· TSX -78.40pts (Reuters) Manulife's drag on the heavily weighted financial group kept the broader index from tagging along with a rally in U.S. stock markets, after it said it would report a 4th-quarter loss of C$1.5 billion due to sliding markets and issue $2.1 billion in common equity to bolster its capital position. Additionally, "We have this whole political issue going on that is certainly not going to entice foreigners to invest in Canada right now," said Julie Brough, vice president at Morgan Meighen & Associates.
· DOW +270.00pts fuelled by reassuring words from Ford Motor Co. chief executive Alan Mulally, who said the automaker has enough cash to make it through 2009 and might not need government help
· Dollar -.37c to $79.84US. "
· Oil -$2.32 to $46.96US per barrel.
· Gold +$6.50 to $783.30US per ounce the biggest percentage advancer, up 7.4%
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Bank of Nova Scotia pulls back on lending
Eoin Callan, Financial Post
Bank of Nova Scotia is pulling back on lending to consumers and warning investors to brace for softer earnings next year as the economy slides into recession.
The third-largest bank in the country provided the clearest signal yet of any major Canadian financial institution that it is reining in offers of loans to customers for big-ticket items like homes.
Rick Waugh, chief executive, said the bank was becoming increasingly cautious amid profound economic uncertainty and worsening credit conditions.
Senior executives said the bank had stopped competing with Bay Street rivals to increase the bank's share of mortgages issued to Canadians.
"We lost a little bit of market share, and we've done that consciously," said Chris Hodgson, head of Canadian banking.
The disclosures indicate the bank has made a major strategic decision that separates it from Toronto-Dominion Bank in particular, where Chief Executive Ed Clark has promised investors he will dramatically increase the bank's share of the retail market.
The retreat by Scotia could leave the field open for TD and BMO to compete most aggressively to offer Canadians new loans, if RBC and CIBC follow Scotia's lead and ease back next year.
Rob Pitfield, the head of international banking at Scotia, said managers were also becoming "very circumspect" in providing consumer loans in Latin America and had "taken alot of action to tighten up."
In some respects, Scotia's executive team are putting into words what many bank executives around the world have been reluctant to say publicly, for fear of drawing political ire at a time when policymakers are encouraging financial institutions to ease the supply of credit.
The chief executive said interference from politicians was emerging as a major headache for international banks that had been compelled to turn to their governments for capital injections amid one of the worst financial crises of the century.
"I don't think government capital comes cheap," said Mr. Waugh, citing pressure on banks to make more loans to mitigate the impact of a recession.
"Politically, it comes with a true cost," he added, saying some foreign banks had been forced by governments to take capital they "didn't want" to guard against potential future losses.
Yet despite the warnings about the after-effects of state interventions, Scotia appears likely to be a beneficiary of moves by the Federal Reserve and United States Treasury to supply extra liqudity to the auto finance industry.
Scotia has more than $20-billion in exposures to the auto finance industry, mainly in the form of loans to consumers to buy cars and to auto dealers to keep their lots filled with vehicles.
The bank has extended about $5.2-billion in loans to consumers, parts manufacturers and dealers, plus exposures of $7.8-billion in off-balance sheet vehicles and another $7.8-billion in an on-balance sheet portfolios made up of securitized credit.
The exposures are a source of "comcern" but have so far been managed without unexpected losses, said Peter Routledge, a senior credit officer at Moody's, the ratings agency. "If we have a normal turn in the credit cycle tied to a recessionary period, then that would suggest they would not have diffculties managing credit losses. If it is an unusually bad cycle and credit losses are much higher, than conceivably it might put some negative pressure on the [credit] rating," said Mr. Routledge.
Brian Porter, Scotia's chief risk officer and a rising force within the bank, said the next year "is going to be a focus on credit, credit and credit."
But he said while there would be a rise in loan losses across the board, he did not anticipate any nasty surprises.
The chief executive said Scotia would not raise capital by issuing common equity, but had ample scope to take advantage of new looser capital rules by selling preferred shares.
Analysts said they expected the bank to act soon to pad its capital base in this way, as its reserves appeared set to dip below the level of 9% of risk-weighted assets, a trigger for other institutions to raise cash.
Scotia Tuesday said profit fell 66% due to a worse-than-expected charge of $642-million incurred amid turbulent markets. The said net income for the year-end quarter ended Oct. 31 was $315-million (28 cents) compared with $954-million (95 cents) in the year-earlier quarter.
Wednesday, December 3, 2008
Tuesday, December 2, 2008
Financial Update
TSX has its worst one-day percentage loss since 1987
Markets post big losses as U.S. recession now official
· TSX -864.41pts (Reuters) after gaining over 1,100 points last week, the TSX plunged 9.3% led by the energy and financial sectors. The prospect that the Conservative minority government could be ousted also had some impact on the sell-off. In Ottawa, opposition parties have reached a tentative deal to bring down the Tory government and form a coalition government that would pump billions of dollars into the economy
· DOW -679.95pts as the National Bureau of Economic Research said the United States is in recession and has been for a year.
· Dollar -.53c to $80.31US. "If anything will suffer from political uncertainty, it's the Canadian dollar, and I think we saw that notably on Friday, when the dollar failed to rally despite the strength in the stock market,'' said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp.
· Oil -$5.15 to $49.28US per barrel.
· Gold-42.20 to $776.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Manulife Financial is moving to shore up its capital base after falling into a loss for the first time in its history as a public company. Canada's largest insurer will issue $2.125-billion in common equity at a discount after seeing its capital base eroded amid extreme volatility in financial markets.
A recession by another definition
RICHARD BLACKWELL TAKES QUESTIONS ON THE FINANCIAL CRISIS
RICHARD BLACKWELL December 2, 2008
How did the National Bureau of Economic Research (NBER) figure out that the United States has officially been in a recession for a year?
The NBER doesn't use the usual definition of a recession - two consecutive quarters of decline in gross domestic product (GDP). It instead looks for the peak of economic activity by considering GDP and several other factors, such as production, employment, consumption and real income.
When the peak is reached and the economy begins to decline significantly, that's when the recession has started, according to the NBER.
This often means that an official recession is not declared by the NBER until it is well under way, or is even over. And it means that there can sometimes be an official recession under way when there aren't two consecutive quarters of GDP decline. So far, that's the case this time. (U.S. GDP fell in the third quarter, but was up in the second.)
The recession will not be considered finished until the economy reaches its trough. But that, too, won't be determined until much later.
What is the NBER anyway?
The NBER was founded in 1920 by a group of economists who wanted to understand business cycles. It is a non-profit research organization with more than 1,000 university professors and researchers functioning as "associates" who study how the U.S. economy works. Since the 1960s, it has been considered the official arbiter of when the United States is in recession.
An NBER subgroup, the business-cycle-dating committee, actually makes the decision to declare a recession. That key committee is currently composed of economists from Harvard, Stanford, the Massachusetts Institute of Technology, Northwestern University, the University of California at Berkeley, and the U.S. Conference Board.
Has the NBER said when the recession will end?
The NBER refuses to make any forecasts, so they've given no public opinion on when the recession will end. They'll only tell us after the fact.
What's the point of declaring a recession a year after it has begun?
Economists, historians and bureaucrats study the NBER's analysis to help them figure out how recessions work, and what patterns are repeated. But to make short-term decisions, politicians usually use more immediate data such as the GDP figures or employment data.
When oil was about $50 (U.S.) a barrel a few years ago, what did a litre of gas cost? My recollection was that it was lower than it is now.
In fact, the last couple of times oil was at about current levels, the price of gas at the pump was pretty close to where it is now. Last week, with oil at just over $50 a barrel, the average price at the pump across Canada was about 83 cents (Canadian) a litre, according to figures compiled by Calgary company M.J. Ervin & Associates. The last time oil was about the $50 mark was in mid-January, 2007, and at that time the average price of gas was roughly 87 cents a litre.There's been talk about some companies' stock values going down to zero. What happens when a company gets to that point?
The Toronto Stock Exchange says a stock can never fall to zero, because for a trade to take place, there has to be a price set. Anybody bidding zero cents for a stock would have that bid rejected as invalid. But a stock can trade for as low as half a cent.
Markets post big losses as U.S. recession now official
· TSX -864.41pts (Reuters) after gaining over 1,100 points last week, the TSX plunged 9.3% led by the energy and financial sectors. The prospect that the Conservative minority government could be ousted also had some impact on the sell-off. In Ottawa, opposition parties have reached a tentative deal to bring down the Tory government and form a coalition government that would pump billions of dollars into the economy
· DOW -679.95pts as the National Bureau of Economic Research said the United States is in recession and has been for a year.
· Dollar -.53c to $80.31US. "If anything will suffer from political uncertainty, it's the Canadian dollar, and I think we saw that notably on Friday, when the dollar failed to rally despite the strength in the stock market,'' said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp.
· Oil -$5.15 to $49.28US per barrel.
· Gold-42.20 to $776.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Manulife Financial is moving to shore up its capital base after falling into a loss for the first time in its history as a public company. Canada's largest insurer will issue $2.125-billion in common equity at a discount after seeing its capital base eroded amid extreme volatility in financial markets.
A recession by another definition
RICHARD BLACKWELL TAKES QUESTIONS ON THE FINANCIAL CRISIS
RICHARD BLACKWELL December 2, 2008
How did the National Bureau of Economic Research (NBER) figure out that the United States has officially been in a recession for a year?
The NBER doesn't use the usual definition of a recession - two consecutive quarters of decline in gross domestic product (GDP). It instead looks for the peak of economic activity by considering GDP and several other factors, such as production, employment, consumption and real income.
When the peak is reached and the economy begins to decline significantly, that's when the recession has started, according to the NBER.
This often means that an official recession is not declared by the NBER until it is well under way, or is even over. And it means that there can sometimes be an official recession under way when there aren't two consecutive quarters of GDP decline. So far, that's the case this time. (U.S. GDP fell in the third quarter, but was up in the second.)
The recession will not be considered finished until the economy reaches its trough. But that, too, won't be determined until much later.
What is the NBER anyway?
The NBER was founded in 1920 by a group of economists who wanted to understand business cycles. It is a non-profit research organization with more than 1,000 university professors and researchers functioning as "associates" who study how the U.S. economy works. Since the 1960s, it has been considered the official arbiter of when the United States is in recession.
An NBER subgroup, the business-cycle-dating committee, actually makes the decision to declare a recession. That key committee is currently composed of economists from Harvard, Stanford, the Massachusetts Institute of Technology, Northwestern University, the University of California at Berkeley, and the U.S. Conference Board.
Has the NBER said when the recession will end?
The NBER refuses to make any forecasts, so they've given no public opinion on when the recession will end. They'll only tell us after the fact.
What's the point of declaring a recession a year after it has begun?
Economists, historians and bureaucrats study the NBER's analysis to help them figure out how recessions work, and what patterns are repeated. But to make short-term decisions, politicians usually use more immediate data such as the GDP figures or employment data.
When oil was about $50 (U.S.) a barrel a few years ago, what did a litre of gas cost? My recollection was that it was lower than it is now.
In fact, the last couple of times oil was at about current levels, the price of gas at the pump was pretty close to where it is now. Last week, with oil at just over $50 a barrel, the average price at the pump across Canada was about 83 cents (Canadian) a litre, according to figures compiled by Calgary company M.J. Ervin & Associates. The last time oil was about the $50 mark was in mid-January, 2007, and at that time the average price of gas was roughly 87 cents a litre.There's been talk about some companies' stock values going down to zero. What happens when a company gets to that point?
The Toronto Stock Exchange says a stock can never fall to zero, because for a trade to take place, there has to be a price set. Anybody bidding zero cents for a stock would have that bid rejected as invalid. But a stock can trade for as low as half a cent.
Monday, December 1, 2008
Financial Update
TSX posts sixth day of gains
“The bank shares have all been whacked” said Andrew Pyle, Wealth adviser at ScotiaMcLeod. “We’ve had the pre-result warnings out and the markets digested it and I think financials should be OK barring another shock wave that comes out of the US.”
· TSX +516.85pts (Reuters). TSX soars led by a big jump in bank stocks as investors also piled back into beaten-down commodity stocks, in part because the Chinese government announced a stimulus package and a cut in interest rates, raising hopes that the moves will stabilize metal prices and increase demand
· DOW +102.43pts up for a 5th session
· Dollar -.39c to $80.84US.
· Oil -$.01 to $54.44US per barrel. markets closed
· Gold+$7.70 to $816.20US per ounce markets closed
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
attached is an excerpt from Financial Post personal Finance columnist Jonathon Chevreau’s new book Findependence Day. It’s written in a factual/fiction format similar to the Wealthy Barber. In this excerpt, The Mortgage Mantra, the main characters discover the power of paying down a mortgage. This is an excellent reference piece to keep for sharing with your clients.
The Toronto Star article below is an excellent illustration of why Banks are reluctant to accept Powers of Attorney. As markets and lender guidelines tighten, expect to see more evidence of attempts at fraud and remember the Know Your Client rule.
Fraudster's house 'sale' ends up costing bank
Bob Aaron
The fallout from mortgage fraud cases in recent years continues to occupy the attention of lawyers, judges and the innocent parties involved.
Back in 2006, Paul Reviczky rented out a house he owned on Sheppard Ave. W. to a person who turned out to be a fraudster. Using a forged power of attorney in favour of Reviczky's non-existent grandson, the bogus tenant listed the property for sale on the Multiple Listing Service.
The house was eventually sold to Pegman Meleknia without the knowledge of the true owner, and the "tenant" disappeared with the sale proceeds.
Real estate lawyer Satwant Singh Khosla had acted for Meleknia, the innocent purchaser. HSBC Bank Canada financed the transaction by giving Meleknia a first mortgage that was title-insured by Stewart Title Guaranty Company.
On closing, HSBC advanced the mortgage money to Khosla, who deposited it into his trust account at the Royal Bank of Canada. Khosla then drew a certified cheque in favour of Paul Reviczky for $429,861.06, representing the balance of the purchase price.
The cheque was certified by RBC and handed over to the fraudster on closing. He forged the signature of Paul Reviczky on the back of the cheque, and deposited it into an account at the Korea Exchange Bank of Canada (KEBOC) in the name of Aaron Paul Reviczky, the fictitious grandson. He then disappeared with the money.
It took two separate court hearings last year for Reviczky to get clear title restored to his own name. Last December, a court ruled that the HSBC mortgage, which financed Meleknia's purchase, was invalid because the bank failed to scrutinize the bogus power of attorney.
Following that ruling, Stewart Title paid off and discharged the HSBC loan. At the same time, it also reimbursed Meleknia for his losses in purchasing a house that the seller didn't own.
To my surprise, the story did not end with that ruling. Another court case was waiting in the wings.
At the conclusion of last year's litigation, Stewart Title was out-of-pocket all of the money it had paid to HSBC and Meleknia.
Khosla, representing Stewart Title's interest in recovering the money, sued the Korean bank to recover its losses. In the lawsuit, Khosla alleged that by clearing the cheque on the basis of a forged and unauthorized endorsement, KEBOC was liable for damages of $429,481.26 for conversion – in other words, wrongfully taking the money.
KEBOC denied that improper conversion of the funds had taken place. Instead, it pointed the finger at Khosla, the lawyer who wrote the cheque in the first place.
Last May, Khosla applied to the Superior Court for what is known as a summary judgment on its claim against the bank, without having to go to trial.
Khosla argued that the act of conversion is one of "strict liability," which means that the bank would be responsible for cashing the cheque with the forged endorsement, no matter what actions it took or how careful it was.
Earlier this month in Toronto, Justice Frances Kiteley released her decision and agreed with Khosla. KEBOC was held responsible for conversion and was ordered to pay Khosla $429,481.26 plus interest since May, 2006, and costs of $6,000.
Those funds will be paid over to Stewart Title, which had reimbursed HSBC for its losses due to the fraudulent sale of the property and the invalid mortgage from the innocent buyer.
This means that the big loser in the case is not Reviczky, Meleknia, Khosla, HSBC or Stewart Title, but instead the bank which cashed the lawyer's trust cheque on the basis of a forged endorsement.
Since the fraudulent sale of the Reviczky property, the Ontario government has made it much more difficult to use a power of attorney in real estate transactions. Hopefully, in future, the occurrence of this type of fraud will be greatly reduced.
Bob Aaron is a Toronto real estate lawyer whose column appears Saturdays. He can be reached at bob@aaron.ca. Visit his website at aaron.ca.
“The bank shares have all been whacked” said Andrew Pyle, Wealth adviser at ScotiaMcLeod. “We’ve had the pre-result warnings out and the markets digested it and I think financials should be OK barring another shock wave that comes out of the US.”
· TSX +516.85pts (Reuters). TSX soars led by a big jump in bank stocks as investors also piled back into beaten-down commodity stocks, in part because the Chinese government announced a stimulus package and a cut in interest rates, raising hopes that the moves will stabilize metal prices and increase demand
· DOW +102.43pts up for a 5th session
· Dollar -.39c to $80.84US.
· Oil -$.01 to $54.44US per barrel. markets closed
· Gold+$7.70 to $816.20US per ounce markets closed
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
attached is an excerpt from Financial Post personal Finance columnist Jonathon Chevreau’s new book Findependence Day. It’s written in a factual/fiction format similar to the Wealthy Barber. In this excerpt, The Mortgage Mantra, the main characters discover the power of paying down a mortgage. This is an excellent reference piece to keep for sharing with your clients.
The Toronto Star article below is an excellent illustration of why Banks are reluctant to accept Powers of Attorney. As markets and lender guidelines tighten, expect to see more evidence of attempts at fraud and remember the Know Your Client rule.
Fraudster's house 'sale' ends up costing bank
Bob Aaron
The fallout from mortgage fraud cases in recent years continues to occupy the attention of lawyers, judges and the innocent parties involved.
Back in 2006, Paul Reviczky rented out a house he owned on Sheppard Ave. W. to a person who turned out to be a fraudster. Using a forged power of attorney in favour of Reviczky's non-existent grandson, the bogus tenant listed the property for sale on the Multiple Listing Service.
The house was eventually sold to Pegman Meleknia without the knowledge of the true owner, and the "tenant" disappeared with the sale proceeds.
Real estate lawyer Satwant Singh Khosla had acted for Meleknia, the innocent purchaser. HSBC Bank Canada financed the transaction by giving Meleknia a first mortgage that was title-insured by Stewart Title Guaranty Company.
On closing, HSBC advanced the mortgage money to Khosla, who deposited it into his trust account at the Royal Bank of Canada. Khosla then drew a certified cheque in favour of Paul Reviczky for $429,861.06, representing the balance of the purchase price.
The cheque was certified by RBC and handed over to the fraudster on closing. He forged the signature of Paul Reviczky on the back of the cheque, and deposited it into an account at the Korea Exchange Bank of Canada (KEBOC) in the name of Aaron Paul Reviczky, the fictitious grandson. He then disappeared with the money.
It took two separate court hearings last year for Reviczky to get clear title restored to his own name. Last December, a court ruled that the HSBC mortgage, which financed Meleknia's purchase, was invalid because the bank failed to scrutinize the bogus power of attorney.
Following that ruling, Stewart Title paid off and discharged the HSBC loan. At the same time, it also reimbursed Meleknia for his losses in purchasing a house that the seller didn't own.
To my surprise, the story did not end with that ruling. Another court case was waiting in the wings.
At the conclusion of last year's litigation, Stewart Title was out-of-pocket all of the money it had paid to HSBC and Meleknia.
Khosla, representing Stewart Title's interest in recovering the money, sued the Korean bank to recover its losses. In the lawsuit, Khosla alleged that by clearing the cheque on the basis of a forged and unauthorized endorsement, KEBOC was liable for damages of $429,481.26 for conversion – in other words, wrongfully taking the money.
KEBOC denied that improper conversion of the funds had taken place. Instead, it pointed the finger at Khosla, the lawyer who wrote the cheque in the first place.
Last May, Khosla applied to the Superior Court for what is known as a summary judgment on its claim against the bank, without having to go to trial.
Khosla argued that the act of conversion is one of "strict liability," which means that the bank would be responsible for cashing the cheque with the forged endorsement, no matter what actions it took or how careful it was.
Earlier this month in Toronto, Justice Frances Kiteley released her decision and agreed with Khosla. KEBOC was held responsible for conversion and was ordered to pay Khosla $429,481.26 plus interest since May, 2006, and costs of $6,000.
Those funds will be paid over to Stewart Title, which had reimbursed HSBC for its losses due to the fraudulent sale of the property and the invalid mortgage from the innocent buyer.
This means that the big loser in the case is not Reviczky, Meleknia, Khosla, HSBC or Stewart Title, but instead the bank which cashed the lawyer's trust cheque on the basis of a forged endorsement.
Since the fraudulent sale of the Reviczky property, the Ontario government has made it much more difficult to use a power of attorney in real estate transactions. Hopefully, in future, the occurrence of this type of fraud will be greatly reduced.
Bob Aaron is a Toronto real estate lawyer whose column appears Saturdays. He can be reached at bob@aaron.ca. Visit his website at aaron.ca.
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