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| Market News: News Archive : Morning News Call Week ending |
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May 29, 2009
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FRIDAY, MAY 29, 2009 CANADIAN EDITION
TOP NEWS
• Royal Bank Canada posts loss in Q2 after charges
• Banks beat expectations, but bad loans rise
• Tensions rise as Germany races for Opel deal
• Russian Railways to buy trains from Bombardier
• Magna only Opel bidder currently in talks - Germany
• Macquarie buys Canada's Tristone for US$105 mln
BEFORE THE BELL
Toronto's main stock index may open higher today as commodity prices rose accross the board amid hopes that the worst of global economy downturn maybe over. On the macro front, trader will be closely watching the release of Canadian data on current account that is expected to show a deficit of $10.50 billion. U.S. GDP data will also be on the watch-out list of the market. European shares rose as firmer metals prices on the back of reassuring output numbers from Japan boosted miners. Asia continued to lead a global equity rally led by Nikkei share average hitting a seven-month high. U.S. crude oil futures rose by US$1 a barrel, on track for their largest monthly percentage gain in more than a decade on hopes that the economic downturn may be moderating. Gold rallied through US$970 an ounce for the first time since February as traders bought the metal as a hedge against weakness in the dollar, which sank to a five-month low against major currencies.
STOCKS TO WATCH THIS MORNING
• Bombardier (BBDb). State-owned Russian Railways plans to order high-speed trains worth between 500 million and 550 million euros from Bombardier , the world's No. 1 passenger train maker.
• Empire Industries Ltd. (EIL). The company reported first-quarter loss of 2 cents a share, on revenue of $42 million, which rose 8.4 percent during the quarter.
• Fortress Paper Ltd (FTP). The security and specialty paper maker said on Thursday it would cut wages by 10 percent across the board at its Landqart mill from June, and sees annual cost savings of over $5 million from its restructuring efforts.
• Heroux-Devtek Inc. (HRX). The manufacturer of aerospace and industrial products on Friday reported fourth-quarter EPS of 20 cents, on sales, which rose by about 11 percent, of $92.1 million.
• Lundin Mining Corp. (LUN). The company said on Thursday it is seeking to extend the waiver period for non-compliance on terms of a credit line by 30 days.
• Magna International Inc. (MGa). The Canadian car parts group is the only bidder for Opel currently in discussions with other parties but Fiat remains in contention and could return to the negotiating table, a German government spokesman said on Friday. Separately, Magna CEO said on Thursday it would be open to collaborating with Fiat SpA or other European automakers, if it's a "win-win" scenario.
• New Gold Inc. (NGD). The company and Western Goldfields Inc (WGI) said on Thursday the court approved business combination of the two companies.
• Onex Corp. (OCX). The private-equity firm remains on the lookout for acquisitions of distressed companies with high intrinsic value, even as the global economic downturn continues, a top executive said on Thursday.
• Paramount Energy Trust (PMT_u). The company said on Thursday it bought 28,400 common shares of Profound Energy Inc and highest price per share paid for the acquired shares was $1.53.
• Petrominerales Ltd. (PMG). The company said on Friday Corcel-E1 well produced 4,900 bopd, bringing the total production to above 25,000 bopd.
• Precision Drilling Trust (PD_u). Alberta Investment Management Corp, which manages about $80 billion in assets, is on the lookout for investment opportunities similar to its recent purchase of a major stake in Precision Drilling.
• Royal Bank of Canada (RY). The Canadian largest bank reported a second-quarter loss on Friday, reflecting a previously announced $1 billion writedown for a drop in the value of the bank's U.S. assets and a rise in provisions for bad loans.
• Transatlantic Petroleum Corp. (TNT). The company on Friday reported first-quarter loss of 9 cents a share, on petroleum revenue of $1.4 million.
ECONOMIC CALENDAR
08:30 Current acct-deficit for Q1: Prior -$7.49 bln Expected -$10.50 bln
CORPORATE EVENTS
10:00 Heroux-Devtek Inc. (HRX). Q4 earnings conference call
13:30 Royal Bank Of Canada (RY). Q2 earnings conference call
ANALYST RECOMMENDATIONS
• Aura Minerals (ORA) raised to outperform from market perform at Raymond James
• Baytex Energy Trust (BTE_u) cut to market perform from outperform at Raymond James
• CIBC (CM) price target cut to $71 from $76; rating buy at Genuity
• Goldcorp (GG) price target raised to $40 from $36.50; keeps hold rating at Canaccord Adams
• National Bank of Canada (NA) price target raised to $64 from $60; rating hold at Genuity
• Toronto Dominion Bank (TD) price target raised to $61 from $60; rating hold at Genuity
EXDIVIDENDS
• Great West Lifeco Inc. (GWO). Amount $0.3075
• Savanna Energy Svcs Corp . (SVY). Amount $0.025
• Tim Hortons Inc. (THI). Amount US$0.0858
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Wall Street faces pay conundrum amid TARP rule
Rewarding employees for hard work, and not just for showing up, has become a key tenet of good corporate compensation policy. So why are some Wall Street firms sending a very different message?
Wall Street has long showered lucrative annual bonuses on bankers and traders who delivered big profits.
But the dozens of big banks that accepted bailout funds from the US$700 billion Troubled Asset Relief Program must now rethink how they reward top performers, as the government caps what they can dole out, and taxpayers and politicians demand greater accountability.
"It's kind of ironic in a way, because over the last 10 years everybody has been pushing for pay for performance," said Michael Melbinger, who runs the employment benefits and executive compensation practice at Chicago law firm Winston & Strawn LLP. "Now, with TARP, it is 180 degrees the other way."
Wall Street bonuses themselves have historically provided the bulk of investment bankers' total pay, and are not likely to go away. A report from pay consultant Johnson Associates Inc on Thursday said many investment banking employees should see bonuses rebound this year from 2008 as earnings improve.
But for some executives at big banks whose bonuses have been crimped under the bailout rules, compensation is being revamped in ways that pay experts say may prove counterproductive over the long term.
A case in point, experts say, is a move by TARP recipient Morgan Stanley to significantly boost base salaries for top officers. Bank of America Corp and Citigroup Inc, which each took US$45 billion from TARP, have also looked at boosting base salaries.
The idea behind salary increases is to try to retain valuable employees who may try to defect to companies not subject to the government's pay rules. Even UBS AG, a Swiss bank, has said it will boost salaries of some investment banking employees to discourage them from jumping ship.
Yet the problem, pay experts say, is that increasing guaranteed pay does nothing to motivate employees to perform well over the long term.
ANGER ON MAIN STREET
Few average Americans would shed any tears over curbs on the high six- or seven-figure pay figures still common on Wall Street. Indeed, bankers' bonuses have drawn much populist anger on Main Street and in Congress.
Even in the worst of times, investment bankers and other financial professionals can earn many times what most U.S. workers take home.
Many also would argue that Wall Street's bonus structure helped fuel the global financial crisis by encouraging investment banking employees to take outsize risks in credit and mortgage markets to deliver short-term profit that would translate into lucrative bonuses.
But bonuses, pay experts say, do have a place on Wall Street if used properly to reward top performers.
They say, though, that they expect more banks to start awarding more pay as salary rather than bonus, given the political atmosphere.
"Companies now are saying, we are going to decrease the risk by increasing the salaries," said David Leach, co-founder of Strategic Apex Group LLC, which advises companies on executive pay. "The flip side is that there is then more of a guarantee and it is more of an entitlement."
A senior executive at a TARP recipient, who spoke on the condition of anonymity because of the sensitivity of pay discussions, said boosting salaries and reducing bonuses makes little sense.
"You're going to overpay them regularly, instead of just sometimes?" this person said. "Maybe they will worry less about financing their daily lives if they get more money during the year, so maybe they will work a little harder because that fear is gone. But that seems like a real stretch."
Melbinger, of Winston & Strawn, said banks participating in TARP have little choice other than to boost base salary levels if they want to try to retain key employees.
Indeed, government pay limits restrict these executives from getting many other types of compensation until their companies repay the federal money. That's one reason -- generally left unstated by TARP recipients -- that banks want to repay the government as quickly as they can.
"I do not see it as a continuing trend," Melbinger said of recent Wall Street pay changes. "The day the TARP restrictions lapse, they will go back to annual and long-term bonuses."
--- Martha Graybow, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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May 28, 2009
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THURSDAY, MAY 28, 2009 CANADIAN EDITION
TOP NEWS
• CIBC posts loss on credit, market charges
• TD Bank Q2 profit down on hedging charges
• National Bank of Canada profit jumps 46 percent
• Magna boosted capital on offer for Opel - Stronach
• Nortel will try to sell stake in LG joint venture
• Air Canada may face cash crunch on pensions - report
BEFORE THE BELL
Toronto’s main stock index point to a lower open today on falling commodity prices, while the market eyed General Motors as it slid closer to bankruptcy. European shares were down with banks among the big losers. Asian shares slide from seven-month highs as concerns grew rising U.S. government debt yields could push up borrowing costs and choke off a potential recovery in the world's largest economy. Oil held above US$63 after OPEC ministers meeting in Vienna decided to leave the group's oil output untouched at 24.85 million barrels per day. Gold turned higher reversing earlier losses, as the dollar weakened against the euro, sparking buying of the metal as an alternative asset.
COMPANIES REPORTING EARNINGS
• Bank of Nova Scotia (BNS). Expected to report Q2 earnings of 79 cents a share, as per Reuters Estimates
• Heroux-Devtek Inc. (HRX). Expected to report Q4 earnings of 17 cents a share
STOCKS TO WATCH THIS MORNING
• Canadian Imperial Bank of Commerce (CM). Canada's fifth-largest bank reported a second-quarter loss on Thursday as it took charges in its structured credit and other run-off businesses, but the results beat Wall Street estimates. The company also said that it would start issuing new shares to investors participating in its dividend reinvestment plan rather than buy them in the open market.
• Canadian Spirit Resources Inc. (SPI). The company on Thursday reported first-quarter loss of 1 cent a share, on revenue of $14 million.
• Cameco Corp. (CCO). The uranium producer will have to expand uranium production "dramatically" over the next decade in order to meet rising demand for the nuclear fuel, the company's chief executive said on Wednesday.
• Ceres Global Ag Corp. (CRP). The investment company on Wednesday reported fourth-quarter earnings of $1.06 a share.
• Descartes Systems Group Inc. (DSG). The company on Thursday reported first-quarter adjusted EPS of 9 cents, on revenue of $17.4 million.
• Magna International (MGa). The auto parts maker chairman Frank Stronach said on Thursday his firm had significantly boosted the amount of its own capital it was prepared to offer in its bid for General Motors unit Opel.
• National Bank of Canada (NA). Canada's sixth-largest bank by market value said on Thursday its second-quarter profit jumped 46 percent helped by a strong performance from its financial markets division.
• Nortel Networks Corp. (NT). The end-to-end networking products company which is fighting for survival under bankruptcy protection, confirmed on Wednesday it is looking for a buyer for its majority stake in a South Korean joint venture with LG Electronics.
• Toronto-Dominion Bank (TD). Canada’s second-largest bank said on Thursday profit fell in the second quarter as it took restructuring and hedging charges.
CORPORATE EVENTS
08:00 The Descartes Systems Group (DSGX). Q1 earnings conference call
10:00 Biovail Corp. (BVF). Annual and special meeting of shareholders
11:00 The Descartes Systems Group (DSGX). Annual meeting of shareholders
13:00 National Bank of Canada (NA.TO). Q2 earnings conference call
14:00 Bank of Nova Scotia (BNS). Q2 earnings conference call
15:00 Toronto Dominion Bank (TD). Q2 earnings conference call
16:30 Canadian Imperial Bank of Commerce (CM). Q2 earnings conference call
ANALYST RECOMMENDATIONS
• Katanga Mining (KAT) price target raised to $0.45 from $0.15; rating underperform at RBC
• American Silver (PAAS) cut to neutral from buy at UBS
• Laurentian Bank of Canada (LB) raised to buy from neutral at Dundee
• Silver Standard (SSRI) price target raised to $24 from $23; keeps buy rating at UBS
EXDIVIDENDS
• BPO Properties (BPP). Amount $0.15
• Brookfield Properties Corp. (BPO). Amount $0.14
• Co-Operators Gen Ins Co. (CCS_PRC). Amount $0.3125
• High Liner Foods Inc. (HLF). Amount $0.0625
• Pengrowth Energy Trust (PGH). Amount $0.0876
• Transalta Corp. (TAC). Amount $0.2429
• Trilogy Energy Trust (TET_u). Amount $0.0433
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Canada deficit spike not seen as long-term threat
A spike in Canada's fiscal deficit is unlikely to pose a long-term threat as it is largely caused by temporary measures that are expected to unwind naturally in coming years.
Analysts said Canada's finances still rank as some of the soundest among major economies even after Finance Minister Jim Flaherty revealed a much higher deficit forecast. And they noted -- unlike the UK and United States -- there is no talk for now of a credit rating downgrade.
Flaherty on Tuesday raised his forecast of the 2009-10 deficit to a record high of over $50 billion from $33.7 billion in January, causing a political uproar. The chief of the opposition Liberals accused Flaherty of "incompetence on a historical scale" and demanded his resignation.
But the political backlash may pose more of a threat to the Conservative government of Prime Minister Stephen Harper than any deterioration of Canada's status as one of the world's most fiscally-prudent players.
The task of balancing the books again in four years, as Flaherty promised, has become a lot tougher but not impossible.
"When we come out of this in 2012 and 2013, by the time everything has settled again, we do feel there's a good chance the federal government will be back in a balanced position," said Pedro Antunes, an economist at The Conference Board of Canada.
The projected shortfall this year is the biggest in Canadian history in nominal terms. But as a portion of the total economy it is only 3.3 percent, compared with 8.3 percent for the 1984-85 deficit or 5.6 percent in 1992-93. The hole in the budget is also significantly smaller than those seen in the United States and Europe.
The fast-worsening economy had led economists to predict a ballooning deficit and most also see the deficit exceeding the government's projection of $29.8 billion next year.
"If you told me this a year ago I would have fallen off my chair, but given recent developments and the path of the economy, I'm not surprised," Derek Burleton, senior economist at Toronto-Dominion Bank, said of Flaherty's announcement.
That explains why the Canadian dollar still climbed to a seven-month high on Wednesday and bond prices were little affected by the news.
CHATTER OF MORE MEASURES
Still, the latest private sector forecasts were for a shortfall of about $40 billion, leaving some to wonder whether Flaherty's larger number factored in some additional stimulus measures.
"I suspect there might be something else but I can't actually say it with any certainty until we see the update and see how much they're actually allocating for the auto bailout," said Doug Porter, deputy chief economist at BMO Capital Markets.
"There has been some chatter of additional measures," he said.
Explanations won't come until Flaherty reports to Parliament in June.
Until then, the easiest explanation for the difference is an expected rescue of General Motors Corp and Chrysler. The government will write down a portion of its emergency loans to automakers, Industry Minister Tony Clement said.
"The auto bailouts have been the big story and the price tag of that has been growing," said Burleton.
A return to surplus in under five years is likely, analysts argue, because government tax revenues will climb again when the economy recovers, possibly later this year, and spending on jobless benefits will automatically decline.
The stimulus spending on infrastructure and other temporary measures to combat the recession will also wind down after two years.
Finally, the auto bailout expenses are a one-off item that will not affect finances in subsequent years.
"I'm not sure if it puts the medium-term target of getting back to balance in four years at much further at risk, especially if most of the deterioration above and beyond $40 billion is due to the auto bailout," said Porter.
"It's not going to be easy but its doable."
--- Louise Egan, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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May 28, 2009
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THURSDAY, MAY 28, 2009 CANADIAN EDITION
TOP NEWS
• CIBC posts loss on credit, market charges
• TD Bank Q2 profit down on hedging charges
• National Bank of Canada profit jumps 46 percent
• Magna boosted capital on offer for Opel - Stronach
• Nortel will try to sell stake in LG joint venture
• Air Canada may face cash crunch on pensions - report
BEFORE THE BELL
Toronto’s main stock index point to a lower open today on falling commodity prices, while the market eyed General Motors as it slid closer to bankruptcy. European shares were down with banks among the big losers. Asian shares slide from seven-month highs as concerns grew rising U.S. government debt yields could push up borrowing costs and choke off a potential recovery in the world's largest economy. Oil held above US$63 after OPEC ministers meeting in Vienna decided to leave the group's oil output untouched at 24.85 million barrels per day. Gold turned higher reversing earlier losses, as the dollar weakened against the euro, sparking buying of the metal as an alternative asset.
COMPANIES REPORTING EARNINGS
• Bank of Nova Scotia (BNS). Expected to report Q2 earnings of 79 cents a share, as per Reuters Estimates
• Heroux-Devtek Inc. (HRX). Expected to report Q4 earnings of 17 cents a share
STOCKS TO WATCH THIS MORNING
• Canadian Imperial Bank of Commerce (CM). Canada's fifth-largest bank reported a second-quarter loss on Thursday as it took charges in its structured credit and other run-off businesses, but the results beat Wall Street estimates. The company also said that it would start issuing new shares to investors participating in its dividend reinvestment plan rather than buy them in the open market.
• Canadian Spirit Resources Inc. (SPI). The company on Thursday reported first-quarter loss of 1 cent a share, on revenue of $14 million.
• Cameco Corp. (CCO). The uranium producer will have to expand uranium production "dramatically" over the next decade in order to meet rising demand for the nuclear fuel, the company's chief executive said on Wednesday.
• Ceres Global Ag Corp. (CRP). The investment company on Wednesday reported fourth-quarter earnings of $1.06 a share.
• Descartes Systems Group Inc. (DSG). The company on Thursday reported first-quarter adjusted EPS of 9 cents, on revenue of $17.4 million.
• Magna International (MGa). The auto parts maker chairman Frank Stronach said on Thursday his firm had significantly boosted the amount of its own capital it was prepared to offer in its bid for General Motors unit Opel.
• National Bank of Canada (NA). Canada's sixth-largest bank by market value said on Thursday its second-quarter profit jumped 46 percent helped by a strong performance from its financial markets division.
• Nortel Networks Corp. (NT). The end-to-end networking products company which is fighting for survival under bankruptcy protection, confirmed on Wednesday it is looking for a buyer for its majority stake in a South Korean joint venture with LG Electronics.
• Toronto-Dominion Bank (TD). Canada’s second-largest bank said on Thursday profit fell in the second quarter as it took restructuring and hedging charges.
CORPORATE EVENTS
08:00 The Descartes Systems Group (DSGX). Q1 earnings conference call
10:00 Biovail Corp. (BVF). Annual and special meeting of shareholders
11:00 The Descartes Systems Group (DSGX). Annual meeting of shareholders
13:00 National Bank of Canada (NA.TO). Q2 earnings conference call
14:00 Bank of Nova Scotia (BNS). Q2 earnings conference call
15:00 Toronto Dominion Bank (TD). Q2 earnings conference call
16:30 Canadian Imperial Bank of Commerce (CM). Q2 earnings conference call
ANALYST RECOMMENDATIONS
• Katanga Mining (KAT) price target raised to $0.45 from $0.15; rating underperform at RBC
• American Silver (PAAS) cut to neutral from buy at UBS
• Laurentian Bank of Canada (LB) raised to buy from neutral at Dundee
• Silver Standard (SSRI) price target raised to $24 from $23; keeps buy rating at UBS
EXDIVIDENDS
• BPO Properties (BPP). Amount $0.15
• Brookfield Properties Corp. (BPO). Amount $0.14
• Co-Operators Gen Ins Co. (CCS_PRC). Amount $0.3125
• High Liner Foods Inc. (HLF). Amount $0.0625
• Pengrowth Energy Trust (PGH). Amount $0.0876
• Transalta Corp. (TAC). Amount $0.2429
• Trilogy Energy Trust (TET_u). Amount $0.0433
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Canada deficit spike not seen as long-term threat
A spike in Canada's fiscal deficit is unlikely to pose a long-term threat as it is largely caused by temporary measures that are expected to unwind naturally in coming years.
Analysts said Canada's finances still rank as some of the soundest among major economies even after Finance Minister Jim Flaherty revealed a much higher deficit forecast. And they noted -- unlike the UK and United States -- there is no talk for now of a credit rating downgrade.
Flaherty on Tuesday raised his forecast of the 2009-10 deficit to a record high of over $50 billion from $33.7 billion in January, causing a political uproar. The chief of the opposition Liberals accused Flaherty of "incompetence on a historical scale" and demanded his resignation.
But the political backlash may pose more of a threat to the Conservative government of Prime Minister Stephen Harper than any deterioration of Canada's status as one of the world's most fiscally-prudent players.
The task of balancing the books again in four years, as Flaherty promised, has become a lot tougher but not impossible.
"When we come out of this in 2012 and 2013, by the time everything has settled again, we do feel there's a good chance the federal government will be back in a balanced position," said Pedro Antunes, an economist at The Conference Board of Canada.
The projected shortfall this year is the biggest in Canadian history in nominal terms. But as a portion of the total economy it is only 3.3 percent, compared with 8.3 percent for the 1984-85 deficit or 5.6 percent in 1992-93. The hole in the budget is also significantly smaller than those seen in the United States and Europe.
The fast-worsening economy had led economists to predict a ballooning deficit and most also see the deficit exceeding the government's projection of $29.8 billion next year.
"If you told me this a year ago I would have fallen off my chair, but given recent developments and the path of the economy, I'm not surprised," Derek Burleton, senior economist at Toronto-Dominion Bank, said of Flaherty's announcement.
That explains why the Canadian dollar still climbed to a seven-month high on Wednesday and bond prices were little affected by the news.
CHATTER OF MORE MEASURES
Still, the latest private sector forecasts were for a shortfall of about $40 billion, leaving some to wonder whether Flaherty's larger number factored in some additional stimulus measures.
"I suspect there might be something else but I can't actually say it with any certainty until we see the update and see how much they're actually allocating for the auto bailout," said Doug Porter, deputy chief economist at BMO Capital Markets.
"There has been some chatter of additional measures," he said.
Explanations won't come until Flaherty reports to Parliament in June.
Until then, the easiest explanation for the difference is an expected rescue of General Motors Corp and Chrysler. The government will write down a portion of its emergency loans to automakers, Industry Minister Tony Clement said.
"The auto bailouts have been the big story and the price tag of that has been growing," said Burleton.
A return to surplus in under five years is likely, analysts argue, because government tax revenues will climb again when the economy recovers, possibly later this year, and spending on jobless benefits will automatically decline.
The stimulus spending on infrastructure and other temporary measures to combat the recession will also wind down after two years.
Finally, the auto bailout expenses are a one-off item that will not affect finances in subsequent years.
"I'm not sure if it puts the medium-term target of getting back to balance in four years at much further at risk, especially if most of the deterioration above and beyond $40 billion is due to the auto bailout," said Porter.
"It's not going to be easy but its doable."
--- Louise Egan, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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May 27, 2009
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WEDNESDAY, MAY 27, 2009 CANADIAN EDITION
TOP NEWS
• Canada forecasts deficit will top $50 billion
• GM bond deadline passes; bankruptcy seen near
• Citi, BofA may raise investment bankers' pay - report
• Catalyst Paper to cut jobs on lower demand
• Oil hits '09 high above US$63 on recovery hopes
BEFORE THE BELL
Toronto's main stock index may rise on Wednesday as higher oil prices and continued optimism about the world economy could help the index extend its three-day gain.
Investors will be closely watching U.S. housing data, hoping to see signs that the troubled sector is reaching a bottom. European stocks were up led by banks and Asian shares rose to a seven-month peak on view that the global economy has bottomed, even if recovery appears fragile. Oil rose to a six-month high after OPEC's biggest member Saudi Arabia said the global economy had strengthened enough to cope with oil at US$75 to US$80 a barrel.
COMPANIES REPORTING EARNINGS
• Laurentian Bank of Canada (LB). Expected to report Q2 earnings of 82 cents a share
STOCKS TO WATCH THIS MORNING
• Agrium Inc. (AGU). The agriculture products retailer said on Wednesday it would withdraw and re-file Hart-Scott-Rodino notification in connection with proposed acquisition of CF Industries, as it would provide FTC time to review without needing 'second request'.
• Catalyst Paper (CTL). The Canadian papermaker said on Wednesday it is making job cuts, affecting about 100 staff positions, due to a severe decline in demand and the possibility that curtailed production will not restart in the short term.
• Centerra Gold (CG). The company said on Tuesday that unionized workers at its Boroo gold mine in Mongolia have walked off the job demanding higher wages, prompting the company to suspend operations at the mine.
• Crowflight Minerals Inc. (CML). The company appointed Mike Kelly as president and CEO, replacing Mike Hoffman, who would move to the position of a chairman.
• First Quantum Minerals Ltd. (FM). The company on Wednesday launched an offering of US$350 million convertible bonds due 2014.
• Gabriel Resources Ltd (GBU). The Canadian mining firm said on Tuesday it plans to raise about $100 million through a public offering of common shares and a private placement to certain shareholders to develop its gold project in Romania.
• Goldcorp (G). The gold miner should benefit this year from a continuing reduction in costs combined with a return of gold prices to record high levels, the company's CEO said on Tuesday.
• Peak Energy Services Ltd. (PES_u). The energy services on Tuesday renewed its credit facility of a $65 million syndicated extendable term revolving credit facility, effective May 26, 2009.
• TransAlta Corp. (TA). The wholesale power generator on Tuesday announced $200 million of senior notes due 2014 and priced at 99.823 per cent for yield to maturity of 6.49 per cent.
• Zarlink Semiconductor Inc. (ZL). The tech company posted a wider fourth-quarter loss on Tuesday as it booked a $47 million goodwill writedown because of the impact the weak economy is having on business.
CORPORATE EVENTS
11:00 EnCana Corp. (ECA). Conference call to provide an update on its Haynesville and Deep Bossier plays
14:00 Laurentian Bank of Canada (LB). Q2 earnings conference call
16:00 Bioms Medical Corp. (MS). Annual general meeting
ANALYST RECOMMENDATIONS
• Armtec Infrastructure Income Fund (ARF_u) starts with outperform rating; price target of $20 at Raymond James
• Canfor Pulp Income Fund (CFX_u) rating cut to underperform from market perform at Raymond James
• Petro-Canada (PCA) rating raised to overweight from equal-weight at Barclays
• Suncor Energy (SU) price target raised to $50 from $42; rating overweight at Barclays
• Uranium One Inc. (UUU) rating cut to underperform from market perform; price target cut to $2.80 from $3.20 at Raymond James
EXDIVIDENDS
• 5Banc Split Inc. (FBS_B). Amount $0.1188
• Aberdeen Asia-Pacific Incm Ivt (FAP). Amount $0.05
• Acuity Small Cap Corp. (ASF). Amount $0.0416
• Alaris Royalty Corp. (AD). Amount $0.07
• Allied Pptys Real Estate Investment (AP_u). Amount $0.11
• Amalgamated Income Ltd Partner (AI_u). Amount $0.06
• Amica Mature Lifestyles Inc. (ACC). Amount $0.06
• B Split II Corp. (BXN). Amount $0.055
• Barrick Gold (ABX). Amount US$0.20
• Brompton Advtg Oil & Gas Inc. (AOG_u). Amount $0.0325
• Brompton Split Banc Corp. (SBC). Amount $0.10
• Canadian Energy Svcs L P (CEU_u). Amount $0.0792
• Capital Gains Income Streams (CGQ_E). Amount $0.0875
• Cascades (CAS). Amount $0.04
• Cathedral Energy Svcs Ltd. (CET_u). Amount $0.04
• CERVUS L P (CVL_u). Amount $0.09
• Clublink Corp. (LNK). Amount $0.06
• Dividend Growth Split Corp. (DGS). Amount $0.10
• Dividend Growth Split Corp. (DGS). Amount $0.1313
• Extendicare (EXE_u). Amount $0.07
• Faircourt Gold Income Corp. (FGX). Amount $0.0417
• Financial Preferred Securities Corp. (FPR_PRA). Amount $0.3125
• Groupe Aeroplan Inc. (AER). Amount $0.125
• IGM Financial Inc. (IGM). Amount $0.3594
• Inmet Mining Corp. (IMN.TO). Amount $0.10
• Macquarie Pwr & Infrastructure (MPT_u). Amount $0.0875
• MI Developments Inc. (MIM). Amount US$0.15
• NB Split Corp. (NBF). Amount $0.0339
• Prime Dividend Corp. (PDV). Amount $0.0625
• Sentry Select Focused Grw & Inc. (SFG_u). Amount $0.065
• Superior Plus Corp. (SPB). Amount $0.135
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Magna's Stronach looks to Opel to realize ambitions
Magna International Inc's bid to buy Germany's iconic Opel brand is a gamble on the future of the auto industry in Europe and a chance for its billionaire founder to cement his legacy.
Stung by the global plunge in auto sales, but awash in cash, the Canadian company is looking to scoop up Opel from General Motors Corp, enabling it to make the jump from parts supplier to automaker.
For Frank Stronach, the self-made billionaire who founded Magna, buying Opel would represent a personal jump as well. His company has grown into the third-biggest and most diversified auto parts company in the world, but Stronach is looking to leave an even bigger impression.
"Magna have a relatively small contract manufacturing operation in Austria, which concentrates more on niche type vehicles, but (Opel) gives them a chance to get some real mainstream production capacity and get some mainstream models as well," said Tim Urquhart, an analyst at IHS Global Insight in London
Even so, Urquhart said: "There's no doubt it's a high-risk strategy."
If Magna wins the bid, the company that started in a garage in Toronto about 50 years ago would emerge as a major player in the cutthroat Western European auto market, competing against the likes of BMW, Volkswagen AG and Fiat SpA, all of which Magna currently counts as customers.
"We have always said our preference would never be to compete with our customers," Stronach, who's Magna's chairman, said at the company's annual general meeting in early May.
"But on the other hand, we are in the automotive business, we build cars, we take a look at everything."
Magna is partnering with Russian bank Sberbank Rossii on the 700 million euro Opel bid. Under the arrangement, Sberbank would take 35 percent of the company, Magna would get 20 percent, Opel's employees would get 10 percent and GM would keep a 35 percent stake.
Russian carmaker GAZ Group would be an industrial partner under the plan.
OPEN DOOR TO RUSSIA
Magna, like every player in the auto industry, has taken a hit during the global slump in car sales, but its cash on hand -- US$1.7 billion at the end of the most recent quarter -- sets it apart from many of its competitors and puts it in a position to take advantage of deals on the market.
"They're saying this is the right time" to buy into a European auto company, said Richard Cooper, executive director for Canada at JD Power and Associates.
"Things are not going to get any easier in the automotive business over the next little while and the other thing ... is that the Japanese and Chinese and Koreans are looking at Europe as a growth market -- not just Western Europe, but central and Eastern Europe."
Siegfried Wolf, Magna's co-chief executive, said at the company's AGM that, while Russia has been hit hard by the economic downturn, "we believe that the Russian economy will bounce back, offering significant potential for Magna."
He said Magna was taking steps to beef up its presence in Russia and other developing markets.
"When the Russian market starts to recover, (Magna will likely) really lay a real assault on the Russian market as well, hence the partnership with GAZ group and also Sberbank," said IHS Global Insight's Urquhart.
Magna's headquarters sit amid the rolling farmland of Aurora, Ontario, 50 kilometers north of Toronto. That is where Austrian-born Stronach ended up after emigrating to Canada in the mid-1950s with almost no cash in his pocket.
He is now 76 years old, with a personal fortune estimated by Canadian Business magazine at more than US$1 billion.
"There's a big legacy thing going on here," said Urquhart. "I think he wants to turn himself into a big OEM (original equipment manufacturer) ... and this will be a sort of legacy to his company."
($1=$1.12 Canadian)
--- John McCrank, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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May 26, 2009
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TUESDAY, MAY 26, 2009 CANADIAN EDITION
TOP NEWS
• Canada deficit will be much larger than expected
• Bank of Montreal Q2 profit drops 44 percent
• North Korea tension, economy worries hit stocks
• CN Railway settles charges over two derailments
• CAW members ratify GM concession deal
BEFORE THE BELL
Toronto's main stock index could open lower mirroring global stock markets after North Korean nuclear tests unsettled markets, prompting crude oil and metals prices to retreat. European and Asian markets were down, with political risk at the forefront of investor concerns. Gold slipped as the dollar bounced back against the euro after last week's losses, curbing interest in the metal as an alternative asset. Oil fell below US$61 a barrel on expectations an OPEC meeting later this week would keep the producer group's output unchanged.
STOCKS TO WATCH THIS MORNING
• Bank of Montreal (BMO). The diversified financial services provider posted a 44 percent drop in second-quarter profit on Tuesday, as a jump in loan loss provisions partly offset higher trading revenues.
• Biovail Corp. (BVF). The specialty pharmaceutical company said on Monday Eugene Melnyk agreed not to participate in a proxy contest until completion of Biovail's shareholders' meeting in 2010 and withdrew his proposed nominees to the board.
• Canadian National Railway (CNR). The railroad company pleaded guilty and paid fines to settled environmental charges stemming from two high-profile derailments in Western Canada, officials said on Monday.
• Manulife Financial Corp. (MFC). Canada's largest insurance company on Monday it will issue as much as $350 million of preferred shares to reduce debt and strengthen its balance sheet.
• Nexen Inc. (NXY). UK's Island Gas Resources said on Tuesday the company and its joint venture partner Nexen started generating electricity from domestic coal bed methane gas, a first in the UK.
• Petroflow Energy Ltd. (PEF). The oil and gas company broke-even in the first-quarter on Monday and said its average sales production grew to 3,462 boe per day.
• Phoenix Coal Inc. (PHC). The company on Tuesday secured the permits for KO mine and expects to contribute over 400,000 saleable tons this year.
• WestJet Airlines Ltd. (WJA). A planned code-share partnership between low-cost carriers WestJet Airlines and Southwest Airlines Co will be delayed because of a sharp slowdown in air travel, WestJet, Canada's No. 2 airline, said in a surprise announcement on Monday.
• Yamana Gold (YRI). Calibre Mining said on Tuesday to buy all shares of Yamana Gold's Nicaraguan unit, Yamana Nicaragua, for $7 million.
CORPORATE EVENTS
14:00 Bank Of Montreal (BMO). Q2 earnings conference call
ANALYST RECOMMENDATIONS
• Canadian Western Bank (CWB) price target raised to $18 from $13; rating buy at Genuity
• Corriente Resources (CTQ) rating cut to sell from buy at Desjardins
• Killam Properties (KMP) price target raised to $8.10 from $7.35 at Genuity
• Laurentian Bank of Canada (LB) price target raised to $35 from $29; rating hold at Genuity
EXDIVIDENDS
• Claymore Cdn Finl Monthly (FIE). Amount $0.04
• Finning International Inc. (FTT). Amount $0.11
• R Split III Corp. (RBS). Amount $0.065
• R Split II Corp. (RBT). Amount $0.29
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
COLUMN - California, harbinger of hard U.S. choices
California's fiscal train wreck should be watched warily by investors in U.S. Treasuries; as the start of a trend among states seeking bailouts, as a source of pressure on Federal funds and as a harbinger of hard choices at national level.
California voters last week rejected a finance bolstering proposal, setting the stage for billions of dollars worth of cuts in services, layoffs and a shortened school year.
It also leaves the state with a budget shortfall of more than US$21 billion, an exacerbated seasonal revenue shortfall and a fragile reputation in the bond market.
These are just about the last things a state needs when unemployment is high and recession is deep, but California is trapped between its own high cost base, bond investors unwilling to give it the benefit of the doubt and a Federal government that is loath to play Santa Claus. Of the three, the last is most likely to give way, and if the U.S. does widen the bailout it is already giving to states it will have potentially profound consequences.
Treasury Secretary Tim Geithner knocked back, equivocally, a request from California Treasurer Bill Lockyer to use TARP funds to backstop the issuance of bonds by California. Lockyer fears that investors and banks will impose punitive costs on new borrowings, costs that will only worsen its overall position.
Though Geithner was right to say California wouldn't fit under the TARP, saying in essence that this was not the purpose of the vehicle, he was far from final on the whole issue.
Asked to rule out categorically a California bailout, Geithner told Congress:
"We will have to do exceptional things, as we have done already, to fix this mess ... That's not putting on the table or taking off the table any specific thing like that. But I just want you to know that there are things that we've had to do I would never have contemplated doing."
Christopher Thornberg, of Los Angeles-based Beacon Economics, thinks the stakes for California and the U.S. economy will prove too high.
"I don't think the Feds can afford to say no to California just now."
AS THE BAILOUT ROLLS
The economic and social impact of California's spending cuts are unpleasant. Also of concern is the health of the municipal bond market itself, the continued smooth functioning of which is systemically important and could force the government's hand. To be clear, Californian 10-year debt is still yielding a fairly reasonable 4.4 percent, a lot higher than equivalent Treasuries at about 3.3 percent but not ruinous. There are well founded fears about what the price will be going forward.
Treasury and Federal Reserve officials are understandably reluctant; after all, look at the mortgage market which continues to be hooked up to a government sponsored ventilator. Clearly too if Federal assistance were given to help California sell bonds, other states and localities would quickly get in line for their share.
And while California makes the headlines, the finances of other states are also dire.
Forty-seven of the 50 states face budget deficits in fiscal years 2010 and 2011 totalling a hefty US$350 billion, according to the Center on Budget and Policy Priorities.
Much of that will be resolved through higher taxes and spending cuts, but a chunky part could end up being bankrolled in one way or another by the Federal coffers, which should give pause to Treasury investors already absorbing massive issuance.
California is in some ways a special case: it requires two thirds majorities to pass tax increases. But its political inability to get to grips with a set of unpleasant choices is perhaps a warning for the U.S. as a whole.
There is precious little consensus in Congress for more bailout money and even if another tranche of support for states on top of the US$140 billion already offered makes economic sense, it may not be forthcoming. It's not hard to see political paralysis in Washington if more money is needed, for whatever reason.
Secretary Geithner has been lucky or smart to the extent that markets have decided that his tools and bankroll are equal to the task as far as banks go. That consensus may or may not hold and may or may not continue to matter.
If states or municipalities mean he must go back to a refractory Congress, confidence could ebb as rapidly and dramatically as we have seen it grow.
--- James Saft, Reuters News
James Saft is a Reuters columnist. The opinions expressed are his own.
At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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May 25, 2009
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MONDAY, MAY 25, 2009 CANADIAN EDITION
TOP NEWS
• IEA sees 2009 upstream energy investment down 21%
• Air Canada, credit card firm amend terms
• IMF sees stable oil mkts near term, future risks
• N.Korea conducts nuclear test, U.N. to meet
• Oil falls towards US$61; OPEC cut unlikely
BEFORE THE BELL
Toronto’s main stock index could open lower today as the resource heavy index bow down to lower commodity prices. Trading volume is expected to be low as U.S. markets are closed for Memorial Day. European shares were down as Porsche led carmakers lower after Volkswagen said it gave a multi-million euro loan to its smaller German peer, while trade was thin with UK markets closed. Asian markets were mostly up, shrugging off news of a North Korean nuclear test, with Nikkei rising 1.3 percent. Oil prices fell towards US$61 a barrel, giving away some of last week's gains, ahead of OPEC's meeting in Vienna, where the group was widely expected to agree not to cut oil output further.
COMPANIES REPORTING EARNINGS
• Bell Canada International (BI). Expected to report Q1 earnings
• Labrador Iron Ore Royalty Fund (LIF_u). Expected to report Q1 earnings
STOCKS TO WATCH THIS MORNING
• Air Canada (ACa). The Canadian largest carrier said on Monday it reached an agreement with one of its principal credit card processors that reduces the level of unrestricted cash to be maintained and accumulates additional security over time.
• Angle Energy Inc. (NGL). The oil and gas explorer on Monday forecast about a 23 percent jump in 2009 average production, helped by its recently announced acquisition of certain producing properties in western central Alberta.
• Bioniche Life Sciences Inc. (BNC). The biopharmaceutical company said on Friday phase III clinical trial of Urocidin is recommended to continue without modification by the Data Safety Monitoring Committee.
• Magna International (MGa). The autoparts maker and Fiat have improved their offers for General Motors unit Opel ahead of a crucial week in which the German government is expected to decide which bid to back. Separately, Magna said on Friday it has teamed up with Russian bank Sberbank Rossii to make a nonbinding offer to invest $980 million Opel.
• Oroco Resource Corp . (OCO). The company announced on Monday to offer 8 million units through private placement, priced at 15 cents per unit to raise gross proceeds of $1.2 million. The company intends to use the proceeds for second-phase drill program on Eerro Prieto project.
• Sabretooth Energy Ltd. (SAB). The Canada-based oil and gas company said on Monday a group of individuals under the name "Cequence Team" will invest $9.44 million in the company as part of its recapitalization plan.
• Verenex Energy Inc. (VNX). Libya's top oil official on Monday confirmed that Tripoli intends to buy the Canadian oil and gas explorer.
ANALYST RECOMMENDATIONS
• Dalsa Corp. (DSA) starts with price target of $10; rating starts with buy at Genuity
• Minco Silver (MSV) price target raised to $2.60 from $2; rating outperform at Raymond James
• Silver Wheaton (SLW) price target raised to $17 from $16; rating buy at Genuity
EXDIVIDENDS
• Second Cup Royalty Income Fund (SCU_UN). Amount $0.0767
Note: All values are in Canadian currency, unless otherwise stated.
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
GM stock hard to borrow, easy to push around
With General Motors stock up 46 percent from a May 13 low, some investors might think the market believes the troubled automaker may be able to avoid filing for bankruptcy.
But the wild gyrations in the stock, which dropped 24 percent on Friday, suggest that those with positions in the stock have long separated themselves from the fundamental outlook for the automaker, and the stock is driven by short-sellers and momentum action.
A high percentage of GM's shares are being sold short -- 13.9 percent of the company as of May 21, according to data from Data Explorers. Borrowing the stock in order to sell short has become exceedingly difficult, as 75.91 percent of the shares available for loan are being loaned out, the data showed.
The stock is "very hard to borrow," said Bill Rhodes, the founder and chief investment strategist at Rhodes Analytics. "There are so many people trying to sell it short that they've dried up all the readily available borrowing. I'm almost sure that's what you're looking at.
"Just looking at the evidence," he added, "you would suppose that everything available has been borrowed or nearly borrowed, and if that's the case, the irony is that stock is available and susceptible to be squeezed."
When a heavily shorted stock suddenly rallies, those with short positions can be forced to cover, that is, buy the stock back. This can feed on itself, causing a volatile move as more short-sellers cover their positions.
"The squeeze is giving some support to the shares," Rhodes said. "With the stock so low, and since it's not exactly thinly traded, it's easier to push the price around."
That's particularly true when favorable news is released. On Friday morning, a source familiar with the situation told Reuters the Obama administration has no plans to push the automaker into bankruptcy next week.
The shares bounced on the news, rising as high as US$2.23 before falling on a Reuters report that GM's bondholders still planned to reject GM's current offer for a 10 percent equity stake. The stock last traded at US$1.46.
"You're going to see these big moves up or down," said David Silver, analyst at Wall Street Strategies, regardless of whether it refers to "news pushing it towards bankruptcy or news that bankruptcy may be avoided."
That activity has been reflected in the options market where heavy bearish activity was offset Friday with bullish bets from those who believe the stock could gain some ground in the near term as a result of a short squeeze.
"On any bit of good news you see people liquidating their short positions, and you'll see these short rallies," Silver said.
--- Ryan Vlastelica, Reuters News
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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(Please note Canadian quotes are delayed 15 min)
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