Moody's issued a special comment paper focusing on Basel II amendments already introduced, as well as statements from the Basel Committee on Banking Supervision (Risk.net). The paper highlights enhancements relating to a bank's trading book, securitization, and counterparty credit risk. In particular, the recommendations involve strengthening Tier I capital, introducing tougher liquidity standards, including counter-cyclical provisioning, discussing systemic risk provisions (which is becoming popular in the United States), and including leverage ratios as a supplementary measure. Moody's also believes that proposed Capital Requirement Directive changes to the quality of capital and securitization were also a positive step. In addition, the paper mentions that “One important amendment calls for stricter operational requirements for credit analysis for banks holding securitisation exposures. We believe that the increased requirement for credit analysis for banks holding securitised exposures is going to be an important element of improved risk management, and should ensure that only banks with the necessary information and analytical tools hold securitised products.” Of course, it could also mean that less securitization takes place. While this may be the intended result, the unintended consequence of reducing the efficient flow of capital, or not allowing those who want to off-load or bear risk access to the vehicles they need, will also need to be considered further - either now or later.
State Street Global Advisors launched a new ETF with investments in non-convertible preferred stocks (ticker PSK, IndexUniverse). Similar ETFs already on the market, PGX and PFF, are up 20% and 33% YTD, respectively. The preferred shares in the fund are rated investment grade and have minimum trading volume requirements. The ETF has an expense ratio of 0.45%. The PSK exchanged traded fund would be attractive to investors that are looking for income, potential capital gains growth, and safety given that preferred shares pay a fixed dividend, can appreciate like normal common stock, and are higher on the food chain compared to common stock in the event of bankruptcy.
According to the recent TIM (Trade Ideas Monitor) report for the week of September 11-17, 2009, market sentiment moderated after being bullish last week. The TIM Sentiment Index (TSI) was down 1.86 points in North America to 52.78 (see previous post and the youDevise website for additional information on the TIM report). The TSI Worldwide Index was down 3.89 points to 52.72. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM decreased 0.86 points to 68.36%.
As for individual securities in the U.S. and North America, DryShips (DRYS), Kroger (KR), and U.S. Steel (X) were stocks with long broker sentiment, while Sprint Nextel (S), American International Group (AIG), and Goldman Sachs (GS) had short broker sentiment. In general, the utility, energy, and consumer staples sectors had long broker sentiment, while the information technology sector had short broker sentiment.