Financial Update For Oct. 15, 2009

Dow passes 10,000 for 1st time in a year

The Canadian dollar zooms to its highest level in over 14 months

Oil hits 2009 high

• TSX +119.24 to 11,532(Reuters) TSX found strong support from the energy sector as the bullish reports from the U.S. raised hopes for higher crude demand.

• DOW +144.80 to 10,015.86 broke through the psychologically important 10,000 mark amid key earnings reports and a better than expected reading on retail sales in the United States.

• Dollar +1.00c to 97.48.

• Oil +$1.03 to $75.18US per barrel. Hits new 2009 high on economic optimism

• Gold -$.30 to $1,063.90USD per ounce Support was provided by the weak dollar which slipped to its lowest in more than a year, making dollar-denominated commodities like oil and gold more affordable for holders of other currencies

• Canadian 5 yr bond yields +.01bps to 2.85. The spread, based on the new MERIX 5 yr rate published of 4.34% is 1.49 so we are back in the centre of the comfort zone

• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.

Canadian Tire retires from the mortgage business

John Greenwood, Financial Post

Just two years after getting into the mortgage business, Canadian Tire is calling it quits.

The big-box retailer Wednesday said it has agreed to sell its relatively measly $167-million portfolio of home loans to National Bank of Canada for book value.

Canadian Tire Corp. launched its banking operation in 2006 just as the credit bubble was building, offering savings accounts, GICs as well as mortgages. At the end of the second quarter the banking business had $2.1-billion in deposits.

"We had been in pilot [stage] for a period of time with our mortgage business and we looked at the business and the market conditions and decided longer term that the best opportunities resided in our core business and retail banking," said Huw Thomas, the chief financial officer.

The company made only about a thousand home loans over the life of the program because it was operating only in a handful of markets and was focusing only on clients with top credit ratings, Mr. Thomas said.

Following the credit crunch and the seizing up of the securitization market, many non-bank lenders have been hit by soaring funding costs and declining profits. Industry insiders said several companies that are dependent on the securitization market have recently been forced to sell off small parts of their operation and there is speculation that larger deals could follow.

Canadian Tire is a major player in the credit card business, one of Canada's largest MasterCard issuers. Before the financial crisis the business was funded largely through securitization -- packaging the loans and selling them off -- and while the disruption in that market has affected profit margins, the effect has been minimal since the company has been able to turn to its banking business for funding.

"We have no liquidity concerns about our credit card business," Mr. Thomas said, adding that the move away from securitization "has actually been reasonably cost effective."

In a statement, Canadian Tire said its "core credit card business has performed well in a difficult economic climate and the company is confident about its prospects for new growth as the economy returns to health."

The credit card portfolio has about $4-billion of loans which are still partly funded by securitization.

Mr. Thomas said Canadian Tire has no concerns about funding its credit card business "even if securitization doesn't come back."