on a bid of 19.60 and a limitMaturity. Closing Quote 19.60-90, 7×7. Day’s range of 19.54-06.
FTN.PR.A SplitShare -3.2468% Asset coverage of 1.9-:1 as of October 31 according to the company. Now with a pre-tax bid-YTW of 10.62% based on a bid of 7.45 and a hardMaturity 2015-12-1 at 10.00. Closing quote of 7.45-57, 1X5. Day’s range of 7.27-60.
ELF.PR.F PerpetualDiscount -3.1447% Now with a pre-tax bid-YTW of 8.76% based on a bid of 15.40 and a limitMaturity. Closing Quote 15.40-66, 3×6. Day’s range of 15.27-90.
CM.PR.I PerpetualDiscount -3.1365% Now with a pre-tax bid-YTW of 7.56% based on a bid of 15.75 and a limitMaturity. Closing Quote 15.75-09, 11X5. Day’s range of 15.90-45.
SLF.PR.A PerpetualDiscount -3.0890% Now with a pre-tax bid-YTW of 7.99% based on a bid of 14.86 and a limitMaturity. Closing Quote 14.86-24, 5×19. Day’s range of 15.01-51.
BNA.PR.B SplitShare -3.0769% Asset coverage of 2.0+:1 as of October 31, according to the company. Now with a pre-tax bid-YTW of 9.96% based on a bid of 18.90 and a hardMaturity 2016-3-25 at 25.00. Closing quote of 18.90-99, 10×5. Day’s range of 18.70-00.
BNS.PR.J PerpetualDiscount -3.0648% Now with a pre-tax bid-YTW of 6.77% based on a bid of 19.61 and a limitMaturity. Closing Quote 19.61-99, 20×10. Day’s range of 19.33-20.52.
PWF.PR.K PerpetualDiscount -3.0641% Now with a pre-tax bid-YTW of 7.20% based on a bid of 17.40 and a limitMaturity. Closing Quote 17.40-50, 10×10. Day’s range of 17.30-50.
Volume Highlights
Issue Index Volume Notes
RY.PR.L FixedReset 69,300  
BCE.PR.A FixFloat 48,530  
BCE.PR.G FixFloat 46,900  
BMO.PR.K PerpetualDiscount 42,167 Now with a pre-tax bid-YTW of 7.14% based on a bid of 18.51 and a limitMaturity.
TD.PR.C FixedReset 40,995  

There were forty other index-included $25-pv-equivalent issues trading over 10,000 shares today.

4 Responses to “November 17, 2008”

  1. lafontaine says:

    ré: I’d say that, for today, preferreds just aren’t fashionable.

    One thing I do not understand : why dont the issuers , i.e banks , insurance co or conglomerate ( PWF, POW , BAM ) take advantage of the situation and buyback the privilege shares directly or indirectly at their depressed value ? ( not allowed??)

    Louis

  2. jiHymas says:

    Buybacks with relation to split-share have been discussed. There should, ideally, be more of these, buy buy-backs will decrease the manager’s AUM so they won’t necessarily happen.

    The financial issuers you mention won’t buy back prefs because they don’t have any money. They are under stern regulatory pressure to deleverage and not to do that by choking off loans: regulators want to see more capital. Lots more capital! And Rule #1 in a regulated business is: Don’t Piss Off the Regulators.

    From a business perspective, they know they can eventually call these things at par if it every makes sense for them. But nobody knows how long the credit crunch will last, or who’s going to blow up next, so they’re not spending anything they don’t have to spend.

  3. lystgl says:

    A while back I questioned the Bank of Canada’s fifty million buy up of bank mortgages etc. if indeed our banks had miraculously dodged the bullet every other bank in the world seems to have taken thinking that something indeed was rotten as their doing so didn’t make sense if all was well.
    “Scotiabank takes 890 million dollar charge on slumping markets and failure of Lehman Bros.”
    Looks like we’ve been misled by these upstanding corporate denizens once again and there’s more really good news to come. I can hardly wait I’m peeing myself with anticipation. I despise these lying b___rds.
    http://www.reportonbusiness.com/servlet/story/RTGAM.20081118.wscotiabank1118/BNStory/Business/home

  4. jiHymas says:

    Scotia’s troubles all seem to be US-related … where BMO and TD have big exposure. It’s going to be an interesting earning season!

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