Shareholders have filed a class-action lawsuit against CIBC, claiming that the bank misrepresented its exposure to investments in the U.S. subprime mortgages market.
The suit alleges that CIBC misrepresented the magnitude and level of risk associated with its U.S. subprime residential mortgage investments when it stated that exposure to the market was “not a major issue.” It was later revealed that the bank was exposed to billions of dollars of losses.
It is also alleged that CIBC failed to disclose that one of its principal hedge counterparties, ACA Financial, had an asset to guarantee ratio of 1:180 and was unable to provide any meaningful hedge protection to the bank’s investments.
The suit claims that these misrepresentations had the effect of substantially artificially inflating the price of CIBC stock through the class period, which subsequently fell once CIBC provided more complete disclosure. The bank wrote down $3.487 billion in the first quarter of 2008, $3.379 billion of which was related to the bank’s U.S. subprime mortgage investments.
“The problem is, the market capitalization went from a high of about $34 billion at the beginning of the class period and the stock is trading at less than half that value now,” says Joel Rochon, counsel for the class. “Investors appear to have lost billions due to the bank’s misrepresentations and its failure to manage investments prudently”.
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Barclays Plans Target-Date ETFs
Barclays is set to launch a family of target-date exchange-traded funds (ETFs) for investors saving for retirement.
According to a filing with the United States Securities and Exchange Commission, the eight proposed target-date ETFs will hold a mix of other iShares stock and bond ETFs.
The most aggressive fund, iShares S&P Target Date 2040 Index Fund, would have 91% of its assets in other iShares equity funds and 9% in fixed income. The most conservative option is a mix of 42% stocks and 58% bonds.
It is not clear if Barclays ETFs of ETFs would charge a fee in addition to what investors already pay for the iShares ETFs, but conventional life cycle funds from fund competitors such as Vanguard Group and Fidelity Investments don’t charge investors those extra fees.
In Canada, there is definitely a growing interest in solutions for retirement from both the retail and institutional side. “However, given the size of the Canadian market, we always need to set our priorities when it comes to launching products,” says Marie Amilcar, the business development sales manager of iShares Canada. “Nothing has been filed at the moment regarding a target date fund in Canada.”
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Investor Confidence Index Rises in July
Global investor confidence has risen by 3.6 points to 82.6 this month from June’s revised level of 79, according to the State Street Investor Confidence Index for July 2008.
The increase was driven by Asian investors, whose risk appetite increased by 8.5 points from 74.4 to 82.9.
The confidence of North American institutional investors decreased by 6.9 points to 84.7 while European institutional investors’ confidence fell by 0.9 points to 80.5.
“Globally, confidence improved somewhat, though this masks some regional variation,” says Ken Froot, a professor of business administration at Harvard University and co-author of the report. “Despite the market turmoil of the recent weeks, particularly in the financial sector, institutional investors perceive some value at current price levels, and their willingness to take risk to capture that value continues to improve from its December lows.”
The Investor Confidence Index analyzes the actual buying and selling patterns of institutional investors, and is based on a financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.
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Defining Moment for Investment World
The immediate future of the global financial industry faces increasing complexity which presents both problems and opportunities for investors, according a report by Watson Wyatt.
“There is one word that captures the flavour of the next few years in the financial industry – complexity,” says Roger Urwin, global head of investment content at Watson Wyatt.
The report, Defining moments, identifies four moments that will be seen to have had a significant impact on the shape and structure of the industry. The first three have already occurred and the final one is still to come.
The moments are identified as:
• A shift in preferences towards absolute returns – created by the last major bear market which ended in 2003
• Fresh thinking on the governance and management of institutional assets – as epitomized by moves to external fiduciary management in the first half of this decade
• New framing of risk – where the subprime crisis in 2007 is precipitating major changes in the assessment and management of risk
• New regulation – a future phase of significant regulation which will impact the financial industry on a scale similar to the Sarbanes-Oxley effect on U.S. corporations.
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Canadian Institutions Embrace Electronic Stock Trading
A long-predicted surge in electronic stock trading among Canadian institutions finally materialized last year, according to a study.
Greenwich Associates’ 2008 Canadian Equity Investors Study suggests electronic trading systems captured 20% of institutional equity trading dollar volume in Canada from 2007 to 2008, up sharply from the 14% of trading volume directed to electronic channels the prior year.
The increase in electronic trading occurred during a year of strong growth for the Canadian equity trading industry as a whole. Overall, the amount of commissions paid on equity trades by the 130 Canadian institutions in the Greenwich Associates universe increased on average by approximately 20% last year to an estimated C$1.08 billion.
“We can be certain that the growth in the commission pool reflects a real increase in institutional trading activity because it took place over a period in which commission rates on ‘high touch’ agency trades fell slightly and the share of trading volume executed through low-cost electronic systems increased significantly,” says Greenwich Associates consultant Jay Bennett.
The electronic trading surge was driven by an increase in the amount of trading volume executed by Canadian institutions through regular electronic trades sent direct to market without the use of algorithms. The proportion of total Canadian equity trading volume executed doubled to 12% in 2007-2008.
The shift to electronic trading is expected to drive down trading costs for Canadian institutions. Currently, the “all-in” blended commission rate in Canada across high-touch, electronic and program trading averages 3.4 cents-per-share overall and under 3.1 cents-per-share among larger commission accounts, while the average rate paid by Canadian institutions across all types of electronic trades averages 1.9 cents-per-share overall and 1.6 cents-per-share for the most active accounts.
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Pension Fund Returns Stall in Q2
A report finds that pension fund managers failed to beat the benchmark portfolio as 2008 proves to be a difficult year.
Morneau Sobeco’s Performance Universe of Pension Managers’ Pooled Funds report paints a bleak picture for pension funds, especially those with strong risk exposure in foreign markets. According to the report, diversified pooled fund managers posted a median return of 1.8% before management fees in the second quarter of 2008. Since January the median return has been 0.01%.
Jean Bergeron, a principal at Morneau Sobeco, says despite bond interest rates having increased in the quarter, the interest rates remain low, keeping the pension funds’ solvency liability high. He adds that if it weren’t for the excellent performance of the Canadian stock market in the last few years, pension plans would be in a much more precarious position.
According to the report, the median manager beat the benchmark portfolio by 0.04%, while Canadian equity managers obtained a median return of 7.7% compared to 9.1% for the S&P/TSX. U.S. equity managers posted a return of -3.0% versus -3.4% for the S&P 500 Index, while Canadian bond managers produced a median return of -0.6% versus -0.7% for the DEX Universe Bond Index.
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Ambachtsheer Receives Award
Pensions expert Keith Ambachtsheer was awarded the James R. Vertin Award at the 50th Financial Analysts Seminar in St. Charles, Illinois on Tuesday.
The award, which recognizes individuals who have produced a body of research notable for its relevance and enduring value to investment professionals, was presented to Ambachtsheer by the CFA Institute.
Ambachtsheer is director of the Rotman International Centre for Pension Management at the Rotman School of Management, University of Toronto, and author of several pension-related books.
He recently garnered headlines by calling for an overhaul of the Canadian pension system. For more information on that story, click here to read Pensions For All.
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Teachers’ Expressed Interest in Website
Teachers’ Private Capital confirms that it made a preliminary approach for Moneysupermarket.com.
But it has no current intention of making an offer for the U.K.-based site, which offers price comparisons on everything from insurance to travel.
Still, Teachers’ reserves the right to make or participate in an offer or possible offer for Moneysupermarket.com within the six months following the date of this announcement in the event that: an agreement or recommendation from the board of Moneysupermarket.com is forthcoming; there is an announcement of an offer or possible offer by a third party for Moneysupermarket.com; or there is a material change of circumstances.