November 4, 2009

The SEC announced today that it has learned nothing from Judge Jed Rakoff:

The SEC alleges that J.P. Morgan Securities and former managing directors Charles LeCroy and Douglas MacFaddin made more than $8 million in undisclosed payments to close friends of certain Jefferson County commissioners. The friends owned or worked at local broker-dealer firms that performed no known services on the transactions. In connection with the payments, the county commissioners voted to select J.P. Morgan Securities as managing underwriter of the bond offerings and its affiliated bank as swap provider for the transactions.

J.P. Morgan Securities agreed to settle the SEC’s charges without admitting or denying the allegations by paying $50 million to the county for the purpose of assisting displaced county employees, residents and sewer rate payers; forfeiting more than $647 million in termination fees it claims the county owes under the swap transactions; and paying a $25 million penalty that will be placed in a Fair Fund to compensate harmed investors and the county in the municipal bond offerings and the swap transactions. LeCroy and MacFaddin have not agreed to settle the SEC’s charges.

It’s a disgrace – particularly since there has been at least one criminal conviction in connection with this matter. The practice of allowing firms to settle charges without admitting or denying guilt leads, at best, to a licence for wrongdoing. At worst, it leads to regulatory extortion, whereby a regulator will demand a settlement in exchange for dropping (or not starting) an investigation on some particular matter – possibly one not even related to the disclosed settlement terms.

Today’s FOMC statement was ‘steady as she goes’.

The CBO today estimated the cost of regulating derivatives:

Legislation to create stricter rules for derivatives that is making its way through Congress would cost the Securities and Exchange Commission $581 million for fiscal 2010-2014, and the Commodity Futures Trading Commission $291 million, the CBO said in an estimate dated yesterday. The CFTC would have to boost staffing 40 percent, or by 235 workers, while the SEC would need to expand by about 13 percent, or 450 employees, the CBO said.

There’s a nice little piece of empire-building!

The preferred share market was able to eke out some small gains today to keep the November streak alive; PerpetualDiscounts gained 3bp, while FixedResets managed to increase by about 8bp. Volatility was fairly low, with only eight issues in the performance highlights, and volume remained subdued.

PerpetualDiscounts now yield 5.97%, equivalent to 8.36% interest at the standard equivalency factor of 1.4x. Long corporates now yield … oh, call it 5.95%, so the pre-tax interest-equivalent spread (which I also refer to as the Seniority Spread) is about 240bp, a slight decline from the 245-250bp range estimated at month-end.

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 0.2012 % 1,479.3
FixedFloater 6.71 % 4.74 % 47,658 17.86 1 -1.8182 % 2,320.9
Floater 2.63 % 3.08 % 94,579 19.50 3 0.2012 % 1,848.1
OpRet 4.82 % -8.77 % 120,255 0.09 14 0.1397 % 2,298.6
SplitShare 6.38 % 6.42 % 418,435 3.91 2 0.0000 % 2,074.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1397 % 2,101.8
Perpetual-Premium 5.86 % 5.59 % 75,706 1.18 4 0.0988 % 1,862.8
Perpetual-Discount 5.95 % 5.97 % 197,206 13.92 70 0.0330 % 1,743.7
FixedReset 5.51 % 4.14 % 414,848 3.98 41 0.0758 % 2,116.3
Performance Highlights
Issue Index Change Notes
BAM.PR.G FixedFloater -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 25.00
Evaluated at bid price : 16.20
Bid-YTW : 4.74 %
CM.PR.L FixedReset -1.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.50
Bid-YTW : 4.15 %
BAM.PR.N Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 17.48
Evaluated at bid price : 17.48
Bid-YTW : 6.90 %
BMO.PR.K Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 22.37
Evaluated at bid price : 22.50
Bid-YTW : 5.84 %
BMO.PR.P FixedReset 1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-27
Maturity Price : 25.00
Evaluated at bid price : 26.72
Bid-YTW : 3.91 %
RY.PR.C Perpetual-Discount 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 19.87
Evaluated at bid price : 19.87
Bid-YTW : 5.81 %
BAM.PR.J OpRet 1.61 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 5.33 %
PWF.PR.F Perpetual-Discount 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 21.42
Evaluated at bid price : 21.75
Bid-YTW : 6.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.G Perpetual-Discount 50,930 RBC crossed 37,900 at 22.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 22.51
Evaluated at bid price : 22.68
Bid-YTW : 5.99 %
TD.PR.R Perpetual-Discount 50,587 Nesbitt crossed 42,000 at 24.33.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-11-04
Maturity Price : 24.05
Evaluated at bid price : 24.26
Bid-YTW : 5.81 %
MFC.PR.D FixedReset 37,933 RBC crossed 30,000 at 28.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-19
Maturity Price : 25.00
Evaluated at bid price : 27.80
Bid-YTW : 4.21 %
BNS.PR.P FixedReset 27,814 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 3.99 %
RY.PR.X FixedReset 26,425 RBC bought 12,500 from CIBC at 27.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-23
Maturity Price : 25.00
Evaluated at bid price : 27.24
Bid-YTW : 4.19 %
BMO.PR.P FixedReset 22,629 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-27
Maturity Price : 25.00
Evaluated at bid price : 26.72
Bid-YTW : 3.91 %
There were 28 other index-included issues trading in excess of 10,000 shares.

One Response to “November 4, 2009”

  1. […] PerpetualDiscounts now yield an average 5.95%, equivalent to 8.33% interest at the standard equivalency factor of 1.4x. Long Corporates continue to yield about 6.0%, so the pre-tax interest-equivalent spread (also referred to as the Seniority Spread) is about 235bp, slightly tighter than the 240bp reported on November 4. […]

Leave a Reply

You must be logged in to post a comment.