There have been numerous inquiries as to why many lenders have cut back discounts or entirely cancelled their Variable Rate products. We are seeing continued margin compression in the ARM product and it is becoming more expensive for our wholesalers. The following article discusses also how the banks are back to balancing the pricing according to risk, as well as the attached article which says that although our housing market remains strong, high risk clients are now seeing rates priced accordingly.
· TSX +13.92 The CRTC has conditionally approved the $51.7-billion takeover of BCE, removing another obstacle to the biggest buyout deal in Canadian corporate history.
· Dow -15.37
· Dollar -.15c to $ $98.15US
· Oil prices soared as two big market drivers -- lower than expected fuel inventories and another slide in the U.S. dollar -- had traders buying in force for the first time in a week. Prices rose in a reversal from last week when falling demand for oil and a strengthening USdollar pulled oil down nearly 10 per cent from a record near $112.
· Oil +$1.68 to close at $107.58 US per barrel
· Gold -.20c to $948.80
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html <http://www.bankofcanada.ca/en/rates/bonds.html>
Canada's big banks show humble face as credit crisis wears on
Wed Mar 26, 4:48 PM
By David Friend, The Canadian Press
TORONTO - Canada's biggest banks, cast into gloom after a long period of brilliant earnings, are displaying some humility after months of uncertainty, surprises and writedowns tied to troubled credit markets.
"When you look at the history of banks around the world, they are phenomenal profit machines - except that every five to seven years they figure out a way to blow themselves up and set themselves back," Ed Clark, chief executive of Toronto-Dominion Bank, told an industry conference Wednesday.
"If you can just avoid those errors you in fact have the best investment you can find around the world," said Clark, who heads the only major Canadian bank that has dodged writedowns directly related to the U.S. structured debt turmoil.
Clark was among top bank executives who addressed the issue of the drawn-out impact of the credit crunch at a financial services conference Wednesday hosted by the National Bank
The banking sector has been ravaged by investors worried that problems at international institutions could increasingly ripple into Canada.
The Toronto Stock Exchange financial sector has fallen about 18 per cent from its peak in October, and the troubles of international banks are keeping analysts cautious.
After months of multibillion-dollar writedowns by Citigroup, UBS and other global players, a new research report from Oppenheimer and Co. cut first-quarter profit forecasts for American banks by 84 per cent on average.
"I have been struck by how many wounded players there are out there," Clark said.
"I'm less confident today that this will cure itself quickly. There is a chance that it could happen in the second half, but I think there's equally a chance that it will take the full period of 2008 to cure itself."
However, Bank of Montreal chief executive Bill Downe predicted that summer will bring "a shift back to the focus of people on the future and where the best investment opportunities will be" on the broader market.
"There's enormous stimulus coming in the U.S.," Downe said. "I think maybe the thing to focus on is the combination of the resolution of many of the issues that individual banks have."
The wrenching reduction of asset valuations on international credit markets "was a necessary step," Downe added. "The risk-return balance was not there - we all know that."
Royal Bank CEO Gord Nixon said his bank had some regrets about its approach to credit.
"Are there areas that I wish we stayed away from? Absolutely," he said.
But "being a bank, people forget that we're in the credit business. It is impossible to be a bank or a financial institution and not be long-credit."
He added that despite the market troubles, Royal Bank hasn't given up on exploring the possibility of acquisitions, even if they are probably unlikely at this point.
"I'm not sure that our shareholders would be supportive, even at today's prices and today's economic environment," he said.
"We're certainly spending some time looking at what sort of bolder opportunities might be available out there."
CIBC chief executive Gerry McCaughey kept most of his comments focused on reworking the bank's risk operations, which have come under sharp scrutiny. The bank took the biggest writedowns of Canadian financial institutions, worth nearly $3 billion at the end of the last quarter.
"We've gone through our risk management group, and our risk management policies and practices and we're reviewing all of those to make sure that they're completely up to date with evolving industry practices," he said.
"Over the course of the near future we are going to stay very focused on balance sheet strength, as long as the environment remains as uncertain."
McCaughey also revealed that the bank has a total exposure of US$25 billion to monoline insurers.
The amount was larger than most analysts expected, but it was also more diversified, which suggests CIBC would face less risk if one insurer were to run into trouble, and the bank had to writedown the losses.
The CEO also said that the bank won't consider buying back any shares in the near future.
"The marketplace has shown that there can be surprises out there and I want to make sure that before we engaged in a buyback that we were absolutely certain that we had it down pat," he told analysts.
The current attitude of the bank executives shows that while there's some hope a recovery is near, reality suggests it could take some more time.
"The conditions that they're staring into looking forward are looking quite dismal over the very near term and I suspect that everyone is just waiting with baited breath to see just how low the U.S. economy will swing," said Brad Smith of Blackmont Capital.
"That will obviously have implications for their business by itself. It's not a time to be overly optimistic."
Friday, March 28, 2008
Financial Update
Low supplies, falling dollar spur oil prices again
TORONTO (Reuters) - The Toronto Stock Exchange's main index pushed higher, driven by a resource rally that offset weak financials and jitters surrounding the buyout of telecom company BCE Inc .
TSX Composite Index
Comprises the majority of market capitalization for Canadian-based, Toronto Stock Exchange listed companies. It is the leading benchmark used to measure the price performance of the broad, Canadian, senior equity market. It was formerly known as the TSE 300 Composite Index
· TSX +69.64
· Dow -109.74
· Dollar -.15c to $ $98.15US
· Oil prices soared as two big market drivers -- lower than expected fuel inventories and another slide in the U.S. dollar -- had traders buying in force for the first time in a week. Prices rose in a reversal from last week when falling demand for oil and a strengthening USdollar pulled oil down nearly 10 per cent from a record near $112.
· Oil +.4.68c to close at $105.90 US per barrel
· Gold $14.40 to $949
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html <http://www.bankofcanada.ca/en/rates/bonds.html>
Globe and Mail:
U.S. mortgage tax break has got to go
BARRIE MCKENNA
March 25, 2008
WASHINGTON -- It's the topic no one dares speak of amid all the hand-wringing about the great credit collapse of 2008.
Mortgage deductibility. For many Americans, particularly the wealthy, it's the single largest tax break they get, saving them thousands of dollars and depleting the U.S. Treasury by as much as $100-billion (U.S.) a year.
It also may be a key reason we're in this mess.
Experts have pointed the finger at Alan Greenspan, easy money, mortgage brokers gone wild and the wise guy on Wall Street who figured out how to turn junk mortgages into a triple-A investment.
Too bad. It's a subject that needs to be discussed, as the aftershocks of this U.S.-made credit crunch reverberate around the world.
Most Canadians have no idea how generous this tax break can be, and how distorting it is to the economy, particularly the housing sector.
Think of mortgage deductibility as the kindling that fuelled the credit explosion.
Here's how it works: A taxpayer gets to deduct all interest payments on mortgages worth up to a total of $1-million. And the break doesn't just apply to a primary residence, but also to a second home, a yacht, or even a motor home.
On a $1-million mortgage, the deduction is worth more than $20,000 a year, or more than enough incentive to get that bigger, pricier home.
As if that weren't enough, homeowners can also deduct the interest on a home equity loan up to $100,000 - to buy a car, a big-screen TV or a diamond tiara (if that's what they're into).
The exemption encourages high-income earners to buy as much house as possible, and then to leverage it to the hilt. Ever wonder why so many homeowners opted for risky all-interest mortgages?
Mortgage deductibility encourages overbuilding, oversized homes, higher prices and speculation. It has helped turn Americans into credit junkies.
If the scenario sounds familiar it's because these are the features that marked the housing and credit bubble of the past five years.
Americans greedily gorged on monster homes and vacation condos - overinflating prices and sticking the bill on the U.S. Treasury. Some economists estimate that mortgage deductibility adds as much as 15 per cent to the cost of homes, most notably at the upper end of the price spectrum.
And it's regressive to boot. More than two-thirds of all U.S. taxpayers, including most renters, don't bother to itemize their deductions, typically because they don't earn enough to make it worthwhile. The third who take more than the standard deductions are almost all among the top third of income earners.
Sadly, challenging the merits of the mortgage tax giveaway is tantamount to political suicide. Most Americans consider mortgage deductibility a birthright, like home ownership itself. And a powerful army of lobbyists stands ready to beat back any attempt to end the tax break, including real estate agents, mortgage brokers and home builders.
People have tried. Back in 2005, President George W. Bush appointed a bipartisan panel of experts to look at ways to make the tax code simpler and fairer. Somewhat surprisingly, the group's centrepiece recommendation was a plan to phase out mortgage deductibility. "Why would you want an abnormally large subsidy for people who have abnormally large mortgages?" wondered one panel member, a former commissioner of the Internal Revenue Service.
It was a very good question. But predictably, the report was shelved, where it continues to gather dust.
Last summer, Congressman John Dingell, a Michigan Democrat, tried again, arguing that the mortgage tax break had bred McMansions and wasteful energy spending. His bill quickly fizzled.
In the inevitable post mortem that is sure to follow the current crisis, scrapping mortgage deductibility should be added to a growing reform to-do list.
U.S. authorities should review Wall Street compensation and risk management practices. They need to toughen mortgage lending standards.
And mortgage deductibility must go before the next real estate cycle begins.
We've all paid too high a price.
TORONTO (Reuters) - The Toronto Stock Exchange's main index pushed higher, driven by a resource rally that offset weak financials and jitters surrounding the buyout of telecom company BCE Inc .
TSX Composite Index
Comprises the majority of market capitalization for Canadian-based, Toronto Stock Exchange listed companies. It is the leading benchmark used to measure the price performance of the broad, Canadian, senior equity market. It was formerly known as the TSE 300 Composite Index
· TSX +69.64
· Dow -109.74
· Dollar -.15c to $ $98.15US
· Oil prices soared as two big market drivers -- lower than expected fuel inventories and another slide in the U.S. dollar -- had traders buying in force for the first time in a week. Prices rose in a reversal from last week when falling demand for oil and a strengthening USdollar pulled oil down nearly 10 per cent from a record near $112.
· Oil +.4.68c to close at $105.90 US per barrel
· Gold $14.40 to $949
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html <http://www.bankofcanada.ca/en/rates/bonds.html>
Globe and Mail:
U.S. mortgage tax break has got to go
BARRIE MCKENNA
March 25, 2008
WASHINGTON -- It's the topic no one dares speak of amid all the hand-wringing about the great credit collapse of 2008.
Mortgage deductibility. For many Americans, particularly the wealthy, it's the single largest tax break they get, saving them thousands of dollars and depleting the U.S. Treasury by as much as $100-billion (U.S.) a year.
It also may be a key reason we're in this mess.
Experts have pointed the finger at Alan Greenspan, easy money, mortgage brokers gone wild and the wise guy on Wall Street who figured out how to turn junk mortgages into a triple-A investment.
Too bad. It's a subject that needs to be discussed, as the aftershocks of this U.S.-made credit crunch reverberate around the world.
Most Canadians have no idea how generous this tax break can be, and how distorting it is to the economy, particularly the housing sector.
Think of mortgage deductibility as the kindling that fuelled the credit explosion.
Here's how it works: A taxpayer gets to deduct all interest payments on mortgages worth up to a total of $1-million. And the break doesn't just apply to a primary residence, but also to a second home, a yacht, or even a motor home.
On a $1-million mortgage, the deduction is worth more than $20,000 a year, or more than enough incentive to get that bigger, pricier home.
As if that weren't enough, homeowners can also deduct the interest on a home equity loan up to $100,000 - to buy a car, a big-screen TV or a diamond tiara (if that's what they're into).
The exemption encourages high-income earners to buy as much house as possible, and then to leverage it to the hilt. Ever wonder why so many homeowners opted for risky all-interest mortgages?
Mortgage deductibility encourages overbuilding, oversized homes, higher prices and speculation. It has helped turn Americans into credit junkies.
If the scenario sounds familiar it's because these are the features that marked the housing and credit bubble of the past five years.
Americans greedily gorged on monster homes and vacation condos - overinflating prices and sticking the bill on the U.S. Treasury. Some economists estimate that mortgage deductibility adds as much as 15 per cent to the cost of homes, most notably at the upper end of the price spectrum.
And it's regressive to boot. More than two-thirds of all U.S. taxpayers, including most renters, don't bother to itemize their deductions, typically because they don't earn enough to make it worthwhile. The third who take more than the standard deductions are almost all among the top third of income earners.
Sadly, challenging the merits of the mortgage tax giveaway is tantamount to political suicide. Most Americans consider mortgage deductibility a birthright, like home ownership itself. And a powerful army of lobbyists stands ready to beat back any attempt to end the tax break, including real estate agents, mortgage brokers and home builders.
People have tried. Back in 2005, President George W. Bush appointed a bipartisan panel of experts to look at ways to make the tax code simpler and fairer. Somewhat surprisingly, the group's centrepiece recommendation was a plan to phase out mortgage deductibility. "Why would you want an abnormally large subsidy for people who have abnormally large mortgages?" wondered one panel member, a former commissioner of the Internal Revenue Service.
It was a very good question. But predictably, the report was shelved, where it continues to gather dust.
Last summer, Congressman John Dingell, a Michigan Democrat, tried again, arguing that the mortgage tax break had bred McMansions and wasteful energy spending. His bill quickly fizzled.
In the inevitable post mortem that is sure to follow the current crisis, scrapping mortgage deductibility should be added to a growing reform to-do list.
U.S. authorities should review Wall Street compensation and risk management practices. They need to toughen mortgage lending standards.
And mortgage deductibility must go before the next real estate cycle begins.
We've all paid too high a price.
Financial Update
· TSX had another strong day recovering last week’s losses +302.50
· Dow -16.04
· TORONTO (Reuters) - The Canadian dollar eked out a tiny gain against the U.S. dollar on Tuesday, but fears of a spillover from the U.S. economic slowdown kept it from gaining more traction after domestic retail sales data came in above market expectations.
· Dollar +.05c to $ $98.30US
· Oil +.36c to close at $101.22 US per barrel
· Gold $16.30 to $934.60
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html
Consumer confidence in U.S. at 5-year low
Email the author
March 26, 2008
Eileen Alt Powell
The Associated Press
American consumers are gloomier about the economy than at any point since just before the U.S. invasion of Iraq, as slumping housing prices and soaring fuel costs depress consumer confidence to its lowest level in five years.
The Conference Board, a business-backed research group, said yesterday its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. The March reading was far below the 73.0 expected by analysts surveyed by Thomson/IFR and was the worst reading since the gauge registered 61.4 in March 2003, just ahead of the U.S. invasion of Iraq.
Weakening consumer confidence foreshadows weakening consumer spending, which could hurt the already faltering economy.
Meanwhile, the Standard & Poor's/Case-Shiller home price index released yesterday indicated U.S. home prices fell 11.4 per cent in January, the steepest drop since data for the indicator was first collected in 1987. The latest decline means prices have been growing more slowly or dropping for 19 consecutive months.
The U.S. consumer confidence index has been weakening since July and Lynn Franco, director of the Conference Board's research centre, said further decline was likely. "Consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon,'' she added.
Brian Bethune, chief U.S. financial economist with Global Insight in Lexington, Mass., expects the April confidence reading to be dreary, too.
"We expect overall payroll employment to decline for the third consecutive month . . . and there is no immediate relief in sight for gasoline prices or other energy costs,'' he said in a research note.
That, he said, will mean "real consumer spending will barely creep forward in the first half of 2008,'' depressing the economy.
Economist Bernard Baumohl, executive director of the Economic Outlook Group in Princeton Junction, N.J., said consumers' pessimism "reflects the great anxiety that households have because there are just so many uncertainties that everyone faces.''
He believes the economy fell into recession in the current quarter and that growth probably won't resume until the second half of the year, after government stimulus programs have had a chance to work. These include measures by the Federal Reserve to boost credit markets and the plan by the Bush administration to distribute tax rebates to encourage consumer spending.
The Fed said yesterday it had received bids of $89 billion for $50 billion in short-term loans offered in its latest auction to banks. So far, the Fed has made $260 billion in such loans since December to help ease credit conditions.
Baumohl said government actions should help the economy resume growth later this year, but the recovery could be weak. "Even if we emerge from recession sometime this summer, the second half of the year is going to feel bad. For most people, they won't be able to tell if the economy is growing one per cent or shrinking one per cent.''
The Conference Board said there were steep declines in two companion indexes. The present situation index, which looks at current conditions, slumped to 89.2 in March from 104.0 the month before. The expectations index, which looks ahead, dropped to a 35-year low of 47.9 in March from 58.0 in February. The last time the reading was that depressed was in December 1973, when it registered 45.2 amid the Arab oil embargo and Watergate scandal.
In the expectations appraisal, a growing number of consumers said they expected business conditions to worsen over the next six months. On the labour market, consumers expecting fewer jobs increased to 29 per cent in March from 28 per cent in February, while those expecting more jobs declined to 7.7 per cent from 8.9 per cent.
The Conference Board survey is based on a sample of 5,000 U.S. households
· Dow -16.04
· TORONTO (Reuters) - The Canadian dollar eked out a tiny gain against the U.S. dollar on Tuesday, but fears of a spillover from the U.S. economic slowdown kept it from gaining more traction after domestic retail sales data came in above market expectations.
· Dollar +.05c to $ $98.30US
· Oil +.36c to close at $101.22 US per barrel
· Gold $16.30 to $934.60
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html
Consumer confidence in U.S. at 5-year low
Email the author
March 26, 2008
Eileen Alt Powell
The Associated Press
American consumers are gloomier about the economy than at any point since just before the U.S. invasion of Iraq, as slumping housing prices and soaring fuel costs depress consumer confidence to its lowest level in five years.
The Conference Board, a business-backed research group, said yesterday its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. The March reading was far below the 73.0 expected by analysts surveyed by Thomson/IFR and was the worst reading since the gauge registered 61.4 in March 2003, just ahead of the U.S. invasion of Iraq.
Weakening consumer confidence foreshadows weakening consumer spending, which could hurt the already faltering economy.
Meanwhile, the Standard & Poor's/Case-Shiller home price index released yesterday indicated U.S. home prices fell 11.4 per cent in January, the steepest drop since data for the indicator was first collected in 1987. The latest decline means prices have been growing more slowly or dropping for 19 consecutive months.
The U.S. consumer confidence index has been weakening since July and Lynn Franco, director of the Conference Board's research centre, said further decline was likely. "Consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon,'' she added.
Brian Bethune, chief U.S. financial economist with Global Insight in Lexington, Mass., expects the April confidence reading to be dreary, too.
"We expect overall payroll employment to decline for the third consecutive month . . . and there is no immediate relief in sight for gasoline prices or other energy costs,'' he said in a research note.
That, he said, will mean "real consumer spending will barely creep forward in the first half of 2008,'' depressing the economy.
Economist Bernard Baumohl, executive director of the Economic Outlook Group in Princeton Junction, N.J., said consumers' pessimism "reflects the great anxiety that households have because there are just so many uncertainties that everyone faces.''
He believes the economy fell into recession in the current quarter and that growth probably won't resume until the second half of the year, after government stimulus programs have had a chance to work. These include measures by the Federal Reserve to boost credit markets and the plan by the Bush administration to distribute tax rebates to encourage consumer spending.
The Fed said yesterday it had received bids of $89 billion for $50 billion in short-term loans offered in its latest auction to banks. So far, the Fed has made $260 billion in such loans since December to help ease credit conditions.
Baumohl said government actions should help the economy resume growth later this year, but the recovery could be weak. "Even if we emerge from recession sometime this summer, the second half of the year is going to feel bad. For most people, they won't be able to tell if the economy is growing one per cent or shrinking one per cent.''
The Conference Board said there were steep declines in two companion indexes. The present situation index, which looks at current conditions, slumped to 89.2 in March from 104.0 the month before. The expectations index, which looks ahead, dropped to a 35-year low of 47.9 in March from 58.0 in February. The last time the reading was that depressed was in December 1973, when it registered 45.2 amid the Arab oil embargo and Watergate scandal.
In the expectations appraisal, a growing number of consumers said they expected business conditions to worsen over the next six months. On the labour market, consumers expecting fewer jobs increased to 29 per cent in March from 28 per cent in February, while those expecting more jobs declined to 7.7 per cent from 8.9 per cent.
The Conference Board survey is based on a sample of 5,000 U.S. households
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