Financial Update for Feb. 5,2009

· TSX +64.46Commodity stocks led the gains while falling financial stocks held things back
· DOW-121.70 U.S. trends contrasted with strong gains overseas
· Dollar -.12c to 81.17USD Concerns about the U.S. government's plan to stabilize the bank sector prompted a move back into the greenback, considered a safe-haven play, and undid the Canadian currency's early move to its highest level since Friday.
· Oil -$.46 to $40.32US per barrel.
· Gold +$9.70 to902.70 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Has Obama shut down the party on Wall Street?

Janet Whitman, Financial Post

After years of increasingly bloated pay packages, top executives could soon see their lavish lifestyles crimped as Barack Obama, the U.S. President, unveiled plans Wednesday to crack down on compensation.

Critics were quick to slam his suggestions, arguing enforced pay cuts would lead to an exodus of capable executives and make it tough for companies to recruit and retain top talent.

"No one goes into Wall Street to save the world," Meredith Whitney, a bank industry analyst for Oppenheimer & Co., told Bloomberg Television. "Compensation is the motivating factor."

Top executives at companies receiving "exceptional" bailout funds from the U.S. government will have salaries capped at US$500,000, under the new rules outlined by Mr. Obama and Timothy Geithner, the Treasury Secretary.

Companies would also face more scrutiny of travel on corporate jets, office renovations and holiday parties. Mr. Obama also said he wanted to take the "air out of golden parachutes" for departing executives.

He said the actions were necessary because of "shameful" behaviour by Wall Street executives.
"We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses."

Mr. Obama said the cap strikes the right "balance" between fair compensation and proper stewardship of taxpayer funds.

"This is America. We don't disparage wealth. We don't begrudge anybody for achieving success.

And we believe that success should be rewarded. But what gets people upset - and rightfully so - are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers.

"For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it's a bad strategy - and I will not tolerate it as President."

The crackdown comes as Americans have grown increasingly irate over banks paying huge bonuses, while posting record losses and getting hundreds of billions in aid from taxpayers.

According to the New York state comptroller's office, big banks and securities firms in the Big Apple paid more than US$18-billion in bonuses last year.

At the same time, the city's six largest financial firms lost more than US$42-billion and received US$90-billion in government bailout money.

Many Wall Street analysts and industry observers do not believe a pay cap is the solution, and Wall Street could end up losing many of its best and brightest just when it needs them most.

"If President Obama succeeds in limiting CEO pay to $500,000, it will create two distinct markets for CEO talent," said Peter Cohan, an investment consultant and business professor at Babson College in Wellesley, Mass.

"One relatively small one which, for reasons of altruism, is willing to take a pay cut to run a government-owned entity. And the second, much larger one, which continues to rake in millions without suffering from all the public opprobrium that has befallen various banks and insurance executives over the last few months."

For now, the US$500,000 cap will not be as far-reaching as some corporate chieftains might have feared.

Only companies that have received "exceptional assistance" are subject to the rule, which includes the provision any additional compensation be in restricted stock that will not vest until taxpayers have been repaid.

So far, that restriction would seem only to apply to companies in particularly bad shape, such as insurer American International Group, financial services giants Bank of America and Citigroup, and automakers General Motors and Chrysler, which each have received tens of billions in bailout money.

Companies that already have received taxpayer aid will only have to abide by the new pay restriction if they return for more funds.

But CEOs at other companies are bound to feel the pinch in other ways as the Obama administration's increased scrutiny leads to a reduction in perks, such as trips on the company jet to lavish vacations at luxury resorts.

Goldman Sachs, considered among the healthiest banks on Wall Street, already is looking at how to avoid such restrictions.

The Wall Street bank is eager to repay the US$10-billion in bailout it received in October so it does not have to follow limits it agreed to when it accepted the funds.

"There are pretty minor, at this point, executive compensation restrictions and we'd like to get out from under those," David Viniar, Goldman's chief financial officer, said at a financial services conference in Florida.

One Wall Street analyst accused Mr. Obama of playing to the crowd.

"This is pure political grandstanding. If the limit has bite, it will be counterproductive and the unintended consequences will hurt the U.S. as skilled and bright senior managers make choices," said David Kotok, chief investment officer at Cumberland. "If the limits have loopholes, they are a sham. Industrial policies fail. So will this one."