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| Market News: News Archive : Morning News Call Week ending |
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Sep 25, 2009
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FRIDAY, SEPTEMBER 25, 2009 CANADIAN EDITION
TOP STORIES
• G20 takes helm of economy, to revamp bank rules
• Research in Motion falls after outlook, downgrades
• U.S. banks' large-loan losses triple to US$53 bln
• Unilever pays 1.3 bln euros for Sara Lee brands
• Ford cements China ties, sees return to profit
BEFORE THE BELL
Toronto’s main stock index open higher on Friday on firmer commodity prices. Wall Street is also set for a higher start after a pledge G20 leaders took to keep emergency economic stimulus in place until a durable recovery is secured. On the macro front, investors will be closely watching the release of U.S. durable goods data which is likely to rise 0.5 percent and new home sales which is expected at 0.44 million, according to Reuters polls. European stocks rose, led by energy shares, after hitting their lowest level in nearly two weeks. Asian stocks were lower on worries central banks might be curbing stimulus efforts too soon. Oil rose above US$66 a barrel, recovering from the previous day's drop to an eight-week low.
STOCKS TO WATCH THIS MORNING
• Bio Extraction Inc. (BXI). The agricultural company on Friday announced a bought deal finance of $10 million and intends to use it to fund capital expenditures.
• E-L Financial Corp. Ltd. (ELF). The investment and insurance holding company on Thursday agreed to acquire a further 519,188 common shares of Algoma Central Corp from Scotia Investments Ltd and its subsidiaries.
• Goldcorp (G). The miner expects to produce around 150,000 ounces of gold in 2010 at its massive Penasquito gold project set to open in January, the company's Mexico director, Salvador Garcia, said on Thursday.
• Osisko Mining Corp. (OSK). The company on Thursday signed a $150 million loan agreement with CPPIB Credit Investments Inc, and would use half of it to develop the Canadian Malartic project.
• Paramount Gold and Silver Corp. (PZG). The miner’s deal to buy Klondex Mines Ltd (KDX) fell apart on Thursday, with Klondex alleging that Paramount's disclosure about a project in Mexico was misleading.
• Peer 1 Network Enterprises Inc. (PIX). The internet infrastructure solutions provider on Thursday reported fourth-quarter EPS of 5 U.S. cents, on revenue of US$22.5 million.
• Research In Motion (RIM). The BlackBerry maker said on Thursday its second-quarter profit dropped and gave an outlook that fell short of analyst forecasts heading into the holiday shopping season.
• Vector Aerospace Corp. (RNO). The aviation repair company said it has been awarded an initial contract by Boeing to carry out major modification packages on U.K. MoD Chinook helicopters.
• Western Canadian Coal Corp. (WTN). The metallurgical coal producer on Thursday announced the sale of AGD Mining Pty. Ltd. to Mandalay Resources Corp.
ANALYST RECOMMENDATIONS
• Alamos Gold (AGI) price target raised to $10.75 from $10; rating hold at Canaccord Adams
• Fronteer Development (FRG) price target raised to $6 from $5.50; rating outperform at RBC
• Onex Corp. (OCX) price target raised to $33 from $32; kept buy rating at UBS
• Peer 1 Network Enterprises (PIX) price target cut to $1.40 from $1.55; rating buy at Laurentian Bank
• Research In Motion (RIMM) price target cut to US$105.00 from US$110; rating buy at Genuity
EXDIVIDENDS
• First Capital Realty Inc. (FCR). Amount $0.32
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Canada banks eye insurance, despite restrictions
Insurance may emerge as the next big growth area in Canadian banking, even though regulations prohibit lenders from selling via their branches and insurance brokers vehemently oppose the move.
When Canada's biggest bankers convened last week to talk about growth plans, they noted that acquisitions were an obvious goal. More quietly, some pointed to insurance as a promising business for them.
"Now we're looking at insurance," Rick Waugh, chief executive of Bank of Nova Scotia said at a financial summit in Toronto. "This year we're going to make a big push, because now we're pushing for growth."
Last month, just before reporting a slight dip in quarterly profit, Canada's third-largest bank became the latest to open an insurance branch -- a retail space in a shopping mall, right beside an existing Scotiabank branch -- to extend the bank's reach into the lives of consumers.
While Canada's banks are prohibited from selling insurance via their branches -- the subject of a long-running political battle with insurance brokers -- the slow expansion of banks into the $115 billion domestic insurance market has many observers wondering how far their push will go.
"It'll take a while, but insurance is a natural fit, and one of the few areas where banks are underrepresented," said Robert Sedran, an analyst at National Bank Financial.
Canada's big banks have emerged from the financial crisis in better shape than global rivals, without taking government bailouts. But finding new business is an uphill battle when consumers already have a bank and rarely switch brands.
"They dominate Canada financially, so to grow any larger, they are either going to have to diversify horizontally into other businesses such as insurance, or diversify geographically into other countries," said Ian Lee, who directs the MBA program at Carleton University's Sprott School of Business.
While Canada's largest banks -- Royal Bank of Canada, Toronto Dominion Bank, Scotiabank, and Bank of Montreal -- are all looking to grow global reach through acquisitions, they are also building insurance assets.
Hungry for growth, the banks are beefing up their insurance arms, trying to push sales on the Internet, in stand-alone insurance branches or through insurance subsidiaries, carefully skirting government regulations that aim to keep the two big financial industries -- insurance and banking -- separate.
Scotiabank's first insurance branch is a page out of the book of rival Royal Bank, which has dozens of insurance offices right next door to many RBC branches. Bank of Montreal paid $375 million this year to buy AIG Life Insurance Co. of Canada, the Canadian arm of failed U.S. insurance giant AIG.
Together with TD Bank, all now offer a portfolio of home, auto or life insurance sold through multiple channels other than their many bank branches -- much to the dismay of the Insurance Brokers Association of Canada, which represents what has been the dominant force in insurance sales.
"The banks are looking to try and enter into a business that everyone agreed they wouldn't get into," said Dan Danyluk, chief executive of the insurance group.
Danyluk is referring to the Bank Act, federal legislation that originally espoused four separate and distinct pillars of financial services -- banks, brokerages, trust companies, and insurers -- as a way of protecting consumers from behemoth banks. But, one by one since the 1990s, the pillars have crumbled. The big six banks now own both the trust companies and big investment houses.
"My own sense is that the gradual disappearance of the pillars is going to continue, and we'll continue to see integration across financial services," professor Lee said.
But the brokers are arguing on the side of consumer protection, saying that bank customers should not have to face an insurance salesman when they're also applying for a loan.
"All we're saying is consumers ought to be able to make a choice without the shadow of credit over them ... because when you want to get credit, you pretty much do what you need to do to get the credit," Danyluk said.
The banks argue the consumer should get to decide.
"We feel consumers have a right to choose. For consumers that want to deal with a direct insurers, through online or call centers, they should have the right. If they want to deal with a broker, that option is open to them,"
Scotiabank's senior vice-president, Mark Cummings, said in an interview.
Glitzy insurance branch openings aside, progress will have to be made politically first -- and observers say the banks face a formidable opponent in the insurance brokers.
Lee and Sedran both say that while the big banks are powerful players in the Toronto-based business sector, the insurance brokers are spread across Canada and, particularly in small towns and cities, are often politically connected pillars of the community.
Their lobbying pressure on Canadian lawmakers to keep banks out of direct insurance sales is relentless.
"Do I have a lot of faith in the Canadian political system? I do. I know how much work (members of Parliament) and senators do, and how smart those people are," Danyluk said.
Michael Goldberg, a financial services analyst at Desjardins Securities, does not underestimate the brokers.
"You have to ask the question: Is the current system broken? If it's not broken, and at the same time you've got brokers that are vehemently opposed to change in the system, why expend political capital to fix something that isn't believed to be broken?" he said.
"In my experience, the brokers are much more effective than the banks (in terms of influence)," Goldberg said.
--- Andrea Hopkins, Reuters
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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Sep 24, 2009
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THURSDAY, SEPTEMBER 24, 2009 CANADIAN EDITION
TOP STORIES
• Canada to extend mortgage purchase plan - report
• Some U.S. bailout won't be recovered - watchdog
• Citi to cut back US branches to six cities - report
• Nomura plans US$5.6 bln share sale, 2nd post Lehman
• Hudson's Bay to go public in 2011 - report
BEFORE THE BELL
Toronto’s main stock index could open lower on Thursday weighed by lower oil prices. Wall Street is also set for a lower open as investors await data on home sales and jobless claims for an indication of the state of the economy following a sharp sell-off in the last session. European shares fell, led by energy and financial stocks. Asian markets outside Japan were down, mirroring investors concern in the U.S. that the Fed may be closer to pulling back on their super loose monetary policy. Oil prices fell towards US$68 a barrel after dropping nearly 4 percent in the previous session on a surprise jump in U.S. crude and product stocks.
COMPANIES REPORTING RESULTS
• Research In Motion Ltd. (RIM). Expected to report Q2 earnings of US$1 a share, according to Reuters Estimates
STOCKS TO WATCH THIS MORNING
• Alamos Gold Inc. (AGI). The miner on Wednesday agreed to acquire Agi Dagi and Kirazli Gold projects from Fronteer Development Corp (FRG) and Teck Resources Ltd (TCKb). The company would pay a total of US$40 million and issue a total of four million shares to the vendors in consideration for these two projects.
• Bio Extraction Inc. (BXI). The Canadian government is lending $2.95 million to the agricultural company as it tries to become first company to market high-purity canola proteins for human consumption.
• CanWest Global Communications Corp. (CGS). The media company will sell down its 50.06 percent stake in Australia's Ten Network Holdings Ltd, worth about A$714 million, in a move that could put Ten into play.
• Gennum Corp. (GND). The intellectual property company on Wednesday swung to a third-quarter loss, hurt by a restructuring charge and reduced inventory levels at customers.
• International Minerals Corp. (IMZ). The company on Wednesday agreed to buy Ventura Gold Corp in an all-share transaction valued at $64.6 million. Ventura shareholders will receive one International Minerals share for every 10 shares held.
• Magna International (MGa). Britain has questioned the viability of the autoparts maker’s plan to buy General Motors' European arm, Opel, in a letter to European competition chief Neelie Kroes, the FT reported on Thursday.
• SunOpta Inc. (SOY). The organic food distributor said on Thursday it agreed to settle claims raised in proposed class action proceedings related to the restatement of its interim financial results for the first three quarters of 2007, and will contribute about US$11.3 million to a settlement fund.
CORPORATE EVENTS
17:00 Research In Motion Ltd. (RIMM). Q2 earnings conference call
ANALYST RECOMMENDATIONS
• Calfrac Well Services (CFW) price target raised to $19 from $12.50; rating sector perform at Blackmont
• Etruscan Resources (EET) rating cut to market perform from outperform at Raymond James
• Plutonic Power (PCC) price target raised to $5.50 from $5.25; rating outperform at Blackmont
EXDIVIDENDS
• Canadian Imperial Bank of Commerce (CM). Amount US$0.8004
• IGM Financial Inc. (IGM). Amount $0.5125
• Sceptre Investment Counsel (SZ). Amount $0.06
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
COLUMN - Giving central bankers bubble lessons
So, evidently, Alan Greenspan wasn't to blame for the financial crisis after all.
That, at least, is the implication of a new study of asset price busts by the International Monetary Fund, which found that monetary policy wasn't the principal cause of the boom and subsequent bust.
But that's only because monetary policy, as practiced by Greenspan and others, involved looking after employment and inflation and counting on bankers and the markets for assets to look after themselves. Oh boy, did they ever.
Greenspan has been vociferous in defending himself, and within the terms of his narrow argument he was right.
Which is why it is high time the terms of debate and the role of central bankers are broadened to give them the right, the responsibility and the tools to lean into the wind of the loose credit creation which so often leads to boom and bust.
"If monetary policymakers are to blame, it is mainly for acting too narrowly and not reacting strongly enough to indications of growing financial vulnerability," according to the IMF report, published this week as part of the World Economic Outlook.
The orthodox argument among central bankers was that because you couldn't be sure of spotting a bubble accurately the costs of speculatively popping them would be too high. On the other hand, once the crash came and there was windshield glass on the road there was a clear need to come to the economy's aid with interest rate cuts and other blandishments.
This asymmetry of course only encourages risk taking.
The study looks at house and stock market bubbles over the past forty years and finds, perhaps unsurprisingly, that there are a lot of early warning signs but no easy one-to-one correlations between conditions and a bubble.
If, for example, a country experiences a large deviation in credit creation combined with a big increase in its current account deficit and a strongly rising share of gross domestic product going towards residential housing investment you have about a 56 percent chance of getting a housing bust one to three years in the future.
The most reliable indicator seems to be the creation of an excess of credit. These figures clearly won't allow central bankers to paint by numbers; they will need to be given a large amount of discretion in how they approach and respond to the data.
That means we will only be as good as our central bankers. If a central banker believes that markets are naturally self-correcting and self-policing then she is not likely to step in when there is an asset price boom without associated inflation in goods and services.
Based on his track record and comments, it is hard to believe that Greenspan would have acted forcefully to slow a housing bubble in the U.S. even if he had a mandate to do so and the right tools.
IF I HAD A HAMMER
Even if a central bank becomes convinced that a bubble is happening, there is the small matter of tools. Simply raising interest rates will work if you do it hard enough, but it is a blunt tool for what might be a delicate job.
The IMF paper speaks of "macroprudential instruments" as a way to take the tops off the credit cycle, meaning regulations or requirements which would have the effect of forcing banks to raise the margin above central bank base rates they charge clients on loans.
Requiring banks to hold more reserves against loans would do this, but would only work if there was a strong link between the regulated and insured banking system and the shadow banking system of securitized loans.
The rewards for circumventing the macroprudential limits will be large and you can bet that the best brains will be working on bending the rules rather than making or enforcing them.
Even better tools won't work without fail though, given another asymmetry in banking today. Some banks are "systemically important" and will not be allowed to fail, and some, like your local credit union are not and will.
Macroprudential tools may force margins that banks charge to rise as a whole. But "too big to fail" banks will still hold an advantage. They know they will be bailed out and, especially when they have capital holes to fill, can be expected to swing for the fences in their lending. That means they will undercut the competition, charging thinner margins and taking on riskier loans. The thin margins will come courtesy of a funding market which quite reasonably will recognize that they are in receipt of a "get out of failure" cheap card.
So, by all means, give central banks the tools to limit credit but while you are at it, break up the big banks.
--- James Saft is a Reuters columnist. The opinions expressed are his own.
--- At the time of publication 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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Sep 23, 2009
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WEDNESDAY, SEPTEMBER 23, 2009 CANADIAN EDITION
TOP STORIES
• Bank of Canada repeats warning on currency
• Ford Canada faces $1.8 bln pension shortfall - report
• AGF posts Q3 EPS of 25 cents
• Cadbury CEO sees 20 pct higher Kraft bid fair - note
• General Mills Q1 profit beats estimates
BEFORE THE BELL
Toronto’s main stock index could open lower on Wednesday on softer commodity. The Bank of Canada repeated its conditional pledge to hold interest rates at their current low level until mid-2010 and said the strong Canadian dollar remains a risk to growth. Wall Street is set for a higher open as investors await the Fed’s statement, which is expected to take note of an improving economy, while cautioning that high unemployment puts recovery at risk. The U.S. dollar fell to a one-year low against a basket of currencies. Traders will also be watching the data on U.S. crude oil inventories, which probably declined last week as oil imports continued to drop, with a Reuters poll showing a fall by 1.1 million barrels. European stocks rose, adding to the previous session's gains, led by banks, while Asian markets were down. Oil fell below US$72 a barrel, pressured by doubts over U.S. demand after industry data showed a surprise build in crude oil stockpiles.
STOCKS TO WATCH THIS MORNING
• AGF Management Ltd. (AGFb). The publicly traded fund manager on Wednesday reported third-quarter EPS of 25 cents, on revenue of $146.9 million.
• Bombardier Inc. (BBDb). The transportation equipment maker will make a decision within the next few weeks on how deeply it will cut production in its commercial aircraft division, CFO Pierre Alary said on Tuesday.
• Canaccord Capital Inc. (CCI). UK investment bank Canaccord Adams, a subsidiary of the independent full-service investment dealer, said on Wednesday it had expanded its investment trust business with the acquisition of the corporate finance arm of Midas Capital for an undisclosed sum.
• Hydrogenics Corp. (HYG). The fuel cell manufacturer said on Wednesday it received order from Bhushan Power & Steel Ltd for 2 megawatt installation of HySTAT electrolyzers.
• Kingsway International Holdings Ltd. (KIH). The investment holding company on Tuesday reported fourth-quarter EPS of US$ 0.107, on revenue of US$17.2 million.
• Northgate Minerals Corp. (NGX). The gold miner said on Tuesday it would raise $100 million by way of a bought-deal financing to finance the development of the Young-Davidson project in northern Ontario and for general corporate purposes.
• Sandstorm Resources Ltd. (SSL). The company on Tuesday announced an equity financing of $25 million and intends to use it for metal stream acquisitions and for general corporate and working capital purposes.
• Zenn Motor Co. (ZNN). The maker of low-speed electric vehicles said on Tuesday it is on the verge of a battery breakthrough that could drive the company into the automotive big leagues, but not as a maker of electric cars.
CORPORATE EVENTS
11:00 AGF Management (AGFb). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Canadian Pacific Railway (CP) price target raised to $55 from $45; Kept market perform rating at Raymond James
• GLV (GLVa) rating raised to strong buy from outperform; Price target raised to $12 from $10 at Raymond James
• Groupe Aeroplan (AER) raitng started with outperform; price target of $13 at Raymond James
EXDIVIDENDS
• Akita Drillling Ltd. (AKTb). Amount $0.07
• Canadian Pacific Railway (CP). Amount US$0.2272
• Great Eastern Corp. Ltd. (GTN_pb). Amount $0.1375
• Mosaid Technologies (MSD). Amount $0.25
• Utility Corp. (UTCc). Amount $0.065
• Wall Financial Corp. (WFC). Amount $0.20
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
COLUMN - Time to junk AIG
The federal government's US$180 billion effort to prop up American International Group has worked, averting an even bigger financial catastrophe. Now it's time for the Obama administration to oversee the dismantling of the failed insurance giant with all due speed.
A report this week from the Government Accountability Office makes clear that AIG would crumble and likely reignite financial fears around the world without the government's massive support.
And the report says it's "unclear" whether AIG will ever pay back the US$121 billion in government assistance that's still coursing through its balance sheet.
The GAO report should provide the administration will all the ammunition it needs to get tough with AIG. The report's conclusions should stiffen the spine of regulators in their dealings with Robert Benmosche, AIG's new US$9 million chief executive.
The former MetLife chief executive seems to act as if he has taken over a financial company that's simply made one or two bad decisions -- not one that nearly brought the global economy to its knees.
Benmosche's plan to take his sweet time in selling off AIG's assets might make sense if the insurer could someday stand on its own without the government's help.
But the GAO report raises serious doubt about whether AIG will ever be self-sufficient again, noting that "the company continues to rely heavily on the federal government as its source of liquidity and capital."
Worse, Benmosche is taking counsel from Hank Greenberg, AIG's former longtime CEO, whose only concern is protecting his still significant equity stake in the de facto taxpayer-owned insurer.
Now Greenberg is trying to get Representative Edolphus Towns to take up his cause of restructuring AIG's bailout package to make it easier for the insurer to live on.
But Towns, the chairman of the House Committee on Oversight and Government Reform, who once sat on the board of subprime mortgage lender MortgageIT, should not be taking Greenberg's calls either.
It's odd that the Brooklyn Democrat is taking a tough stance with Bank of America over its questionable acquisition of Merrill Lynch, but is fielding ideas from the man who oversaw AIG's transformation into a financial behemoth.
The time for kowtowing to Greenberg must end. All this is doing is giving false hope to those investors who've been snapping up AIG's shares on the belief the insurer can turn itself around. AIG can't and it won't.
With the worst of the financial crisis now past, it's time to break up AIG and move on. AIG rightfully deserves to join Bear Stearns and Lehman Brothers on the ash heap of history.
A dissolution of AIG would serve as an important reminder to Wall Street and giant banks around the world, that there's a price to be paid for becoming too big to fail -- and then failing.
--- Matthew Goldstein is a Reuters columnist. The opinions expressed are his own.
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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Sep 22, 2009
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TUESDAY, SEPTEMBER 22, 2009 CANADIAN EDITION
TOP STORIES
• FDIC may tap U.S. banks for funds - report
• BofA to end US$118 bln asset-guarantee deal
• Magna CEO says aims to appease VW on Opel deal
• Canada's GLV in $153 mln bid for Christ Water
• GIC trims Citi stake to below 5 percent
BEFORE THE BELL
Toronto’s main stock index could open higher on Tuesday as the weaker greenback buoyed commodity prices. Traders will be closely watching the release of July retail sales data, which is expected to rise 0.6 percent, with ex-autos up 0.2 percent, according to Reuters polls. Wall Street is also set for a higher open ahead of the U.S. Federal Reserve two-day monetary policy meeting, as markets wait for any comments indicating it might wind down its unconventional financial stimulus measures. European equities resumed their upward march after two sessions of losses, led by energy stocks. Asian shares edged higher, helped by gains in South Korean technology shares. Oil rose above US$70 a barrel after a sharp fall the previous day. Gold was up more than a percent to trade within striking distance of its all-time high.
STOCKS TO WATCH THIS MORNING
• Agrium Inc. (AGU). The fertilizer maker said on Monday it has again extended its hostile offer for U.S. rival CF Industries Holdings Inc, which again said it wasn't interested.
• First Uranium Corp. (FIU). The miner said on Tuesday it had resumed operations at its Ezulwini mine in South Africa after it had shut the facility the previous week following a fatality.
• GLV Inc. (GLVa). The plant equipment maker is offering $153 million to buy all of Austria's Christ Water Technology, GLV said in a statement on Tuesday.
• HudBay Minerals Inc. (HBM). The integrated mining company on Tuesday said it found major new copper and gold drill hole intersections at its Lalor deposit near Snow Lake concentrator in the Flin Flon Greenstone Belt.
• InnVest Real Estate Investment Trust (INN_u). The company said on Monday it would cut its monthly distribution by more than 2 cents, and said it would raise up to $50 million on a bought-deal basis.
• Lakeside Steel Inc. (LS).The steel pipe and tube manufacturing company on Tuesday said it is interested in acquiring some or all of the assets of Barzel Industries Inc and said it has sufficient financing in place to complete a responsible acquisition of assets of Barzel.
• Magna International (MGa). The autoparts maker’s co-CEO, Donald Walker, said on Tuesday he did not know of any talks with China's Geely Group over a possible alliance on Opel.
• Nexen Inc. (NXY). The independent oil explorer on Tuesday said it concluded its recent three-well drilling program at Horn River shale gas property and was producing between 15 million cubic feet a day (mmcf/d) to 20 mmcf/d from its five shale gas wells.
• North American Palladium Ltd. (PDL). The precious-metal company said on Tuesday its underwriters agreed to purchase 11.2 million units on a bought deal basis at a price of $3.15 per unit.
• Nortel Networks Corp. (NRTLQ). The telecoms equipment maker said on Monday that it will auction off software assets at its carrier division as it continues the process of selling its operation in pieces to pay creditors.
ECONOMIC CALENDER
08:30 Retail sales for July: Prior 1.0% Expected 0.6%
08:30 Retail ex-autos for July: Prior 1.0% Expected 0.2%
CORPORATE EVENTS
15:00 Axia NetMedia Corp. (AXX). Q4 earnings conference call
ANALYST RECOMMENDATIONS
• Calfrac Well Services (CFW) target price raised to $18 from $17; rating outperform at Raymond James
• Canadian Royalties Inc. (CZZ) price target cut to $0.60 from $0.65; kept market perform rating at Raymond James
• First Uranium Corp. (FIU) rating cut to market perform from outperform; price target cut to $4.40 from $5.10 at Raymond James
• Goldcorp Inc. (GG) price target raised to $48 from $43; rating outperform at Credit Suisse
• Zincore Metals Inc. (ZNC) price target raised to $0.12 from $0.08; kept market perform rating at Raymond James
EXDIVIDENDS
• Macquarie NexGen Global Infrastructure Corp. (MNF). Amount $0.03
• National Bank of Canada (NA). Amount $0.62
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Without China, economic rebalancing won't work
If the United States is going to succeed in its push for more balanced global economic growth, it must convince China, Germany and other big exporters there is no going back to the pre-crisis boom times.
In calling for the Group of 20 to back its framework for global rebalancing at the Pittsburgh leaders' summit this week, the United States is asking its big trading partners to abandon a strategy which paid off handsomely for years -- namely making goods for export to seemingly insatiable U.S. consumers.
Now that the financial crisis has shown that even Americans have their spending limits, the United States is hoping the time is ripe to finally make some progress on an issue which has generated much talk but virtually no action.
It is not a risk-free tactic for U.S. President Barack Obama. If he expects the big exporters to change their ways, he will have to make good on pledges to address the worsening U.S. fiscal position, which means making
politically unpopular choices about spending and taxes.
"The key question here is whether the rest of the world believes the United States is really going to stop being the consumer of last resort," said Fred Bergsten, director of the Peterson Institute for International Economics in Washington.
Bergsten said the financial crisis gave China and other big exporters a taste of the down side of relying on exports for growth. When trade collapsed, China's economy weakened even though its banks had largely avoided the bad assets that triggered the global recession.
The U.S. plan seeks to deliver a framework by November for rebalancing the world economy under which G20 nations would assess each other's policies to see if they were helping achieve that goal.
The International Monetary Fund would be at the center of the effort. Under the plan, the IMF would forecast the impact of policies and report back to the G20 twice a year with suggested policy adjustments.
BLAME GAME
The imbalances built up at the height of the credit boom, when U.S. consumers freely tapped rising home equity and credit cards to support their spending, have long been cause for consternation among economists.
As the U.S. trade deficit swelled, correspondingly large reserves piled up in China and elsewhere. Many economists argue that while these imbalances did not cause the crisis, they contributed to low interest rates that in turn encouraged investors to chase riskier assets in hopes of fatter returns.
But Beijing rejects that argument, with Chinese officials claiming lax regulatory oversight in rich nations was largely to blame for the financial crisis.
That is one reason why Eswar Prasad, an economics professor at Cornell University, thinks the United States will have a tough time convincing China to go along with the rebalancing effort.
"They see this as an underhanded attempt by the U.S. to bring this issue back to the table in a roundabout way," said Prasad, who travels to Asia regularly for talks with Chinese officials.
Past IMF attempts to tackle decades of U.S. over-consumption and to discourage excessive savings elsewhere failed, mostly because the IMF lacked the influence to wield the stick over the world's most important economies.
CARROTS AND STICKS
Washington is hoping carrots work better, and thinks elevating an issue that had been handled by finance ministers to the leaders level will prove more effective.
The Obama administration has struck a conciliatory tone in its dealings with Beijing, and has been fairly quiet over the thorny issue of China's currency policy. For years, Washington has pressed Beijing to let its yuan currency rise in value to move China's economy away from its reliance on exports.
The IMF launched a multilateral consultation process with the United States, Japan, China, Saudi Arabia and the euro area in 2006 to try and address the distortions of economic growth in the world but got little further than a pledge by countries to tackle trade and investment imbalances.
To strengthen the IMF's hand this time, the United States is pushing for an agreement at this week's G20 meeting to increase the voting power of large emerging market countries to give them more say in IMF decisions.
Domenico Lombardi, president of the Oxford Institute for Economic Policy, said by giving emerging economies more power at the IMF, countries like China would be recognized for their input in the world economy.
"The U.S. is pursuing a multi-pronged strategy whereby on the one hand they're asking China to become a more responsible player in the international monetary system by assuming commitments."
"On the other hand, the U.S. is willing to support any move in the reform of the IMF that would give China a higher role," said Lombardi, who is also a senior fellow at the Brookings Institute in Washington.
--- Lesley Wroughton and Emily Kaiser, Reuters
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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Sep 21, 2009
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MONDAY, SEPTEMBER 21, 2009 CANADIAN EDITION
TOP STORIES
• Dell to buy Perot Systems for US$3.9 billion in cash
• Homebuilder Lennar posts wider quarterly loss
• Thomson Reuters to buy Hugin, terms undisclosed
• Cequence to shut in natural gas production at Gunnel
• Amgen's new bone drug helps in mixed tumour study
BEFORE THE BELL
Toronto’s main stock index could open negative on Monday pressured by weaker commodity prices. Wall Street is also poised for a lower open, after paring early losses amid news of Dell’s offer to buy Perot Systems, ahead of the Federal Reserve meeting later today. U.S. leading indicators is seen up 0.7 percent in August from a 0.6 percent rise in July, according to a Reuters poll. European shares extended their retreat from recent peaks, with the main FTSEurofirst 300 index falling below the 1,000 mark, as investors moved away from risky assets. Asian stocks eased, pulling further away from 13-month highs hit last week, with shares in China feeling supply pressures ahead of a string of IPOs. Oil fell by nearly 3 percent to trade at US$70.13 barrel as a resurgent U.S. dollar sparked a pullback in global commodity prices. Gold dropped below US$1,000 an ounce, its lowest in almost a week.
STOCKS TO WATCH THIS MORNING
• Air Canada (ACa). The U.S. and the airline company appeared on Friday to have settled a spat over charter flights, which had threatened to disrupt the upcoming National Hockey League season.
• Atrium Innovations Inc. (ATB). The maker of professionally endorsed products for health and nutrition industry said on Monday it acquired Garden of Life, a leading U.S. nutritional supplement products brand, for US$35 million.
• Cequence Energy Ltd. (CQE). The energy explorer said on Monday it plans to shut in natural gas production from its wells in the Gunnell area of northeastern British Columbia, due to weakness in natural gas prices.
• DundeeWealth Inc. (DW). The wealth management company on Friday priced an offering of $200 million notes of 5.10 percent series 1 notes.
• Fairfax Financial Holdings Ltd. (FFH). The insurance holding company on Friday filed shelf prospectus, which will allow it to offer up to US$2 billion of debt, equity or other securities.
• Guestlogix Inc. (GXI). The on-board retail technology and solution provider and Abanco on Monday entered a settlement agreement to resolve their lawsuits by dismissing their claims. The companies also said neither party was required to make any cash payment or to provide any compensation to the other.
• Magna International Inc. (MGa). Thousands of people marched through the streets of Zaragoza north east Spain on Saturday to protest the auto parts maker’s acquisition of 55 percent of General Motors' Opel, Spanish media reported.
• MI Developments Inc. (MIMa). The real estate arm of auto parts maker Magna International (MGa) appointed on Friday Rocco Lisciohas as new CFO and executive vice president, replacing Richard Smith, who resigned.
• Potash Corp. of Saskatchewan (POT). The fertilizer producer lowered its 2009 earnings target on Friday, citing weak sales on reduced demand and limited restocking of potash fertilizers by distributors worldwide.
• Thomson Reuters Corp. (TRI). The news and financial data publisher said on Monday it has agreed to buy from NYSE Euronext, the Oslo-based Hugin Group, a company which distributes news releases for companies in Europe.
• Verenex Energy Inc. (VNX). The oil producer focused on Libya, said on Friday it had entered into an agreement to be bought by a Libyan sovereign wealth fund, after the collapse of a deal reached with China.
ANALYST RECOMMENDATIONS
• AGF Management (AGFb) price target raised to $14 from $12; rating sector perform at Blackmont
• Alange Energy (ALE) rating started with outperform and target price of $0.80 at Raymond James
• Calfrac Well Services (CFW) price target raised to $26 from $24; rating overweight at Morgan Stanley
• Canadian Natural Resources (CNQ) target price raised to $75 from $65; rating market perform at Raymond James
• Twin Butte Energy (TBE) rating started with buy; price target of $1.35 at Acumen Capital
EXDIVIDENDS
• Kinross Gold (KGC). Amount US$0.05
• Tecsys Inc. (TCS). Amount $0.025
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Too late to catch the turnaround train at eBay?
Cautious investors may have missed the major gains in eBay Inc's stock price this year, but a growing belief in the Internet giant's comeback suggests the shares still have room to rise.
Some 45 percent of brokers tracked by Thomson Reuters I/B/E/S have a "Buy" or "Strong Buy" rating on eBay, compared with 51 percent with "Hold" ratings. One month ago, only 28 percent of analysts had a "Buy" or "Strong Buy" rating on the stock.
The happy chorus is late to the mark, as eBay shares have already more than doubled since early March, when the company outlined a three-year growth plan.
That compares to a 55 percent gain at Google Inc and a 32 percent rise in Amazon.com Inc in the same period.
Recent improvements to eBay's key marketplaces unit have met with positive response, contributing to increased traffic and sales and suggesting more sustainable growth going forward.
"It's a classic value turnaround play," explained Bernstein Research's Jeffrey Lindsay, who said his 12-month target of US$28 for eBay shares may prove to be too conservative. "Probably there is upside beyond that."
Operating margins of more than 40 percent in eBay's marketplaces -- compared with Amazon's 4 percent margins -- mean that any growth will immediately have an impact on the bottom line, Lindsay said.
"If eBay can move from 2 percent growth to 4 percent growth in the core, it has massive cash flow implications," he said.
EBay's booming PayPal Web payments unit is seen as a future growth driver and a deal to sell online phone company Skype is considered a positive.
At eBay's marketplaces unit, which is moving away from auctions to focus on fixed-price sales of goods, analysts are cheered by better traffic, a report showing August sales may have been positive and improvements in areas such as eBay's seller rating system, search, dispute resolution and listings.
"The core marketplaces business has turned a corner; while the secondary market for goods provides a long-term growth opportunity," UBS's Brian Pitz wrote in a note last week.
CHEAPER IN ONLINE RETAIL
While many investors may have missed the biggest gains this year, eBay's valuation is still below its peer group, according to Brigantine Advisors' Colin Gillis, who said his target price of US$30 is the most bullish on Wall Street.
Ebay's price-to-earnings ratio of 14 times estimated 2010 earnings -- which Gillis called "a broken Internet company valuation" -- is below its historical valuation and the sector average of 18 times forward-looking earnings.
Investors will look for proof that eBay's new fixed-price strategy is working when it releases third-quarter results next month, Gillis said.
"The September quarter is going to show us the turn," he said. "EBay hasn't proved it yet. We're pulling data points but we want to see this fixed price strategy working and pulling earnings to the bottom line."
Positive news will further boost eBay's valuation, estimates and ultimately shares, he said.
"You can have both catalysts happening in eBay," Gillis said. "Investors will reward it a higher multiple ... and there is ample room to drop more to the bottom line."
Still, the recent run-up in shares -- which are up 10 percent this month alone -- means some prefer to wait. "We think the already strong run-up in share price this year warrants caution in the near term as a weak
consumer economy weighs on eBay's core e-commerce business," wrote Argus Research analyst Joseph Donner, who rates the shares "Hold."
Donner, speaking to Reuters, said his more bullish colleagues have "a valid argument." But he is waiting to see real proof of growth in marketplaces, where sales are stabilizing, but were down 14 percent in the second quarter.
"I'm a bit more cautious about the supposed recovery than most people," he said. "That's their core business."
--- Alexandria Sage, Reuters
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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