Who's steering the auto industry now? See article at bottom
• TSX-224.84 the rally that has sent equities surging for most of this month ground to a halt amid a jolt of worry over GM and Chrysler may be forced into bankruptcy after the U.S. government said the plans they've submitted are not acceptable to receive more federal bailout money.
• DOW -254.16.
• Dollar -1.56c to 79.25USD
• Oil -$3.97 to $48.41US per barrel.
• Gold -$7.70 to $915.50USD per ounce
• Canadian 5 yr bond yields -.09bps to 1.79
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Mortgage brokers find a larger niche
Buyers Market; Field widens as competition from banks fades away
Derek Sankey, Canwest News Service Published: Monday, March 30, 2009
More than a decade ago, Bob Alexander was working as a professional accountant when he walked into a bank to get a mortgage. When he got turned down, he was completely baffled.
"My friend told me I should go see a broker," Mr. Alexander says. It was a perception that was prevalent at the time: Mortgage brokers were seen as the place you went when the banks turned you down.
Mr. Alexander went to see a broker, secured a mortgage and bought a home. He was so intrigued by this often-misunderstood field that he decided to switch careers and become a broker himself.
"Ten or 15 years ago, mortgage brokers used to be the lenders of last resort," says Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals (CAAMP), the organization that certifies the AMP designation.
"The mortgage broker channel has grown enormously," Mr. Murphy says. "I think the consumer sees it in a much more positive light."
In fact, about 30% of all mortgages in Canada today are secured through mortgage brokers, according to a study from CAAMP. There are 3,800 certified professionals with the AMP designation working across Canada.
When CAAMP introduced the certification four years ago, Mr. Alexander-- whose been a broker for eight years now -- decided to earn his designation.
Banks used to compete directly with brokers, using their own sales forces to go out and source new leads. The brokers, meanwhile, would charge their own clients a fee to find them a mortgage.
Now, most banks have chopped those sales forces and instead enjoy a more mutually beneficial deal with brokers, who no longer charge the client a fee.
Mr. Alexander, like other AMP brokers, provides his services free to the client. The lending institution pays him a finder's fee based on the size and type of the mortgage he secures for his clients.
"Lenders out there realize it was actually more efficient to get rid of their in-house sales force and use an independent person like myself to source their leads," says Mr. Alexander, who works for Canada Mortgage Direct in Calgary. "The finder's fee I'm paid is roughly the same across all lenders, so I'm not incented to take you to Lender A over Lender B."
No longer are brokers seen as the last resort, but just another player in the market working to find you a competitive mortgage. It's important for clients to know they're dealing with someone qualified and experienced.
The AMP designation requires two years of industry experience, an entry-level certification course plus 10 hours of continuing education every 12-month cycle to remain current.
"It's really important because a mortgage is the biggest financial investment most people will make in their lives, so they want to make sure the [broker] is knowledgeable, trained, knows the issues and the market and is able to give the consumer good advice," Mr. Murphy says.
Since brokers such as Mr. Alexander have access to 40 lenders offering upward of 400 different products, the field has evolved in recent years to become a viable option for anybody seeking a competitive mortgage. While he works with the big five banks in Canada, he also taps into other lending institutions such as First National Financial LP and Australian based lending giant Macquarie Financial (Canada) Ltd.
When anybody walks into Mr. Alexander's office, his job is to match your credit level -- A, B, C, or D-- with an appropriate lender that caters to the same type or types of customers.
What has changed in recent months, due to the economic recession, is there are fewer Dlevel lenders around, especially the U. S. banks that ventured north prior to the subprime market collapse last year.
"As a result of the U. S. subprime fallout, a lot of the Dlevel lenders have vanished," Mr. Alexander says. "A lot of fringe clients are finding it much more difficult to get a mortgage than [it was] two years ago."
Even some of the A-level lenders now require more documentation and verification than previously. "We've seen a general tightening [of credit] right across the board," he says.
Mr. Murphy says in any kind of economy, it's important for potential homebuyers to realize -- and utilize -- the new brand of mortgage professional.
Mr. Alexander agrees, but cautions people to do a little research, make sure they're comfortable with the person across the table and ask questions. "The first thing you should do is look for someone with that AMP designation," he says
Who's steering the auto industry now?
GM, Chrysler get last crack at fixing business
Nicolas Van Praet and Paul Vieira, Financial Post
After 100 years of building Corvettes and Wranglers, billions of dollars lost, and hours of committee hearings trying to explain to politicians how it all went so wrong, General Motors Corp. and Chrysler LLC will get one last crack at fixing the mess they find themselves in. Otherwise, a bankruptcy judge will do it for them.
The Canadian and U.S. governments Monday rejected pleas from GM and Chrysler for as much as US$32-billion in new loans to keep them alive through the worst auto industry crisis since the Great Depression, vowing instead to back the companies with temporary aid and demanding they make more drastic changes or allowing them to be pushed into bankruptcy court by June.
Canada will provide the carmakers with $4-billion in bridge loans. The United States, which has already given the companies US$17.4-billion, will fund their working capital as they scramble to meet their new deadlines for cutting costs. It will also guarantee warranties for GM and Chrysler vehicles in the United States to ease the fears of consumers shunning the companies.
"Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us," U.S. President Barack Obama said at the White House. "Well, we have reached the end of that road."
The government cannot let the auto industry vanish, Mr. Obama said. But he said it cannot continue to excuse poor decisions.
"What we are asking is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts."
GM will now have 60 days to develop a more aggressive viability plan under new management. That may include shutting more plants, further consolidating its brands, and slashing more debt. The company also has to win new agreements with unions in both Canada and the United States on lowering health care and retiree costs.
GM chairman and chief executive Rick Wagoner, who has steered the automaker to US$82-billion in losses over the past four years, was ousted. Mr. Obama said it will take "new vision and new direction" to create the GM of the future. Current chief operating officer Fritz Henderson will take over as CEO.
"We need to do more and do it faster," Mr. Henderson told reporters yesterday.
Taxpayer support for a rescue of the Detroit manufacturers was tepid at best. Analysts said the U.S. President needed to show he was pushing for tough change at the companies. Sacrificing Mr. Wagoner, the industry's top CEO, was a symbol that all stakeholders need to get serious about working toward a solution.
"In the end, this is less of an indictment of [Mr. Wagoner's] tenure as CEO and more about the political need for a scapegoat before unpopular loans could be offered," said Jeremy Anwyl, chief executive of auto research firm Edmunds.com.
Chrysler's CEO, Robert Nardelli, was not asked to step down. But the automaker is on a tighter leash. It has 30 days to finalize a partnership with Italian automaker Fiat SpA guaranteeing that Fiat build fuel-efficient cars and engines in the United States. The president's auto task force concluded that Chrysler, whose lineup is heavily weighted towards trucks, does not have the scale or product mix necessary to compete on its own.
If the Fiat deal fails, "the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities," the task force concluded in its report.
U.S. auto sales have fallen to levels not seen in 30 years, starving the carmakers of the revenue they need to fund their restructuring. To help drive sales, Mr. Obama said the Internal Revenue Service will launch a new program allowing some new car buyers to deduct sales and excise taxes. Washington will also consider implementing a program to pay consumers to trade in their old clunkers.
The Canadian and Ontario governments have pledged to help GM and Chrysler in order to protect Canada's roughly 20% share of their continental assembly volume. On Monday, they committed $3-billion for GM and $1-billion for Chrysler, the same amounts as the yet-unused loans they first promised in December. A financing deal for Chrysler is to be completed Monday, and will see a $250-million tranche forwarded immediately. A pact with GM is to follow shortly, federal officials said.
"Very clearly if the money had not been forwarded today, they would not have been able to meet payroll today or tomorrow," federal Industry Minister Tony Clement said. "We were faced with this choice of a disorderly bankruptcy where" the companies' factories could have been "ripped up from Canadian soil."
Like the United States, Canadian political leaders also demanded the companies come up with new credible restructuring plans that contain more fundamental change.
"As it stands, neither company is "viable going forward," based on the business plans they have shared with Ottawa, government officials said. Canada set the same deadlines for presenting the plans as the United States.
The loans for both companies will carry an interest rate no less than 5%. Ottawa will receive an interest-bearing note in return.
The money is to be used exclusively to finance operations, and cannot be used to pay back taxes. That is an issue for the privately-held company Chrysler, which is in a $1-billion tax dispute with the Canada Revenue Agency.
Getting all stakeholders to agree to further painful cuts in such a short period of time could prove an impossible task. Mr. Obama and his closest advisors are said to favour bankruptcy as the best way out. They are working on a scenario that would let both GM and Chrysler use creditor protection to cast off the most onerous parts of their business while the good parts survive.
A committee representing GM's bondholders, many of whom are average retail investors, said Monday the lenders were committed to finding a solution in which GM "emerges a leaner, more competitive entity." But they have said the terms imposed on them previously – swapping two-thirds of its US$27-billion in debt for equity and new bonds – were too onerous. New terms could prove even more unacceptable.
Talks with dealers and unions are equally complex.
GM owes the United Auto Workers union US$20-billion for their retiree medical benefits. The automaker is trying to work out an agreement that would offer the union US$10-billion in cash over 20 years and $10-billion in stock. Chrysler is trying to strike a similar deal.
In Canada, getting the Canadian Auto Workers onside will prove key.
CAW President Ken Lewenza said his union will not reopen a new labour contract negotiated with GM earlier this month because wages and compensation for current CAW factory workers are competitive and don't need to be changed. He added that he is nevertheless open to discussing retiree health care and pension and other legacy costs with the government and the company outside the bargaining process. The CAW is still looking to strike a separate labour deal with Chrysler Canada in the next few days providing the company is willing to negotiate, Mr. Lewenza said.
"I'm shocked at what's happened in the last 24 hours," Mr. Lewenza said. "We are pawns in a bigger drama."
Jim Flaherty, the Finance Minister, said he hopes Mr. Lewenza understands what's at stake. "This is very serious," he said. "This is about saving thousands of jobs in Ontario and in Canada. We want to save those jobs."
Tuesday, March 31, 2009
Monday, March 30, 2009
Financial Update for March 30, 2009
If market history is any guide, stock rally may extend into April
Historical data support hopes for a near-term continuation of the run-up ignited March 10 when American financial services giant Citigroup said it was profitable in the first two months of the year. Andrew Pyle, a wealth adviser at ScotiaMcLeod in Peterborough, said as of last week the market has matched the average percentage gain of a bear market rally since the late 1930s.
"It doesn't mean you can't have above average but we had already hit average. And the biggest rally that we have ever seen is about 62 per cent -- so clearly, we could keep going,'' Pyle said. U.S. markets also had another remarkable week, although indexes veered into negative territory Friday as investors took some profits.
• TSX-174.44 as traders took profits from an exuberant rally which is into its third week. This still leaves the main Toronto index up 16.5% since the market's rally took off March 10
• DOW -148. up almost 19% since the start of the rally, which has been prodded along by better-than-expected U.S. economic indicators ranging from home sales to durable-goods orders.
• Dollar -.56c to 80.81USD
• Oil -$1.96 to $52.38US per barrel.
• Gold +$16.60 to $923USD per ounce
• Canadian 5 yr bond yields +.02bps to 1.90 Four weeks ago it was at 2.10
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Obama gives GM its bailout
White House asks CEO Rick Wagoner to resign as part of executive shakeup in auto industry
TONY VAN ALPHEN
THE CANADIAN PRESS
The White House plans to announce today that it will give General Motors Corporation enough government aid to restructure over the next 60 days, sources say, while Chrysler will get up to 30 days to complete an alliance with Italian automaker Fiat SpA.
News of the bailout plan came just hours after GM's chair and CEO, Rick Wagoner, resigned at the request of the Obama administration.
U.S. President Barack Obama's plan includes U.S. government backing of warranties for GM and Chrysler vehicles to give consumers confidence.
GM, the world's second biggest automaker after Toyota, and Chrysler are currently operating on a $17.4-billion US lifeline of government loans after an industry crash in sales over the last year that has left the automakers starving for cash.
GM had sought an additional $16.6 billion, while Chrysler wants another $5 billion to help them through the worst sales slump in the U.S. in more than a quarter of a century.
The Canadian Auto Workers head said Wagoner's resignation makes workers in this country nervous.
Analysts said Wagoner's resignation raises fears that concessions by stakeholders including workers, suppliers and bondholders will increase because the Obama administration wants to make sure the restructurings work and that taxpayers don't lose their investments in the companies.
Wagoner has faced increasing political pressure to step down as part of a broader industry executive shakeup as a condition of receiving billions of dollars in additional public loans.
U.S. administration officials confirmed Wagoner's departure. But GM did not address it in a brief statement last night that said the company will wait for the U.S. government's restructuring announcement.
Obama said in a broadcast earlier yesterday that GM, Chrysler LLC and other stakeholders still need to take bigger steps so they can gain further public aid and survive.
"They're not there yet," Obama said.
"We think we can have a successful U.S. auto industry," Obama told the CBS program Face the Nation. "But it's got to be one that's realistically designed to weather this storm and to emerge -- at the other end -- much more lean, mean, and competitive than it currently is."
Obama added the U.S. government would require a "set of sacrifices" from all industry players from managers, dealers, bondholders, workers and suppliers.
"Everybody's gonna have to come to the table and say it's important for us to take serious restructuring steps now in order to preserve a brighter future down the road."
In Canada, GM has requested more than $6 billion (Cdn) from the federal and Ontario governments. Chrysler is asking for almost $3 billion.
The two automakers hoped to submit survival plans to the governments tomorrow but Chrysler and the Canadian Auto Workers remain in a deadlock in negotiations on labour cost cuts.
Ottawa has indicated that it would give Chrysler more time if the government sees progress in those talks.
The federal and provincial governments are also holding a noon news conference to provide updates on restructuring efforts in Canada in view of the release of Washington's plan for the industry.
"We've said whatever the United States government is ultimately going to do, we're prepared to do our 20 per cent share because we have 20 per cent of the industry," Prime Minister Stepher Harper told Reuters in an interview yesterday.
"And we've been working daily with the American administration to ensure we're on the same page."
"I'm certainly very confident that the Obama administration is going to require the automobile manufacturers and their stakeholders to make the difficult decisions necessary so that any government support will be successful and will create a viable industry," said Harper.
Despite recent rumblings that further U.S. aid would be conditional on major upheaval, including the executive ranks, Wagoner's departure stunned many industry officials.
"I'm really shocked," said Ken Lewenza, president of the Canadian Auto Workers. "I hope this doesn't divert attention from the paramount goal of getting this industry on its feet at this critical time."
Lewenza also questioned whether it was a good move because of Wagoner's experience and knowledge of the industry. Wagoner, 56, has led GM Corp as CEO since 2000.
While admitting past mistakes, Wagoner has driven the company hard in cutting costs and shifting to hybrids models and electric cars from big trucks and sport utility vehicles in the last two years.
Historical data support hopes for a near-term continuation of the run-up ignited March 10 when American financial services giant Citigroup said it was profitable in the first two months of the year. Andrew Pyle, a wealth adviser at ScotiaMcLeod in Peterborough, said as of last week the market has matched the average percentage gain of a bear market rally since the late 1930s.
"It doesn't mean you can't have above average but we had already hit average. And the biggest rally that we have ever seen is about 62 per cent -- so clearly, we could keep going,'' Pyle said. U.S. markets also had another remarkable week, although indexes veered into negative territory Friday as investors took some profits.
• TSX-174.44 as traders took profits from an exuberant rally which is into its third week. This still leaves the main Toronto index up 16.5% since the market's rally took off March 10
• DOW -148. up almost 19% since the start of the rally, which has been prodded along by better-than-expected U.S. economic indicators ranging from home sales to durable-goods orders.
• Dollar -.56c to 80.81USD
• Oil -$1.96 to $52.38US per barrel.
• Gold +$16.60 to $923USD per ounce
• Canadian 5 yr bond yields +.02bps to 1.90 Four weeks ago it was at 2.10
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Obama gives GM its bailout
White House asks CEO Rick Wagoner to resign as part of executive shakeup in auto industry
TONY VAN ALPHEN
THE CANADIAN PRESS
The White House plans to announce today that it will give General Motors Corporation enough government aid to restructure over the next 60 days, sources say, while Chrysler will get up to 30 days to complete an alliance with Italian automaker Fiat SpA.
News of the bailout plan came just hours after GM's chair and CEO, Rick Wagoner, resigned at the request of the Obama administration.
U.S. President Barack Obama's plan includes U.S. government backing of warranties for GM and Chrysler vehicles to give consumers confidence.
GM, the world's second biggest automaker after Toyota, and Chrysler are currently operating on a $17.4-billion US lifeline of government loans after an industry crash in sales over the last year that has left the automakers starving for cash.
GM had sought an additional $16.6 billion, while Chrysler wants another $5 billion to help them through the worst sales slump in the U.S. in more than a quarter of a century.
The Canadian Auto Workers head said Wagoner's resignation makes workers in this country nervous.
Analysts said Wagoner's resignation raises fears that concessions by stakeholders including workers, suppliers and bondholders will increase because the Obama administration wants to make sure the restructurings work and that taxpayers don't lose their investments in the companies.
Wagoner has faced increasing political pressure to step down as part of a broader industry executive shakeup as a condition of receiving billions of dollars in additional public loans.
U.S. administration officials confirmed Wagoner's departure. But GM did not address it in a brief statement last night that said the company will wait for the U.S. government's restructuring announcement.
Obama said in a broadcast earlier yesterday that GM, Chrysler LLC and other stakeholders still need to take bigger steps so they can gain further public aid and survive.
"They're not there yet," Obama said.
"We think we can have a successful U.S. auto industry," Obama told the CBS program Face the Nation. "But it's got to be one that's realistically designed to weather this storm and to emerge -- at the other end -- much more lean, mean, and competitive than it currently is."
Obama added the U.S. government would require a "set of sacrifices" from all industry players from managers, dealers, bondholders, workers and suppliers.
"Everybody's gonna have to come to the table and say it's important for us to take serious restructuring steps now in order to preserve a brighter future down the road."
In Canada, GM has requested more than $6 billion (Cdn) from the federal and Ontario governments. Chrysler is asking for almost $3 billion.
The two automakers hoped to submit survival plans to the governments tomorrow but Chrysler and the Canadian Auto Workers remain in a deadlock in negotiations on labour cost cuts.
Ottawa has indicated that it would give Chrysler more time if the government sees progress in those talks.
The federal and provincial governments are also holding a noon news conference to provide updates on restructuring efforts in Canada in view of the release of Washington's plan for the industry.
"We've said whatever the United States government is ultimately going to do, we're prepared to do our 20 per cent share because we have 20 per cent of the industry," Prime Minister Stepher Harper told Reuters in an interview yesterday.
"And we've been working daily with the American administration to ensure we're on the same page."
"I'm certainly very confident that the Obama administration is going to require the automobile manufacturers and their stakeholders to make the difficult decisions necessary so that any government support will be successful and will create a viable industry," said Harper.
Despite recent rumblings that further U.S. aid would be conditional on major upheaval, including the executive ranks, Wagoner's departure stunned many industry officials.
"I'm really shocked," said Ken Lewenza, president of the Canadian Auto Workers. "I hope this doesn't divert attention from the paramount goal of getting this industry on its feet at this critical time."
Lewenza also questioned whether it was a good move because of Wagoner's experience and knowledge of the industry. Wagoner, 56, has led GM Corp as CEO since 2000.
While admitting past mistakes, Wagoner has driven the company hard in cutting costs and shifting to hybrids models and electric cars from big trucks and sport utility vehicles in the last two years.
Thursday, March 26, 2009
Financial Update for March 26, 2009
• TSX-51.95(Reuters)
• DOW +89.60
• Dollar +.22c to 81.40USD
• Oil -$1.21 to $52.77US per barrel.
• Gold +$12.10 to $935.40USD per ounce
• Canadian 5 yr bond yields+.18bps to 1.94 Four weeks ago it was at 2.03
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Canada's budget officer sees 8.5% drop in GDP
Financial Post/Reuters OTTAWA -- Canada's independent parliamentary budget officer forecast Wednesday the economy would deteriorate at a historic rate, and much faster than the government had expected when it produced its budget in late January.
The budget officer, Kevin Page, said gross domestic product figures and unemployment levels would prove to be much worse than the minority Conservative government predicted on Jan. 26, providing fodder for opposition parties to demand more stimulus spending and aid for the unemployed.
Mr. Page told the House of Commons finance committee that, based on private-sector forecasts and his own assessments, he expected GDP to contract by about 8.5% in the first quarter of 2009 and by 3.5% in the second quarter.
In the budget, the government cited private-sector forecasters as saying GDP would shrink by 0.8% in 2009 as a whole.
"We provided a different, more detailed outlook for the first half of this year because we think that what we're seeing now is actually historic, in terms of quarter to quarter declines," Mr. Page told the committee.
Liberal finance critic John McCallum said the forecast, if true, would mean that Canada would post its worst economic performance since at least World War Two.
"What we learned today is that we're in more trouble than the government believed at the time of the budget," Mr. McCallum told reporters after the testimony.
The Liberals are asking the government to improve the employment insurance system to allow laid off workers to access benefits more quickly.
Mr. Page, who complained the government was not providing enough data or funds to allow his office to do its job properly, also forecast nominal GDP would contract by 15% in the first quarter and by 4% in the second quarter.
The budget cited forecasts that nominal GDP would fall by 1.2% in 2009.
Mr. Page said the private-sector surveys "suggest that the current Canadian recession will be sharper than assumed in budget 2009, with real output expected to fall further below its trend potential than in either the 1980s or the 1990s recessions."
In the January budget, the government unveiled a two-year package of temporary stimulus measures that it said would result in a total of $64 billion in budget deficits in 2009-10 and 2010-11.
Mr. Page said the weakening economy and lower tax revenues meant the deficits over those two years would in fact total $73-billion. He also said employment levels would drop by around 2% this year from 2008 compared with the budget forecast of a 0.5% drop.
But he would not comment directly on whether more stimulus was needed to jumpstart the economy.
"The policy challenge faced by all Canadians, by parliamentarians, is much more significant because of what we've seen already in the first quarter of 2009," he said.
• DOW +89.60
• Dollar +.22c to 81.40USD
• Oil -$1.21 to $52.77US per barrel.
• Gold +$12.10 to $935.40USD per ounce
• Canadian 5 yr bond yields+.18bps to 1.94 Four weeks ago it was at 2.03
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Canada's budget officer sees 8.5% drop in GDP
Financial Post/Reuters OTTAWA -- Canada's independent parliamentary budget officer forecast Wednesday the economy would deteriorate at a historic rate, and much faster than the government had expected when it produced its budget in late January.
The budget officer, Kevin Page, said gross domestic product figures and unemployment levels would prove to be much worse than the minority Conservative government predicted on Jan. 26, providing fodder for opposition parties to demand more stimulus spending and aid for the unemployed.
Mr. Page told the House of Commons finance committee that, based on private-sector forecasts and his own assessments, he expected GDP to contract by about 8.5% in the first quarter of 2009 and by 3.5% in the second quarter.
In the budget, the government cited private-sector forecasters as saying GDP would shrink by 0.8% in 2009 as a whole.
"We provided a different, more detailed outlook for the first half of this year because we think that what we're seeing now is actually historic, in terms of quarter to quarter declines," Mr. Page told the committee.
Liberal finance critic John McCallum said the forecast, if true, would mean that Canada would post its worst economic performance since at least World War Two.
"What we learned today is that we're in more trouble than the government believed at the time of the budget," Mr. McCallum told reporters after the testimony.
The Liberals are asking the government to improve the employment insurance system to allow laid off workers to access benefits more quickly.
Mr. Page, who complained the government was not providing enough data or funds to allow his office to do its job properly, also forecast nominal GDP would contract by 15% in the first quarter and by 4% in the second quarter.
The budget cited forecasts that nominal GDP would fall by 1.2% in 2009.
Mr. Page said the private-sector surveys "suggest that the current Canadian recession will be sharper than assumed in budget 2009, with real output expected to fall further below its trend potential than in either the 1980s or the 1990s recessions."
In the January budget, the government unveiled a two-year package of temporary stimulus measures that it said would result in a total of $64 billion in budget deficits in 2009-10 and 2010-11.
Mr. Page said the weakening economy and lower tax revenues meant the deficits over those two years would in fact total $73-billion. He also said employment levels would drop by around 2% this year from 2008 compared with the budget forecast of a 0.5% drop.
But he would not comment directly on whether more stimulus was needed to jumpstart the economy.
"The policy challenge faced by all Canadians, by parliamentarians, is much more significant because of what we've seen already in the first quarter of 2009," he said.
Wednesday, March 25, 2009
Financial Update for March 24, 2009
• TSX-109.12(Reuters)
• DOW -115.65
• Dollar -.62c to 81.18USD
• Oil +$.18 to $53.98US per barrel.
• Gold -$28.70 to $923.80USD per ounce
• Canadian 5 yr bond yields +.10bps to 1.86 Four weeks ago it was at 2.02
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
The big drop we saw in the bond yields at the end of last week from 1.89 to 1.69 has been all but lost (as expected, as it was a reactionary move).
Recession hits home as more Canadians bankrupt, collecting EI benefits
Julian Beltrame, The Canadian Press OTTAWA - New figures showing a spike in personal bankruptcies and employment insurance applications show the recession is causing a lot of anguish with Canadians. And given that the two distress indicators lag what is actually occurring in the economy, analysts say the next 12 months will see many more personal and corporate bankruptcies in Canada.
"This is the real Main Street stuff," said the head of Dale Orr Economic Insight. "This is people who have been laid off, so this is a direct cause of the bad economy. This is just the beginning, it's going to be the end of 2011 before we're back in equilibrium again," Orr predicted.
The federal Office of the Superintendent of Bankruptcy reported Tuesday that 7,944 individuals across Canada filed for bankruptcy in January, up 21.7 per cent from a year earlier.
Over the past 12 months as a whole, about 12,000 Canadians became insolvent.
In another indicator of the recession's bite, Statistics Canada reported Tuesday that 560,400 Canadians were getting regular employment insurance benefits in January, 104,000 more or 22.8 per cent more than 11 months earlier and 23,700 more than in December.
• DOW -115.65
• Dollar -.62c to 81.18USD
• Oil +$.18 to $53.98US per barrel.
• Gold -$28.70 to $923.80USD per ounce
• Canadian 5 yr bond yields +.10bps to 1.86 Four weeks ago it was at 2.02
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
The big drop we saw in the bond yields at the end of last week from 1.89 to 1.69 has been all but lost (as expected, as it was a reactionary move).
Recession hits home as more Canadians bankrupt, collecting EI benefits
Julian Beltrame, The Canadian Press OTTAWA - New figures showing a spike in personal bankruptcies and employment insurance applications show the recession is causing a lot of anguish with Canadians. And given that the two distress indicators lag what is actually occurring in the economy, analysts say the next 12 months will see many more personal and corporate bankruptcies in Canada.
"This is the real Main Street stuff," said the head of Dale Orr Economic Insight. "This is people who have been laid off, so this is a direct cause of the bad economy. This is just the beginning, it's going to be the end of 2011 before we're back in equilibrium again," Orr predicted.
The federal Office of the Superintendent of Bankruptcy reported Tuesday that 7,944 individuals across Canada filed for bankruptcy in January, up 21.7 per cent from a year earlier.
Over the past 12 months as a whole, about 12,000 Canadians became insolvent.
In another indicator of the recession's bite, Statistics Canada reported Tuesday that 560,400 Canadians were getting regular employment insurance benefits in January, 104,000 more or 22.8 per cent more than 11 months earlier and 23,700 more than in December.
Tuesday, March 24, 2009
Financial Update for March 24, 2009
Stock markets jump on Suncor-PetroCan merger, U.S. bank-aid plan
Dollar hits 6-week high
• TSX+452.16 to 8,958.51(Reuters) New life was breathed into the 3 week March rally on stock markets by a all-stock C$18.43 billion merger of Canadian oil companies Suncor Energy and Petro-Canada and another effort to revive American banks, leaving the TSX just 29 points below where it started 2009
• DOW +497.48 The U.S. Treasury Department rolled out detailed plans to persuade private investors to help it take up as much as $1 trillion in bad assets now choking bank balance sheets. The news lifted optimism on global equity markets
• Dollar +1.12c to 81.80USD as risk appetite sharpened on news of a U.S. plan to help rid banks of toxic assets and the price of oil climbed.
• Oil +$1.73 to $53.80US per barrel.
• Gold -$3.70 to $952.50USD per ounce
• Canadian 5 yr bond yields +.04bps to 1.76 Four weeks ago it was at 2.00
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Good News!
TORONTO (Reuters) - Consumer confidence picked up in March as more Canadians said now was a good time to make a major purchase, while the majority saw their financial situations unchanged over the coming six months, the Conference Board of Canada said on Monday. The board's Index of Consumer Confidence rose to 71.5 in March, up 2.7 points from February.
There was also a bit of good news from the American housing sector. The National Association of Realtors said sales of existing homes grew 5.1% in February compared with January. It was the largest sales jump since July 2003, against expectations of a decline.
Administration moves against bad bank assets
By Tom Raum, The Associated Press
WASHINGTON - The Obama administration aimed squarely at the crisis clogging the U.S. credit system Monday with a plan to take over up to US$1 trillion in sour mortgage securities with the help of private investors. For once, Wall Street cheered.
The announcement, closely stage-managed throughout the day, filled in crucial blanks in the administration's financial rescue package and formed what President Barack Obama called "one more critical element in our recovery."
The co-ordinated effort by the U.S. Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. relies on a mix of government and private money - mostly from institutional investors such as hedge funds - to help banks rid their balance sheets of real-estate related securities that are now extremely difficult to value.
The goal, said Obama, is to get banks lending again, so "families can get basic consumer loans, auto loans, student loans, (and so) that small businesses are able to finance themselves, and we can start getting this economy moving again."
It was a huge gambit and one that came like a tonic to Wall Street, which had panned an earlier outline of the program that lacked detail.
Stocks soared, the Dow Jones industrial average shooting up nearly 500 points, thanks to the bank-assets plan and a report showing an unexpected jump in home sales.
The introduction of the plan was closely choreographed so that the president - rather than Treasury Secretary Timothy Geithner - would be the first administration official to appear on camera at midday to discuss it. Geithner met earlier in the day, before markets opened, with a group of reporters at the Treasury Department to go over specifics. But cameras and broadcast-quality audio recorders were barred.
It was the reverse of what happened Feb. 10. Then, after Obama had helped raise expectations toward Geithner and the plan, the treasury secretary went before cameras and bombed. The Dow plunged about 300 points amid investor confusion about details.
The fleshed-out plan is designed to help fix a value on damaged mortgage loans and other toxic securities.
If the value of the securities goes up, the private investors and taxpayers would share in the gains. If the values go down, the government and private investors would incur losses.
"This will help banks clean up their balance sheets and make it easier for them to raise capital," Geithner said.
The plan will take $75 billion to $100 billion from the government's existing $700-billion Troubled Asset Relief Program. The government will pair this with private investments and loans from the FDIC and the Fed to generate $500 billion in purchasing power.
Geithner said purchases eventually could grow to $1 trillion - roughly half of the estimated $2 trillion of toxic assets on bank books now.
On the hot seat, Geithner has a lot personally tied to the success of the new program. His performance in the Cabinet, including his slowness in learning about multimillion dollar executive bonuses paid by insurance giant AIG after taking bailout money, has been severely criticized by some in Congress.
Geithner testifies on Tuesday before the House Financial Services Committee.
Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan.
The plan was introduced ahead of a summit next week in London of 20 major and developing economies struggling with the global recession.
Obama is trying to get other wealthy countries to do more to stimulate their economies with government spending, as the United States has done. However, other countries, particularly ones in Europe, are resisting U.S. calls for more stimulus and would prefer to see more internationally co-ordinated bank regulation.
The administration was expected to outline its plan for financial regulation overhaul later this week.
Federal Deposit Insurance Corp. chairwoman Sheila Bair said she expects her agency will finance as much as $500 billion in purchases of residential and commercial real estate loans.
Bair said the program should help banks clean up their balance sheets and raise fresh capital, though she added that "there may be some banks beyond help." The agency has said before it expects more bank failures, she said.
A joint statement by the Federal Reserve and Treasury Department said the Fed should play a "central role" in preventing future financial crises. That implied a wish that Congress expand the Fed's authority in regulating all financial institutions, not just banks.
Geithner said taxpayers still could lose money on the deal to soak up bad assets but there was no fixing the system without risk.
Other options, such as having the government purchase the securities outright or letting them languish on bank balance sheets, would pose even greater vulnerabilities, he said, and it was important to find the right blend of risk versus reward.
"I am very confident this scheme dominates all the alternatives for trying to find that balance," he said.
The sentiment was echoed by congressional Democrats, who said risk seemed inevitable with any plan big enough to work.
But House Republican whip Eric Cantor of Virginia called Obama's plan a "shell game" that hid the true cost.
He said he hoped the administration would consider instead an earlier Republican proposal to set up a government-sponsored insurance program for mortgage-related securities.
The administration plan "seems to offer little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer," Cantor said in a statement.
The new program marks a return by the government to a strategy of acquiring toxic securities. Henry Paulson, who was treasury secretary in the final days of the Bush administration, abandoned plans to purchase these securities, largely because they were impossible to price.
The plan builds on earlier programs to pump money into banks, help some homeowners repay their mortgages and stimulate college, small business and other forms of lending.
"There's still great fragility in the financial systems, but we think that we are moving in the right direction," Obama said after meeting Geithner and Fed chairman Ben Bernanke.
Obama said the plan will allow taxpayers to "share in the upside as well as the downside."
Treasury officials had no firm forecast on when the government would begin making the asset purchases although market expectations were that the process could begin within weeks.
Dollar hits 6-week high
• TSX+452.16 to 8,958.51(Reuters) New life was breathed into the 3 week March rally on stock markets by a all-stock C$18.43 billion merger of Canadian oil companies Suncor Energy and Petro-Canada and another effort to revive American banks, leaving the TSX just 29 points below where it started 2009
• DOW +497.48 The U.S. Treasury Department rolled out detailed plans to persuade private investors to help it take up as much as $1 trillion in bad assets now choking bank balance sheets. The news lifted optimism on global equity markets
• Dollar +1.12c to 81.80USD as risk appetite sharpened on news of a U.S. plan to help rid banks of toxic assets and the price of oil climbed.
• Oil +$1.73 to $53.80US per barrel.
• Gold -$3.70 to $952.50USD per ounce
• Canadian 5 yr bond yields +.04bps to 1.76 Four weeks ago it was at 2.00
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Good News!
TORONTO (Reuters) - Consumer confidence picked up in March as more Canadians said now was a good time to make a major purchase, while the majority saw their financial situations unchanged over the coming six months, the Conference Board of Canada said on Monday. The board's Index of Consumer Confidence rose to 71.5 in March, up 2.7 points from February.
There was also a bit of good news from the American housing sector. The National Association of Realtors said sales of existing homes grew 5.1% in February compared with January. It was the largest sales jump since July 2003, against expectations of a decline.
Administration moves against bad bank assets
By Tom Raum, The Associated Press
WASHINGTON - The Obama administration aimed squarely at the crisis clogging the U.S. credit system Monday with a plan to take over up to US$1 trillion in sour mortgage securities with the help of private investors. For once, Wall Street cheered.
The announcement, closely stage-managed throughout the day, filled in crucial blanks in the administration's financial rescue package and formed what President Barack Obama called "one more critical element in our recovery."
The co-ordinated effort by the U.S. Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. relies on a mix of government and private money - mostly from institutional investors such as hedge funds - to help banks rid their balance sheets of real-estate related securities that are now extremely difficult to value.
The goal, said Obama, is to get banks lending again, so "families can get basic consumer loans, auto loans, student loans, (and so) that small businesses are able to finance themselves, and we can start getting this economy moving again."
It was a huge gambit and one that came like a tonic to Wall Street, which had panned an earlier outline of the program that lacked detail.
Stocks soared, the Dow Jones industrial average shooting up nearly 500 points, thanks to the bank-assets plan and a report showing an unexpected jump in home sales.
The introduction of the plan was closely choreographed so that the president - rather than Treasury Secretary Timothy Geithner - would be the first administration official to appear on camera at midday to discuss it. Geithner met earlier in the day, before markets opened, with a group of reporters at the Treasury Department to go over specifics. But cameras and broadcast-quality audio recorders were barred.
It was the reverse of what happened Feb. 10. Then, after Obama had helped raise expectations toward Geithner and the plan, the treasury secretary went before cameras and bombed. The Dow plunged about 300 points amid investor confusion about details.
The fleshed-out plan is designed to help fix a value on damaged mortgage loans and other toxic securities.
If the value of the securities goes up, the private investors and taxpayers would share in the gains. If the values go down, the government and private investors would incur losses.
"This will help banks clean up their balance sheets and make it easier for them to raise capital," Geithner said.
The plan will take $75 billion to $100 billion from the government's existing $700-billion Troubled Asset Relief Program. The government will pair this with private investments and loans from the FDIC and the Fed to generate $500 billion in purchasing power.
Geithner said purchases eventually could grow to $1 trillion - roughly half of the estimated $2 trillion of toxic assets on bank books now.
On the hot seat, Geithner has a lot personally tied to the success of the new program. His performance in the Cabinet, including his slowness in learning about multimillion dollar executive bonuses paid by insurance giant AIG after taking bailout money, has been severely criticized by some in Congress.
Geithner testifies on Tuesday before the House Financial Services Committee.
Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan.
The plan was introduced ahead of a summit next week in London of 20 major and developing economies struggling with the global recession.
Obama is trying to get other wealthy countries to do more to stimulate their economies with government spending, as the United States has done. However, other countries, particularly ones in Europe, are resisting U.S. calls for more stimulus and would prefer to see more internationally co-ordinated bank regulation.
The administration was expected to outline its plan for financial regulation overhaul later this week.
Federal Deposit Insurance Corp. chairwoman Sheila Bair said she expects her agency will finance as much as $500 billion in purchases of residential and commercial real estate loans.
Bair said the program should help banks clean up their balance sheets and raise fresh capital, though she added that "there may be some banks beyond help." The agency has said before it expects more bank failures, she said.
A joint statement by the Federal Reserve and Treasury Department said the Fed should play a "central role" in preventing future financial crises. That implied a wish that Congress expand the Fed's authority in regulating all financial institutions, not just banks.
Geithner said taxpayers still could lose money on the deal to soak up bad assets but there was no fixing the system without risk.
Other options, such as having the government purchase the securities outright or letting them languish on bank balance sheets, would pose even greater vulnerabilities, he said, and it was important to find the right blend of risk versus reward.
"I am very confident this scheme dominates all the alternatives for trying to find that balance," he said.
The sentiment was echoed by congressional Democrats, who said risk seemed inevitable with any plan big enough to work.
But House Republican whip Eric Cantor of Virginia called Obama's plan a "shell game" that hid the true cost.
He said he hoped the administration would consider instead an earlier Republican proposal to set up a government-sponsored insurance program for mortgage-related securities.
The administration plan "seems to offer little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer," Cantor said in a statement.
The new program marks a return by the government to a strategy of acquiring toxic securities. Henry Paulson, who was treasury secretary in the final days of the Bush administration, abandoned plans to purchase these securities, largely because they were impossible to price.
The plan builds on earlier programs to pump money into banks, help some homeowners repay their mortgages and stimulate college, small business and other forms of lending.
"There's still great fragility in the financial systems, but we think that we are moving in the right direction," Obama said after meeting Geithner and Fed chairman Ben Bernanke.
Obama said the plan will allow taxpayers to "share in the upside as well as the downside."
Treasury officials had no firm forecast on when the government would begin making the asset purchases although market expectations were that the process could begin within weeks.
Friday, March 20, 2009
Financial Update for March 20, 2009
Canadian stocks rise for eighth straight day
· TSX+61.39A rush to commodities helped Canadian stocks rise again, as talk of inflation took centre stage after Wednesday's statement from the U.S. Fed that it will print more than US$1-trillion of fresh money in a bid to stimulate the economy and thwart deflation
· DOW -85.78
· Dollar +.56c to 80.80USD as risk appetite increased in the wake of the U.S. Federal Reserve's plan to buy up longer-term government debt.
· Oil +$3.47to $51.61US per barrel.
· Gold +$69.60 to $958.30USD per ounce
· Canadian 5 yr bond yields +.02bps to 1.71 Four weeks ago it was at 2.09
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
the 5 year published rate of 4.19% and not our current quick close rate special of 4.07%. This betters reflects how bond yields are affecting rates.
Economic good news, bad news
Rising inflation calms fears
Julian BeltrameThe Canadian Press
OTTAWA
Canadian inflation jumped more than expected in February, reversing a five-month trend toward lower prices and calming concerns of deflation.
Statistics Canada reported yesterday a sizable 0.7 per cent price increase from January to February and said the annual inflation rate rose to 1.4 per cent -- not a large number, but significant given that overall inflation had been falling since September.
The Bank of Canada had forecast prices could drop in the absolute during the second and third quarters of this year, raising the spectre of deflation -- which comes with fears of nasty spirals in which prices and wages fall in a vicious downward cycle.
But the 0.3 percentage point annual inflation increase from January's 1.1 per cent rate makes that "a remote risk,'' said Douglas Porter, deputy chief economist with BMO Capital Markets.
"I think there's just a little more underlying pressure on inflation and it's coming partly from the steady rebound in gasoline prices we've seen since the start of the year and partly from the impact of the lower Canadian dollar,'' Porter said, adding that it has decreased the odds that prices will dip into negative territory for longer than a few months this year.
Porter said the central bank may still resort to non-traditional means of stimulating economic activity -- now that interest rates are too low too drop much further -- but said it would almost certainly be less dramatic than what the U.S. Federal Reserve has done.
Labour economist Erin Weir of the United Steelworkers also welcomed the slight uptick in inflation as a sign that deflation is diminishing as a concern.
But he cautioned that the Canadian economy remains in need of stimulus and urged Bank of Canada governor Mark Carney to continue with his monetary easing policies.
"The Bank of Canada was right to raise the possibility of credit and quantitative easing and should also consider targeting a zero per cent interest rate,'' he said.
Porter said the lower loonie is especially being reflected in food costs, since a significant portion of what Canadians eat is imported, especially during the winter months.
The next move by the Canadian central bank is likely to cut the overnight interest rate on April 21, Porter predicted, and if more measures are needed, would likely limit quantitative easing to purchasing commercial paper.
Although the annual inflation increase was higher than economists had expected, the uptick was moderate and not a total surprise given that U.S. inflation also rose slightly during the month after declining for some time.
Leading the charge was food prices, which have been rising for almost a year.
The cost of food prices at grocery stores rose 8.9 per cent in February, but particularly pronounced was the 25.8 per cent spike in fresh vegetables, 9.7 per cent increase in baked goods and cereal and a 6.1 per cent rise in meat prices.
The inflation rate in Canada would already be close to zero if food was taken out of the calculation, Statistics Canada said.
Shelter costs due to higher mortgage costs also rose in February by three per cent, although that was lower than the 3.3 per cent year-over-year rise the previous month. But gasoline prices remain the major drag on inflation in Canada.
· TSX+61.39A rush to commodities helped Canadian stocks rise again, as talk of inflation took centre stage after Wednesday's statement from the U.S. Fed that it will print more than US$1-trillion of fresh money in a bid to stimulate the economy and thwart deflation
· DOW -85.78
· Dollar +.56c to 80.80USD as risk appetite increased in the wake of the U.S. Federal Reserve's plan to buy up longer-term government debt.
· Oil +$3.47to $51.61US per barrel.
· Gold +$69.60 to $958.30USD per ounce
· Canadian 5 yr bond yields +.02bps to 1.71 Four weeks ago it was at 2.09
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
the 5 year published rate of 4.19% and not our current quick close rate special of 4.07%. This betters reflects how bond yields are affecting rates.
Economic good news, bad news
Rising inflation calms fears
Julian BeltrameThe Canadian Press
OTTAWA
Canadian inflation jumped more than expected in February, reversing a five-month trend toward lower prices and calming concerns of deflation.
Statistics Canada reported yesterday a sizable 0.7 per cent price increase from January to February and said the annual inflation rate rose to 1.4 per cent -- not a large number, but significant given that overall inflation had been falling since September.
The Bank of Canada had forecast prices could drop in the absolute during the second and third quarters of this year, raising the spectre of deflation -- which comes with fears of nasty spirals in which prices and wages fall in a vicious downward cycle.
But the 0.3 percentage point annual inflation increase from January's 1.1 per cent rate makes that "a remote risk,'' said Douglas Porter, deputy chief economist with BMO Capital Markets.
"I think there's just a little more underlying pressure on inflation and it's coming partly from the steady rebound in gasoline prices we've seen since the start of the year and partly from the impact of the lower Canadian dollar,'' Porter said, adding that it has decreased the odds that prices will dip into negative territory for longer than a few months this year.
Porter said the central bank may still resort to non-traditional means of stimulating economic activity -- now that interest rates are too low too drop much further -- but said it would almost certainly be less dramatic than what the U.S. Federal Reserve has done.
Labour economist Erin Weir of the United Steelworkers also welcomed the slight uptick in inflation as a sign that deflation is diminishing as a concern.
But he cautioned that the Canadian economy remains in need of stimulus and urged Bank of Canada governor Mark Carney to continue with his monetary easing policies.
"The Bank of Canada was right to raise the possibility of credit and quantitative easing and should also consider targeting a zero per cent interest rate,'' he said.
Porter said the lower loonie is especially being reflected in food costs, since a significant portion of what Canadians eat is imported, especially during the winter months.
The next move by the Canadian central bank is likely to cut the overnight interest rate on April 21, Porter predicted, and if more measures are needed, would likely limit quantitative easing to purchasing commercial paper.
Although the annual inflation increase was higher than economists had expected, the uptick was moderate and not a total surprise given that U.S. inflation also rose slightly during the month after declining for some time.
Leading the charge was food prices, which have been rising for almost a year.
The cost of food prices at grocery stores rose 8.9 per cent in February, but particularly pronounced was the 25.8 per cent spike in fresh vegetables, 9.7 per cent increase in baked goods and cereal and a 6.1 per cent rise in meat prices.
The inflation rate in Canada would already be close to zero if food was taken out of the calculation, Statistics Canada said.
Shelter costs due to higher mortgage costs also rose in February by three per cent, although that was lower than the 3.3 per cent year-over-year rise the previous month. But gasoline prices remain the major drag on inflation in Canada.
Thursday, March 19, 2009
Financial Update for March 19, 2009
Stocks close higher for 7th session: Fed to buy US$300B of Treasurys to free up credit markets
· TSX+69.50
· DOW +90.88 after the U.S. Federal Reserve surprised investors in announcing it will start buying U.S. Treasury bonds to help unclog credit markets. The move - which economists call "quantitative easing" - is aimed at effectively reducing market interest rates since the Fed's key rate, the federal funds rate, has been ratcheted down as low as it can go.
· Dollar +1.43c to 80.24USD
· Oil -$1.02 to $48.14US per barrel.
· Gold -$27.70 to $888.70USD per ounce
· Canadian 5 yr bond yields -.20bps to 1.69 Four weeks ago it was at 2.07
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
WASHINGTON - A U.S. congressman says the House of Representatives plans to take up a bill Thursday that would impose a 90 per cent tax on bonuses paid to top-earning employees at AIG and other companies receiving big government bailouts. New York Democrat Charles Rangel, who chairs the tax-writing House Ways and Means Committee, said Wednesday the tax would hit employees making more than $250,000 a year.
Mortgage lender seen as target
Barbara Shecter, Financial Post Published: Wednesday, March 18, 2009
A Toronto-based company built on extending mortgages to people who don't qualify for a bank loan, but without the disastrous results experienced in the United States, is increasingly being viewed as a takeover target.
Home Capital Group Inc., whose shares are trading at decade-low earnings multiples, fuelled the speculation last week when it adopted a shareholder-rights plan, or poison pill, which gives a company more time to drum up offers if there is a hostile bid.
But the 20% gain since then may have more to do with Home Capital's successful pursuit of a slice of the insured Canada Mortgage and Housing Corp. business dominated by the big banks that takes advantage of government incentives put in place late last year to stimulate lending.
"The government has been boosting the level of mortgages taken in through the CMHC programs and Home Capital has been able to ramp up activity here - the yield is good and the government takes on all of the default risk," says Jeff Fenwick, an analyst at Cormark Securities Inc. "Meanwhile, Home purposely eased back on some of the other areas where they lend ... as they had been concerned about the housing downturn in Canada."
Tarred by the fallout from the subprime mortgage meltdown in the United States, Home Capital's shares were off nearly 60% from a 52-week high of $41 last June before the recent rally that took the shares back to $23.64 yesterday.
Gerald Soloway, chief executive, said in an interview the company decided the tweak the business model beginning in the late summer of 2007, when the subprime crisis took hold in the U.S. and Canada's non-bank asset-backed commercial paper market froze.
The company has reduced loans-to-value to take falling house prices into account and reduce the risk of losses from defaults, and ventured into the 80% insurable portion of the $800-billion Canadian mortgage market that is the territory of traditional banks.
This month, Home Capital's $200-million mortgage business will be evenly split between insured mortgages that take advantage of the spread between bonds yields and rates, and the company's traditional mainstay of uninsured loans for those that can't get them elsewhere, Mr. Soloway says.
"At this point, the margins of selling into the Canada bond program are very good... We don't apologize for being somewhat opportunistic and taking advantage of a market," he says.
CMHC insured mortgage pools are priced using Canadian government bonds and with bond yields being very low, the spread between the average mortgage rate in the pool and the rate paid on Home Capital's mortgage-backed securities has made it an attractive area for the company to be, analysts say.
It seems likely that the big banks will take notice, especially because they are touted as potential buyers of Home Capital and have historically coveted the firm's healthy margins derived from higher interest rates on the loans that are perceived to be riskier.
But Mr. Soloway says there have been no formal or informal approaches from suitors.
"I'm the wallflower. No one's asked me to dance," he said, adding that implementing the shareholder rights plan, which is to be voted on by investors at an annual meeting in May, had been under discussion for some time.
As for the $1-billion in insured mortgages Home Capital could take from the banks this year, Mr. Soloway maintains that it wouldn't rock the boat because it would be a small fraction of an estimated $640-billion pie.
"Nobody at any of the big banks wakes up and says, ‘I've got to get Home, they're eating my lunch,'" he says. "It is significant for my business, but it's not enough to bother anybody else."
Mr. Fenwick, the Cormark analyst, said he doesn't expect any would-be buyers will make a move on Home Capital in the near term.
"A bank would be a natural buyer but given the current climate right now, I think it would be challenging to sell the idea to shareholders given that the media would label Home as a sub-prime lender," he said. "However, Home Capital has recently been trading at decade lows... and they may have been concerned about an opportunistic bid."
With no takeover premium in mind, Mr. Fenwick has a target of $30.25 on the stock. The company expects to deliver earnings growth of 10% to 15% this year.
· TSX+69.50
· DOW +90.88 after the U.S. Federal Reserve surprised investors in announcing it will start buying U.S. Treasury bonds to help unclog credit markets. The move - which economists call "quantitative easing" - is aimed at effectively reducing market interest rates since the Fed's key rate, the federal funds rate, has been ratcheted down as low as it can go.
· Dollar +1.43c to 80.24USD
· Oil -$1.02 to $48.14US per barrel.
· Gold -$27.70 to $888.70USD per ounce
· Canadian 5 yr bond yields -.20bps to 1.69 Four weeks ago it was at 2.07
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
WASHINGTON - A U.S. congressman says the House of Representatives plans to take up a bill Thursday that would impose a 90 per cent tax on bonuses paid to top-earning employees at AIG and other companies receiving big government bailouts. New York Democrat Charles Rangel, who chairs the tax-writing House Ways and Means Committee, said Wednesday the tax would hit employees making more than $250,000 a year.
Mortgage lender seen as target
Barbara Shecter, Financial Post Published: Wednesday, March 18, 2009
A Toronto-based company built on extending mortgages to people who don't qualify for a bank loan, but without the disastrous results experienced in the United States, is increasingly being viewed as a takeover target.
Home Capital Group Inc., whose shares are trading at decade-low earnings multiples, fuelled the speculation last week when it adopted a shareholder-rights plan, or poison pill, which gives a company more time to drum up offers if there is a hostile bid.
But the 20% gain since then may have more to do with Home Capital's successful pursuit of a slice of the insured Canada Mortgage and Housing Corp. business dominated by the big banks that takes advantage of government incentives put in place late last year to stimulate lending.
"The government has been boosting the level of mortgages taken in through the CMHC programs and Home Capital has been able to ramp up activity here - the yield is good and the government takes on all of the default risk," says Jeff Fenwick, an analyst at Cormark Securities Inc. "Meanwhile, Home purposely eased back on some of the other areas where they lend ... as they had been concerned about the housing downturn in Canada."
Tarred by the fallout from the subprime mortgage meltdown in the United States, Home Capital's shares were off nearly 60% from a 52-week high of $41 last June before the recent rally that took the shares back to $23.64 yesterday.
Gerald Soloway, chief executive, said in an interview the company decided the tweak the business model beginning in the late summer of 2007, when the subprime crisis took hold in the U.S. and Canada's non-bank asset-backed commercial paper market froze.
The company has reduced loans-to-value to take falling house prices into account and reduce the risk of losses from defaults, and ventured into the 80% insurable portion of the $800-billion Canadian mortgage market that is the territory of traditional banks.
This month, Home Capital's $200-million mortgage business will be evenly split between insured mortgages that take advantage of the spread between bonds yields and rates, and the company's traditional mainstay of uninsured loans for those that can't get them elsewhere, Mr. Soloway says.
"At this point, the margins of selling into the Canada bond program are very good... We don't apologize for being somewhat opportunistic and taking advantage of a market," he says.
CMHC insured mortgage pools are priced using Canadian government bonds and with bond yields being very low, the spread between the average mortgage rate in the pool and the rate paid on Home Capital's mortgage-backed securities has made it an attractive area for the company to be, analysts say.
It seems likely that the big banks will take notice, especially because they are touted as potential buyers of Home Capital and have historically coveted the firm's healthy margins derived from higher interest rates on the loans that are perceived to be riskier.
But Mr. Soloway says there have been no formal or informal approaches from suitors.
"I'm the wallflower. No one's asked me to dance," he said, adding that implementing the shareholder rights plan, which is to be voted on by investors at an annual meeting in May, had been under discussion for some time.
As for the $1-billion in insured mortgages Home Capital could take from the banks this year, Mr. Soloway maintains that it wouldn't rock the boat because it would be a small fraction of an estimated $640-billion pie.
"Nobody at any of the big banks wakes up and says, ‘I've got to get Home, they're eating my lunch,'" he says. "It is significant for my business, but it's not enough to bother anybody else."
Mr. Fenwick, the Cormark analyst, said he doesn't expect any would-be buyers will make a move on Home Capital in the near term.
"A bank would be a natural buyer but given the current climate right now, I think it would be challenging to sell the idea to shareholders given that the media would label Home as a sub-prime lender," he said. "However, Home Capital has recently been trading at decade lows... and they may have been concerned about an opportunistic bid."
With no takeover premium in mind, Mr. Fenwick has a target of $30.25 on the stock. The company expects to deliver earnings growth of 10% to 15% this year.
Wednesday, March 18, 2009
Financial Update for March 18, 2009
Energy shares power TSX to sixth straight rise
· TSX+172.89 to 8,559 the latest charge by the resource-heavy index driven by energy issues as the price of oil rose.
· DOW +178.73 A surprisingly upbeat report on housing starts in the US also helped NY markets get back in the groove, rising sharply after a 4-day advance faltered Mon.
· Dollar +.29c to 78.81USD
· Oil +$1.81 to $49.16US per barrel.
· Gold -$5.20 to $916.80USD per ounce
· Canadian 5 yr bond yields +.03bps to 1.89 Four weeks ago it was at 2.00
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
More Canadians will turn to fixed mortgages as rates plummet to rock bottom
Ross Marowits, THE CANADIAN PRESS MONTREAL - Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.
Canadian Imperial Bank of Commerce's chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.
"If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap," Benjamin Tal said in an interview.
"Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising."
Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.
Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.
The central bank went even further on Tuesday, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.50 per cent.
Bank governor Mark Carney said he now sees recovery coming later than it had projected, possibly in early 2010. And he hinted that instead of further lowering rates, the central bank may consider alternative strategies, including buying back government bonds and other forms of credit from chartered banks.
Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.
The self-professed fan of variable mortgages said they give customers control, which is important in the current economic climate.
Gaetano said homeowners should use this window of low rates to pay down their mortgages as quickly as possible.
"The key is if you can pay your mortgage in half by the time your variable rate doubles your interest cost is going to be the same on your balance."
He accused banks of scaring mortgage holders last fall to lock in their variable rates by suggesting rates will rise. The deteriorating economy has only caused rates to fall even further.
"There's lots of consumers not happy with their banks right now for bad advice," he said, noting that people who opt for variable mortgages have to be comfortable with fluctuations.
Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.
Mark Olkowski, Southern Ontario manager of mortgage firm Invis, said fixed rates have dropped so low that new mortgage holders are looking more closely at this option than they did just a few months ago.
"The average consumer is looking at it now and they're probably waiting for something to trigger," he said.
If rates haven't reached a floor, they are probably close to it, added Olkowski, who said he hasn't yet seen a flurry of people opt for fixed rates.
"We pretty much have a good idea what's going to happen in 2009. The trick is trying to figure out what's going to happen in 2010, 2011, 2012 and 2013."
The beauty of variable rates is that consumers can convert to a fixed rate without penalty.
Mortgage expert Moshe Milevsky of York University suspects many Canadians will opt for the security of fixed mortgages considering how low rates have dropped.
But he said the decision about what kind of mortgage to take should never be made in isolation of individual circumstances such the amount of equity, value of the house, debts and risk aversion.
And in markets where real estate prices are falling, seeking a long-term rate may be more important than the type of rate.
"The last thing you want to do is have to renew your mortgage in a year from now and have the bank say: 'Let's assess what that house is really worth,' " he said in an interview.
Studies conducted by Milevsky have determined that variable rates have historically produced greater savings 88 per cent of the time.
"But in today's environment, you'd be hard-pressed to make a case to continue floating," he said, advocating a blend between fixed and floating rates.
· TSX+172.89 to 8,559 the latest charge by the resource-heavy index driven by energy issues as the price of oil rose.
· DOW +178.73 A surprisingly upbeat report on housing starts in the US also helped NY markets get back in the groove, rising sharply after a 4-day advance faltered Mon.
· Dollar +.29c to 78.81USD
· Oil +$1.81 to $49.16US per barrel.
· Gold -$5.20 to $916.80USD per ounce
· Canadian 5 yr bond yields +.03bps to 1.89 Four weeks ago it was at 2.00
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
More Canadians will turn to fixed mortgages as rates plummet to rock bottom
Ross Marowits, THE CANADIAN PRESS MONTREAL - Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.
Canadian Imperial Bank of Commerce's chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.
"If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap," Benjamin Tal said in an interview.
"Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising."
Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.
Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.
The central bank went even further on Tuesday, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.50 per cent.
Bank governor Mark Carney said he now sees recovery coming later than it had projected, possibly in early 2010. And he hinted that instead of further lowering rates, the central bank may consider alternative strategies, including buying back government bonds and other forms of credit from chartered banks.
Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.
The self-professed fan of variable mortgages said they give customers control, which is important in the current economic climate.
Gaetano said homeowners should use this window of low rates to pay down their mortgages as quickly as possible.
"The key is if you can pay your mortgage in half by the time your variable rate doubles your interest cost is going to be the same on your balance."
He accused banks of scaring mortgage holders last fall to lock in their variable rates by suggesting rates will rise. The deteriorating economy has only caused rates to fall even further.
"There's lots of consumers not happy with their banks right now for bad advice," he said, noting that people who opt for variable mortgages have to be comfortable with fluctuations.
Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.
Mark Olkowski, Southern Ontario manager of mortgage firm Invis, said fixed rates have dropped so low that new mortgage holders are looking more closely at this option than they did just a few months ago.
"The average consumer is looking at it now and they're probably waiting for something to trigger," he said.
If rates haven't reached a floor, they are probably close to it, added Olkowski, who said he hasn't yet seen a flurry of people opt for fixed rates.
"We pretty much have a good idea what's going to happen in 2009. The trick is trying to figure out what's going to happen in 2010, 2011, 2012 and 2013."
The beauty of variable rates is that consumers can convert to a fixed rate without penalty.
Mortgage expert Moshe Milevsky of York University suspects many Canadians will opt for the security of fixed mortgages considering how low rates have dropped.
But he said the decision about what kind of mortgage to take should never be made in isolation of individual circumstances such the amount of equity, value of the house, debts and risk aversion.
And in markets where real estate prices are falling, seeking a long-term rate may be more important than the type of rate.
"The last thing you want to do is have to renew your mortgage in a year from now and have the bank say: 'Let's assess what that house is really worth,' " he said in an interview.
Studies conducted by Milevsky have determined that variable rates have historically produced greater savings 88 per cent of the time.
"But in today's environment, you'd be hard-pressed to make a case to continue floating," he said, advocating a blend between fixed and floating rates.
Monday, March 16, 2009
Financial Update for March 16, 2009
· TSX+21.12to 8,303 had another positive day, stretching a winning streak in Toronto and New York to four sessions, largely fuelled by good news from the financial sector.
· DOW +53.92
· Dollar +.41c to 78.59USD
· Oil -$.96 to $46.07US per barrel.
· Gold +6.10 to $930.10 USD per ounce a combination of weaker dollar, technical buying and fears that a Swiss example would lead to a series of currency devaluations, boosting investor demand for the yellow metal. the Swiss National Bank had moved to rein in the franc's strength to boost the economy
· Canadian 5 yr bond yields -.03bps to 1.87 Four weeks ago it was at 2.11.
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Bank of Canada hints at quantitative easing moves Reuters Sat Mar 14, 4:16 PMHORSHAM, England (Reuters) - The Bank of Canada hinted on Saturday it could soon start printing money to create growth after a global pledge by central banks to take extreme action as economic conditions deteriorate.
G20 central bankers, meeting with finance ministers ahead of the London summit on April 2, signed up to a statement to keep interest rates low for as long as it took to get the economy back on its feet and engage in quantitative easing if needed.
The Bank of Canada has already said it will soon outline a framework for quantitative and credit easing, giving it the means to conduct similar actions to the Bank of England and Swiss National Bank.
"It's important to do that in a comprehensive, holistic fashion so that people can see the range of tools that the bank continues to have," Carney told reporters after the meeting of old and emerging economic powers in southern England. "In putting out a framework, it does not necessarily follow that we would immediately implement that action. Those are discussions we take as a governing council at the appropriate time, given the economic outlook." But Carney said many of the downside risks to the economy the central bank had already identified were materializing, hinting that a downgrade to the Bank of Canada's growth forecasts could be just around the corner. The BoC updates its forecasts next month, with the estimates it made in January -- especially for 3.8 percent growth in 2010 -- looking increasingly optimistic.
"I would draw your attention to the commitment of central banks to maintain expansionary policies," he said. "Rates will remain low for longer. In Canada our overnight or target rate can be expected to remain at its current level of 50 basis points or lower until there are clear signs that the output gap is beginning to close."
Canada's dirty subprime secret
An investigation by Globe reporters uncovers a burgeoning subprime mortgage problem that many, including Prime Minister Stephen Harper, have insisted does not exist in Canada
GREG MCARTHUR AND JACQUIE MCNISH From Saturday's Globe and Mail
From the ramshackle, plywood deck on Brad Goodyear's rural Vancouver Island home, most people see piles of trash, a mattress, abandoned appliances and heaps of salmon fishing nets.
Mortgage lenders, however, have looked at the same property and, until recently, seen nothing but cash.
But after two decades of continually borrowing up – plowing through mortgages from Royal Bank, private lenders and credit unions, until settling on two subprime lenders – the 46-year-old fisherman has landed in a foreclosure proceeding.
Records show that at least nine different lenders have given mortgages to Mr. Goodyear and his wife Tracy since they bought the Ladysmith property in 1986, producing a constant flow of new loans, which were sometimes paid off with newer loans, until financial institutions shut the window a few months ago.
Who lends subprime?
“I didn't really have to show anything to borrow,” Mr. Goodyear said of his two remaining mortgages, both in default and totalling about $340,000. “I didn't have to show them my tax returns. I just said ‘This is how much I make.' I think I made 11,000 bucks.”
Mr. Goodyear is not alone. A Globe and Mail investigation into more than 10,000 foreclosure proceedings has uncovered a burgeoning subprime mortgage problem that many, including Prime Minister Stephen Harper, have insisted does not exist in Canada.
Data obtained from both the governments of British Columbia and Alberta, as well as from two private companies that specialize in tracking foreclosure proceedings, show that lenders are foreclosing on the homes of overextended borrowers at an alarming pace. Even more startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories. The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.
Inventories of unsold homes are building in Canadian cities – and the ripple effect hits everyone, depressing the value of houses owned by people who haven't overextended themselves.
Unlike the United States, where foreclosure statistics are routinely published because they are a key barometer of economic health, detailed numbers in Canada are hard to come by. Alberta and British Columbia are two provinces where private companies collect the data from the courts, where it costs about $10 to view a single file. In Ontario, mortgages in default are usually resolved through a process known as power-of-sale, which has effectively removed the issue from the courts and shielded the scope of the problem.
Since the subprime mortgage meltdown in the United States, Canadian leaders have assured the public that a similar tidal wave of foreclosures can't hit here. They have cited the prudence and market dominance of Canada's five most prominent banks, the conservatism of Canadian consumers and the tiny, 7-per-cent market share of subprime lenders, which is much lower than their 22-per-cent market share in the United States. Just four days ago in a speech, Prime Minister Harper said: “We have avoided the extreme of the unregulated, or barely regulated, financial and mortgage industries that has caused such grief around the world.”
However, The Globe's investigation shows that while Canada's real estate sector hasn't suffered as much as its counterpart in the United States, the Prime Minister and others have grossly underestimated the impact of that small portion of subprime lenders. Until recently, companies who touted their low standards with slogans such as “We Say Yes When The Banks Say No!” and “No Income Verification” proliferated here.
“We have a subprime problem in Canada. Lenders dramatically reduced their lending standards in the past five years,” said Andrew Bury, British Columbia's foremost expert in foreclosure law, who has been practising for 29 years. Mr. Bury, who practises with Gowling Lafleur Henderson LLP, said that since August he has had to extend his work day to 15 hours to cope with a caseload that has tripled. Vancouver courts are so overwhelmed with the flood of foreclosure applications that it now takes six weeks to process a written order compared with one day six months ago, he said.
“The subprime lenders trashed the market. They were doing loans that no one else would do and people were shaking their heads saying, ‘What are these guys doing?'” The data also revealed that scores of wealthy individuals dabbled in subprime lending at a time when many believed the real estate market was on a never-ending ride. Doctors, lawyers, stockbrokers and former bankers offered high-interest-rate mortgages to debt-laden homeowners, many of whom are now facing foreclosure proceedings. In one instance, a holding company for a Vancouver entrepreneur and philanthropist, Abdul Ladha, issued a $150,000 mortgage to a couple at an interest rate of 40 per cent. The mortgage agreement included a clause to ensure that additional fees and commissions should never add up to an effective interest rate of 60 per cent – the “Criminal Rate,” as defined in the Criminal Code of Canada. (One of the borrowers, Vid Wadhwani, said in a brief interview that it was “a rate that I was willing to accept, given that it was supposed to be short-term in nature.” He also said the 2007 foreclosure application did not proceed and that the matter was resolved.) Last year, private investors gave a Vancouver businessman and former lawyer $4.5-million in adjustable rate mortgages that resulted in payments of $89,000 a month, or an interest rate of more than 25 per cent. The investors have initiated foreclosure proceedings against his West Vancouver home.
The number of subprime lenders who have initiated foreclosure proceedings isn't a surprise to anyone in the business, said Kap Hiroti, the owner of Foreclosurelist.ca, one of the companies that tracks foreclosures and supplied data for this story. “It was almost as if the lenders didn't see the big picture,” Mr. Hiroti said.
The spread of subprime mortgages to Canada is one of the country's most poorly researched and misunderstood economic afflictions. Government agencies don't publish numbers on the scope of high-risk lending. Banks and other mortgage lenders do not disclose details about such loans, known in industry parlance as “non-conforming” loans.
Until the early 2000s, subprime mortgage lending was the tiny domain of adventurous private investors or mortgage lenders who were comfortable gambling that they could profit by charging exorbitant interest rates to home buyers who didn't meet the conservative lending criteria of banks and trust companies that dominated the Canadian market.
By the mid 2000s, this little-used lending practice was transformed into the fastest growing segment of the country's mortgage market. Driving the changes was the migration to Canada of aggressive U.S. mortgage lenders such as Accredited Home Lenders Inc., Wells Fargo, GMAC and GE Money, which were drawn to Canada's frothy real estate market, particularly the commodity-stoked cities in Western Canada.
As long as real estate prices soared, these lending high-rollers were comforted by the belief that losses on defaulted mortgages could be recovered by foreclosing and selling repossessed homes at a profit. Added protection for a small portion of these lenders came from aggressive U.S.
mortgage insurers that were approved by the federal government in 2006 to compete in Canada. Other mortgage newcomers such as Vancouver-based Abode Mortgage Corp., a company created out of the remains of a former flush toilet maker, and Toronto-based Xceed Mortgage Corp., minimized their risks by selling mortgages to entities that sold securities backed by mortgages to investors.
One of the first experts to sound the alarm about the proliferation of subprime mortgages was Benjamin Tal, an economist with CIBC World Markets who published a report in late 2006 warning “the genie is out of the bottle.” Mr. Tal declined to be interviewed, but his report estimated that subprime loans were growing at a “meteoric” annual pace of 50 per cent by the end of 2006, making it the fastest growing segment of Canada's mortgage market. In 2006, Mr. Tal estimated more than 85,000 Canadian homeowners had subprime loans.
By late 2007, the combination of easy money and soaring real estate prices lulled many borrowers and lenders into viewing houses as virtual cash machines. Some borrowers took out second and third mortgages at high rates of interest to make investments on other properties or fund a lifestyle beyond the means of their paycheques.
Nick Kyprianou, president of Home Trust, one of Canada's first and largest alternative lenders, said his company began to scale back in Western Canada in 2007 because it became uncomfortable with homeowners' soaring debt levels.
“When the values are escalating at that rapid of a rate and you're just allowing people to use their houses as ATM machines and they keep refinancing every year to accommodate their lifestyle, it's just a house of cards,” Mr. Kyprianou said. Home Trust's retreat was apparently not fast enough. According to court data, the company initiated foreclosure proceedings on 120 borrowers in Alberta in 2008.
Home Trust is a federally regulated trust company, unlike competitors such as the U.S.-based GE Money and Wells Fargo that jumped into the Canadian market in mid-2000. Mortgage lenders that aren't federally regulated aren't required, like banks and trust companies, to use a government-approved insurer when the borrower has put down less than 20 per cent of the value of the home.
The lack of government supervision of these companies increased risk in the system, Mr. Kyprianou said. The unregulated lenders, however, vigorously dispute that charge.
“There was nothing wrong with what people were doing. It was a sign of the times,” said a former official with Accredited Home Lenders. “We were all doing the same thing – all of us. We were all making money.... It was a whirlwind of cash and every once in a while you'd stick your arm out into the whirlwind and try to gobble up as much of the cash as you could.”
Brad Goodyear could use some of that cash right now, but the whirlwind blew out of town long ago.
Recently, he received an offer of $280,000 for the two-storey home, which would leave him $60,000 short of what he owes his creditors.
For the past few weeks, he has been calling every mortgage broker he can find. Despite his past success at repeatedly refinancing, no one is biting. Most of the subprime lenders who might have pounced two years ago have either changed their business model to less risky lending, or – in the case of Accredited Home Lenders and GE Money – have exited the country altogether.
His largest outstanding mortgage with ResMor Trust, a $304,000 loan at 8-per-cent interest, is what landed him in court. Mr. Goodyear took the loan out when he got behind on his previous mortgage, he said. The ResMor money staved off that foreclosure, but his monthly payments jumped to $2,300 from $1,000. When he was late on his ResMor mortgage, he took out a second mortgage last year with Jack James, a private lender from Vancouver. Mr. James gave him $28,000 at an initial interest rate of 17 per cent, which jumped to 22 per cent a few weeks ago.
Both ResMor Trust and Mr. James declined to comment about their loans to Mr. Goodyear.
Asked what he was thinking when he took out another loan to pay off a smaller loan that he already couldn't afford, Mr. Goodyear replied: “Well, that's what runs what I do, but I shouldn't have borrowed more money. It was so easy to borrow money. You get in a bind.”
He continued: “Well, I'm sitting there, ‘Jeez, if everything works out'... I might have been able to do it. Just squeak by maybe.
“I thought maybe I'd have to sell, but I didn't think the market would take a tumble.”
· DOW +53.92
· Dollar +.41c to 78.59USD
· Oil -$.96 to $46.07US per barrel.
· Gold +6.10 to $930.10 USD per ounce a combination of weaker dollar, technical buying and fears that a Swiss example would lead to a series of currency devaluations, boosting investor demand for the yellow metal. the Swiss National Bank had moved to rein in the franc's strength to boost the economy
· Canadian 5 yr bond yields -.03bps to 1.87 Four weeks ago it was at 2.11.
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Bank of Canada hints at quantitative easing moves Reuters Sat Mar 14, 4:16 PMHORSHAM, England (Reuters) - The Bank of Canada hinted on Saturday it could soon start printing money to create growth after a global pledge by central banks to take extreme action as economic conditions deteriorate.
G20 central bankers, meeting with finance ministers ahead of the London summit on April 2, signed up to a statement to keep interest rates low for as long as it took to get the economy back on its feet and engage in quantitative easing if needed.
The Bank of Canada has already said it will soon outline a framework for quantitative and credit easing, giving it the means to conduct similar actions to the Bank of England and Swiss National Bank.
"It's important to do that in a comprehensive, holistic fashion so that people can see the range of tools that the bank continues to have," Carney told reporters after the meeting of old and emerging economic powers in southern England. "In putting out a framework, it does not necessarily follow that we would immediately implement that action. Those are discussions we take as a governing council at the appropriate time, given the economic outlook." But Carney said many of the downside risks to the economy the central bank had already identified were materializing, hinting that a downgrade to the Bank of Canada's growth forecasts could be just around the corner. The BoC updates its forecasts next month, with the estimates it made in January -- especially for 3.8 percent growth in 2010 -- looking increasingly optimistic.
"I would draw your attention to the commitment of central banks to maintain expansionary policies," he said. "Rates will remain low for longer. In Canada our overnight or target rate can be expected to remain at its current level of 50 basis points or lower until there are clear signs that the output gap is beginning to close."
Canada's dirty subprime secret
An investigation by Globe reporters uncovers a burgeoning subprime mortgage problem that many, including Prime Minister Stephen Harper, have insisted does not exist in Canada
GREG MCARTHUR AND JACQUIE MCNISH From Saturday's Globe and Mail
From the ramshackle, plywood deck on Brad Goodyear's rural Vancouver Island home, most people see piles of trash, a mattress, abandoned appliances and heaps of salmon fishing nets.
Mortgage lenders, however, have looked at the same property and, until recently, seen nothing but cash.
But after two decades of continually borrowing up – plowing through mortgages from Royal Bank, private lenders and credit unions, until settling on two subprime lenders – the 46-year-old fisherman has landed in a foreclosure proceeding.
Records show that at least nine different lenders have given mortgages to Mr. Goodyear and his wife Tracy since they bought the Ladysmith property in 1986, producing a constant flow of new loans, which were sometimes paid off with newer loans, until financial institutions shut the window a few months ago.
Who lends subprime?
“I didn't really have to show anything to borrow,” Mr. Goodyear said of his two remaining mortgages, both in default and totalling about $340,000. “I didn't have to show them my tax returns. I just said ‘This is how much I make.' I think I made 11,000 bucks.”
Mr. Goodyear is not alone. A Globe and Mail investigation into more than 10,000 foreclosure proceedings has uncovered a burgeoning subprime mortgage problem that many, including Prime Minister Stephen Harper, have insisted does not exist in Canada.
Data obtained from both the governments of British Columbia and Alberta, as well as from two private companies that specialize in tracking foreclosure proceedings, show that lenders are foreclosing on the homes of overextended borrowers at an alarming pace. Even more startling is that more than half the foreclosures in 2008 were initiated by a mish-mash of subprime lenders who targeted riskier borrowers with tarnished credit histories. The numbers tell a story of thousands of homeowners who borrowed more than they could afford from lenders who lent too readily.
Inventories of unsold homes are building in Canadian cities – and the ripple effect hits everyone, depressing the value of houses owned by people who haven't overextended themselves.
Unlike the United States, where foreclosure statistics are routinely published because they are a key barometer of economic health, detailed numbers in Canada are hard to come by. Alberta and British Columbia are two provinces where private companies collect the data from the courts, where it costs about $10 to view a single file. In Ontario, mortgages in default are usually resolved through a process known as power-of-sale, which has effectively removed the issue from the courts and shielded the scope of the problem.
Since the subprime mortgage meltdown in the United States, Canadian leaders have assured the public that a similar tidal wave of foreclosures can't hit here. They have cited the prudence and market dominance of Canada's five most prominent banks, the conservatism of Canadian consumers and the tiny, 7-per-cent market share of subprime lenders, which is much lower than their 22-per-cent market share in the United States. Just four days ago in a speech, Prime Minister Harper said: “We have avoided the extreme of the unregulated, or barely regulated, financial and mortgage industries that has caused such grief around the world.”
However, The Globe's investigation shows that while Canada's real estate sector hasn't suffered as much as its counterpart in the United States, the Prime Minister and others have grossly underestimated the impact of that small portion of subprime lenders. Until recently, companies who touted their low standards with slogans such as “We Say Yes When The Banks Say No!” and “No Income Verification” proliferated here.
“We have a subprime problem in Canada. Lenders dramatically reduced their lending standards in the past five years,” said Andrew Bury, British Columbia's foremost expert in foreclosure law, who has been practising for 29 years. Mr. Bury, who practises with Gowling Lafleur Henderson LLP, said that since August he has had to extend his work day to 15 hours to cope with a caseload that has tripled. Vancouver courts are so overwhelmed with the flood of foreclosure applications that it now takes six weeks to process a written order compared with one day six months ago, he said.
“The subprime lenders trashed the market. They were doing loans that no one else would do and people were shaking their heads saying, ‘What are these guys doing?'” The data also revealed that scores of wealthy individuals dabbled in subprime lending at a time when many believed the real estate market was on a never-ending ride. Doctors, lawyers, stockbrokers and former bankers offered high-interest-rate mortgages to debt-laden homeowners, many of whom are now facing foreclosure proceedings. In one instance, a holding company for a Vancouver entrepreneur and philanthropist, Abdul Ladha, issued a $150,000 mortgage to a couple at an interest rate of 40 per cent. The mortgage agreement included a clause to ensure that additional fees and commissions should never add up to an effective interest rate of 60 per cent – the “Criminal Rate,” as defined in the Criminal Code of Canada. (One of the borrowers, Vid Wadhwani, said in a brief interview that it was “a rate that I was willing to accept, given that it was supposed to be short-term in nature.” He also said the 2007 foreclosure application did not proceed and that the matter was resolved.) Last year, private investors gave a Vancouver businessman and former lawyer $4.5-million in adjustable rate mortgages that resulted in payments of $89,000 a month, or an interest rate of more than 25 per cent. The investors have initiated foreclosure proceedings against his West Vancouver home.
The number of subprime lenders who have initiated foreclosure proceedings isn't a surprise to anyone in the business, said Kap Hiroti, the owner of Foreclosurelist.ca, one of the companies that tracks foreclosures and supplied data for this story. “It was almost as if the lenders didn't see the big picture,” Mr. Hiroti said.
The spread of subprime mortgages to Canada is one of the country's most poorly researched and misunderstood economic afflictions. Government agencies don't publish numbers on the scope of high-risk lending. Banks and other mortgage lenders do not disclose details about such loans, known in industry parlance as “non-conforming” loans.
Until the early 2000s, subprime mortgage lending was the tiny domain of adventurous private investors or mortgage lenders who were comfortable gambling that they could profit by charging exorbitant interest rates to home buyers who didn't meet the conservative lending criteria of banks and trust companies that dominated the Canadian market.
By the mid 2000s, this little-used lending practice was transformed into the fastest growing segment of the country's mortgage market. Driving the changes was the migration to Canada of aggressive U.S. mortgage lenders such as Accredited Home Lenders Inc., Wells Fargo, GMAC and GE Money, which were drawn to Canada's frothy real estate market, particularly the commodity-stoked cities in Western Canada.
As long as real estate prices soared, these lending high-rollers were comforted by the belief that losses on defaulted mortgages could be recovered by foreclosing and selling repossessed homes at a profit. Added protection for a small portion of these lenders came from aggressive U.S.
mortgage insurers that were approved by the federal government in 2006 to compete in Canada. Other mortgage newcomers such as Vancouver-based Abode Mortgage Corp., a company created out of the remains of a former flush toilet maker, and Toronto-based Xceed Mortgage Corp., minimized their risks by selling mortgages to entities that sold securities backed by mortgages to investors.
One of the first experts to sound the alarm about the proliferation of subprime mortgages was Benjamin Tal, an economist with CIBC World Markets who published a report in late 2006 warning “the genie is out of the bottle.” Mr. Tal declined to be interviewed, but his report estimated that subprime loans were growing at a “meteoric” annual pace of 50 per cent by the end of 2006, making it the fastest growing segment of Canada's mortgage market. In 2006, Mr. Tal estimated more than 85,000 Canadian homeowners had subprime loans.
By late 2007, the combination of easy money and soaring real estate prices lulled many borrowers and lenders into viewing houses as virtual cash machines. Some borrowers took out second and third mortgages at high rates of interest to make investments on other properties or fund a lifestyle beyond the means of their paycheques.
Nick Kyprianou, president of Home Trust, one of Canada's first and largest alternative lenders, said his company began to scale back in Western Canada in 2007 because it became uncomfortable with homeowners' soaring debt levels.
“When the values are escalating at that rapid of a rate and you're just allowing people to use their houses as ATM machines and they keep refinancing every year to accommodate their lifestyle, it's just a house of cards,” Mr. Kyprianou said. Home Trust's retreat was apparently not fast enough. According to court data, the company initiated foreclosure proceedings on 120 borrowers in Alberta in 2008.
Home Trust is a federally regulated trust company, unlike competitors such as the U.S.-based GE Money and Wells Fargo that jumped into the Canadian market in mid-2000. Mortgage lenders that aren't federally regulated aren't required, like banks and trust companies, to use a government-approved insurer when the borrower has put down less than 20 per cent of the value of the home.
The lack of government supervision of these companies increased risk in the system, Mr. Kyprianou said. The unregulated lenders, however, vigorously dispute that charge.
“There was nothing wrong with what people were doing. It was a sign of the times,” said a former official with Accredited Home Lenders. “We were all doing the same thing – all of us. We were all making money.... It was a whirlwind of cash and every once in a while you'd stick your arm out into the whirlwind and try to gobble up as much of the cash as you could.”
Brad Goodyear could use some of that cash right now, but the whirlwind blew out of town long ago.
Recently, he received an offer of $280,000 for the two-storey home, which would leave him $60,000 short of what he owes his creditors.
For the past few weeks, he has been calling every mortgage broker he can find. Despite his past success at repeatedly refinancing, no one is biting. Most of the subprime lenders who might have pounced two years ago have either changed their business model to less risky lending, or – in the case of Accredited Home Lenders and GE Money – have exited the country altogether.
His largest outstanding mortgage with ResMor Trust, a $304,000 loan at 8-per-cent interest, is what landed him in court. Mr. Goodyear took the loan out when he got behind on his previous mortgage, he said. The ResMor money staved off that foreclosure, but his monthly payments jumped to $2,300 from $1,000. When he was late on his ResMor mortgage, he took out a second mortgage last year with Jack James, a private lender from Vancouver. Mr. James gave him $28,000 at an initial interest rate of 17 per cent, which jumped to 22 per cent a few weeks ago.
Both ResMor Trust and Mr. James declined to comment about their loans to Mr. Goodyear.
Asked what he was thinking when he took out another loan to pay off a smaller loan that he already couldn't afford, Mr. Goodyear replied: “Well, that's what runs what I do, but I shouldn't have borrowed more money. It was so easy to borrow money. You get in a bind.”
He continued: “Well, I'm sitting there, ‘Jeez, if everything works out'... I might have been able to do it. Just squeak by maybe.
“I thought maybe I'd have to sell, but I didn't think the market would take a tumble.”
Thursday, March 12, 2009
Financial Update for March 12, 2009
· TSX+130.61 surged for a second day in another broad advance led by beaten-down Canadian banks and insurance companies.
· DOW +3.91New York traders turned cautious, after the previous session's furious buying which had been prompted by news that Citigroup Inc. earned an operating profit in first 2 mths
· Dollar -.06c to 77.75USD.
· Oil -$3.38 to $42.33US per barrel.
· Gold -14.80 to $910.10 USD per ounce
· Canadian 5 yr bond yields -.04bps to 1.87. Four weeks ago it was 2.12.
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Conservatives remain rosy about economy rebound, blasts opposition gloom
Julian Beltrame, The Canadian Press OTTAWA - The Harper government continued to insist that Canada will be first out of the global economic crisis, while blasting opposition parties for talking the country down.
The economic boosterism began a day earlier with Prime Minister Stephen Harper's first major speech on the subject and was picked up by his finance minister Wednesday after an International Monetary Fund report provided a measure of cover.
"The report supports our budget, compliments our action plan," said Finance Minister Jim Flaherty after the global agency said Canada would weather the storm better than most.
And he said he would take the message to a weekend meeting of G20 countries in London, along with a call for the United States and the Europeans to get their houses in order.
"We're going to emphasize the need, the imperative of the United States to fix its banking system and the Europeans to fix their banking system, because we have to get the banking systems functional properly in order to have reasonable access to financing and credit," he explained.
Later in the day, Harper chided the Liberals as purveyors of doom and gloom, and Transport Minister John Baird built on the theme, saying the government is providing "a little bit of hope, a little bit of jobs, a little bit of opportunity."
The Conservative offensive appears designed to portray the opposition parties as economic Cassandras, while also accusing them of stalling the government's best efforts to stimulate the economy quickly.
For the second day, Harper and Flaherty charged the Liberal-dominated Senate is holding up the stimulus, although it only began hearings on the budget this week.
"The Senate is holding up nothing," said Liberal Leader Michael Ignatieff. "You can't spend the money 'till the first of April. This prime minister cannot live without creating artificial crises."
The IMF report appeared a mixed blessing for the government.
While lauding Ottawa's $40-billion stimulus over two years, it also predicts Canada's economy will worsen before it gets better and says little about Canada exiting the recession ahead of others.
"Real exports and output have fallen and are likely to decline further in coming months," it says. "Economic activity will likely decline further in the near term, before picking up on the back of the policy stimulus already in train."
And the IMF cautions: "Downside risks predominate, including negative spillovers if the global environment worsens more than expected."
As well, a new report from parliamentary budget officer Kevin Page suggests that Canada's economy may be weaker than previously reported and not much better than that of the United States.
Page pointed out in a report that Canada's gross domestic income, which measures Canadians' purchasing power, plunged 15.3 per cent in the fourth quarter over the previous three months, 10 times the U.S. contraction.
The sharp drop was primarily driven by tumbling in corporate profits as a result of the crash in world commodity prices, the report states. As a net importer of commodities, the United States generally prospers from falling raw material prices.
"When Canada was fine few people were paying attention to (domestic income) and now the tide has definitely turned," said economist Douglas Porter of BMO Capital Markets.
"Now that commodity prices have plunged, the pain that the economy is suffering might be somewhat understated by looking solely at gross domestic product."
Another study by DBRS said the government stimulus package is "unlikely to have a perceptible impact this year" to boost the economy.
Flaherty preferred to see the glass half full, however.
He said Canada's sound fundamentals and massive stimulus, if properly and swiftly implemented, will lead to a stronger and quicker rebound than the rest of the world.
"We have the strongest fiscal fundamentals in the G7, we have paid down debt, we're not creating a long-term permanent deficit... (and) that leads us late into the recession and early out of the recession," he said.
The forecast appears to derive from an analysis first outlined by Bank of Canada governor Mark Carney in January, when he projected the economy would bounce back strongly in 2010 to 3.8 per cent growth.
But Liberal MP Gerard Kennedy said the government hasn't gotten off to a particularly good start on its stimulus spending projections.
Kennedy said the government's own plans shows the green infrastructure fund will not begin until the fall and the $2 billion infrastructure stimulus fund will not start until July. Very little of the budget stimulus, he said, is slated to begin shortly after April 1, when it can legally start spending.
Flaherty said Canadians can judge how the government is doing in rolling out the stimulus through a new website - actionplan.gc.ca - that started up Wednesday morning.
· DOW +3.91New York traders turned cautious, after the previous session's furious buying which had been prompted by news that Citigroup Inc. earned an operating profit in first 2 mths
· Dollar -.06c to 77.75USD.
· Oil -$3.38 to $42.33US per barrel.
· Gold -14.80 to $910.10 USD per ounce
· Canadian 5 yr bond yields -.04bps to 1.87. Four weeks ago it was 2.12.
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Conservatives remain rosy about economy rebound, blasts opposition gloom
Julian Beltrame, The Canadian Press OTTAWA - The Harper government continued to insist that Canada will be first out of the global economic crisis, while blasting opposition parties for talking the country down.
The economic boosterism began a day earlier with Prime Minister Stephen Harper's first major speech on the subject and was picked up by his finance minister Wednesday after an International Monetary Fund report provided a measure of cover.
"The report supports our budget, compliments our action plan," said Finance Minister Jim Flaherty after the global agency said Canada would weather the storm better than most.
And he said he would take the message to a weekend meeting of G20 countries in London, along with a call for the United States and the Europeans to get their houses in order.
"We're going to emphasize the need, the imperative of the United States to fix its banking system and the Europeans to fix their banking system, because we have to get the banking systems functional properly in order to have reasonable access to financing and credit," he explained.
Later in the day, Harper chided the Liberals as purveyors of doom and gloom, and Transport Minister John Baird built on the theme, saying the government is providing "a little bit of hope, a little bit of jobs, a little bit of opportunity."
The Conservative offensive appears designed to portray the opposition parties as economic Cassandras, while also accusing them of stalling the government's best efforts to stimulate the economy quickly.
For the second day, Harper and Flaherty charged the Liberal-dominated Senate is holding up the stimulus, although it only began hearings on the budget this week.
"The Senate is holding up nothing," said Liberal Leader Michael Ignatieff. "You can't spend the money 'till the first of April. This prime minister cannot live without creating artificial crises."
The IMF report appeared a mixed blessing for the government.
While lauding Ottawa's $40-billion stimulus over two years, it also predicts Canada's economy will worsen before it gets better and says little about Canada exiting the recession ahead of others.
"Real exports and output have fallen and are likely to decline further in coming months," it says. "Economic activity will likely decline further in the near term, before picking up on the back of the policy stimulus already in train."
And the IMF cautions: "Downside risks predominate, including negative spillovers if the global environment worsens more than expected."
As well, a new report from parliamentary budget officer Kevin Page suggests that Canada's economy may be weaker than previously reported and not much better than that of the United States.
Page pointed out in a report that Canada's gross domestic income, which measures Canadians' purchasing power, plunged 15.3 per cent in the fourth quarter over the previous three months, 10 times the U.S. contraction.
The sharp drop was primarily driven by tumbling in corporate profits as a result of the crash in world commodity prices, the report states. As a net importer of commodities, the United States generally prospers from falling raw material prices.
"When Canada was fine few people were paying attention to (domestic income) and now the tide has definitely turned," said economist Douglas Porter of BMO Capital Markets.
"Now that commodity prices have plunged, the pain that the economy is suffering might be somewhat understated by looking solely at gross domestic product."
Another study by DBRS said the government stimulus package is "unlikely to have a perceptible impact this year" to boost the economy.
Flaherty preferred to see the glass half full, however.
He said Canada's sound fundamentals and massive stimulus, if properly and swiftly implemented, will lead to a stronger and quicker rebound than the rest of the world.
"We have the strongest fiscal fundamentals in the G7, we have paid down debt, we're not creating a long-term permanent deficit... (and) that leads us late into the recession and early out of the recession," he said.
The forecast appears to derive from an analysis first outlined by Bank of Canada governor Mark Carney in January, when he projected the economy would bounce back strongly in 2010 to 3.8 per cent growth.
But Liberal MP Gerard Kennedy said the government hasn't gotten off to a particularly good start on its stimulus spending projections.
Kennedy said the government's own plans shows the green infrastructure fund will not begin until the fall and the $2 billion infrastructure stimulus fund will not start until July. Very little of the budget stimulus, he said, is slated to begin shortly after April 1, when it can legally start spending.
Flaherty said Canadians can judge how the government is doing in rolling out the stimulus through a new website - actionplan.gc.ca - that started up Wednesday morning.
Wednesday, March 11, 2009
Financial Update for March 11, 2009
Stock markets make triple-digit gains as bank and insurer investors rejoice
· TSX+313.37 Stock markets surged on a huge runup in bank and insurance shares after American financial-services giant Citigroup Inc. said it was profitable in the first two months of this year. It was the biggest gain this year for the benchmark Canadian index.
· DOW +379.44 Traders were also encouraged as Federal Reserve chairman Ben Bernanke outlined measures to prevent another financial crisis. These would include legislation to handle the failure of a huge financial institution in an orderly way, along with tighter supervision of risk at companies regarded as too big to be allowed to fail.
· Dollar +.83c to 77.81USD. The U.S. dollar eased in general and the loonie benefited as Singapore's government investment council released a statement favouring investing in Canada
· Oil -$1.36 to $45.71US per barrel. Crude oil, gasoline and other fuel prices tumbled after the U.S. government again lowered its forecast for global energy demand and said average oil prices for this year will likely be below current levels.
· Gold -22.10 to $895.90 USD per ounce
· Canadian 5 yr bond yields +.05bps to 1.91
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
The 5 year bond yield is 1.91, up 0.05 from yesterday. Four weeks ago it was 2.12.
Canada to emerge from global crisis before others and stronger than before: Harper
Allison Jones, The Canadian Press BRAMPTON, Ont. - Canada will emerge from the global recession before any other country and in a stronger economic position than ever, Prime Minister Stephen Harper said Tuesday as his government aggressively moved to sell its fiscal plan.
The rosy picture Harper painted of the ability to not only recover but profit from the worldwide crisis came as he dispatched two of his top lieutenants to deliver variations of the same message: the Conservative stimulus package will put the country on the right track and the opposition must support it.
The notion that the opposition was stalling economic recovery raised the ire of Liberal Leader Michael Ignatieff, who said the party is doing everything it can to help get the money out the door.
Harper, in his address to a business crowd in Brampton, Ont., noted that "Canada was the last advanced country to fall into this recession."
"We will make sure its effects here are the least severe, and we will come out of this faster than anyone and stronger than ever."
The crisis, ultimately, is an "opportunity to position ourselves so that when the recovery comes, we're among the first to catch the wave."
While Harper placed Canada at the forefront of economic relief, he also said our fortunes depend on those of the United States.
"We will not turn the corner on this global recession until the American financial sector is fixed," he said.
Across town, Industry Minister Tony Clement echoed that sentiment following a speech to the C.D. Howe Institute which focused - like his boss's address - on the government's plan to navigate the crisis.
Only American consumers can save the flattened auto industry from extinction, he said.
In Ottawa, Finance Minister Jim Flaherty delivered the hard-sell as he demanded that the Liberal-dominated Senate pass his budget bill and its $40-billion stimulus package.
The simultaneous sorties by the prime minister and his two most senior economic ministers in three different locations represent an aggressive shift into selling the economic plan.
Harper's own MPs have complained privately that there has been too much gloom and not enough reassurance about Canada's economic future in the six weeks since the budget was delivered.
The prime minister took on a more prominent role after the Jan. 27 federal budget and has been visiting various pockets of the country to make stimulus-funding announcements.
He spent this past weekend at his official residence typing away at Tuesday's 3,300-word address - one of the rare occasions when Harper has written a speech from start to finish.
In his speech, Harper suggested that the opposition is standing in the way of the fiscal rescue plan - pointing to the proposed $3-billion fund aimed at quickly stimulating the economy.
The Liberals have said they won't support it without having some idea how the money would be spent.
"We cannot have the opposition in Parliament replacing bureaucratic red tape with political red tape," Harper said.
Liberal Leader Michael Ignatieff said he found Harper's comments laughable.
"It's a comic spectacle but it's a spectacle of misrepresentation," he said after Question Period in Ottawa.
"We passed the budget last week. Did anybody notice? We passed the budget... We have done everything we can to get the money out the door quickly.
"There will be literally no delay, repeat, no delay from the Liberal Party of Canada in getting needed, needed stimulus to Canadians."
At least one economist agreed with Harper's assertion that Canada is in a better position to weather the economic crisis and will not be hit as hard as other nations.
Still, TD chief economist Don Drummond said he was "less certain about the bit that we will recover faster."
Canada's economy is inextricably linked to the global economy through our exports to the United States and it's hard to imagine Canada recovering faster, Drummond said.
"In our forecast we have the recoveries occurring simultaneously."
TD has predicted Canada's economic troubles will ease at the end of the year, but Drummond said that may change.
"We will be putting out our forecast on the 12th and we go through five key assumptions that one has to make, but if any of those don't get fulfilled then I think it's going to get delayed beyond that."
· TSX+313.37 Stock markets surged on a huge runup in bank and insurance shares after American financial-services giant Citigroup Inc. said it was profitable in the first two months of this year. It was the biggest gain this year for the benchmark Canadian index.
· DOW +379.44 Traders were also encouraged as Federal Reserve chairman Ben Bernanke outlined measures to prevent another financial crisis. These would include legislation to handle the failure of a huge financial institution in an orderly way, along with tighter supervision of risk at companies regarded as too big to be allowed to fail.
· Dollar +.83c to 77.81USD. The U.S. dollar eased in general and the loonie benefited as Singapore's government investment council released a statement favouring investing in Canada
· Oil -$1.36 to $45.71US per barrel. Crude oil, gasoline and other fuel prices tumbled after the U.S. government again lowered its forecast for global energy demand and said average oil prices for this year will likely be below current levels.
· Gold -22.10 to $895.90 USD per ounce
· Canadian 5 yr bond yields +.05bps to 1.91
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
The 5 year bond yield is 1.91, up 0.05 from yesterday. Four weeks ago it was 2.12.
Canada to emerge from global crisis before others and stronger than before: Harper
Allison Jones, The Canadian Press BRAMPTON, Ont. - Canada will emerge from the global recession before any other country and in a stronger economic position than ever, Prime Minister Stephen Harper said Tuesday as his government aggressively moved to sell its fiscal plan.
The rosy picture Harper painted of the ability to not only recover but profit from the worldwide crisis came as he dispatched two of his top lieutenants to deliver variations of the same message: the Conservative stimulus package will put the country on the right track and the opposition must support it.
The notion that the opposition was stalling economic recovery raised the ire of Liberal Leader Michael Ignatieff, who said the party is doing everything it can to help get the money out the door.
Harper, in his address to a business crowd in Brampton, Ont., noted that "Canada was the last advanced country to fall into this recession."
"We will make sure its effects here are the least severe, and we will come out of this faster than anyone and stronger than ever."
The crisis, ultimately, is an "opportunity to position ourselves so that when the recovery comes, we're among the first to catch the wave."
While Harper placed Canada at the forefront of economic relief, he also said our fortunes depend on those of the United States.
"We will not turn the corner on this global recession until the American financial sector is fixed," he said.
Across town, Industry Minister Tony Clement echoed that sentiment following a speech to the C.D. Howe Institute which focused - like his boss's address - on the government's plan to navigate the crisis.
Only American consumers can save the flattened auto industry from extinction, he said.
In Ottawa, Finance Minister Jim Flaherty delivered the hard-sell as he demanded that the Liberal-dominated Senate pass his budget bill and its $40-billion stimulus package.
The simultaneous sorties by the prime minister and his two most senior economic ministers in three different locations represent an aggressive shift into selling the economic plan.
Harper's own MPs have complained privately that there has been too much gloom and not enough reassurance about Canada's economic future in the six weeks since the budget was delivered.
The prime minister took on a more prominent role after the Jan. 27 federal budget and has been visiting various pockets of the country to make stimulus-funding announcements.
He spent this past weekend at his official residence typing away at Tuesday's 3,300-word address - one of the rare occasions when Harper has written a speech from start to finish.
In his speech, Harper suggested that the opposition is standing in the way of the fiscal rescue plan - pointing to the proposed $3-billion fund aimed at quickly stimulating the economy.
The Liberals have said they won't support it without having some idea how the money would be spent.
"We cannot have the opposition in Parliament replacing bureaucratic red tape with political red tape," Harper said.
Liberal Leader Michael Ignatieff said he found Harper's comments laughable.
"It's a comic spectacle but it's a spectacle of misrepresentation," he said after Question Period in Ottawa.
"We passed the budget last week. Did anybody notice? We passed the budget... We have done everything we can to get the money out the door quickly.
"There will be literally no delay, repeat, no delay from the Liberal Party of Canada in getting needed, needed stimulus to Canadians."
At least one economist agreed with Harper's assertion that Canada is in a better position to weather the economic crisis and will not be hit as hard as other nations.
Still, TD chief economist Don Drummond said he was "less certain about the bit that we will recover faster."
Canada's economy is inextricably linked to the global economy through our exports to the United States and it's hard to imagine Canada recovering faster, Drummond said.
"In our forecast we have the recoveries occurring simultaneously."
TD has predicted Canada's economic troubles will ease at the end of the year, but Drummond said that may change.
"We will be putting out our forecast on the 12th and we go through five key assumptions that one has to make, but if any of those don't get fulfilled then I think it's going to get delayed beyond that."
Tuesday, March 10, 2009
Financial Update for March 10, 2009
· TSX-24.53 ended at its lowest close in more than 5 years as weaker gold prices dragged down materials shares while bank worries weighed on financial issues.
· DOW -79.89 Billionaire Warren Buffett said all 535 members of Congress should stop partisan bickering about solutions and support President Barack Obama. What is required is a commander in chief that's looked at like a commander in chief in a time of economic war,''
· Dollar -.45c to 76.98USD.
· Oil +$1.55 to $47.07US per barrel.
· Gold -24.40 to $917.70 USD per ounce The drop in gold prices knocked the TSX's broader materials sector -- home to many of the country's top gold miners -- down by 0.98%
· Canadian 5 yr bond yields +.01bps to 1.86
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Analysts advise choosing type of mortgage wisely
Ross Marowits The Canadian PressMar 09, 2009
MONTREAL
Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.
Canadian Imperial Bank of Commerce's chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.
"If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap,'' Benjamin Tal said.
"Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising.''
Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.
Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.
The central bank went even further last week, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.5 per cent.
Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.
The self-professed fan of variable mortgages said they give customers control, which is important in the current climate.
Gaetano said homeowners should use this window of low rates to pay down their mortgages.
Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.
Mortgage expert Moshe Milevsky of York University suspects many Canadians will opt for the security of fixed mortgages considering how low rates have dropped.
But he said the decision about what kind of mortgage to take should never be made in isolation of individual circumstances such as the amount of equity, value of the house, debts and risk aversion.
And in markets where real estate prices are falling, seeking a long-term rate may be more important than the type of rate.
"The last thing you want to do is have to renew your mortgage in a year from now and have the bank say: 'Let's assess what that house is really worth,"' he said in an interview.
Studies conducted by Milevsky have shown that variable rates have historically produced greater savings 88 per cent of the time.
"But in today's environment, you'd be hard-pressed to make a case to continue floating,'' he said, advocating a blend between fixed and floating rates.
Why it’s time to buy a house Experts say right now may be the best time in years to buy a home Friday, March 6, 2009 Julian Beltrame Canadian Press
OTTAWA - Jim Rawson says it's a great time to buy a house.
The regional manager of Invis mortgage brokerage firm in Toronto has been in the business since 1978 and has never seen interest rates, both variable and fixed, so low. Pair that with falling housing prices and it's a no-brainer.
"People have to have somewhere to live and whether you are paying for a mortgage or paying rent, you still have to be paying to live somewhere," Rawson explains.
But something is missing in the equation. As prices for most consumer goods, cars and homes decline - in some cases plunge - and the cost of borrowing falls, Canadians have been hesitant to buy.
The Bank of Canada did its part this week to lure consumers and businesses out of their fox hole, dropping the overnight rate down to an unheard of half per cent - virtually zero.
Canada's chartered banks lowered their prime rate to 2.5 per cent on Tuesday, shortly after the central bank moved, and by the end of the week were lowering other lending rates.
TD Canada Trust, for one, is reducing several of its posted fixed-term mortgage rates on Saturday. TD's biggest decrease was with its two-year mortgage, which falls to 5.0 per cent from 5.75 per cent.
Scotiabank went even further, lopping nearly two full percentage points off the advertised price for its 10-year mortgage, which fell to 5.25 per cent from 7.15 per cent, effective Friday.
By almost every measure, Canadians have slowed down borrowing and spending, most visibly in the auto sector, which saw sales volume crash by 28 per cent in February.
The Canadian housing market, for years a source of boundless growth, has come crashing to earth with sales, prices, and construction of new homes all down, in many cases by double-digits.
Consumers have also stopped discretionary purchases, as the 5.4 per cent contraction in retail sales in December - the largest in 15 years - shows.
"I think they're scared out there," says Bruce Cran of the Consumers' Association of Canada. "Consumers are tapped out and frightened of over-spending. They are going back to being savers."
Bank of Canada deputy governor Pierre Duguay may have a point in saying there is a danger of "irrational fear" taking hold, but there are also very real reasons to be concerned.
Canada lost 129,000 jobs in January, the third straight month of decline, and announcements of future layoffs are being posted almost daily. Everyone is predicting the Canadian economy has much further to fall after contracting 3.4 per cent in December.
There is also fact that the days of easy money are over. Chartered banks are being more choosy who they lend to and interest rates - low as they are - are higher than they might be given the central bank rate and non-existent inflation.
Variable rate mortgages, for example, formerly could be had below the banks' prime rate. The prime rates have fallen, along with the Bank of Canada's moves, but now banks' variable mortgage rates are well above prime.
Individuals have also cut back on borrowing, hence spending. TD Bank chief executive Ed Clark said this week that overall demand for loans is coming down.
Under normal times, economists would say that is a good thing. Rampant buying, particularly in the United States, was a major contributor to the financial sector meltdown that brought the world low.
Americans have now pulled back big time making matters worse, even though the Federal Reserve rate at 0.25 per cent is lower than the Bank of Canada's. The U.S. once lamentable savings rate has shot from just above one per cent to five per cent in a matter of months.
The amount of debt Canadians held as a ratio of their income increased last year to 136 per cent from 130 per cent. What kept them solvent is that low interest rates made the cost of servicing that mounting debt at affordable levels.
That is as long as jobs, incomes and the economy were advancing. In a recent CIBC World Markets report, economist Benjamin Tal showed the squeeze was underway.
Canadians assets fell by $160 billion in the third quarter, he noted, adding that with house and equity values falling, Canadians would likely be another $180 billion poorer in the fourth quarter. Values haven't gotten better since.
As well, debt is rising and consumer bankruptcies are jumping - 13.5 per cent last year with expectations they could hit 30 per cent growth this year. Mortgage arrears are also on an upward path, rising from a record low of 0.24 per cent to the current 0.33 per cent, the highest in six years.
But the big number, says Tal, is the number of Canadians who have lost their job and the much bigger number that are for the first time in many years afraid of losing their job.
"The issue is confidence," he said. "People talk about the unemployment rate going to eight and nine per cent, but the focus should be on the 91 per cent of people who are employed and are concerned about their jobs."
Tal and most economists believe that Canadians will start spending again because they no longer can put off purchases. But he doesn't believe they will spend with the reckless abandon of the recent past.
"After the crisis is over, consumer spending will be stronger but not like it used to be because it was artificially strong before, using borrowed money," Tal said.
Rawson believes that time is coming soon, at least in the housing market.
Applications for mortgages in his Toronto office have doubled since December, Rawson says, with many in the pre-approved market. That usually involves first-time prospective buyers making sure all their ducks are lined up before taking the plunge.
"These are people who haven't bought yet but they will buy in the future," he says.
· DOW -79.89 Billionaire Warren Buffett said all 535 members of Congress should stop partisan bickering about solutions and support President Barack Obama. What is required is a commander in chief that's looked at like a commander in chief in a time of economic war,''
· Dollar -.45c to 76.98USD.
· Oil +$1.55 to $47.07US per barrel.
· Gold -24.40 to $917.70 USD per ounce The drop in gold prices knocked the TSX's broader materials sector -- home to many of the country's top gold miners -- down by 0.98%
· Canadian 5 yr bond yields +.01bps to 1.86
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Analysts advise choosing type of mortgage wisely
Ross Marowits The Canadian PressMar 09, 2009
MONTREAL
Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.
Canadian Imperial Bank of Commerce's chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.
"If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap,'' Benjamin Tal said.
"Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising.''
Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.
Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.
The central bank went even further last week, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.5 per cent.
Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.
The self-professed fan of variable mortgages said they give customers control, which is important in the current climate.
Gaetano said homeowners should use this window of low rates to pay down their mortgages.
Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.
Mortgage expert Moshe Milevsky of York University suspects many Canadians will opt for the security of fixed mortgages considering how low rates have dropped.
But he said the decision about what kind of mortgage to take should never be made in isolation of individual circumstances such as the amount of equity, value of the house, debts and risk aversion.
And in markets where real estate prices are falling, seeking a long-term rate may be more important than the type of rate.
"The last thing you want to do is have to renew your mortgage in a year from now and have the bank say: 'Let's assess what that house is really worth,"' he said in an interview.
Studies conducted by Milevsky have shown that variable rates have historically produced greater savings 88 per cent of the time.
"But in today's environment, you'd be hard-pressed to make a case to continue floating,'' he said, advocating a blend between fixed and floating rates.
Why it’s time to buy a house Experts say right now may be the best time in years to buy a home Friday, March 6, 2009 Julian Beltrame Canadian Press
OTTAWA - Jim Rawson says it's a great time to buy a house.
The regional manager of Invis mortgage brokerage firm in Toronto has been in the business since 1978 and has never seen interest rates, both variable and fixed, so low. Pair that with falling housing prices and it's a no-brainer.
"People have to have somewhere to live and whether you are paying for a mortgage or paying rent, you still have to be paying to live somewhere," Rawson explains.
But something is missing in the equation. As prices for most consumer goods, cars and homes decline - in some cases plunge - and the cost of borrowing falls, Canadians have been hesitant to buy.
The Bank of Canada did its part this week to lure consumers and businesses out of their fox hole, dropping the overnight rate down to an unheard of half per cent - virtually zero.
Canada's chartered banks lowered their prime rate to 2.5 per cent on Tuesday, shortly after the central bank moved, and by the end of the week were lowering other lending rates.
TD Canada Trust, for one, is reducing several of its posted fixed-term mortgage rates on Saturday. TD's biggest decrease was with its two-year mortgage, which falls to 5.0 per cent from 5.75 per cent.
Scotiabank went even further, lopping nearly two full percentage points off the advertised price for its 10-year mortgage, which fell to 5.25 per cent from 7.15 per cent, effective Friday.
By almost every measure, Canadians have slowed down borrowing and spending, most visibly in the auto sector, which saw sales volume crash by 28 per cent in February.
The Canadian housing market, for years a source of boundless growth, has come crashing to earth with sales, prices, and construction of new homes all down, in many cases by double-digits.
Consumers have also stopped discretionary purchases, as the 5.4 per cent contraction in retail sales in December - the largest in 15 years - shows.
"I think they're scared out there," says Bruce Cran of the Consumers' Association of Canada. "Consumers are tapped out and frightened of over-spending. They are going back to being savers."
Bank of Canada deputy governor Pierre Duguay may have a point in saying there is a danger of "irrational fear" taking hold, but there are also very real reasons to be concerned.
Canada lost 129,000 jobs in January, the third straight month of decline, and announcements of future layoffs are being posted almost daily. Everyone is predicting the Canadian economy has much further to fall after contracting 3.4 per cent in December.
There is also fact that the days of easy money are over. Chartered banks are being more choosy who they lend to and interest rates - low as they are - are higher than they might be given the central bank rate and non-existent inflation.
Variable rate mortgages, for example, formerly could be had below the banks' prime rate. The prime rates have fallen, along with the Bank of Canada's moves, but now banks' variable mortgage rates are well above prime.
Individuals have also cut back on borrowing, hence spending. TD Bank chief executive Ed Clark said this week that overall demand for loans is coming down.
Under normal times, economists would say that is a good thing. Rampant buying, particularly in the United States, was a major contributor to the financial sector meltdown that brought the world low.
Americans have now pulled back big time making matters worse, even though the Federal Reserve rate at 0.25 per cent is lower than the Bank of Canada's. The U.S. once lamentable savings rate has shot from just above one per cent to five per cent in a matter of months.
The amount of debt Canadians held as a ratio of their income increased last year to 136 per cent from 130 per cent. What kept them solvent is that low interest rates made the cost of servicing that mounting debt at affordable levels.
That is as long as jobs, incomes and the economy were advancing. In a recent CIBC World Markets report, economist Benjamin Tal showed the squeeze was underway.
Canadians assets fell by $160 billion in the third quarter, he noted, adding that with house and equity values falling, Canadians would likely be another $180 billion poorer in the fourth quarter. Values haven't gotten better since.
As well, debt is rising and consumer bankruptcies are jumping - 13.5 per cent last year with expectations they could hit 30 per cent growth this year. Mortgage arrears are also on an upward path, rising from a record low of 0.24 per cent to the current 0.33 per cent, the highest in six years.
But the big number, says Tal, is the number of Canadians who have lost their job and the much bigger number that are for the first time in many years afraid of losing their job.
"The issue is confidence," he said. "People talk about the unemployment rate going to eight and nine per cent, but the focus should be on the 91 per cent of people who are employed and are concerned about their jobs."
Tal and most economists believe that Canadians will start spending again because they no longer can put off purchases. But he doesn't believe they will spend with the reckless abandon of the recent past.
"After the crisis is over, consumer spending will be stronger but not like it used to be because it was artificially strong before, using borrowed money," Tal said.
Rawson believes that time is coming soon, at least in the housing market.
Applications for mortgages in his Toronto office have doubled since December, Rawson says, with many in the pre-approved market. That usually involves first-time prospective buyers making sure all their ducks are lined up before taking the plunge.
"These are people who haven't bought yet but they will buy in the future," he says.
Monday, March 9, 2009
Financial Update for March 09, 2009
· TSX-37.70 Investors hoping that markets were near bottom saw those hopes tried after concerns about the financial sector sent North American indexes crashing through the lows of last November.
· DOW +32.50 also hit by more miserable data from the U.S. showing a loss of 651,000 jobs last month, while the unemployment rate jumped to 8.1% from 7.6%
· Dollar +.11c to 77.73USD.
· Oil +$1.91 to $45.52US per barrel.
· Gold +15.10 to $942.10 USD per ounce
· Canadian 5 yr bond yields +.04bps to 1.85
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
TORONTO - The Canadian Auto Workers union has reached a tentative labour agreement with General Motors of Canada Ltd. that calls for a freeze on wages and pensions as part of the automaker's restructuring, the union said Sunday.
The deal came 3 days after the country's biggest industrial union began talks with GM in a bid to help the automaker cut costs and remain competitive with U.S. plants to secure future car and parts assembly work in Canada. The proposed agreement, which would run to September 2012, suspends quarterly cost-of-living adjustments for wages and scraps annual increases to pensions, among other things.
"These changes represent a major sacrifice by our active members and retirees," said CAW President Ken Lewenza. "They will reduce active hourly labour costs by several dollars per hour, reinforcing Canada's investment advantage relative to U.S. facilities." The automaker called the agreement "a positive further step" in its restructuring plan, which it submitted to Ottawa and the Ontario government Feb. 20. "We compliment the CAW for their leadership to share sacrifices in these extremely challenging economic times," the company said in a statemen
Canada envy, amid a global meltdown
TARA PERKINS AND BOYD ERMAN From Saturday's Globe and Mail
Canada's banks are finally getting some respect.
Derided for years as meek and mild while banks around the world expanded wildly, suddenly the reputation of Canada's big lenders as prudent and sometimes downright boring has become an asset instead of a liability.
U.S. President Barack Obama has heaped praise on the management of this country's financial system. Ireland is considering overhauling its system to look more like Canada's. Financial papers around the world are running headlines such as “Canada banks prove envy of the world.”
Whether measured by market value, balance sheet strength or profitability, Canada's banks are rising to the top. Since the credit crunch began in the summer of 2007, the Big Five banks have booked a total of $18.9-billion in profits.
In roughly the same period, the five biggest U.S. banks have lost more than $37-billion (U.S.). One, Wachovia Corp., was forced to sell out to avoid failing. Another, Citigroup Inc., long the world's largest bank, may have to be nationalized and this week became a penny stock. The picture is similar in Britain.
The U.S. has spent most of the $700-billion the government earmarked for bank bailouts, and there are estimates that the final tally could be more in the trillions of dollars. The head of the Bank of England said last month that it's “impossible” to know how much money it will take to fix his country's banks.
Canada, by contrast, has not had to inject capital directly into banks, other than starting a program to buy from banks $125-billion (Canadian) of insured mortgages – any losses from which the government was already on the hook for anyway.
The reason comes down to a fundamental conservatism. From lending practices to bets on trading to financial reserves and takeovers, the Big Five banks have long tended to be more careful than their global peers. And when they did want to get aggressive, government and regulators held them in check.
“The Canadian banks were under a significant amount of pressure from both the analysts and the marketplace in general to be more aggressive in expanding into international markets, particularly the United States, and I think to some degree resisted partially because of a more conservative approach,” says RBC chief executive officer Gordon Nixon.
Still, the industry has had stumbles, most notably Canadian Imperial Bank of Commerce's misadventure in derivatives, which led to a $2.1-billion loss for 2008.
And shareholders in Canadian banks have been battered. As a group, the banks' shares are down almost 50 per cent since Aug. 1, 2007, with most of the decline in the past six months as the economy worsened.
The concern weighing on these bank shares, for starters, is that profit growth in general is a thing of the past until the economy picks up. Most analysts say the banks' profits will shrink in coming quarters as more loans go sour and margins on lending tighten up. There's also nagging doubts that dividend payments are unsustainable and that something bad is still lurking on balance sheets.
More writedowns are likely in store for banks such as Toronto-Dominion Bank and Royal Bank of Canada, both of which made big acquisitions in recent years that now look overpriced.
Still, bank bosses such as Rick Waugh, CEO of Bank of Nova Scotia, say the banks are insulated from lingering problems because they have profits rolling in from many sources.
“We have made mistakes,” he says, “but we made sure that we were well diversified.”
That's a result of a conservatism not just among executives. That same approach extends to consumers, helping the banks sail along on the strength of their domestic lending businesses.
“You've got a more balanced cultural approach towards consumption and savings than we do in this country,” says Charles Dallara, head of the Washington-based Institute of International Finance, and a former managing director at JPMorgan Chase & Co.
Much of that stems from the pain of the last recession. While the downturn of the early 1990s was short and sharp in the U.S., it was drawn out in Canada, leading to more of a social evolution, says CIBC chief executive officer Gerry McCaughey.
Former central bank governor David Dodge agrees. Canadian bank executives keenly remember that period, “and there was therefore perhaps a degree of prudence, a lack of aggressiveness, in comparison with major banks around the world,” he said.
And he gives top marks to the Office of the Superintendent of Financial Institutions, Canada's banking regulator, for being more conservative than those in the U.S. or Britain. “I think that, from a regulatory point of view, you can say that the Canadian banks were more appropriately regulated.”
The final key is the structure of the mortgage market.
While U.S. banks sold a large proportion of their mortgages, Canadian banks held the bulk of theirs on their balance sheets, giving them an incentive to make sure they were good loans.
Riskier ones are backed by government insurance. And the law here makes it tough for consumers to walk away from a mortgage because banks can go after other assets.
Still, the banks are wary of getting cocky when a careful approach has worked well.
“It's a good thing for us to recognize the things we do very well, but maybe do it in what is appropriately a Canadian way – with modesty,” said Bank of Montreal CEO Bill Downe.
Royal Bank of Canada
First quarter profit: $1.05-billion, down from $1.25-billion.
What's working: The bank's securities arm makes big bucks, and its huge retail bank in Canada generates steady earnings. RBC benefits from strong loan growth and expense control, notes UBS analyst Peter Rozenberg.
What's worrying: A foray into the U.S. leaves it exposed to the sagging American economy.
Investors never like to see too much of a bank's earnings come from capital markets, because it's a volatile business. And while the securities division is doing well, it's also booking big writedowns. “RBC's Achilles heel, in Moody's view, is its U.S. operation,” the rating agency says.
What the CEO says: “As a Canadian bank with global operations, RBC does have a competitive advantage relative to many of our global peers. The fundamentals of our domestic economy, while stressed, appear stronger than in Europe and the United States, having benefited from a public policy agenda that for many years valued prudent fiscal management.”
Total assets: $713-billion
Tier 1 capital ratio (Jan. 31): 10.6 per cent
Provision for credit losses: $747-million, up from $293-million
Toronto-Dominion Bank
First-quarter profit: $712-million, down from $970-million.
What's working: Retail arm TD Canada Trust is a dominant force across the country. “The bank's sizable capital cushion, combined with the recurring earnings from its Canadian franchise, leave it well positioned to manage through a period of economic headwinds,” says Moody's Investors Service.
What's worrying: TD expanded in the U.S. just as things were getting really bad. Now, the bank has the biggest U.S. retail banking presence of any Canadian bank – half of all the bank's branches are in the U.S. Plus, TD owns a big U.S. wealth management operation that may suffer as markets plunge. The consensus among analysts is that the bank's securities and trading side isn't big enough to make up for declining performance in other areas of the bank.
What the CEO says: “We are living in unprecedented times. So what we consider solid performance in the current environment is certainly not what we would be happy with in the long term. … We are going to take some bruises if the situation gets worse, but we're still going to be able to deliver solid earnings.”
Total assets: $585-billion
Tier 1 capital ratio (Jan. 31): 10.1 per cent
Provision for credit losses: $537-million, up from $255-million
Bank of Nova Scotia
First-quarter profit: $842-million, up from $835-million.
What's working: The bank's international business – the largest of the Canadian banks – posted a record quarter, and Scotiabank's reputation for risk management remains intact. The bank's securities and trading arm, Scotia Capital, had a near-record quarter.
What's worrying: Investors are leery of exposure to car loans and the auto industry. They are also keeping an eye on the bank's corporate loan book, the biggest of any Canadian bank.The bank's large international division, with a big presence in Latin America, was much more profitable than anticipated in the latest quarter, but the macro environment in Latin America has deteriorated in recent months, notes RBC Dominion Securities analyst André-Philippe Hardy.
What the CEO says: “The banking sector in Canada is still in good shape. Some say the best in the world. As a group, we are all very well capitalized by global standards. And Scotiabank clearly demonstrated this by the fact that we were able to raise more capital this quarter, all of it from the market, from private sources.”
Total assets : $510-billion
Tier 1 capital ratio at Jan. 31: 9.5 per cent
Provision for credit losses: $281-million, up from $111-million
Canadian Imperial Bank of Commerce
First-quarter profit: $147-million, up from a loss of $1.46-billion.
What's working: Most of the big problems relating to exposure to subprime-linked investments are behind the bank, and its balance sheet is rock solid after raising another $1.6-billion of capital this week. Analysts and investors like the fact that its Canadian-focused business means bad U.S. loans aren't a big issue.
What's worrying: The bank is getting out of or cutting back in so many business lines to avoid problems that it's unclear where growth will come from. Investors worry that the bank is becoming so risk-averse that it won't be able to compete.
Its core consumer lending segment saw earnings decline 14 per cent in the latest quarter, due in large part to rising provisions for bad credit card, manufacturing and real estate loans, notes Blackmont Capital analyst Brad Smith.
What the CEO says: “Market conditions worldwide for banks remain difficult. Yet arguably one of the better places to be right now is in Canada. At CIBC, the majority of our revenue is derived from retail markets, where we enjoy strong market positions in a broad range of products and services.”
Total assets: $354-billion
Tier 1 capital ratio at Jan. 31: 9.8 per cent (it's now a whopping 11.5 per cent)
Provision for credit losses: $284-million, up from $172-million
Bank of Montreal
First-quarter profit: $225-million, down from $255-million.
What's working: The bank's trading operations are buoying profit, and its retail operations are rebounding after lagging for years. A switch toward more profitable products, such as lines of credit, is helping the core operations churn out strong earnings.
What's worrying: Investors are concerned that trading profits can disappear fast, and the bank has a U.S. loan portfolio by virtue of its presence in the U.S. Midwest. There's also a nagging worry that the bank will cut its dividend that won't go away no matter how many times CEO Bill Downe says the payout is safe.
Credit Suisse analyst James Bantis is watching for rising credit losses in the $42-billion (U.S.) U.S. loan portfolio. He sees a large drop-off in the quality of the U.S. portfolio, which accounts for 27 per cent of BMO's loan book, compared to the Canadian portfolio.
What the CEO says: “Financial institutions everywhere continue to face headwinds in credit markets and the capital markets environment. BMO is well positioned to meet these challenges, having accessed markets to bolster our capital position and having further strengthened our strong liquidity in the period, albeit at a higher cost.”
Tier 1 capital ratio at Jan. 31: 10.21 per cent
Total assets: $443-billion
· DOW +32.50 also hit by more miserable data from the U.S. showing a loss of 651,000 jobs last month, while the unemployment rate jumped to 8.1% from 7.6%
· Dollar +.11c to 77.73USD.
· Oil +$1.91 to $45.52US per barrel.
· Gold +15.10 to $942.10 USD per ounce
· Canadian 5 yr bond yields +.04bps to 1.85
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
TORONTO - The Canadian Auto Workers union has reached a tentative labour agreement with General Motors of Canada Ltd. that calls for a freeze on wages and pensions as part of the automaker's restructuring, the union said Sunday.
The deal came 3 days after the country's biggest industrial union began talks with GM in a bid to help the automaker cut costs and remain competitive with U.S. plants to secure future car and parts assembly work in Canada. The proposed agreement, which would run to September 2012, suspends quarterly cost-of-living adjustments for wages and scraps annual increases to pensions, among other things.
"These changes represent a major sacrifice by our active members and retirees," said CAW President Ken Lewenza. "They will reduce active hourly labour costs by several dollars per hour, reinforcing Canada's investment advantage relative to U.S. facilities." The automaker called the agreement "a positive further step" in its restructuring plan, which it submitted to Ottawa and the Ontario government Feb. 20. "We compliment the CAW for their leadership to share sacrifices in these extremely challenging economic times," the company said in a statemen
Canada envy, amid a global meltdown
TARA PERKINS AND BOYD ERMAN From Saturday's Globe and Mail
Canada's banks are finally getting some respect.
Derided for years as meek and mild while banks around the world expanded wildly, suddenly the reputation of Canada's big lenders as prudent and sometimes downright boring has become an asset instead of a liability.
U.S. President Barack Obama has heaped praise on the management of this country's financial system. Ireland is considering overhauling its system to look more like Canada's. Financial papers around the world are running headlines such as “Canada banks prove envy of the world.”
Whether measured by market value, balance sheet strength or profitability, Canada's banks are rising to the top. Since the credit crunch began in the summer of 2007, the Big Five banks have booked a total of $18.9-billion in profits.
In roughly the same period, the five biggest U.S. banks have lost more than $37-billion (U.S.). One, Wachovia Corp., was forced to sell out to avoid failing. Another, Citigroup Inc., long the world's largest bank, may have to be nationalized and this week became a penny stock. The picture is similar in Britain.
The U.S. has spent most of the $700-billion the government earmarked for bank bailouts, and there are estimates that the final tally could be more in the trillions of dollars. The head of the Bank of England said last month that it's “impossible” to know how much money it will take to fix his country's banks.
Canada, by contrast, has not had to inject capital directly into banks, other than starting a program to buy from banks $125-billion (Canadian) of insured mortgages – any losses from which the government was already on the hook for anyway.
The reason comes down to a fundamental conservatism. From lending practices to bets on trading to financial reserves and takeovers, the Big Five banks have long tended to be more careful than their global peers. And when they did want to get aggressive, government and regulators held them in check.
“The Canadian banks were under a significant amount of pressure from both the analysts and the marketplace in general to be more aggressive in expanding into international markets, particularly the United States, and I think to some degree resisted partially because of a more conservative approach,” says RBC chief executive officer Gordon Nixon.
Still, the industry has had stumbles, most notably Canadian Imperial Bank of Commerce's misadventure in derivatives, which led to a $2.1-billion loss for 2008.
And shareholders in Canadian banks have been battered. As a group, the banks' shares are down almost 50 per cent since Aug. 1, 2007, with most of the decline in the past six months as the economy worsened.
The concern weighing on these bank shares, for starters, is that profit growth in general is a thing of the past until the economy picks up. Most analysts say the banks' profits will shrink in coming quarters as more loans go sour and margins on lending tighten up. There's also nagging doubts that dividend payments are unsustainable and that something bad is still lurking on balance sheets.
More writedowns are likely in store for banks such as Toronto-Dominion Bank and Royal Bank of Canada, both of which made big acquisitions in recent years that now look overpriced.
Still, bank bosses such as Rick Waugh, CEO of Bank of Nova Scotia, say the banks are insulated from lingering problems because they have profits rolling in from many sources.
“We have made mistakes,” he says, “but we made sure that we were well diversified.”
That's a result of a conservatism not just among executives. That same approach extends to consumers, helping the banks sail along on the strength of their domestic lending businesses.
“You've got a more balanced cultural approach towards consumption and savings than we do in this country,” says Charles Dallara, head of the Washington-based Institute of International Finance, and a former managing director at JPMorgan Chase & Co.
Much of that stems from the pain of the last recession. While the downturn of the early 1990s was short and sharp in the U.S., it was drawn out in Canada, leading to more of a social evolution, says CIBC chief executive officer Gerry McCaughey.
Former central bank governor David Dodge agrees. Canadian bank executives keenly remember that period, “and there was therefore perhaps a degree of prudence, a lack of aggressiveness, in comparison with major banks around the world,” he said.
And he gives top marks to the Office of the Superintendent of Financial Institutions, Canada's banking regulator, for being more conservative than those in the U.S. or Britain. “I think that, from a regulatory point of view, you can say that the Canadian banks were more appropriately regulated.”
The final key is the structure of the mortgage market.
While U.S. banks sold a large proportion of their mortgages, Canadian banks held the bulk of theirs on their balance sheets, giving them an incentive to make sure they were good loans.
Riskier ones are backed by government insurance. And the law here makes it tough for consumers to walk away from a mortgage because banks can go after other assets.
Still, the banks are wary of getting cocky when a careful approach has worked well.
“It's a good thing for us to recognize the things we do very well, but maybe do it in what is appropriately a Canadian way – with modesty,” said Bank of Montreal CEO Bill Downe.
Royal Bank of Canada
First quarter profit: $1.05-billion, down from $1.25-billion.
What's working: The bank's securities arm makes big bucks, and its huge retail bank in Canada generates steady earnings. RBC benefits from strong loan growth and expense control, notes UBS analyst Peter Rozenberg.
What's worrying: A foray into the U.S. leaves it exposed to the sagging American economy.
Investors never like to see too much of a bank's earnings come from capital markets, because it's a volatile business. And while the securities division is doing well, it's also booking big writedowns. “RBC's Achilles heel, in Moody's view, is its U.S. operation,” the rating agency says.
What the CEO says: “As a Canadian bank with global operations, RBC does have a competitive advantage relative to many of our global peers. The fundamentals of our domestic economy, while stressed, appear stronger than in Europe and the United States, having benefited from a public policy agenda that for many years valued prudent fiscal management.”
Total assets: $713-billion
Tier 1 capital ratio (Jan. 31): 10.6 per cent
Provision for credit losses: $747-million, up from $293-million
Toronto-Dominion Bank
First-quarter profit: $712-million, down from $970-million.
What's working: Retail arm TD Canada Trust is a dominant force across the country. “The bank's sizable capital cushion, combined with the recurring earnings from its Canadian franchise, leave it well positioned to manage through a period of economic headwinds,” says Moody's Investors Service.
What's worrying: TD expanded in the U.S. just as things were getting really bad. Now, the bank has the biggest U.S. retail banking presence of any Canadian bank – half of all the bank's branches are in the U.S. Plus, TD owns a big U.S. wealth management operation that may suffer as markets plunge. The consensus among analysts is that the bank's securities and trading side isn't big enough to make up for declining performance in other areas of the bank.
What the CEO says: “We are living in unprecedented times. So what we consider solid performance in the current environment is certainly not what we would be happy with in the long term. … We are going to take some bruises if the situation gets worse, but we're still going to be able to deliver solid earnings.”
Total assets: $585-billion
Tier 1 capital ratio (Jan. 31): 10.1 per cent
Provision for credit losses: $537-million, up from $255-million
Bank of Nova Scotia
First-quarter profit: $842-million, up from $835-million.
What's working: The bank's international business – the largest of the Canadian banks – posted a record quarter, and Scotiabank's reputation for risk management remains intact. The bank's securities and trading arm, Scotia Capital, had a near-record quarter.
What's worrying: Investors are leery of exposure to car loans and the auto industry. They are also keeping an eye on the bank's corporate loan book, the biggest of any Canadian bank.The bank's large international division, with a big presence in Latin America, was much more profitable than anticipated in the latest quarter, but the macro environment in Latin America has deteriorated in recent months, notes RBC Dominion Securities analyst André-Philippe Hardy.
What the CEO says: “The banking sector in Canada is still in good shape. Some say the best in the world. As a group, we are all very well capitalized by global standards. And Scotiabank clearly demonstrated this by the fact that we were able to raise more capital this quarter, all of it from the market, from private sources.”
Total assets : $510-billion
Tier 1 capital ratio at Jan. 31: 9.5 per cent
Provision for credit losses: $281-million, up from $111-million
Canadian Imperial Bank of Commerce
First-quarter profit: $147-million, up from a loss of $1.46-billion.
What's working: Most of the big problems relating to exposure to subprime-linked investments are behind the bank, and its balance sheet is rock solid after raising another $1.6-billion of capital this week. Analysts and investors like the fact that its Canadian-focused business means bad U.S. loans aren't a big issue.
What's worrying: The bank is getting out of or cutting back in so many business lines to avoid problems that it's unclear where growth will come from. Investors worry that the bank is becoming so risk-averse that it won't be able to compete.
Its core consumer lending segment saw earnings decline 14 per cent in the latest quarter, due in large part to rising provisions for bad credit card, manufacturing and real estate loans, notes Blackmont Capital analyst Brad Smith.
What the CEO says: “Market conditions worldwide for banks remain difficult. Yet arguably one of the better places to be right now is in Canada. At CIBC, the majority of our revenue is derived from retail markets, where we enjoy strong market positions in a broad range of products and services.”
Total assets: $354-billion
Tier 1 capital ratio at Jan. 31: 9.8 per cent (it's now a whopping 11.5 per cent)
Provision for credit losses: $284-million, up from $172-million
Bank of Montreal
First-quarter profit: $225-million, down from $255-million.
What's working: The bank's trading operations are buoying profit, and its retail operations are rebounding after lagging for years. A switch toward more profitable products, such as lines of credit, is helping the core operations churn out strong earnings.
What's worrying: Investors are concerned that trading profits can disappear fast, and the bank has a U.S. loan portfolio by virtue of its presence in the U.S. Midwest. There's also a nagging worry that the bank will cut its dividend that won't go away no matter how many times CEO Bill Downe says the payout is safe.
Credit Suisse analyst James Bantis is watching for rising credit losses in the $42-billion (U.S.) U.S. loan portfolio. He sees a large drop-off in the quality of the U.S. portfolio, which accounts for 27 per cent of BMO's loan book, compared to the Canadian portfolio.
What the CEO says: “Financial institutions everywhere continue to face headwinds in credit markets and the capital markets environment. BMO is well positioned to meet these challenges, having accessed markets to bolster our capital position and having further strengthened our strong liquidity in the period, albeit at a higher cost.”
Tier 1 capital ratio at Jan. 31: 10.21 per cent
Total assets: $443-billion
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