On Thursday the S&P 500 was up 0.5% and Toronto was up 0.6%.
The rate reset preferred share TD.PF.A was up 2.5% to $21.88. It’s up 17% this year to date which is pretty darn good a preferred share. It resets on October 31 and the market may be placing weight of the possibility of it being redeemed then at $25. Its reset spread at 2.24% is on the lower side but it has one of the higher credit ratings.
The Melcor REIT plunged another 9% to $2.73. With a strategic review underway and with its debt I don’t know what a realistic value is on this. Hopefully the decline is just people bailing out. The Alberta economy is reasonably strong and population has been booming. I’m hopeful for a recovery but it’s likely to take some months before there is any clarity. Their Q4 report is due out next week but may not give much information. It seems likely that they will have a write-down on the market value of their buildings due to higher interest rates (higher cap rates – lower values in the market). At last report they seemed to be doing fairly well on leasing space. They may also disclose difficulties in renewing their debt as it matures. To the extent that some of their debt is non-recourse and secured by a particular office building they might even decide to let the lenders foreclose. At their last report they claimed to be close to selling some Saskatchewan properties. That may have fallen through. With two trustees announcing they will leave on March 5 it seems likely that there was a disagreement among Trustees as to the best course of action.
Toll Brothers was up another 2.2%. It often seems to be the case that the best companies keep getting stronger and the weak continue to stumble.
I have my fingers crossed for decent results from Canadian Western Bank. Loan loss provisions can make bank earnings unpredictable. In terms of being a particularly strong or weak company, CWB seems to be somewhere in the middle. If things are not going well then we might expect to hear about some job cuts by attrition if nothing else. They’ve been opening branches in Ontario and making other moves that has added to their costs. They also face relatively high deposit costs such as on GICs. What works much better for them is business chequing accounts that don’t pay much interest on. Last year they were hopeful of luring clients away from HSBC as it gets swallowed up by RBC. I don’t think they have given any update on that. I just listened to their CEO at an investor conference on January 9th. It sounds like Q1 will be steady. Net interest margin should improve but loan and deposit growth will be minimal if any. No indication of bad debt problems. The Bank remains strong and has plans to grow but nothing dramatic for growth. We’ll see what the morning brings as they report earnings and then see how the market reacts.