|
|
| Market News: News Archive : Morning News Call Week ending |
|
|
Jul 14, 2009
|
|
|
TUESDAY, JULY 14, 2009 CANADIAN EDITION
TOP STORIES
• J&J profit falls but beats forecasts, shares up
• Geithner sees confidence return, supports dollar
• OPEC sees demand for its oil falling further in 2010
• Exxon to invest in making fuel from algae - report
• Dell sees lower Q2 margins, stock falls
BEFORE THE BELL
Toronto's main stock index could open higher today on rising commodity prices and as hopes increased on Goldman Sachs kicking of a strong reporting season for financial companies. With no major data set to release in Canada, traders will be watching U.S. June data on retail sales, which is expected to rise 0.4 percent, and PPI is expected up 0.9 percent, according to a Reuters poll. European equities rose for a second day as investors snapped up banks and commodity shares, ahead of results from U.S. bellwethers. Asian stocks rose with Japan recovering from a nine-day falling streak, as banks were buoyed by upbeat analyst comments about the U.S. financial sector. Oil bounced back above US$61 a barrel on renewed confidence across the financial markets.
COMPANIES REPORTING EARNINGS
• Alimentation Couche-Tard Inc. (ATDa). Expected to report Q4 earnings of 11 U.S. cents a share, according to Reuters Estimates
STOCKS TO WATCH THIS MORNING
• Chemtrade Logistics Income Fund (CHE_u). The company said on Monday supply of sulphuric acid and liquid sulphur dioxide were not affected by labor disruption at Vale Inco's facilities at Sudbury, and it would maintain its supplies to customers.
• Gluskin Sheff Associates Inc. (GS). The wealth management company said on Monday its assets under management was about $4.4 billion net of performance fees, as of June 30, and performance fees was about $2.4 million. The company expects full year performance fees of about $5.6 million.
• Grande Cache Coal Corp. (GCE). The company on Tuesday said it sold 0.51 million tonnes of metallurgical coal during the quarter ended June 30 and expects 2010 sales volume to be between 1.3 million and 1.5 million tonnes with average sales price in range of US$115 to US$125 per tonne.
• Mosaid Technologies Inc. (MSD). The patent licensing firm said on Monday it was taking International Business Machines Corp to court for allegedly infringing on six of Mosaid's U.S. patents.
• Nevsun Resources Ltd. (NSU). The gold and base metal explorer said on Monday its Bisha Project in Eritrea has received all required credit approvals from the project finance lenders for debt facilities totaling US$235 million. The company expects the project to generate enough cash to repay all debt facilities.
• OSI Geospatial Inc. (OSI). The security application software company on Monday reported second-quarter loss of 2 cents a share, on revenue of $6.3 million.
• TransAlta Corp. (TA). The wholesale power generator’s 406-megawatt Unit 4 at the Sundance coal-fired power plant in Alberta shut on Monday, the Alberta Electric System Operator said in a report.
CORPORATE EVENTS
15:30 Alimentation Couche-Tard Inc. (ATDa). Q4 earnings conference call
ANALYST RECOMMENDATIONS
• Canadian Natural Resources (CNQ) price target raised to $60 from $54; rating equal-weight at Barclays
• Fortress Paper (FTP) price target raised to $11.60 from $8.10; rating buy at Acumen Capital
EXDIVIDENDS
• Goldcorp (GG). Amount US$0.015
• Reitmans Cda Ltd. (RET). Amount $0.18
Note: All values 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"
|
|
|
|
|
|
INSIGHT
COLUMN - It's tough to modify your way out of a hole
If you thought the U.S. housing crash could be blunted if only lenders would cut delinquent borrowers a break, it is perhaps time to move on to another vain hope.
That's right, the loan modification movement - pushed by the U.S. administration and others as a means of keeping non-paying borrowers in their houses, keeping those same houses from flooding the market as foreclosures, and even helping beleaguered lenders - is running into a reality-shaped wall.
An exhaustive study of loan modifications by economists at the Boston Federal Reserve, under which delinquent borrowers are given lower rates, more time, or even cuts in the principal amount owed, showed fundamental problems with the way that idea works when put into practice.
Looking at data that covers about 60 percent of U.S. mortgages the authors, Manuel Adelino, Kristopher Gerardi, and Paul S. Willen, came up with two important conclusions.
First, securitization, whatever its other shortcomings, is not an important factor in stopping loan servicers from cutting deals with delinquent borrowers.
Second, and even more importantly, lenders don't renegotiate for a simple, unanswerable reason: it is not in their best interest financially.
Virtually every rescue plan in the U.S. since the crisis began in 2007 has been in part a loan modification program, the most recent being the Making Home Affordable plan the Obama administration unveiled in February.
The thinking is that, as a foreclosure can cost the lender between 30 and 50 percent of the value of the loan, deals can be struck with borrowers for a lot less than that leave everyone better off.
Sadly, very few loans are being modified - only about 3.0 percent of delinquent loans - with many blaming securitization, which can make a loan modification toxic for one class of lender but beneficial for another.
Seeing as how securitization was part of the way finance spun of control and the bubble was inflated, this was a satisfying narrative, but a false one according to the Fed study. They found no significant differences in the rate of renegotiation among loans that were in private-label securitizations and those actually owned by the servicer doing the negotiating with the borrowers.
NEITHER A BORROWER NOR A MODIFIER...
The real issue is that, in the vast majority of instances, banks are better off not modifying.
For one thing, about 30 percent of borrowers who become delinquent get back on track before foreclosure. Since its very hard to know which borrowers will become payers again, this implies that 30 percent of the money expended in modifying loans is wasted, at least from the lenders point of view.
Secondly, a huge percentage of borrowers who are given new improved terms go and become delinquent all over again. A whopping 40 to 50 percent of borrowers who get modified loans are 60 days delinquent again six months later.
For them, and for their banks, it is just delaying the inevitable, and expensive to boot, as falling property prices make putting off foreclosing and liquidating costly.
The implication is that unless the government wants to pony up much larger amounts of money to entice lenders to modify loans, we are not going to make much of a dent in the wave of foreclosures washing across the economy. This could be done, and possibly support house prices in the process, but at a very high costs.
The real issue is that there are too many houses for the supply of credit worthy borrowers. The re-default rate shows that, as does the low clearing price when banks sell foreclosed houses.
Housing needs to fall in value, less of it needs to be built, and more people should become renters. That is going to continue to eat away at bank capital and act as a drag on growth.
Beyond that, there is a real question about the long-term consequences of mass loan modification. If the incentives are there more borrowers will become selectively delinquent and fewer who become delinquent will in the end catch up with their payments. Why should they?
That means higher loan rates than would otherwise be the case.
The thinking behind loan modification has interesting parallels in the rest of the economy, where policy makers are following similar strategies for banks and corporate borrowers.
Rather than simply cutting back on leverage, probably via default, there seems to be a consensus for stringing struggling borrowers, and lenders, along, hoping that something turns up.
Ultimately, it seems likely that strategy is about as successful in the rest of the economy as it seems to be in housing.
--- 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.
|
|
|
|
Jul 13, 2009
|
|
|
MONDAY, JULY 13, 2009 CANADIAN EDITION
TOP STORIES
• CIT says it's still in discussions with regulators
• U.S. trial delay call brings UBS tax deal nearer
• Air Canada flight attendants vote for labor deal
• Microsoft pitches Razorfish sale to 5 ad cos - report
• BofA balks at paying fees for guarantees - report
BEFORE THE BELL
Toronto’s main stock index could open mixed on Monday as investors stay cautious ahead of quarterly results due this week from the big U.S. banks and industrial bellwethers. U.S. stock index futures also pointed to a mixed open, while European shares turned positive after hitting an 11-week low, led by energy stocks. Asian shares fell 2.6 percent, with Japan's Nikkei down for a ninth straight day. Oil rose marginally to trade above US$60 a barrel, paring early losses. Gold steadied as the dollar weakened against the euro.
COMPANIES REPORTING EARNINGS
• OSI Geospatial (OSI). Expected to report Q2 loss of 1 U.S. cent a share, according to Reuters Estimates
STOCKS TO WATCH THIS MORNING
• ADF Group Inc. (DRX). The maker of steel superstructures for building constructors on Monday said it was awarded a contract worth $77 in North America's public infrastructure sector. The company said the contract will create about 50 additional jobs at its Terrebonne, Quebec plant.
• Air Canada (ACa). Flight attendants at the debt-laden carrier have voted in favor of a labor agreement with the company, a union spokeswoman said on Sunday, a crucial endorsement the cash-strapped carrier needs to avoid possible bankruptcy.
• Allen Vanguard Corp. (VRS). The security equipment maker on Monday said it inked an agreement with a syndicate of lenders that waives compliance regarding a certain financial covenant for the month of May.
• Canadian National Railway Co. (CNR). The company's wholly-owned subsidiary, CNLX Canada Inc, extended the period, during which holders who tender their notes will receive the consent payment of US$2.50 per US$1,000 principal amount of notes, to July 27.
• Eastern Platinum (ELR). The company said on Monday its subsidiary in South Arica had ended the services of contract mining companies whose employees were involved in industrial action last week. Some 500 contract workers staged a sit-in underground last week at Eastplat's Crocodile River mine in South Africa.
• North American Palladium Ltd. (PDL). The company on Monday appointed Jeff Swinoga as CFO, replacing Fraser Sinclair who will step down on July 15, 2009.
• West Energy Ltd. (WTL). The oil and gas company said on Friday its certifying officers have amended their conclusions for the period ended Dec. 31, 2008 with regard to the company's Disclosure Controls and Procedures and Internal Controls over Financial Reporting and deemed them ineffective.
• West Fraser Timber Co Ltd. (WFT). The integrated forest products company said on Friday it has commenced proceedings to challenge the District of Kitimat's property taxes assessed against the company's Eurocan linerboard and kraft paper operations.
• Western Lithium (WLC). The company's Kings Valley lithium deposit located in Humboldt County, Nevada, is projected to produce 25,000 tonnes of lithium metal annually by 2013, the company's president told Reuters in an interview on Friday.
CORPORATE EVENTS
17:00 OSI Geospatial (OSI). Q2 earnings conference call
ANALYST RECOMMENDATIONS
• Astral Media (ACMa) price target raised to $35 from $33 at Scotia
• Cogeco Cable (CCA) price target cut to $40 from $45; rating outperform at National Bank. Price target cut to $33 from $40; rating buy at Genuity
• New Flyer Industries (NFI_u) coverage started with buy rating; price target of $11.50 at Genuity
• Nexen Inc. (NXY) price target raised to $25 from $23; rating equal weight at Barclays
• Sandvine Corp. (SVC) price target cut to $2 from $2.50 at Scotia
EXDIVIDENDS
• Corus Entertainment Inc. (CJRb). Amount US$0.0404
• Empire Co. (EMPa). Amount $0.185
• Evertz Technologies Ltd. (ET). Amount $0.08
• Marsulex Inc. (MLX). Amount $0.185
• Premium Income Corp. (PICa). Amount $0.10
• Shaw Communications (SJRb). Amount US$0.0566
Note: All values 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"
|
|
|
|
|
|
INSIGHT
CIT troubles could hurt; widespread impact uncertain
Financial difficulties at commercial lender CIT Group Inc could hurt small businesses that depend on credit to fund their growth and operations, though many of CIT's units serve an important function and are unlikely to disappear if the company restructures in
bankruptcy court.
The company, which lends to small- and medium-sized businesses, is scrambling to devise a plan to assure clients and investors it can work its way out of a deepening liquidity crunch, the Wall Street Journal reported on Sunday.
On Saturday, the paper reported that CIT was preparing for a possible bankruptcy filing.
A CIT spokesman declined to comment on Sunday.
CIT said on Friday it is in active talks with the U.S. government to gain access to a key lending program, but there is no guarantee the Federal Deposit Insurance Corp FDIC will allow CIT to join the Temporary Liquidity Guarantee Program.
The government has made it clear that a possible bankruptcy by CIT is not seen as a systemic risk to the financial system, the Wall Street Journal reported, since other lenders including JPMorgan Chase & Co or Deutsche Bank AG can take on many of the same loans in which CIT specializes.
"I don't think it (a possible bankruptcy) would have a wide impact. We're not talking about a systemic issue," said on Sunday a restructuring adviser with extensive experience working with companies in the financing sector. The adviser declined to be named due to the sensitivity of the topic.
A U.S. Treasury Department spokesman declined to comment on Saturday when asked if the administration might consider coming to CIT's aid.
If the company does restructure its operations in bankruptcy court, some clients could suffer, though its most important units will survive.
"CIT has been an important provider of credit to not only retailers and retail suppliers, but a vast array of businesses for over 100 years," said Scott Avila, a partner for corporate restructuring adviser CRG Partners, which is not doing business with CIT. "So whatever restructuring they go through, I expect CIT or some portion of CIT to continue in the future."
In particular, CIT's factoring business is vital to the retail industry and unlikely to disappear.
Factors buy the right to collect on the invoice of a retailer or other company at a discount to the value of the invoice. Then the factor assumes the risk that the invoice will not be paid.
Still, there could be some pain to the company's smallest clients in the retail industry.
"It's a difficult lending environment, and those small retailers that have seen sales slow to a minimum already may have a hard time securing lending sources until spending picks up," said Melinda Crump, a spokeswoman for Sageworks Inc, which tracks and collates the financials of thousands of privately held U.S. companies, in an email.
Businesses that require substantial working capital depend on credit. Changes in financing options could force small businesses into tough choices such as having to fund a portion of their growth from cash flow until other sources of lending were to become available, she said.
Among its services, CIT provides financial products and advice to small and middle market businesses. It has more than US$60 billion in finance and leasing assets and operates in more than 50 countries across 30 industries.
The lender became a banking company in December and obtained US$2.33 billion of funds from the federal Troubled Asset Relief Program.
But it has lost close to US$3.3 billion since the end of 2007, and in a May regulatory filing said it had US$10 billion of funding needs to address in the year ending March 31, 2010.
On Wednesday, Fitch Ratings downgraded CIT deeper into "junk" status, a move that affected US$35 billion of CIT debt. Shares of CIT closed at US$1.53 on Friday.
--- Chelsea Emery, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Please note Canadian quotes are delayed 15 min)
|
|
