To quote the infamous Bette Davis, … "hang on to your hats, boys, it’s going to be a bumpy ride."
· TSX +467.83ptssome of the bounce is attributed to bargain hunters rushing in for quality stocks, and also to buying associated with fund managers rebalancing their portfolios ahead of the end of the quarter
· Dow +485.21pts. U.S. stocks also reversed course sharply, as the Dow Jones industrial average leaped 4.68%
· Dollar -1.82c to $93.97US.
· Oil +4.27 to $100.64US per barrel with a growing consensus among investors that the U.S. Congress will resurrect a failed financial bailout plan. The Senate is set to vote Wednesday on a $700-billion US financial bailout plan that was narrowly defeated Monday in the House of Representatives.
· Gold -$14.00 to $874.20US per ounce Gold retreated sharply as a rally in stocks and a higher dollar erased the previous session's gains, but gold should rise in the near term because of its safe-haven appeal amid financial turmoil, traders said.
September, 2008: 30 days that rocked the world "Now what?" asked Carl Weinberg, chief economist at High Frequency Economics. "Analysis eludes us. We have no prior experience to fall back on that might possibly help us frame the consequences of Congress's inaction on either the economy or financial markets."
What's the best strategy as mortgage rates rise?
ROB CARRICK
Globe and Mail Update
September 30, 2008 at 12:15 PM EDT
The credit crunch has hit home with yet another move by the big banks to jack up the cost of mortgages.
Mortgage brokers report that the big banks and other lenders have stopped offering variable-rate mortgages with a discount off the prime rate.
It was common in the first half of 2007 to get a variable-rate mortgage at prime minus a full percentage point, said Jim Tourloukis of Advent Mortgages in Markham, Ont. Since then, the discount had gradually fallen to 0.4 of a percentage point as of last week.
“As of yesterday, virtually everybody was offering variable-rate mortgages at prime,” Mr. Tourloukis said. “In other words, no more discounting.”
Forced to pay more to raise the money they lend out to customers, the banks have set fixed mortgage rates far higher than they would be under normal circumstances. Now, variable-rate mortgages have been affected as well. What's the right strategy for borrowers?
Your choices: a variable-rate mortgage at 4.75 per cent, which is the current prime rate at all major lenders, or a discounted five-year mortgage at rates in the low 5-per-cent range.
The lower variable rate means you'll save money in the near term, but it also opens you up to the risk that rising interest rates will boost your borrowing costs somewhere down the line.
“If I'm the average Joe, I would be taking the five-year rate right now because I don't know what's going on out there and I don't want to risk my house,” Mr. Tourloukis said. “I don't think rates are going to go up, but I don't want to worry about it.”
Mr. Tourloukis said about 90 per cent of his clients were going with variable-rate mortgages prior to this week, and he expects the same big majority to swing over to fixed-rate mortgages going forward.
The problem with fixed-rate mortgages – almost everyone picks the five-year term – is that you'll have to work hard to get a good deal. Posted five-year rates at major lenders are around 7.2 per cent, and some banks are posting “special” discounted rates of 6.14 per cent on their websites.
However, Mr. Tourloukis said he was able to get five-year mortgages as low as 4.99 per cent. Alternative banks and credit unions have been offering rates as low as 4.99 to 5.45 per cent.
Brian Matthey, a mortgage broker in Kingston, Ont., said five-year mortgages would be going for about 4.35 per cent today under normal circumstances in financial markets. He stressed the importance of shopping around for a mortgage right now and not settling for whatever discount your bank is willing to dole out.
“The banks are going to freewheel as they need to in terms of what they offer their clients,” Mr. Matthey said.
Wednesday, October 1, 2008
Tuesday, September 30, 2008
Financial Update
Stunning rejection shocks markets
Black September
RON EDMONDS, THE ASSOCIATED PRESS
RON EDMONDS,THE ASSOCIATED PRESS
After an abysmal month that has seen banks collapse and staggering amounts of wealth disappear, Congress defies Bush and votes down the bailout he says is needed to avoid economic disaster
· TSX -840.93pts the biggest one day point drop in history and the biggest percentage drop in 8 years
· Dow -777.68pts. As the U.S. House voted to reject the Wall Street rescue plan, concerns mounted that the fallout from the crisis in the United States was spreading rapidly around the globe and that the world economy was headed for a sharp downturn as Europe also continued a bank rescue
· Dollar -1.03c to $95.79US.
· Oil -$10.52 to $96.37US per barrel. almost a 10% drop in price
· Gold +5.30 to $888.20US per ounce
September 30, 2008 Tim Harper and Rita TrichurRecord news services WASHINGTON
A stunning rejection of a $700 billion financial bailout package by the U.S. House of Representatives yesterday sparked a historic North American stock market sell off and left this country in a crisis with no end in sight.
During an emotional afternoon in which the House dissolved into partisan finger-pointing, the bill was defeated 228-205 and, even before the voting was complete, the Dow Jones index began a free fall which ended with a loss of 777 points and $1.2 trillion in market value.
Toronto's S&P/TSX composite index collapsed into a sea of red after shedding a whopping 840.93 points to close at 11,285.07. The benchmark index had fallen by more than 900 points at one point during the session, buckling under the weight of tumbling energy and financial shares.
While it managed to recover from that low point, yesterday's 6.93 per cent decline was the index's steepest one-day percentage drop in nearly eight years. With only one trading day left in September, the TSX is now poised for its worst monthly performance in about a decade.
The next move in Washington was unclear.
Both sides pledged to go back to work at crafting a package which can pass muster, but Congress now goes dark until Thursday.
More than two-thirds of Republicans, as well as 40 per cent of Democrats voted against the bill.
The vote had reverberations on the campaign trail in both Canada and the U.S.
NDP Leader Jack Layton demanded an emergency leaders' meeting as chaos on Bay Street and Wall Street mounted.
Prime Minister Stephen Harper rejected Layton's request and the Conservatives continued to claim that their party is the best bet to lead Canada at a time of economic instability.
Layton had urged Harper to convene an all-party meeting this week to discuss the economic problems and what they mean for Canada.
On the presidential campaign trail, Democrat Barack Obama counselled calm and urged Congress to get back to work.
"Get this done,'' Obama said. "Democrats and Republicans, step up to the plate and get this done.''
Republican John McCain, who dramatically suspended his campaign last week to deal with the crisis, accused Obama of a lack of leadership and said Democrats had torpedoed the effort with a last-minute partisan foray.
As it became clear the House bill was going to die, some members started shouting that the Dow was down more than 600 points and television screens around the world offered a jolting split screen of the market diving with every vote in the "nay'' column.
In the end, House Republicans, faced with the pleadings of President George W. Bush and the anger of their constituents, turned their backs on the president.
They then attempted to blame Democratic House Speaker Nancy Pelosi, saying a speech she delivered on the floor blasting Bush economic policies had injected partisan politics into the effort to craft a bipartisan solution.
Bush and Treasury Secretary Henry Paulson expressed disappointment and pledged to go back to work, but Paulson looked particularly grim as he spoke to reporters at the White House.
"Markets around the world are under stress, and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories,'' Paulson said.
"Families, too, feel the credit crunch, as it becomes more difficult to get car loans or a student loan.''
Bush, who last week used his prime time television bully pulpit to warn Americans of dire consequences, spoke only briefly, pledging to redouble efforts with congressional leaders.
"We put forth a plan that was big because we got a big problem,'' Bush said.
Global banks have already taken some $590.8 billion US in write downs and credit losses since the implosion of America's subprime mortgage market triggered the credit crunch last year. With the International Monetary Fund predicting that losses could eventually top $1 trillion, banks are increasingly skittish about lending to each other.
"Nobody wants to lend money to anybody right now. The cost of funds is very high,'' said Andrew Martyn, a portfolio manager at Davis-Rea Ltd.
That crisis of confidence also has an impact on Canadian banks, which have relatively little exposure to America's subprime market or the troubled mortgage-backed securities that have brought down larger rivals.
Also weighing heavily on market sentiment was Citigroup Inc.'s hastily-arranged takeover of Wachovia Corp. and the partial nationalization of a handful of European lenders.
Republican House leader John Boehner said he thought he had the votes until the last minute.
"Americans are angry, and so are my colleagues. They don't want to have to vote for a bill like this, and I understand that,'' he said.
Republicans say they lost about a dozen votes at the last minute.
"The speaker had to give a partisan (speech) that poisoned our conference, caused a number of members we thought we could get to go south,'' Boehner said.
Pelosi countered that Democrats had held up their end of the bargain.
But Barney Frank, the legendarily cantankerous Democratic chair of the House banking committee, said Republicans were accusing themselves of a level of pettiness so base, that even he would never have launched such a broadside.
"There's a terrible crisis affecting the American economy,'' Frank said.
"We have come together on a bill to alleviate the crisis. And because somebody hurt their feelings they decide to punish the country.
"Give me those 12 people's names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are and maybe they'll now think about the country.''
Against the $700B deal: 228
For the $700B deal: 205
Black September
RON EDMONDS, THE ASSOCIATED PRESS
RON EDMONDS,THE ASSOCIATED PRESS
After an abysmal month that has seen banks collapse and staggering amounts of wealth disappear, Congress defies Bush and votes down the bailout he says is needed to avoid economic disaster
· TSX -840.93pts the biggest one day point drop in history and the biggest percentage drop in 8 years
· Dow -777.68pts. As the U.S. House voted to reject the Wall Street rescue plan, concerns mounted that the fallout from the crisis in the United States was spreading rapidly around the globe and that the world economy was headed for a sharp downturn as Europe also continued a bank rescue
· Dollar -1.03c to $95.79US.
· Oil -$10.52 to $96.37US per barrel. almost a 10% drop in price
· Gold +5.30 to $888.20US per ounce
September 30, 2008 Tim Harper and Rita TrichurRecord news services WASHINGTON
A stunning rejection of a $700 billion financial bailout package by the U.S. House of Representatives yesterday sparked a historic North American stock market sell off and left this country in a crisis with no end in sight.
During an emotional afternoon in which the House dissolved into partisan finger-pointing, the bill was defeated 228-205 and, even before the voting was complete, the Dow Jones index began a free fall which ended with a loss of 777 points and $1.2 trillion in market value.
Toronto's S&P/TSX composite index collapsed into a sea of red after shedding a whopping 840.93 points to close at 11,285.07. The benchmark index had fallen by more than 900 points at one point during the session, buckling under the weight of tumbling energy and financial shares.
While it managed to recover from that low point, yesterday's 6.93 per cent decline was the index's steepest one-day percentage drop in nearly eight years. With only one trading day left in September, the TSX is now poised for its worst monthly performance in about a decade.
The next move in Washington was unclear.
Both sides pledged to go back to work at crafting a package which can pass muster, but Congress now goes dark until Thursday.
More than two-thirds of Republicans, as well as 40 per cent of Democrats voted against the bill.
The vote had reverberations on the campaign trail in both Canada and the U.S.
NDP Leader Jack Layton demanded an emergency leaders' meeting as chaos on Bay Street and Wall Street mounted.
Prime Minister Stephen Harper rejected Layton's request and the Conservatives continued to claim that their party is the best bet to lead Canada at a time of economic instability.
Layton had urged Harper to convene an all-party meeting this week to discuss the economic problems and what they mean for Canada.
On the presidential campaign trail, Democrat Barack Obama counselled calm and urged Congress to get back to work.
"Get this done,'' Obama said. "Democrats and Republicans, step up to the plate and get this done.''
Republican John McCain, who dramatically suspended his campaign last week to deal with the crisis, accused Obama of a lack of leadership and said Democrats had torpedoed the effort with a last-minute partisan foray.
As it became clear the House bill was going to die, some members started shouting that the Dow was down more than 600 points and television screens around the world offered a jolting split screen of the market diving with every vote in the "nay'' column.
In the end, House Republicans, faced with the pleadings of President George W. Bush and the anger of their constituents, turned their backs on the president.
They then attempted to blame Democratic House Speaker Nancy Pelosi, saying a speech she delivered on the floor blasting Bush economic policies had injected partisan politics into the effort to craft a bipartisan solution.
Bush and Treasury Secretary Henry Paulson expressed disappointment and pledged to go back to work, but Paulson looked particularly grim as he spoke to reporters at the White House.
"Markets around the world are under stress, and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories,'' Paulson said.
"Families, too, feel the credit crunch, as it becomes more difficult to get car loans or a student loan.''
Bush, who last week used his prime time television bully pulpit to warn Americans of dire consequences, spoke only briefly, pledging to redouble efforts with congressional leaders.
"We put forth a plan that was big because we got a big problem,'' Bush said.
Global banks have already taken some $590.8 billion US in write downs and credit losses since the implosion of America's subprime mortgage market triggered the credit crunch last year. With the International Monetary Fund predicting that losses could eventually top $1 trillion, banks are increasingly skittish about lending to each other.
"Nobody wants to lend money to anybody right now. The cost of funds is very high,'' said Andrew Martyn, a portfolio manager at Davis-Rea Ltd.
That crisis of confidence also has an impact on Canadian banks, which have relatively little exposure to America's subprime market or the troubled mortgage-backed securities that have brought down larger rivals.
Also weighing heavily on market sentiment was Citigroup Inc.'s hastily-arranged takeover of Wachovia Corp. and the partial nationalization of a handful of European lenders.
Republican House leader John Boehner said he thought he had the votes until the last minute.
"Americans are angry, and so are my colleagues. They don't want to have to vote for a bill like this, and I understand that,'' he said.
Republicans say they lost about a dozen votes at the last minute.
"The speaker had to give a partisan (speech) that poisoned our conference, caused a number of members we thought we could get to go south,'' Boehner said.
Pelosi countered that Democrats had held up their end of the bargain.
But Barney Frank, the legendarily cantankerous Democratic chair of the House banking committee, said Republicans were accusing themselves of a level of pettiness so base, that even he would never have launched such a broadside.
"There's a terrible crisis affecting the American economy,'' Frank said.
"We have come together on a bill to alleviate the crisis. And because somebody hurt their feelings they decide to punish the country.
"Give me those 12 people's names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are and maybe they'll now think about the country.''
Against the $700B deal: 228
For the $700B deal: 205
Monday, September 29, 2008
Financial Update
Why was the TSX down and the DOW up on Friday?
Research In Motion, which torpedoed down 28.2% due to a softer forecast of 1c per share, which resulted in $100m less profit, even though RIM posted quarterly revenue of US$2.58-billion, up 88% from the same period a year ago.
· TSX -420.51pts hit with a triple whammy-- uncertainty over the fate of the U.S. financial system rescue plan, a selloff of RIM and lower oil prices Normally, a 400+ point drop is big news, but this is only the 4th-largest drop in the month so far.
· Dow +121.07pts. on optimism as U.S. lawmakers were back at the bargaining table Friday after a standoff by a group of Republicans derailed a tentative agreement on the controversial rescue package Thursday, and that they will come to some kind of agreement soon over the $700b plan that calls on the U.S. government to buy up toxic mortgage debt and other questionable securities.
· Dollar +.14c to $96.82US.
· Oil -$1.13 to $106.89US per barrel.
· Gold +5.20 to $882.90US per ounce Lawmakers. Some participants in the talks expressed hope that a deal could be reached over the weekend or early next week
Bailout pressure mounts; U.S. sees largest bank failure in its history
More bank bailouts on the horizon? Eoin Callan, Financial Post
If you have an account with this bank, have no fear, all accounts have simply been moved over to another institution and "no one lost any money that was deposited," said an official note to Washington Mutual Inc. customers from the U.S. government Friday after the largest bank collapse in American history.
If you have shares or bonds in this bank, too bad - you've probably lost everything, the note effectively went on to say after the Federal Deposit Insurance Corp. stepped in to seize the sixth-largest U.S. lender and hand much of its branches and deposit base over to its more stable competitor JP Morgan Chase & Co.
The message posted by the government was a sign of the times. And it looks to become a recurring feature as more banks turn to Washington or former rivals for relief from the punishing mortgage meltdown.
"Wachovia is next," said a senior investment banker on Friday, as the U.S. lender's value was cut by 40% amid growing expectations it will surrender its independence as early as this weekend.
The government-led rescues have featured late-night operations executed without the knowledge or consent of the bank management, board members or shareholders and have cast their interests aside in a bid to avert the chaos and panic that would accompany sudden branch closures.
The way investors are being cast aside is in turn pushing down the bank shares of other walking wounded like Wachovia. But the distress is creating plum opportunities for competitors that want to expand their footprint of bank branches in the U.S., like TD Bank Financial Group, which this week signalled its intentions to come out on top after the corporate bloodletting abates.
TD was still in the running on Friday to pick up the seized branch networks of Washington Mutual after it got privileged access to the bank's private books earlier this week by entering an auction process that ended with government intervention.
While JP Morgan has right of first refusal on the branch network, analysts expect the U.S. bank to shed more than 500 storefronts that overlap with its existing operations to recoup the estimated $30-billion in writedowns it has agreed to assume for the government .
"The combination itself presents an opportunity for TD to acquire locations, customers and deposits," according to Michael Goldberg, an analyst with Desjardins.
The analyst sees the tranche of 237 branches in New York state and 86 branches in New Jersey as the best fit for TD, which is already among the top five banks in that region and stands to increase its size by up to a third.
TD also emerged from this week's failed auction for Washington Mutual two slightly more intangible benefits. The first was a qualified mandate of sorts to pursue retail acquisitions in the U.S. from some of its own biggest shareholders, who did not flee for the exits when word leaked TD was in the auction for a badly listing U.S. bank, and instead told the Financial Post they backed management.
The auction also allowed TD to stare into the banking system's heart of darkness: toxic pools of original subprime mortgages, and glean intelligence about the worth of the underlying assets.
"Information is valuable in this marketplace," said one banker on Friday.
This knowledge will give TD an edge in bidding rounds for a growing list of regional banks and financial companies likely to entice interest from other Canadian banks, including Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada.
Royal Bank Chief Executive Gord Nixon said on Friday the bank would consider buying branch networks or wealth-management units, but cautioned against expecting large-scale deals.
"Under the right circumstances we could strategically support a retail-banking or wealth-management acquisition and we expect opportunities particularly, but not limited to, the United States over the next 12 months," he said.
One of the stumbling blocks facing Canadian banks is ambiguity over how a planned US$700-billion bail out fund will treat U.S. operations owned or acquired by foreign companies.
There is a deep split on Capitol Hill over the issue, with one camp wanting to exclude foreign-owned subsidiaries, according to a bank lobbyist in Washington. This would pull the rug from under Canadian bidders on distressed banks.
"It would hurt foreign buy-outs, and leave a very bad taste in the mouths of foreign investors," said Gary Hufbauer of the Peterson Institute.
A separate camp wants discretionary power handed to Hank Paulson, the U.S. Treasury secretary, that would, in turn, give Washington leverage over other countries.
Canada 'not immune' from U.S. fallout: Carney Paul Vieira, Financial Post Dean Bicknell/Calgary Herald Mark Carney, the Governor of the Bank of Canada OTTAWA -- Canada is "not immune" from the negative fallout in the U.S. financial system, Mark Carney, the Bank of Canada governor, said Thursday, warning the current credit turmoil "poses particular problems" for the Canadian economy.
In an address to the Canadian Club of Montreal, Mr. Carney suggested the U.S. economy may not recover as quickly as the central bank initially expected, and that commodity prices, which have driven income growth in Canada, will remain volatile due to slower economic growth in emerging markets.
The remarks were the first public comments by Mr. Carney on the financial turmoil in the U.S. system. Bank of Canada watchers said they were more cautious than usual, likely because of the federal election campaign in which the economy has emerged as the top issue. For weeks, the Conservative Party, which is seeking another mandate to govern, has argued that Canada's economic fundamentals are "solid" and not at risk despite the meltdown in the U.S. markets.
In comments last week, Stephen Harper, the Prime Minister, told reporters the negative fallout from the U.S. financial turmoil "should not spill over into Canada."
As it happens, economists at Toronto-Dominion Bank released their outlook for the Canadian economy. The TD report said the economic fallout in the United States will get worse before it gets better, and as a result it will likely be a year before Canada experiences a "shallow recovery."
Mr. Carney indicated through his remarks that the central bank may be of a similar view as the TD economists.
He said the central bank is in the midst of "revisiting" its outlook for the U.S. economy, adding the turmoil in that country's financial sector has increased the risk that a U.S. economic recovery will be delayed.
"A fall in U.S. domestic demand seems likely. Household credit growth has slowed sharply and will slow further," he said. "Any slowdown in the U.S. economy would have consequences for Canada, but the current situation poses particular problems.
"The prolonged housing slump has affected Canadian exports of lumber and building materials. In addition, the fall in U.S. motor vehicle sales ... has adversely affected our auto sector. Even the spring fiscal stimulus package does not appear to have boosted consumption in the areas that matter most for Canada."
Mr. Carney reiterated that Canada's financial system is solid and well-positioned to withstand the financial turmoil. Nonetheless, "we are not immune from the fallout from this process elsewhere."
Despite the credit turmoil, Mr. Carney said the central bank "will not deviate" from ensuring, through its monetary policy, that inflation remain at its 2% target. Yet, he added, "events beyond our borders have important influences on the outlook for inflation in our country. They must be considered in tandem with domestic factors, including the strength of domestic demand, the evolution of potential growth, and the health of our financial system."
Douglas Porter, deputy chief economist at BMO Capital Markets, said Mr. Carney's language has turned more "dovish," suggesting the bank may be "open to the thought" of cutting rates if necessary. This month, the central bank said its current benchmark lending rate was at an "appropriately accommodative" level.Some economists, most notably David Wolf of Merrill Lynch and Derek Holt of Scotia Capital, have argued the central bank would need to cut lending rates, starting next month
Research In Motion, which torpedoed down 28.2% due to a softer forecast of 1c per share, which resulted in $100m less profit, even though RIM posted quarterly revenue of US$2.58-billion, up 88% from the same period a year ago.
· TSX -420.51pts hit with a triple whammy-- uncertainty over the fate of the U.S. financial system rescue plan, a selloff of RIM and lower oil prices Normally, a 400+ point drop is big news, but this is only the 4th-largest drop in the month so far.
· Dow +121.07pts. on optimism as U.S. lawmakers were back at the bargaining table Friday after a standoff by a group of Republicans derailed a tentative agreement on the controversial rescue package Thursday, and that they will come to some kind of agreement soon over the $700b plan that calls on the U.S. government to buy up toxic mortgage debt and other questionable securities.
· Dollar +.14c to $96.82US.
· Oil -$1.13 to $106.89US per barrel.
· Gold +5.20 to $882.90US per ounce Lawmakers. Some participants in the talks expressed hope that a deal could be reached over the weekend or early next week
Bailout pressure mounts; U.S. sees largest bank failure in its history
More bank bailouts on the horizon? Eoin Callan, Financial Post
If you have an account with this bank, have no fear, all accounts have simply been moved over to another institution and "no one lost any money that was deposited," said an official note to Washington Mutual Inc. customers from the U.S. government Friday after the largest bank collapse in American history.
If you have shares or bonds in this bank, too bad - you've probably lost everything, the note effectively went on to say after the Federal Deposit Insurance Corp. stepped in to seize the sixth-largest U.S. lender and hand much of its branches and deposit base over to its more stable competitor JP Morgan Chase & Co.
The message posted by the government was a sign of the times. And it looks to become a recurring feature as more banks turn to Washington or former rivals for relief from the punishing mortgage meltdown.
"Wachovia is next," said a senior investment banker on Friday, as the U.S. lender's value was cut by 40% amid growing expectations it will surrender its independence as early as this weekend.
The government-led rescues have featured late-night operations executed without the knowledge or consent of the bank management, board members or shareholders and have cast their interests aside in a bid to avert the chaos and panic that would accompany sudden branch closures.
The way investors are being cast aside is in turn pushing down the bank shares of other walking wounded like Wachovia. But the distress is creating plum opportunities for competitors that want to expand their footprint of bank branches in the U.S., like TD Bank Financial Group, which this week signalled its intentions to come out on top after the corporate bloodletting abates.
TD was still in the running on Friday to pick up the seized branch networks of Washington Mutual after it got privileged access to the bank's private books earlier this week by entering an auction process that ended with government intervention.
While JP Morgan has right of first refusal on the branch network, analysts expect the U.S. bank to shed more than 500 storefronts that overlap with its existing operations to recoup the estimated $30-billion in writedowns it has agreed to assume for the government .
"The combination itself presents an opportunity for TD to acquire locations, customers and deposits," according to Michael Goldberg, an analyst with Desjardins.
The analyst sees the tranche of 237 branches in New York state and 86 branches in New Jersey as the best fit for TD, which is already among the top five banks in that region and stands to increase its size by up to a third.
TD also emerged from this week's failed auction for Washington Mutual two slightly more intangible benefits. The first was a qualified mandate of sorts to pursue retail acquisitions in the U.S. from some of its own biggest shareholders, who did not flee for the exits when word leaked TD was in the auction for a badly listing U.S. bank, and instead told the Financial Post they backed management.
The auction also allowed TD to stare into the banking system's heart of darkness: toxic pools of original subprime mortgages, and glean intelligence about the worth of the underlying assets.
"Information is valuable in this marketplace," said one banker on Friday.
This knowledge will give TD an edge in bidding rounds for a growing list of regional banks and financial companies likely to entice interest from other Canadian banks, including Bank of Montreal, Bank of Nova Scotia and Royal Bank of Canada.
Royal Bank Chief Executive Gord Nixon said on Friday the bank would consider buying branch networks or wealth-management units, but cautioned against expecting large-scale deals.
"Under the right circumstances we could strategically support a retail-banking or wealth-management acquisition and we expect opportunities particularly, but not limited to, the United States over the next 12 months," he said.
One of the stumbling blocks facing Canadian banks is ambiguity over how a planned US$700-billion bail out fund will treat U.S. operations owned or acquired by foreign companies.
There is a deep split on Capitol Hill over the issue, with one camp wanting to exclude foreign-owned subsidiaries, according to a bank lobbyist in Washington. This would pull the rug from under Canadian bidders on distressed banks.
"It would hurt foreign buy-outs, and leave a very bad taste in the mouths of foreign investors," said Gary Hufbauer of the Peterson Institute.
A separate camp wants discretionary power handed to Hank Paulson, the U.S. Treasury secretary, that would, in turn, give Washington leverage over other countries.
Canada 'not immune' from U.S. fallout: Carney Paul Vieira, Financial Post Dean Bicknell/Calgary Herald Mark Carney, the Governor of the Bank of Canada OTTAWA -- Canada is "not immune" from the negative fallout in the U.S. financial system, Mark Carney, the Bank of Canada governor, said Thursday, warning the current credit turmoil "poses particular problems" for the Canadian economy.
In an address to the Canadian Club of Montreal, Mr. Carney suggested the U.S. economy may not recover as quickly as the central bank initially expected, and that commodity prices, which have driven income growth in Canada, will remain volatile due to slower economic growth in emerging markets.
The remarks were the first public comments by Mr. Carney on the financial turmoil in the U.S. system. Bank of Canada watchers said they were more cautious than usual, likely because of the federal election campaign in which the economy has emerged as the top issue. For weeks, the Conservative Party, which is seeking another mandate to govern, has argued that Canada's economic fundamentals are "solid" and not at risk despite the meltdown in the U.S. markets.
In comments last week, Stephen Harper, the Prime Minister, told reporters the negative fallout from the U.S. financial turmoil "should not spill over into Canada."
As it happens, economists at Toronto-Dominion Bank released their outlook for the Canadian economy. The TD report said the economic fallout in the United States will get worse before it gets better, and as a result it will likely be a year before Canada experiences a "shallow recovery."
Mr. Carney indicated through his remarks that the central bank may be of a similar view as the TD economists.
He said the central bank is in the midst of "revisiting" its outlook for the U.S. economy, adding the turmoil in that country's financial sector has increased the risk that a U.S. economic recovery will be delayed.
"A fall in U.S. domestic demand seems likely. Household credit growth has slowed sharply and will slow further," he said. "Any slowdown in the U.S. economy would have consequences for Canada, but the current situation poses particular problems.
"The prolonged housing slump has affected Canadian exports of lumber and building materials. In addition, the fall in U.S. motor vehicle sales ... has adversely affected our auto sector. Even the spring fiscal stimulus package does not appear to have boosted consumption in the areas that matter most for Canada."
Mr. Carney reiterated that Canada's financial system is solid and well-positioned to withstand the financial turmoil. Nonetheless, "we are not immune from the fallout from this process elsewhere."
Despite the credit turmoil, Mr. Carney said the central bank "will not deviate" from ensuring, through its monetary policy, that inflation remain at its 2% target. Yet, he added, "events beyond our borders have important influences on the outlook for inflation in our country. They must be considered in tandem with domestic factors, including the strength of domestic demand, the evolution of potential growth, and the health of our financial system."
Douglas Porter, deputy chief economist at BMO Capital Markets, said Mr. Carney's language has turned more "dovish," suggesting the bank may be "open to the thought" of cutting rates if necessary. This month, the central bank said its current benchmark lending rate was at an "appropriately accommodative" level.Some economists, most notably David Wolf of Merrill Lynch and Derek Holt of Scotia Capital, have argued the central bank would need to cut lending rates, starting next month
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