E Raising Money In Canada

News that venerable US blue-chip AT&T plans to raise money in Canadian markets has led me to look into Mounty preferreds. Canada specializes in floating rate and rate-reset preferred shares which shelter buyers from the impact of higher interest rates. FR preferreds payouts rapidly move with overnight interest (or prime) rate as set by the Bank of Canada (their central bank). This protects you from higher interest rates which normally chop the value of a bond or preferred share when the prime rate rises.

Rate-reset preferreds also change their interest rates but only on a fixed reset data, also called the call date, when the issuer of the bonds also can call or redeem them. Unlike FR preferreds, the change in rates is not automatic and is normally set based on a fixed spread on the 5-year Government of Canada bond. The spread over the GoC bond rate is fixed and goes up when rates rise.

Of course, for now, Saudi investors will not be allowed to buy in Canada but that should unwind soon.

Financials

*Finnish Sampo Oij reported H1 results in euros which came in at 1.153 bn, up from euros 865 mn a year ago, in part thanks to a non-recurring item, the payment of euros 167 mn from Mandatum''s deal with Danske Bank.

But even leaving out the one-off this was a big jump because of good sales and combined ratio in its insurance business. The latter ratio fell to 85.8 from 86.5 last H1. Lower is better.

Its portfolio holdings actually lost value at euros 679 mn this year to date, vs euros 821 mn last year. EPS, however, rose to euros 1.68/sh from 1.34 because of buybacks.

Mark-to-market eps was euros 1.14, down from 1.47 in H1 2017 mainly because of low-interest rates. In euros, the level rose from 1.34/sh to 1.68.

Group return on equity was also down, to 10.2% from 14.1%. Net asset value per share closed the half at euros 21.57 vs euros 25.37/sh a year earlier. The main cause of these moves was the lower euro exchange rate against the dollar and lower yields Sampo raised its debt to euros 3.535 bn from prior midyear level of euros 3.177 bn while chopping other interest-bearing assets which cost more in Britain.

Before tax profits were euros 415 mn, up from 401 mn. Insurer Topdanmark (now consolidated) accounts for a quarter of the total vs 12% before consolidation last year.

Nordea also did well, producing net to SAXPY of euros 388 mn vs prior year's 322 mn. Sampo owns 21.2% of Nordea stock on which it has made good gains. Here the fear is that business may suffer from trade wars and other global uncertainty.

Sampo CEO Kari Stadigh said he expects Sampo businesses to report good operating results for the rest of the year. He said Nordea's contribution to “group profits is expected to be significant.” However, SAXPY also warned that low levels of P&C claims in H1 were the result of dry weather cutting damage claims in the Nordic region which since then has suffered floods and fire.

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