Financial Update

A "Santa Claus" rally has become a Toronto Stock Exchange tradition, however it remains to been seen if the economic "Grinch" will steal Christmas this season.

· TSX+126.55pts (Reuters)
· DOW -25.88pts
· Dollar -1.11c to $81.77US.
· Oil -$2.35 to $33.87US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$23.20 to $836.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Restructuring plan approved for asset-based commercial paper Gary NorrisThe Canadian Press The 16-month-long nightmare in Canada's asset-backed commercial paper market appears finally to be at an end, thanks to a multibillion-dollar taxpayer guarantee.

The federal government and the governments of Ontario, Quebec and Alberta have agreed to "partner'' in supporting a restructuring of $32 billion worth of ABCP not issued by Canada's big banks.

Federal Finance Minister Jim Flaherty announced yesterday that Ontario and Quebec had agreed to help, and an Alberta Finance Ministry spokesperson said a few hours later that the province "has decided to do its part to support this agreement.''

The governments did not specify the size of the "senior funding facility'' they will provide to backstop what has become known as the Montreal accord.

But Flaherty said the deal will enable investors and commercial-paper issuers to "achieve a stable and effective restructuring agreement'' which "will protect financial stability and the health of Canada's financial markets.''

A Finance Department spokesperson said the size of the public support and other details would be released "later.''

The government had been approached for a guarantee of $9.5 billion.

"Unless someone does something totally irrational, there should be a deal,'' Colin Kilgour, an independent consultant to corporate holders of the frozen paper, said after Flaherty's announcement.

He added that the taxpayer commitment is probably close to the $9.5 billion proposed by a blue-ribbon committee toiling to untangle the mess.

Banks are trying, but can't do it all, association says The Canadian Press Big banks can't reignite the lending market on their own, despite government suggestions to the contrary, the head of the association for Canada's financial institutions said yesterday.

Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association, agreed that many sources for lending have been pulling back in the wake of the global credit crunch that has rocked financial markets around the world.

"Banks are working to fill the gap,'' she wrote in a statement, as Finance Minister Jim Flaherty stepped up the pressure on the banks to loosen up their lending practices to help revive the battered economy.

"But banks don't have the capacity to do it all.''

Bank of Canada governor Mark Carney and Flaherty are scheduled to meet with chief executives from the country's big banks in January to get an update on their lending practices.
"I expect (the banks) to make it evident to us that they are taking steps to make that more available in Canada,'' Flaherty said at a news conference yesterday in Saskatoon, where he was holding pre-budget meetings.

On Wednesday, Carney also urged the banks to pump more credit into the economy and he called on financial institutions to build up capital in good times and draw on it in bad -- the opposite of what is now occurring as bankers become more risk-averse in a shrinking economy.
The two sides are increasingly clashing over how much responsibility the banks should have toward the broader economy.

While the recession is worsening because of mounting plant closures and workers' rising job insecurities across the country, credit is also drying up, preventing companies from raising capital to invest and expand and consumers from buying cars, houses and other big-ticket items.
"It's a real tug of war that's going on,'' said Patricia Croft, chief economist and vice-president of Phillips Hager and North, a Vancouver-based money manager acquired by the Royal Bank earlier this year.

Croft said that banks and businesses are stuck in a "negative feedback loop,'' which might be more commonly known as a vicious circle: banks are reluctant to lend, which means that businesses cut back on capital spending, resulting in job cuts. That makes consumers spend less and default on credit payments, which in turn causes the banks to become even more reluctant lenders.

Happy Holidays!