Financial Update for April 27, 2009

TSX completes the week with a big finish
• TSX +139.98 to 9,549.48
• DOW +229.23
• Dollar +.96c to 82.67USD
• Oil +$1.93to $51.55US per barrel
• Gold +7.50 to $914.10USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.93.

http://www.financialpost.com/markets/market_data/money-yields-can_us.html

By The Canadian Press

TORONTO - Workers at Chrysler Canada have accepted a labour concession deal that their union reached with the beleaguered automaker. The deal was approved by 87 per cent of those who voted.

CAW president Ken Lewenza says high acceptance vote is a recognition that everyone involved in the auto industry has an interest in maintaining good jobs. The deal finalized Friday will save Chrysler about $240 million a year. The deal doesn't cut base wages or pensions - the savings are achieved in areas like increased productivity. Chrysler said it needed to drastically reduce its labour costs in order to put a viable restructuring plan forward. It has to come up with such a plan to get bailout loans from the federal and Ontario governments.

Chrysler Canada employs about 10,000 hourly workers and 1,000 white collar employees at its Ontario facilities in Windsor, Brampton and Toronto

G7 puts weight behind banking overhaul

KEVIN CARMICHAEL

From Saturday's Globe and Mail

OTTAWA — The world's richest countries are endorsing efforts in the United States and Europe to finally expunge the banking system of toxic assets, healing over rifts to make what could be a final push to restore confidence in the world economy.
Finance ministers and central bank governors from the Group of Seven industrial nations said Friday that the Obama administration's review of the health of the United States' 19 biggest banks will help convince investors that it's safe again to invest in financial institutions.

They also backed similar efforts in Britain and Germany, and in a statement issued at the conclusion of their meeting, they “underscored the imperative of strengthening our national efforts to address systemic risks” and ensure “adequate capitalization of financial institutions.”

That's crucial to reversing the deepest global economic collapse since the Second World War.

“We need to get credit flowing again, and that means you’ve got to sort out these toxic assets,' says the U.K.'s Alistair Darling.

Without credit, businesses can't expand to take full advantage of the hundreds of billions governments from France to China to Australia have pumped into their economies to stimulate demand.

But without investors' capital, banks can't lend because their balance sheets are littered with mortgage-backed securities and similar assets made worthless by the financial crisis. “I have been saying for some time that in countries where impaired assets are a problem, they have to be dealt with,” Mr. Flaherty said.

“I was pleased to see the United States and the United Kingdom are making progress with implementation, and also Germany is developing a plan.”

Mr. Flaherty's conversion is significant because he had emerged as a vocal critic of his counterparts' delays in dealing with all the impaired assets on banks' books.
It suggests U.S. Treasury Secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke have made believers of a group that was showing signs of strain over abortive attempts by the U.S. government to settle on a plan to shore up financial institutions that many advisers have dismissed as zombies alive only because of government life support.

“The U.S. is acting as expeditiously as possible,” Mr. Flaherty said at a press conference.

Mr. Flaherty and Canada's central bank governor, Mark Carney, had good reason for frustration with the slow work the Obama administration made of facing up to the problems with the banks that are at the heart of the financial crisis.

Both were counting on quick resolutions of the issues in the U.S. and European financial systems when they set out their own plans to fight Canada's first recession in almost two decades.

In January, Mr. Carney was satisfied enough that his counterparts in the U.S. and Europe would act that he predicted a relatively strong rebound in 2010, and Mr.

Flaherty stated confidently that he could spend $40-billion on stimulus programs and still return the federal budget to surplus by 2013.

Mr. Carney this week slashed his outlook for growth in 2010 after estimating that Canada's economy contracted by more than 7 per cent annualized in the first quarter, the biggest fall on record. Mr. Flaherty is sticking to his budget forecast, but many economists say that projection is on shaky ground.

The G7 finance chiefs stressed that their unprecedented stimulus programs are working. While acknowledging that risks remain, they said a recovery “should begin” before the end of the year.

“We have acted resolutely to support growth and restore confidence in the financial system and the flow of credit,” the ministers and central bankers said in their statement. “Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging.”

The G7's attempt to shift investors' focus on the glimmers of hope is competing with substantial shadows that dominate the current reality.

Japan's second-largest bank, Mizuho Financial Group Inc., this week posted a wider-than-expected loss as bad loans surged, and Caterpillar Inc., the world's largest maker of bulldozers and excavators, posted its first quarterly loss in 16 years.
The IMF estimates worldwide losses tied to bad loans and securitized assets may reach $4.1-trillion (U.S.) by the end of 2010.

Investors could ignore the rhetoric and wait for more evidence policy makers are willing to back their talk with money and action.

There's also the problem of winning co-operation from the banks themselves.

The rescue programs being offered by governments propose buying the impaired assets for much less than the banks paid for them. That presents an incentive to hold the assets in hope of eventually gaining a better price, which only exacerbates the crisis of confidence in the financial system.

“I am doubtful that such a statement means a lot,” said Barbara Matthews, managing director of Washington-based BCM International Regulatory Analytics and a former U.S. Treasury attaché to the European Union. “In an environment where the institutions that are holding the toxic assets say they don't want to sell them, it is difficult for the leaders to make a pledge to deal with the assets because it would essentially amount to saying that they're going to force the sale of those assets.”

Still, there's reason to think the top economic policy makers from the world's richest countries have some sway in markets starved for cash.

Central banks in the U.S., Britain, Japan and Switzerland are buying government and corporate debt in a bid to lower borrowing costs.

And the G7 is working seriously with the emerging market nations that make up the Group of 20. It's a level of commitment that the current generation has never seen, and it's left an impression.

“They have a lot of power and they are using it,” said Daniel Schwanen, an economist and deputy executive director of the Waterloo, Ont.-based Centre for International Governance Innovation.