Fidelity Brokerage Interference with Customer Trading Opportunities/Sold 1/2 PBIB for a Loss/Added 50 GFW at 24.9 and 50 KTV at 25.85 in Regular IRA/Sold 120 NWSA at 14.83

Some readers may be interested in Fidelity's response to my email protesting their latest prohibitions on the purchase of certain exchange traded bonds. Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP

" I am sorry to hear that you are not able to trade many of the securities that you have so much experience with. Due to the low level of understanding by the majority of our customers, you are correct that many of the structured products have been restricted from trading with Fidelity. This policy is under review and I will pass along your feedback to make sure our executives are aware of your opinion. 

In regards to DFP and other products that aren't structured/packaged, you may be able to trade these, but it may need to be done by phone. You can contact our Fixed Income Department directly to place these orders at 800-544-5372 during market hours."

Now, isn't it just absurd that I have to call their fixed income department to trade an exchange traded bond like DFP, which is just a baby bond that is traded like a common stock?   That is just bizarre to me and it suggests that other reasons underlie the prohibitions which involve the profitability of these lightly traded issues to Fidelity rather than the interests of their customers.   Their actions are without question contrary to my interests, where a significant number of trades in the now prohibited securities have netted me substantial percentage gains.  

This was LB's reply, who is not known for tolerating fools or those who interfere for no good reason in the implementation of one of its strategies: 

"I have already set in motion a transfer of my Roth IRA account to another brokerage firm, since I am tired of being restricted from purchasing easy to understand exchange traded bonds. I find your policy to be unreasonable. The prohibitions enacted by Fidelity extends to simple exchange traded bonds, such as the fixed coupon trust certificate JBK and the junior bond issue from Delphi Financial DFP, in addition to the synthetic floaters and the exchange traded principal protected notes. If Fidelity puts one more exchange traded bond on its shit list, I will transfer my much larger account to a brokerage firm that is more interested in my business without giving you an opportunity to be reasonable. That account generates about 10 thousand a year in commissions for Fidelity. I will not tolerate one more exchange traded bond being put on your no buy list. Of course, I do not believe that the purported reason given has anything to do with the announced prohibitions. The synthetic floaters are no harder to understand than say the floating rate equity preferred stocks, such as METPRA, which you allow me to trade at least for now. The lost of my Roth IRA account will cost Fidelity about $1200 per year in commissions, most likely for at least the next thirty years since I will not need my retirement accounts ever. I recently did some Roth IRA conversions to minimize the importance of the regular IRA account which I will leave with Fidelity until I decide to move the main taxable account."

I doubt that anyone at Fidelity even knows that JBK is no longer a synthetic floater after the swap agreement with Lehman was terminated after it filed for bankruptcy.    


I do wonder who came up with the idea that a majority of online brokerage customers have to fully understand a security before any customer can trade it.  That is certainly a novel idea.  I was thinking that Fidelity needs to select 100 of their retail customers at random, send them to HQ, and have each of them cross examined by our LB for two or three hours about their security selections, just to determine whether a majority of them understand the potential risks of their investments.  The end result would no doubt be an expansion of Fidelity's no buy list to include about 99% of the common stocks traded on the NYSE. 


Is a synthetic floater that pays the greater of a guarantee or a percentage above a short term rate harder to understand than an equity preferred stock (lower in priority) that pays the greater of a guarantee or a percentage above a short term rate?   Is GSPRA more or less safe than GYB? Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Synthetic Floaters


There are tax reasons why I buy synthetic floaters and some principal protected notes only in a retirement account, and the Roth IRA is by far now the most important retirement account.  Since Fidelity was denying me the opportunity to manage that account in an appropriate manner, I have just fired that firm and moved the Roth to another brokerage company.   

I spent a few minutes copying some of my 2010 trading information on some of the synthetic floaters in my retirement accounts, which just shows the trading profit, as well as some 2010 trades for DFP and JBK:

JBK 2010 Taxable Account

PYT 2010 ROTH IRA

DFP 2010 ROTH IRA

DFP 2010 TAXABLE

GJL GJP GJS GYB 2010 ROTH IRA

GJN GYB 2010 REGULAR IRA

 2. SOLD 120 NWSA at $14.83  (SEE DISCLAIMER):  I am really not optimistic about the potential for stocks in 2011.  I hear antidotes  frequently now from investors who use brokers who are advising them to sell bonds and to buy stocks.    Maybe stocks will do okay in the first quarter of 2011 and bonds will continue to be led lower by the declines in treasury bonds.   I suspect that 2011 will be a down year for both bonds and stocks.


I last mentioned buying shares of News Corp, the NWSA shares, back in 2008 at $6.88.   This company pays a negligible dividend, around 1% at the current price.  I am currently substituting income securities for some of my common stocks that pay no or miniscule dividends.  By increasing cash flow, I will have more funds to invest in 2011 as opportunities arise, either in bonds or stocks or both.  


3. BOUGHT IN REGULAR IRA 50 GFW at 24.9 and 50 KTV at 25.85 (see Disclaimer):  These two trades brought me down to less than $100 in my regular IRA account which has been depleted by a series of Roth IRA conversions since October 2008.  I do not plan to make another trade in that account for the 1st half of 2011.    Some of the securities remaining in that account include purchases of INZ at 7.82, AEH at  $4.63, KTN at  $14, PKM at a total cost of $17.76, and METPRA below at a total cost of $13.26 before starting this blog: 

So, I am just going to leave this alone.  KTN went ex interest yesterday.  It is one of those rare TCs that do not have a call warrant attached to it. 


The add of 50 GFW brings me to my limit of 200 shares of this senior bond.  I have bought the other 150 shares recently and have nothing to add to those discussions.   Bought 50 GFW at $24.82 Bought 50 GFW @25.04 Bought 50 GFW at 22.76 Bought 50 GFW at 22.63 Sold 50 GFW at 25.13


Prospectus: Final Prospectus Supplement  My current yield for the shares purchased yesterday will be close to 7.5% coupon since par value is $25.


Exchange Traded Bonds:


I have not purchased the TC KTV for a long time. I still own shares bought at under $18.  This TC contains as its underlying security a trust preferred security originally issued by First Union, later acquired by Wachovia.  And Wachovia is not part of Wells Fargo.   Trust Preferred Securities: Links in One Post


Prospectus:  www.sec.gov


The TP originally from First Union has the same ratings now as TPs originally issued by Wells Fargo.  The ratings can be found at  Wells Fargo Bank.


A list of WFC's trust preferred and equity preferred stocks, along with information about each of them, can be found at  Wells Fargo - Investor Relations - Preferred Stock Information.


The First Union TP that is the underlying security in KTV has a 8.04% coupon and was issued by First Union Institutional Cap I.  It matures on 12/1/2026.  Interest payments are made semi-annually with the record dates on 5/15/ and 11/15.


The KTV coupon is higher than the underlying bond at 8.2%, which gives me a current yield of 7.93%.  This is significantly higher than the Wells Fargo TPs that are exchange traded securities. And KTV has a shorter maturity.


KTV also has some call protection based on the following schedule:

"Where the  Underlying  Capital  Securities are redeemed due to an Optional
Redemption,  the  Certificates  will  be  redeemed  according  to the  following
redemption price:

                                                       Redemption Price
      Date                                              per Certificate

      December 1, 2006  to    November 30, 2007            $26.52
      December 1, 2007  to    November 30, 2008            $26.42
      December 1, 2008  to    November 30, 2009            $26.31
      December 1, 2009  to    November 30, 2010            $26.21
      December 1, 2010  to    November 30, 2011            $26.11
      December 1, 2011  to    November 30, 2012            $26.01
      December 1, 2012  to    November 30, 2013            $25.90
      December 1, 2013  to    November 30, 2014            $25.80
      December 1, 2014  to    November 30, 2015            $25.70
      December 1, 2015  to    November 30, 2016            $25.60
      December 1, 2016 and thereafter                      $25.49"

Page S-14, www.sec.gov 

Since par value is $25, I have a lower YTM than my current yield. 

4. Sold 52 shares of PBIB at $10.18 for a loss (Regional Bank Stocks' basket strategy)(see Disclaimer): My purchase of Porter Bancorp (PBIB) was clearly a mistake in retrospect.  Besides being my only significant loser in the regional bank basket, the OG violated the cardinal rule, pronounced by Headknocker, to avoid buying stocks where the cockroach infestation has been seen.  I  sold 50 PBIB at 14.7, at a small profit,  after seeing evidence of those cockroaches.   Item # 6 PBIB. 

The following is my comments made that justified the disposal of my position at $14.7:

 "Porter was rightfully downgraded to market perform from outperform by Keefe Bruyette based on Porter's 4th quarter results released after the market closed on Friday. A summary of the rationale for the downgrade can be found at StreetInsider. Possibly the management of this small bank sandbagged investors by waiting until Friday afternoon to release this earnings report which recognizes losses that possibly needed to be acknowledged sooner. (The nonperforming loans increased 58.6 million in the quarter to 84.9 million.) This is a quote from the earnings release giving the CEO's song and dance routine explaining the tremendous jump in nonperforming loans in the last quarter: "We took a more aggressive stance in reviewing our loan portfolio at year-end in light of the heightened regulatory scrutiny in the current environment and the prolonged weakness in the economy coupled with our concentration of real estate loans and the economy’s impact on real estate values." The 3 cent loss was a huge miss from the 44 cents expected by the analysts. Reuters.com Due to my concerns about management's credibility at this time, which is currently nil, Porter is a candidate for the chopping block (the "Wilmington Exception" to the Regional Bank Strategy), but I will wait to see if there is a dividend cut before making a decision."

Unfortunately, the Old Geezer can sometimes be sucked into a representation made by management, as his mind has turned to a gooey mush, unlike our LB who has never been fooled by anyone including the Masters of Disaster who pride themselves on all forms of chicanery.  So after receiving public assurances from the President of Porter, the OG bought back some shares at 13.27.   Well, it has been downhill since then.   Porter recently slashed its dividend to just one cent per quarter.   www.sec.gov  The last earnings report for the Q/E 9/30/2010 showed an E.P.S. of 17 cents, down from 46 cents in the year earlier period.Form 10-Q   Porter has not yet redeemed the government's preferred stock but did sale common and convertible preferred stock in a private placement,   Form S-3, at prices that I view as dilutive to long term shareholders (see five year chart at Porter Bancorp, Inc. Stock Chart | PBIB). 

Notwithstanding the foregoing, I will keep the remaining 55 shares based on the hope that some other bank will put Porter's shareholders out of their misery by acquiring it.