Apparently there has been a “credit line run” on CIT:
Regulators tried to craft a rescue package late yesterday as CIT customers, prompted by reports of possible bankruptcy, drained $750 million from credit lines on Monday and Tuesday, the Wall Street Journal reported, citing people familiar with the matter.
The U.S. may let CIT transfer assets to its bank in Utah, and the Federal Reserve would let CIT pledge some assets at its discount window while the company tries to refinance debt, the newspaper said.
This type of run was discussed in the post A Question of Liquidity: The Great Banking Run of 2008
At the company’s request, the NYSE halted trading, “pending news”. Reuters had no news, but plenty of speculation:
U.S. officials are considering giving CIT Group Inc (CIT.N) a temporary loan as part of an aid package to help the lender avoid collapse, a source familiar with regulators’ thinking said on Tuesday.
The temporary loan is one option being considered to give CIT room to strengthen its balance sheet by raising additional capital through debt or equity, said the source who requested anonymity because the plans could change.
Other options include access to the U.S. Federal Reserve’s discount window and asset transfers, the source said. The source said there was no guarantee a plan would be reached.
But just after 6pm, CIT aanounced everything had fizzled:
CIT Group Inc. (NYSE: CIT), a leading provider of financing to small businesses and middle market companies, today announced that it has been advised that there is no appreciable likelihood of additional government support being provided over the near term.
The Company’s Board of Directors and management, in consultation with its advisors, are evaluating alternatives.
And in California they’re singing Whoops! I did it again:
Moody’s Investors Service yesterday lowered California’s credit rating two steps to Baa1 from A2 and said its evaluation may be reduced further unless legislators quickly solve the cash crisis.
The BofA/Merrill investigation continues:
Former Treasury Secretary Henry Paulson said letting Bank of America Corp. scuttle its takeover of Merrill Lynch & Co. last year was “unthinkable,” and his remarks about ousting management were “appropriate.”
Paulson “intended to deliver a strong message” to Chief Executive Officer Kenneth Lewis in December “that it would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment,” the former official said in remarks prepared for a congressional hearing tomorrow. The text was obtained today by Bloomberg News.
…
Paulson told Lewis on Dec. 21 that backing out of the deal “would show a colossal lack of judgment and would jeopardize Bank of America, Merrill Lynch, and the financial system,” according to the testimony. Paulson confirmed he had told Lewis the Fed might remove management and the board of the Charlotte, North Carolina-based bank if they failed to complete the takeover of New York-based Merrill Lynch.
Seems to me that Paulson is preparing to talk out of both sides of his mouth. If backing out would have showed misjudgement, why is Treasury presenting an insurance bill for $4-billion?
Bank of America Corp., the largest U.S. bank by assets, benefited from implied federal backing on about $118 billion of Merrill Lynch & Co. assets and owes the government compensation, the chairman of a House of Representatives committee studying the purchase of Merrill said.
“If you or anyone at Bank of America made a commitment, verbal or otherwise, to enter into this deal with the United States government, I urge you to honor that commitment,” Edolphus Towns, a New York Democrat, said in a letter yesterday to Chief Executive Officer Kenneth Lewis that was obtained by Bloomberg News. “It is the right thing to do.”
Regulators say Bank of America owes at least part of a $4 billion fee it agreed to pay in January because the company benefited from U.S. backing on Merrill assets such as mortgage- backed bonds, Bloomberg News reported on July 13, citing people familiar with the matter.
…
The U.S. provided the bank $20 billion in capital plus the asset guarantees to keep Lewis from abandoning the takeover of Merrill Lynch.
The discussion in the US regarding the regulatory approach to the size of banks is getting more heated, but there’s nothing really new:
The FDIC will propose slapping fees on the biggest bank holding companies to the extent that they carry on activities, such as proprietary trading, outside of traditional lending. The idea goes beyond the Obama administration’s regulation-overhaul plan, which would have the Fed adjust capital and liquidity standards for the biggest firms, without any pre-set fees.
“What we have suggested is financial disincentives for size and complexity,” Bair said in a July 9 interview. Fed Chairman Ben S. Bernanke told lawmakers last month that restricting size is a “legitimate” option.
PerpetualDiscounts closed today with a median bid-YTW of 6.27%, equivalent to 8.78 interest at the standard equivalency factor of 1.4x. Long Corporates remain at around 6.4% – well, maybe just a smidgen higher – and so the pre-tax interest-equivalent spread has narrowed in a little over the week, to about 235bp; still in excess of levels seen throughout most of the Credit Crunch.
| 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 | 0.3630 % | 1,159.0 |
| FixedFloater | 7.25 % | 5.47 % | 35,355 | 16.67 | 1 | -0.6623 % | 2,118.3 |
| Floater | 3.29 % | 3.87 % | 74,956 | 17.71 | 3 | 0.3630 % | 1,447.9 |
| OpRet | 4.98 % | -3.07 % | 131,275 | 0.09 | 15 | 0.1701 % | 2,217.9 |
| SplitShare | 6.10 % | 4.21 % | 97,584 | 4.15 | 4 | 0.1413 % | 1,920.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1701 % | 2,028.1 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4090 % | 1,772.9 |
| Perpetual-Discount | 6.25 % | 6.27 % | 160,573 | 13.53 | 71 | 0.4090 % | 1,632.8 |
| FixedReset | 5.56 % | 4.29 % | 556,091 | 4.25 | 40 | -0.0271 % | 2,067.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSB.PR.C | Perpetual-Discount | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 20.56 Evaluated at bid price : 20.56 Bid-YTW : 6.27 % |
| MFC.PR.B | Perpetual-Discount | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 18.81 Evaluated at bid price : 18.81 Bid-YTW : 6.26 % |
| BMO.PR.J | Perpetual-Discount | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 5.96 % |
| POW.PR.B | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 20.22 Evaluated at bid price : 20.22 Bid-YTW : 6.67 % |
| CM.PR.P | Perpetual-Discount | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 21.66 Evaluated at bid price : 21.91 Bid-YTW : 6.29 % |
| GWO.PR.F | Perpetual-Discount | 1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 23.32 Evaluated at bid price : 23.58 Bid-YTW : 6.31 % |
| CU.PR.B | Perpetual-Discount | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 24.60 Evaluated at bid price : 24.90 Bid-YTW : 6.11 % |
| PWF.PR.E | Perpetual-Discount | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 21.81 Evaluated at bid price : 21.81 Bid-YTW : 6.33 % |
| BAM.PR.B | Floater | 1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 10.23 Evaluated at bid price : 10.23 Bid-YTW : 3.87 % |
| SLF.PR.B | Perpetual-Discount | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 18.77 Evaluated at bid price : 18.77 Bid-YTW : 6.46 % |
| BAM.PR.N | Perpetual-Discount | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 15.66 Evaluated at bid price : 15.66 Bid-YTW : 7.68 % |
| PWF.PR.F | Perpetual-Discount | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 6.56 % |
| RY.PR.E | Perpetual-Discount | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 19.03 Evaluated at bid price : 19.03 Bid-YTW : 6.02 % |
| ELF.PR.F | Perpetual-Discount | 1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 18.76 Evaluated at bid price : 18.76 Bid-YTW : 7.12 % |
| PWF.PR.L | Perpetual-Discount | 1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 6.28 % |
| RY.PR.D | Perpetual-Discount | 1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 5.87 % |
| CM.PR.D | Perpetual-Discount | 2.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 22.86 Evaluated at bid price : 23.10 Bid-YTW : 6.24 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.P | FixedReset | 188,605 | Nesbitt crossed 100,000; Scotia crossed 17,900; Nesbitt bought 16,700 from Scotia; and RBC crossed 20,000; all at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 4.20 % |
| TD.PR.O | Perpetual-Discount | 141,452 | Nesbitt crossed 100,000 at 20.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-07-15 Maturity Price : 20.18 Evaluated at bid price : 20.18 Bid-YTW : 6.03 % |
| BMO.PR.O | FixedReset | 93,004 | RBC sold 10,000 to Nesbitt and crossed 50,000; both blocks at 28.01. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-24 Maturity Price : 25.00 Evaluated at bid price : 28.01 Bid-YTW : 4.30 % |
| BNA.PR.D | SplitShare | 84,601 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-07-09 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 7.32 % |
| BMO.PR.P | FixedReset | 83,143 | Scotia crossed blocks of 28,900 and 25,000, both at 26.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-27 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 4.52 % |
| ACO.PR.A | OpRet | 76,401 | RBC crossed 75,700 at 26.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2009-08-14 Maturity Price : 26.00 Evaluated at bid price : 26.36 Bid-YTW : -3.16 % |
| There were 56 other index-included issues trading in excess of 10,000 shares. | |||
[…] call it 6.35%, implying a pre-tax interest-equivalent spread of about 230bp; slightly tighter than last week’s spread of 235bp, but still well above the Credit Crunch Normal of about 200bp and, of course, much wider than the […]