U.S. bailout no cure-all for Canada's banks
· TSX -181.78pts another triple digit loss as a continuing sell-off of commodity stocks more than offset a boost from the U.S. government's takeover of mortgage giants Fannie Mae and Freddie Mac
· Dow +290.43pts
· Dollar -.13c to $93.92US. Reuters)The Canadian dollar dipped against the U.S. dollar as renewed confidence in the U.S. financial sector following the U.S. government's takeover of the two biggest U.S. mortgage finance companies convinced investors to buy the greenback
· Oil +$.11 to $106.34US per barrel The main driver today and through the rest of this week will be Hurricane Ike. The market is going to zig and zag in response to each development," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
· Gold -$1.60 to $797.60US per ounce
Financial Post
TORONTO -- Canadian bank stocks made some big gains on Monday after the U.S. government bailed out mortgage lenders Fannie Mae and Freddie Mac but a reversal of fortune could come quickly due to nagging economic concerns.
The bailout package is widely expected to improve the battered U.S. housing market, which has dragged down Canadian bank stocks due to fears of exposure, but the banks are not out of the woods yet as a slowing Canadian economy could force them to take on higher loan-loss provisions as people struggle to pay back loans.
The Toronto Stock Exchange's financial index jumped as much as 4% early on Monday to its highest in more than two months before retreating in the late afternoon.
"At this stage it's good news that parts of the credit market that have been struggling may get some relief. But I don't think that this is the end of the troubles we've seen in the credit market," said Kate Warne, Canadian market strategist at Edward Jones in St. Louis.
"The Canadian financials have been less exposed to some of the mortgage woes in the U.S. marketplace. As a result, this change in terms of how the mortgage market works in the U.S. has less of a positive."
Perhaps that is why the shares of Toronto-Dominion Bank, Royal Bank of Canada and Bank of Montreal all backed off the highs they reached earlier in the session.
On Sunday, the U.S. government decided to take control of the mortgage finance firms Fannie Mae and Freddie Mac in the latest of a series of emergency steps to help put a floor under troubled financial markets.
But it still may be too early to gobble up shares of Canadian banks given the continued pressure on profitability in the sector amid a slowing economy and credit markets that remain in turmoil.
The Canadian economy narrowly avoided a recession in the second quarter and the Bank of Canada took on a slightly more dovish tone last week when it highlighted concern that the U.S.
economy will not meet the 1.5% growth next year that the bank had forecast for it.
Still, signs of stability in financial markets have managed to provide a boost to shares of Canadian banks, most notably those that have U.S. investments.
"Signs of improvement in the housing market are positive for bank shares, in our view, especially those with exposure to the U.S.," RBC Capital Markets analyst Andre-Philippe Hardy wrote in a note to clients.
Of the Canadian banks with U.S. banking operations, TD Bank said in April that it had US$7.8-billion of mortgage-backed securities. Disclosure at other banks is not clear but Mr. Hardy suggests their holdings would be much smaller.
"The U.S. government's actions have positive implications for the valuation of those assets but we do not believe that the Canadian banks had taken meaningful earnings hit related to those earnings," he said.
Shares of BMO closed up 2% at $48.50 in Toronto, TD Bank shares were up 2.3% at $62.37, and Royal Bank shares were up 0.33% at $48.60.
© Thomson Reuters 2008
Tuesday, September 9, 2008
Monday, September 8, 2008
Financial Update
U.S. government seizes mortgage giants
· TSX +2.28pts last week's abrupt drop-off of more than 950 points speaks to more than just weakening commodities, analysts say. Worries over declining demand for resources, slowing global growth and the tight credit situation have converged to knock the confidence out of the market
· Dow +32.73pts
· Dollar +.55c to $94.06US .
· Oil -$1.86 to $106.23US per barrel
· Gold -$.30 to $797.60US per ounce
Email the author
To avert potential financial turmoil, U.S. administration says it's forced to take control of Fannie Mae and Freddie Mac
Alan Zibel and Martin Crutsinger The Associated Press
WASHINGTON
The U.S. administration, acting to avert the potential for major financial turmoil, announced yesterday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials also announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice-chair of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice-chair of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.''
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,'' Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement yesterday that "a limited number of smaller institutions'' have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans.''
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.
"There is a consensus today . . . that they cannot continue in their current form,'' he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
The companies own or guarantee about $5 trillion in home loans, about half the country's total.
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.
Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
· TSX +2.28pts last week's abrupt drop-off of more than 950 points speaks to more than just weakening commodities, analysts say. Worries over declining demand for resources, slowing global growth and the tight credit situation have converged to knock the confidence out of the market
· Dow +32.73pts
· Dollar +.55c to $94.06US .
· Oil -$1.86 to $106.23US per barrel
· Gold -$.30 to $797.60US per ounce
Email the author
To avert potential financial turmoil, U.S. administration says it's forced to take control of Fannie Mae and Freddie Mac
Alan Zibel and Martin Crutsinger The Associated Press
WASHINGTON
The U.S. administration, acting to avert the potential for major financial turmoil, announced yesterday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.
Officials also announced that the executives and board of directors of both institutions had been replaced. Herb Allison, a former vice-chair of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice-chair of US Bancorp, was picked to head Freddie Mac.
Treasury Secretary Henry Paulson says the historic actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.''
The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance,'' Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement yesterday that "a limited number of smaller institutions'' have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans.''
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
Paulson said that it would be up to Congress and the next president to figure out the two companies' ultimate structure.
"There is a consensus today . . . that they cannot continue in their current form,'' he said.
Paulson and James Lockhart, director of the Federal Housing Finance Agency, stressed that their actions were designed to strengthen the role of the two mortgage giants in supporting the nation's housing market. Both companies do that by buying mortgage loans from banks and packaging those loans into securities that they either hold or sell to U.S. and foreign investors.
The companies own or guarantee about $5 trillion in home loans, about half the country's total.
Lockhart said that both Fannie and Freddie would be allowed to increase the size of their holdings of mortgage-backed securities to bolster the housing industry as it undergoes its worst downturn in decades.
Lockhart said in order to conserve about $2 billion in capital the dividend payments on both common and preferred stock would be eliminated. He said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.
Both Paulson and Lockhart were careful not to blame Daniel Mudd, the CEO of Fannie Mae, or Freddie Mac CEO Richard Syron for the companies' current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.
Friday, September 5, 2008
Financial Update
TSX falls below 13,000 in commodities sell-off-its worst 3 day drop in almost 8 years
· TSX -323.58pts to 12,814.14 as a massive sell-off spearheaded by commodity stocks sent the TSX to a steep triple-digit plunge
· Dow -344.65pts as glum economic and retail data further discouraged investors looking for a rally in the second half of 2008 (CP)
· Dollar -.75c to $93.50US .
· Oil -$1.46 to $107.89US per barrel
· Gold -$4.80 to $797.90US per ounce
Toronto stocks dive for third day on growth woes
Alia McMullen, Financial Post
TORONTO - The TSX slid to its lowest level in almost six months on Thursday after smashing through the 13,000 level to cap its worst three-day point drop in almost eight years.
Strategists said the market was beginning to fear the worst for the global economy ahead of the U.S. payrolls figures due Friday morning, with preliminary data on Thursday pointing to an eighth straight drop in U.S. employment.
"The idea that the rest of the world's growth is going to be slowing is sinking in and that's why we're seeing a more broad-based slowdown as opposed to just the financials versus commodities type trade," said George Vasic, strategist at UBS.
The S&P/TSX composite index dropped 323.58 points, or 2.5%, to close at 12,814.14.
Since traders returned from the Labour Day holiday on Monday, the index has lost about 7% of its value, or 957.11 points, to close below the 13,000 level for the first time since March 20.
It was the biggest three-day percentage drop since Jan. 19 this year and the largest three-day point decline since Oct. 27, 2000.
Mr. Vasic said that the drop in the Toronto market was largely in line with an unwinding of the run-up in oil prices that followed the collapse of investment bank Bear Stearns Cos. Inc. in March.
He said the run-up in oil appeared to have more to do with a flight to safety from financial stocks rather than a reflection of global oil supply and demand conditions.
Light crude fell US$1.46 to close at US$107.89 on the New York Mercantile Exchange yesterday, while gold was also down US$5 to US$799.30. The Canadian dollar also weakened, slipping three-quarters of a cent to US93.5¢. Meanwhile, the S&P 500 composite index fell 38.15 points, or 3%, to 1,236.83 and the Dow Jones Industrial Average dropped 344.65 points, or 3%, to 11,188.23.
Compounding the impact of the pull-back in oil were the expectations of slower U.S. and global economic growth. Weekly U.S. initial unemployment claims yesterday rose more than expected ahead of this morning's official U.S. non-farm payrolls numbers. The market expects the economy to lose a further 75,000 jobs in August.
Mr. Vasic said a better than expected result would likely give only a temporary boost to stocks. However, he expects the longer-term picture for the TSX to improve and likely break above recent highs next year.
Dan Hallett, president of Dan Hallett & Associates said the number of cheap stocks available in the market had risen in recent weeks, providing good long-term buying opportunities. But in the meantime, he said fears of a recession in the U.S. and the possible collapse of another financial institution were plaguing the market.
"The fact is, the worse the U.S. economy gets, the worse it is for Canada, you can't disconnect the two," Mr. Hallett said. He said there also appeared to be a number of hedge funds having to dump stocks to either cover short positions or make redemptions, adding to the large daily stock market declines.
The steep drop in commodities has put pressure on some financial managers, such as Ospraie Management LLC, which was forced to close its biggest hedge fund after it slumped almost 39% this year.
· TSX -323.58pts to 12,814.14 as a massive sell-off spearheaded by commodity stocks sent the TSX to a steep triple-digit plunge
· Dow -344.65pts as glum economic and retail data further discouraged investors looking for a rally in the second half of 2008 (CP)
· Dollar -.75c to $93.50US .
· Oil -$1.46 to $107.89US per barrel
· Gold -$4.80 to $797.90US per ounce
Toronto stocks dive for third day on growth woes
Alia McMullen, Financial Post
TORONTO - The TSX slid to its lowest level in almost six months on Thursday after smashing through the 13,000 level to cap its worst three-day point drop in almost eight years.
Strategists said the market was beginning to fear the worst for the global economy ahead of the U.S. payrolls figures due Friday morning, with preliminary data on Thursday pointing to an eighth straight drop in U.S. employment.
"The idea that the rest of the world's growth is going to be slowing is sinking in and that's why we're seeing a more broad-based slowdown as opposed to just the financials versus commodities type trade," said George Vasic, strategist at UBS.
The S&P/TSX composite index dropped 323.58 points, or 2.5%, to close at 12,814.14.
Since traders returned from the Labour Day holiday on Monday, the index has lost about 7% of its value, or 957.11 points, to close below the 13,000 level for the first time since March 20.
It was the biggest three-day percentage drop since Jan. 19 this year and the largest three-day point decline since Oct. 27, 2000.
Mr. Vasic said that the drop in the Toronto market was largely in line with an unwinding of the run-up in oil prices that followed the collapse of investment bank Bear Stearns Cos. Inc. in March.
He said the run-up in oil appeared to have more to do with a flight to safety from financial stocks rather than a reflection of global oil supply and demand conditions.
Light crude fell US$1.46 to close at US$107.89 on the New York Mercantile Exchange yesterday, while gold was also down US$5 to US$799.30. The Canadian dollar also weakened, slipping three-quarters of a cent to US93.5¢. Meanwhile, the S&P 500 composite index fell 38.15 points, or 3%, to 1,236.83 and the Dow Jones Industrial Average dropped 344.65 points, or 3%, to 11,188.23.
Compounding the impact of the pull-back in oil were the expectations of slower U.S. and global economic growth. Weekly U.S. initial unemployment claims yesterday rose more than expected ahead of this morning's official U.S. non-farm payrolls numbers. The market expects the economy to lose a further 75,000 jobs in August.
Mr. Vasic said a better than expected result would likely give only a temporary boost to stocks. However, he expects the longer-term picture for the TSX to improve and likely break above recent highs next year.
Dan Hallett, president of Dan Hallett & Associates said the number of cheap stocks available in the market had risen in recent weeks, providing good long-term buying opportunities. But in the meantime, he said fears of a recession in the U.S. and the possible collapse of another financial institution were plaguing the market.
"The fact is, the worse the U.S. economy gets, the worse it is for Canada, you can't disconnect the two," Mr. Hallett said. He said there also appeared to be a number of hedge funds having to dump stocks to either cover short positions or make redemptions, adding to the large daily stock market declines.
The steep drop in commodities has put pressure on some financial managers, such as Ospraie Management LLC, which was forced to close its biggest hedge fund after it slumped almost 39% this year.
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