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| Market News: News Archive : Morning News Call Week ending |
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Oct 23, 2009
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FRIDAY, OCTOBER 23, 2009, CANADIAN EDITION
TOP STORIES
• Agrium sees Q3 profit down 90-95 pct
• GM puts signing of Opel sale on hold
• China's CIC to lend Canada's SouthGobi US$300 mln
• Transforce Q3 profit falls 36 percent
• Honeywell profit tops Street view, shares up
BEFORE THE BELL
Toronto’s main stock index could open higher on Friday on firmer commodity prices. With no major economic data set for release, investors will be closely following Wall Street, which is also poised for a higher open ahead of housing data and earnings report from software giant Microsoft. European shares bounced back after the previous session's sharp declines, and were on track to post weekly gains for a third time in a row. Asian shares rose on upbeat earnings reports from the U.S. and Asia. Oil rose to trade around US$81.33 a barrel, while gold held above US$1,060 an ounce.
COMPANIES REPORTING RESULTS
• Shaw Communications (SJRb). Expected to report Q4 earnings of 29 cents a share, according to Thomson Reuters I/B/E/S
STOCKS TO WATCH THIS MORNING
• Agrium Inc. (AGU). The fertilizer maker on Friday said it expects third-quarter earnings to be 90 percent to 95 percent below the year-ago period, hurt by lower prices and margins for crop nutrients.
• Berens Energy Ltd. (BEN). The company said on Thursday its Pembina Cardium horizontal oil well tested the equivalent of 270 bbl/day of oil and will be placed on production by early November, 2009.
• Celestica Inc. (CLS). The contract electronics maker posted a marginal third-quarter loss on Thursday, blaming restructuring charges and soft demand in a in what it said was a challenging and volatile environment.
• Cequence Energy Ltd. (CQE). The energy explorer on Friday said production in the Gunnell area of north eastern British Columbia has been resumed at about 3,000 mcf/d and expects production at Gordondale to resume by mid November.
• Counsel Corp. (CXS). The private equity firm said on Thursday its case goods subsidiary will move the balance of its domestic manufacturing to Asia, which is set to commence in January, 2010, while maintaining its Toronto facility as a Custom Design Centre. The transition will result in one-time pre-tax charges of about $3 million.
• International Forest Products Ltd. (IFPa). The wood products maker reported on Thursday third-quarter loss of 16 cents a share, before items, on total sales $105.2 million.
• Lake Shore Gold Corp. (LSG.). The company said on Thursday it would acquire "Bell Creek West" block of properties from Goldcorp, for $20 million in cash and stock.
• Magna Inc. (MGa). General Motors put on hold a deal to sell a 55 percent stake in carmaker Opel to a Russian-backed consortium led by the automotive group, GM's chief negotiator on the deal said on Friday.
• Painted Pony Petroleum Ltd. (PPYa). The company said on Thursday it increased bought deal equity financing to $51.7 million from $47 million, under which it will issue 8.8 million Class A shares at $5.88 each. The company plans to use the net proceeds to accelerate its drilling program and for general corporate purposes.
• Rubicon Minerals Corp. (RMX). The company said on Thursday it has entered into an agreement for a $75 million bought deal financing, under which it will sell 16.5 million shares at a price of $4.55 each. The company plans to use the net proceeds to advance the development of the Phoenix gold project.
• SouthGobi Energy Resources (SGQ). The mining group has secured a US$300 million loan from CIC, China's sovereign wealth, allowing the company to fund more mines and coal processing projects, sources said on Friday. Separately, a senior company executive said, the company is likely to launch its initial public offering in Hong Kong in the first quarter of next year.
• TransForce Inc. (TFI). The transportation and logistics provider posted a 36 percent drop in third-quarter profit on Friday, as weak demand in Alberta's energy sector hurt its revenue.
• Winpak Ltd. (WPK). The company, which makes and distributes packaging materials and packaging machines, on Thursday, reported third-quarter EPS of 15 U.S. cents, on sales of US$125.3 million, which fell 4.6 percent.
CORPORATE EVENTS
09:00 Transforce Inc New (TFI). Q3 earnings conference call
11:00 International Forest Products (IFP-SVA.TO). Q3 earnings conference call
13:00 Shaw Communications (SJRb). Q4 earnings conference call
ANALYST RECOMMENDATIONS
• Calfrac Well Services (CFW) rating raised to outperform at Blackmont
• Genivar Income Fund (GNV_u) price target raised to $29 from $29.50; rating outperform at Blackmont
• Precision Drilling Trust (PD_u) price target raised to $9.50 from $9; rating outperform at Raymond James
• Trinidad Drilling (TDG) rating raised to outperform at Blackmont
EXDIVIDENDS
• Metro Inc. (MRUa). Amount $0.1375
• Utility Corp. (UTCc). Amount $0.065
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"
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INSIGHT
Execs say U.S., EU swaps reforms bold but need work
Exchange and clearinghouse operators, walking a fine line between regulators and customers, said this week new government plans to revamp global derivatives trading are bold but in need of serious revisions.
Two U.S. House committees and the European Commission unveiled plans in the last eight days to revamp the US$450 trillion market for private swaps, seen as the epicenter of the Wall Street meltdown and resulting economic crisis.
Executives at a conference here applauded the progress and trans-Atlantic coordination on the reforms, which are expected to drive significant business their way, but cautioned more time was needed to trim some overzealous measures that could choke markets and even set them up for another catastrophe.
"On the one hand, you've got this tremendous windfall. On the other hand, it's not an evolutionary process," Jeffrey Sprecher, CEO of exchange and clearinghouse IntercontinentalExchange Inc, said in an interview on Thursday.
"Government to a certain degree is trying to fit square pegs into round holes," he said. "It's getting those details right where the concern is."
The industry is worried about forcing inappropriate swaps through exchanges and clearers, relying on clearing as a panacea for systemic risk and the possibility that U.S. and European rules will dovetail, creating a confusing global patchwork.
Some executives also complained about specific details in U.S. drafts, such as the difficulty in giving some firms clearing exemptions and a requirement in the House Financial Services Committee bill to cap collective bank ownership of clearinghouses at 20 percent.
Politicians and regulators want to tighten bank oversight by forcing them to use transparent exchanges and, in particular, clearinghouses, which would monitor the positions of companies trading "standardized" financial products, and protect them from the default of a major player.
"Are we sure that (in) having central clearing we are not going to build some systematic risk by having a concentration of risk in one place? Nobody is talking about that," Patrice Blanc, CEO of Paris-based Newedge Group, the world's largest futures commission merchant, told the Futures Industry Association conference.
Roger Liddell, chief executive of LCH.Clearnet, Europe's top independent clearinghouse, said in an interview: "There needs to be more focus on how different asset classes would behave and could be unwound in the event of a crisis," after noting earlier on Thursday that too many rules would stifle activity.
"The assumption that if something can be cleared, it should be put on an exchange can be a dangerous assumption."
MISSTEPS AND UNINTENDED CONSEQUENCES
The two U.S. bills will be merged in a wider financial reform package that the House of Representatives is expected to vote on early next month. Any European Commission proposals need approval from the European Parliament and EU states.
Many executives interviewed said regulators were taking the necessary time to wade through complicated issues, now more than a year after the collapse of Lehman Brothers Holdings Inc and near-collapse of American International Group Inc, both of which had dangerous exposure to credit- default swaps.
"We're really in the world of unintended market consequences right now. Misstepping with this would be quite severe for the end user," Anthony Belchambers, CEO of London- based industry group Futures and Options Association, told Reuters TV.
Craig Donohue, CEO of Chicago-based CME Group Inc, which runs a clearinghouse, but opposes government-mandated clearing, stressed an alignment of U.S. and European rules.
"Almost all of the people who use these markets are people who can deal in Europe, the U.S., in Asia and other markets," he told Reuters.
If the rules are not aligned, he said, "people are simply going to traverse to the lowest common denominator from a regulatory perspective."
Broker dealers such as Goldman Sachs Group Inc, JPMorgan Chase & Co and Citigroup Inc dominate and reap big profits from the OTC derivatives market. Exchanges have long sought to win over more of the market, but they are also increasingly partnering with the banks, which have pledged to clear much credit and interest rate derivatives by year end.
Thomas Book, executive board member at Deutsche Boerse AG's Eurex derivatives exchange, said "clear economic incentives" were needed to ramp up clearing.
"I think we'd see a shift happening quickly if there were incentives," Book said. "In the end there needs to be a market-driven solution as to what is cleared."
--- Jonathan Spicer, 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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Oct 22, 2009
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THURSDAY, OCTOBER 22, 2009, CANADIAN EDITION
TOP STORIES
• Potash Corp third-quarter profit falls sharply
• Precision Drilling Q3 profit falls 13 pct
• Travelers Cos profit beats Wall St view
• 3M's Q3 beats estimates, raises forecast
• AT&T tops estimates with iPhone help
BEFORE THE BELL
Toronto’s main stock index could open lower on Thursday as softer commodity prices are likely to weigh on the resource-heavy market. On the macro front, August retail sales is expected to rise 0.4 percent, with excluding autos seen up 0.6 percent, according to Reuters polls. Wall Street is also set for a lower open ahead of leading indicators and weekly jobs data. European markets were down on profit-taking and after top mobile network gear maker Ericsson posted worst-than-expected results. Asian shares fell amid disappointment that robust Chinese growth data offered few surprises. Oil was down to trade around US$80.65 a barrel as stronger dollar encouraged investors to lock in profit from a 12-month high hit on Wednesday.
COMPANIES REPORTING RESULTS
• Celestica (CLS). Expected to report Q3 earnings of 15 U.S. cents a share, according to Thomson Reuters I/B/E/S
• Corus Entertainment Inc. (CJRb). Expected to report Q4 earnings of 32 cents a share
• International Forest Products (IFPa). Expected to report Q3 loss of 21 cents a share
STOCKS TO WATCH THIS MORNING
• Cangene Corp. (CNJ). The company reported on Wednesday full-year earnings of 86 cents a share, on revenue of $238.8 million.
• Com Dev International (CDV). The satellite technology company got a contract valued in excess of US$7 million to supply passive microwave equipment for a U.S. government space program.
• Harvest Energy Trust (HTE_u). South Korea ended a frustrating losing streak in overseas resource deals with the agreed US$1.7 billion takeover of Harvest, securing oil and gas reserves but also taking on an aging refinery in need of significant investment.
• Husky Energy Inc. (HSE). The oil producer and refiner said on Wednesday third-quarter profit fell 73 percent as oil and gas prices tumbled from year-earlier levels and production at its offshore Newfoundland oil fields declined.
• Potash Corp of Saskatchewan (POT). The world's largest fertilizer producer said on Thursday that third-quarter profit fell 80 percent on lower demand and weaker pricing.
• Precision Drilling Trust (PD_u). The oil and gas drilling contractor on Thursday posted a 13 percent fall in third-quarter profit, partly on weaker demand for its services following a slump in oil prices earlier this year.
• Premium Brands Holdings Corp. (PBH). The food products maker on Wednesday announced a $35 million bought-deal financing through the issue of debentures and intends to use the net proceeds to reduce debt and for future acquisitions.
• Prophecy Resource Corp. (PCY). The company said on Wednesday it has entered into an agreement to acquire Lynn Lake’s nickel property in Manitoba.
• Score Media Inc. (SCR). The company posted on Wednesday fourth-quarter loss of 1 cent a share, on revenue of $8.9 million.
ECONOMIC CALENDER
08:30 Retail sales for Aug: Prior -0.6% Expected 0.4%
08:30 Retail ex-autos for Aug: Prior -0.8% Expected 0.6%
CORPORATE EVENTS
11:00 Cangene Corp. (CNJ). Q4 earnings conference call
13:00 Potash Corp. of Saskatchewan Inc. (POT). Q3 earnings conference call
14:00 Corus Entertainment Inc. (CJRb). Q3 earnings conference call
14:00 Precision Drilling Trust (PDS). Q3 earnings conference call
16:15 Husky Energy (HSE). Q3 earnings conference call
16:30 Celestica (CLS). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Alamos Gold (AGI) resumed coverage with strong buy rating and $13.30 target price at Raymond James
• Cameco Corp. (CCO) price target raised to $41 from $32; rating sector perform at Blackmont
• Canaccord Capital (CCI) price target raised to $14 from $11; rating buy at Genuity
• Gammon Gold (GAM) coverage started with market perform rating; $10.30 target price at Raymond James
• Goldcorp (G) price target raised to $54 from $53 at Blackmont
• Hudbay Minerals (HBM) price target raised to $20.30 from $14.70; rating outperform at Blackmont
• Lundin Mining (LUN) coverage started with outperform rating; price target of $6 at Macquarie
• Yamana Gold (YRI) price target raised to $15 from $13.75 at Blackmont
EXDIVIDENDS
• Royal Bank Of Canada (RY). Amount US$0.4552
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"
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INSIGHT
COLUMN - Ugly losses become ugly profits in mtg banking
The U.S. mortgage business has become fantastically profitable, as banks, many backed by a too-big-to-fail guarantee, charge home borrowers fat fees for the low risk business of originating loans and selling them on to -- you guessed it -- the government.
While the bank bailout was touted as injecting public money into the banks so that they could start to lend again, the evidence paints a depressing picture. Actual lending is down at many of the largest banks, while profits from trading have ballooned. Meanwhile the fees that banks charge to originate mortgages -- the vast majority of which are now sold on to quasi-government institutions Fannie Mae and Freddie Mac -- have risen sharply, leading to much higher profits for the banks in a very low-risk business.
Wells Fargo reported US$1.1 billion of revenue from loan originations and sales earned from total residential loan originations of US$96 billion. That revenue figure is more than four times what the bank earned in the same period a year ago. Charges and fees on loans were US$453 million, up 70 percent from last year and up 12 percent from the second quarter. Similarly, US Bancorp recorded a US$215 million increase in the quarter in mortgage banking revenue compared to a year ago.
Now of course some of this is simply that low interest rates are driving volumes in refinancing. It would be churlish to argue that banks shouldn't get their share for originating the loan, right?
Not exactly.
A recent study by the Mortgage Bankers Association showed that the industry was making a profit of over US$1,088 per loan in the first quarter of 2009, as against just US$148 in the last quarter of 2008. Industry publication Inside Mortgage Finance reported that the nine largest lenders, comprising about two thirds of the industry, made US$9.1 billion in the first six months of this year, putting them on track to earn five to six times the amount they did in 2008.
Remember, these are mostly origination fees rather than any kind of payment for the higher risk of holding the loans. It would be reasonable, given the terrible performance of housing as an asset and the very high unemployment rate, for mortgage rates to have risen to compensate investors. But that is not what these fees represent. Four out of five loans being made are going through government-sponsored mortgage giants Fannie Mae and Freddie Mac, and the Federal Reserve has been buying up these loans right and left in order to artificially make the interest rate lower.
PROTECTION AND PROFITS
Profits were certainly suppressed in 2008 by low volumes and by some risky loans being forced back to the originators, but it seems clear that the business of originating mortgages has suddenly become quite remarkably profitable.
So, is this a problem and, if so, will it be sustained?
Higher fees impose a cost on borrowers. This blunts the impact of lower interest rates and, on the margins, makes housing less affordable. If the effect of Federal Reserve purchases of mortgages has been to make rates 50 basis points lower than they otherwise would be and the average US$200,000 mortgage includes an additional US$800 in profits for the originator, much of that impact of lower rates is going into banks' profits rather than consumer's pockets.
It is impossible to say that this is a direct result of the bank bailout but policy seems likely to have played a role. Many competitors in the mortgage market from a year ago are now gone, and consolidation has made the big even bigger. And while some banks can boast of having repaid their government money, the too big to fail are just that: they will not be allowed to fall. Size and government-guaranteed safety is a tough combination to compete against.
High profits should attract new entrants eager to take some of the business, but really, if I was going to start a business I might think twice about competing against someone with size, scale and funding costs that reflect an implied government guarantee.
That is a tax on the rest of the economy, imposed by the government for the benefit of certain parts of the financial system.
The banking rescue was sold on the basis that the economy would end if banks did not get aid. It succeeded in saving the banks and probably too in avoiding an economic meltdown.
It also helped to foster a financial sector that lends less, makes more from speculation and charges higher fees for utility tasks like loan origination. How many votes, I wonder, would that proposition have gotten in Congress?
--- James Saft, 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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Oct 21, 2009
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TUESDAY, OCTOBER 20, 2009, CANADIAN EDITION
TOP STORIES
•Caterpillar beats estimates, raises forecast
• Coca-Cola third-quarter profit tops by a penny
• Pfizer 3rd-quarter profit rises, tops Street
• Lonza pulls US$460 million Patheon takeover offer
• GM, Opel Trust signal Magna on track to win Opel
• Eldorado Gold lists on the NYSE
BEFORE THE BELL
Toronto's main stock index could follow its U.S. counterpart to a higher open on Tuesday after a pair of bellwether companies reported stronger-than-expected quarterly earnings. On the macro front, the Bank of Canada is expected keep interest rates steady at record lows. Markets will also be closely following U.S. data on producer prices and housing markets. European and Asian markets edged higher. Oil was lower, ebbing from an over US$80 a barrel a peak hit earlier on a weaker dollar, while gold rose above US$1,065 an ounce.
COMPANIES REPORTING RESULTS
• Canadian National Railway (CNR). Expected to report Q3 earnings of 82 U.S. cents a share, according to Thomson Reuters I/B/E/S
STOCKS TO WATCH THIS MORNING
• Aastra Technologies Ltd. (AAH). The business communications company posted a jump in third-quarter profit on Monday as it slashed expenses and research and development spending to help it cope with slumping sales.
• AEterna Zentaris Inc. (AEZ). The biopharmaceutical company said on Monday it would sell about 4.58 million common shares to institutional investors at US$1.20 each. The proceeds will be used for general corporate purposes and clinical development of leading compounds, the company said.
• Andrew Peller Ltd. (ADWa). The wine producer said late on Monday it is selling its full ownership in Granville Island Brewing Co Ltd to Creemore Springs Brewery Ltd, a stand alone craft brewery owned by Molson Coors Canada. The proceeds from sale will be used to reduce debts and for general corporate purposes.
• Barrick Gold Corp. (ABX). The world's top gold miner said on Monday it will cut about 80 jobs as part of a cost-saving organizational review, and take a US$30 million one-time charge to earnings.
• Eldorado Gold Corp. (ELD). The company said on Tuesday it will transfer its NYSE Amex listing to the New York Stock Exchange, trading under the symbol "EGO", which is expected to begin at the opening of the NYSE on October 22, 2009.
• Magna Inc. (MGA). General Motors and the German trust overseeing stricken carmaker Opel seemed set on Tuesday to move ahead with a sale to the Canadian autoparts supplier rather than let EU doubts halt the deal. Separately, European Union antitrust regulators have no plan to block Magna's acquisition of carmaker Opel, a European Commission spokesman said.
• Patheon (PTI). Swiss drugs industry supplier Lonza withdrew its US$460 million offer to acquire Patheon on Tuesday, citing the cost and the opposition of majority shareholder JLL, and may now set its sights on other similar buys.
ECONOMIC CALENDER
08:30 Wholesale trade for Aug: Prior 2.8% Expected -0.3%
08:30 Leading indicators for Sept: Prior 1.1% Expected 0.8%
09:00 BOC overnight rate for Oct: Prior 0.25% Expected 0.25%
CORPORATE EVENTS
08:30 Aastra Technologies Inc. (AAH). Q3 earnings conference call
16:30 Canadian National Railway (CNI). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Canadian Apartment REIT (CAR_u) price target raised to $14.40 from $14; rating cut to market perform from outperform at Raymond James
• Great Canadian Gaming (GC) started with outperform rating; price target of $11 at Raymond James
• Seaview Energy (CVUa) price target raised to $1.40 from $1.20; rating buy at Genuity
EXDIVIDENDS
• Macquarie Nexgen Gbl Ifra Corp. (MNF). Amount $0.03
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"
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INSIGHT
COLUMN - Can the economy survive survival of the banks?
Now that the banks have stabilized, expect growing focus on and unease with the cut-back in lending which has been an integral part of their survival.
Bailouts all around the north Atlantic rim have brought banks back from the brink, but financial institutions while raising capital have also cut back savagely on lending, tightening terms and conditions, raising pricing and cutting off credit to the weak.
Massive government intervention in credit markets across Europe, Britain and the United States has blunted the impact of this cut-back, but the choices facing banks and their regulators are not easy.
Unless they want the true impact of the banking crisis to be felt, governments must either continue to buy up loans and provide liquidity -- a politically and economically difficult decision -- or give banks an equally unpleasant free pass on implementing better capital standards.
Last week the big three U.S. banks -- Citibank, Bank of America and JP Morgan -- reported earnings, representing among them about a quarter of domestic bank lending. Quarter-over-quarter lending is down 3 percent, according to calculations by FBR Capital Markets, and down 12 percent from a year ago, equal to a US$300 billion decline in loans. This amounts to 3 percent of total domestic debt, a really staggering number and a reflection of just how too big to fail they really are.
Regulatory change may mean that 2010 looks worse and that credit investments face strong headwinds.
"It is worth noting that capital levels at some institutions will experience pressure in (the first quarter of 2010) as banks are forced to on-board off-balance sheet assets, particularly credit card receivables," wrote FBR bank analyst Paul Miller.
The stock market may be discounting a strong rebound, but that rebound is going to have to happen despite bank deleveraging rather than because banks begin to lend freely again.
For many borrowers, things may not feel so bad. If you are big enough and credit-worthy enough, you can tap the public markets, but for individuals and small and medium-sized businesses, things will not be so easy.
The continuing difficulties at troubled small business lender CIT Group do not bode well, and again, lending to the sector has only avoided a worse contraction due to larger loan guarantees from the Small Business Administration.
HANDS ACROSS THE WATER
The recently released Bank of England Credit Conditions Survey for the third quarter showed a similar situation in Britain to that in the United States.
Credit is still becoming harder to get, though the rate of tightening is slowing. Corporations are actually enjoying access to more credit, but terms are continuing to get more onerous, though at a slower rate than before. For households, things remain tough. Credit continues to contract for them and terms and conditions continue to tighten.
Doubtless the British government, which has major stakes in Lloyds and RBS, will twist arms to try to reverse this, but the fact of the matter is that in Britain, as in the United States and Europe, there is a conflict between shoring up the health of the financial system and banking the fires of the real economy. Governments simply cannot preach prudent lending, strong capital and easily available loans all at the same time.
Jochen Felsenheimer, at credit specialist investment house Assenagon in Munich, thinks this has the potential to upset a months-long rally in credit, especially in Europe, where banks have been slower to buttress capital.
"A major risk is the regulatory changes for banks, this will require more equity ... and could lead to a kind of forced selling in many assets banks are carrying on their books," Felsenheimer said.
The potential then in 2010 is for banks to sell loans and asset-backed securities they have been carrying. Portfolio selling could easily swamp the hedge fund and other money that has been flocking to credit during much of 2009.
"I believe 2010 will be a year when banks are forced to reduce their loan exposure," Felsenheimer said.
Governments may decide to continue the economy-wide extend and pretend. They may simply not implement planned capital reforms, or delay them or take steps themselves to lend directly to households and small business to limit the impact.
This in essence is what happened in the United States, where Federal Housing Authority-backed loans have mushroomed as private lenders have stepped back.
The outrage over bank bonuses and pay make it harder for the government to simply give the banking industry a free pass. Bankers are taking quite a cut, and letting the banks off easy so they continue to lend will only grow the pie they are helping themselves to.
The crisis may be over, the credit crunch is not.
By James Saft, 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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Oct 21, 2009
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WEDNESDAY, OCTOBER 21, 2009, CANADIAN EDITION
TOP STORIES
• Altria Q3 profit beats estimates
• Boeing posts Q3 loss on charges
• Thomson Reuters, Alpha team up on Canada stock data
• RIM launching updated top-end BlackBerry Bold
• Continental Air posts surprise profit before items
• Lilly profit tops Street view; year outlook raised
BEFORE THE BELL
Toronto’s main stock index could open lower on Wednesday as commodity prices fall. Wall Street is also poised for a lower start after Boeing reported wider-than-expected quarterly loss and on growing concern that a market pullback is around the corner. European shares extended losses, as banking stocks weighed following a surprise announcement of quarterly results by Deutsche Bank that failed to meet inflated expectations and after Bank of England Governor Mervyn King said regulation would be tightened. Asian stocks were down pulled by the profit taking in technology stocks. Oil fell towards US$78 a barrel, extending the previous session's decline from a one-year peak after a bigger-than-expected rise in U.S. crude oil inventories. Gold was down but traded above US$1,050 an ounce.
COMPANIES REPORTING RESULTS
• Husky Energy (HSE). Expected to report Q3 earnings of 38 cents a share, according to Thomson Reuters I/B/E/S
STOCKS TO WATCH THIS MORNING
• BNK Petroleum Inc. (BKX). The oil and gas exploration and production company said on Wednesday it would sell 16 million common shares at $1.25 on a bought deal basis. The proceeds will be used to fund exploration and development program in Europe and U.S.
• Brookfield Asset Management (BAMa). The company’s Brazilian real estate unit, Brookfield Incorporacoes, said on Tuesday it raised US$272 million in an initial public offering.
• Canadian National Railway (CNR). The Canada's biggest railroad on Tuesday reported a 13 percent drop in third-quarter profit, which beat Street expectations, as deep cost cuts helped cushion the impact of the recession.
• Dynasty Metals & Mining Inc. (DMM). The company on Wednesday said it would sell 1.5 million common shares, i a bought deal financing, at a price of $4.00 each. The company added the proceeds will be used to fund development of Ecuador properties.
• GuestLogix Inc. (GXI). The company on Wednesday announced a bought deal of $7.2 million and said it would sell 6 million shares at $1.20 each. The company intends to use net proceeds for working capital and other general corporate purposes.
• Ivanhoe Energy Inc. (IE). The company on Wednesday appointed Calgary Petroleum executive David Dyck as the CEO and president of its subsidiary Ivanhoe Energy Canada Inc.
• Minera Andes Inc. (MAI). The company said on Tuesday production resumed at the San Jose mine in Argentina. The mine was shut earlier on labor related issues.
• Research in Motion (RIM). The Blackberry-maker is rolling out an updated version of its top-end BlackBerry Bold smartphone, aimed at the company's base of professional users as well as wealthier retail consumers.
• Thomson Reuters (TRI). The news and financial data publisher and Alpha Group said on Wednesday they will offer a consolidated tape that will allow traders to see share prices offered across Canada's exchanges and alternative stock trading venues.
• TransAlta Corp. (TA). The company said on Tuesday it acquired 87 per cent of Canadian Hydro Developers common shares.
ANALYST RECOMMENDATIONS
• Boardwalk REIT (BEI_u) rating cut to sell from hold at Genuity
• Brookfield Properties (BPO) rating cut to hold from buy at Genuity
• Calloway REIT (CWT_u) price target raised to $18.25 from $15; rating hold at Genuity
• Canadian National Railway (CNR) price target raised to $64.50 from $60; rating outperform at Raymond James
EXDIVIDENDS
• Homeq Corp. (HEQ). Amount $0.07
• Jean Coutu Group (PJCa). Amount $0.045
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"
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INSIGHT
For U.S. regional banks, credit woes shift, linger
U.S. regional banks cannot seem to shake loose of their bad borrowers, and their latest quarterly earnings show the long-expected woes from commercial real estate lending are growing fast.
Third-quarter results from BB&T Corp and Regions Financial Corp in the Southeast and Marshall & Ilsley Corp in the Midwest suggest that deterioration in residential construction lending has begun to slow but big problems in commercial real estate (CRE) have yet to be fully felt.
"There's going to be an uneven baton pass as the residential construction issues burn off and CRE starts to come on," said Jeff Davis, an analyst with FTN Equity Capital Markets. "That's what we're seeing right now."
Commercial real estate loans for retail or multifamily projects that are delinquent or in default are ticking up, while deterioration of home construction and condominium loans -- two main culprits of credit losses in the last two years -- has begun to stabilize.
Kelly King, chief executive of Winston-Salem, North Carolina-based BB&T, said on a Monday conference call that commercial real estate loans tied to consumer spending, such as retail, were seeing an uptick in late payments and defaults.
Regions' results highlight a similar shift. The bank's net charge-offs rose to US$680 million in the quarter from US$491 million in second quarter 2009. The increase was led by a 48 percent spike in commercial real estate charge-offs to US$190 million, while consumer real estate delinquencies declined 8.5 percent from the second quarter.
The Birmingham, Alabama-based bank reported a third-quarter net loss of US$437 million, due in large part to a US$1 billion loan loss provision in the quarter.
Some banks are trying to stem losses by selling loans and shrinking their balance sheets.
Marshall & Ilsley on Tuesday said construction and development loans account for 13.7 percent of its loan book.
The Milwaukee-based lender, which also operates in hard-hit states such as Arizona and Florida, is attempting to shrink that segment to less than 10 percent of total loans.
Analysts cautioned the multi-quarter spike in loan problems will not go away over night and the banking industry -- as the economy recovers slowly -- will not see a rapid rebound.
Nevertheless, share prices suggest investors have already factored in expectations that the worst may have passed.
The KBW Bank Index, which includes many large regional banks, has more than doubled from its early-March low. The KBW Regional Bank Index has risen by nearly half over that time.
"I'm feeling a little bit more optimistic about these earnings every day if things at a bank aren't getting better, it seems like at least they're not getting worse," said Andrew Boord, a bank research analyst at Cobleskill, New York-based Fenimore Asset Management.
Several banks which have reported earnings project loan losses are nearing their peak.
Dowd Ritter, Regions Financial CEO, said during his company's earnings call on Tuesday he expects nonperforming assets to peak in fourth quarter or early first quarter 2010.
But analysts said investors should accept that rising loan losses may be the new status quo
"Investors are worried there's more stuff out there the banks haven't reported," said Chris Marinac, an analyst with Atlanta-based FIG Partners. "But investors need to accept that there is more stuff out there and its going to be OK."
--- Joe Rauch, 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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Oct 19, 2009
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MONDAY, OCTOBER 19, 2009, CANADIAN EDITION
TOP STORIES
• Agrium, Terra set potential plant stake sale
• BB&T report slumps as credit issues weigh
• Eaton profit tops Wall Street forecast
• Hasbro profit tops Street estimates
• QLT gets rights to sell Visudyne in U.S.
BEFORE THE BELL
Toronto’s main stock index could open higher on Monday on rising commodity prices, though crude shed some earlier gains. With no major economic indicators set for release, traders will be following Wall Street, which is also set for a higher open on optimism about corporate earnings. European shares bounced back to hover near last week's 12-month highs, with banks, food producers and drugmakers leading the gainers. Asian shares hovered near 14-month highs, shaking off an early dip. Oil was down to trade at around US$78.34 a barrel. Gold rose, building on the gains of the last two weeks, as the euro rose towards US$1.50.
STOCKS TO WATCH THIS MORNING
• AEterna Zentaris Inc. (AEZ). The biopharmaceutical company intended to complete phase 3 clinical trial of Macimorelin as first oral diagnostic test for growth hormone deficiency.
• Agrium Inc. (AGU). The fertilizer maker on Monday agreed to sell part of a nitrogen facility to Terra Industries for US$250 million in cash as part of its hostile bid to acquire rival CF Industries Holdings Inc.
• Cossette Inc. (KOS). The advertising and marketing company, a subject of a hostile takeover bid, said on Friday it is drawing the attention of other potential bidders, but has no firm offers yet.
• Eurasian Minerals Inc. (EMX). The company on Monday agreed to acquire Bronco Creek Exploration by issuing 2.12 million units in exchange for 100 pct of BCE's outstanding shares. The company also said that each unit will consist of one common share of EMX and one-half of a non-transferable common share purchase warrant.
• MDC Partners Inc. (MDZa). The provider of marketing communications services said on Friday it plans to offer US$200 million of senior unsecured notes due 2016 in a private placement.
• Moly Mines Ltd. (MOL). The miner said on Monday that Chinese investor Hanlong Mining Investment Pty Ltd will provide it with US$200 million in debt and equity funding through a subscription agreement.
• New Gold Inc. (NGD). The gold producer said on Monday gold sales increased 16 percent while cash cost decreased 17 percent decrease in the third-quarter of 2009 and reported third-quarter gold sales of 77,645 ounces at a total cash cost of $470 per ounce, net of by-product sales.
• QLT Inc. (QLT). The eye-care company said on Monday it restructured its pact with Novartis Pharma AG giving it exclusive rights to sell anti-blindness treatment Visudyne in the U.S.
• RBC (RY). Canada’s largest lender said on Friday it is repurchasing up to 20 million of its common shares.
• Superior Plus Corp. (SPB). The company, whose services span from energy to specialty chemicals, said on Friday it plans to raise $150 million through a private placement of senior unsecured debentures to repay debt.
• Toromont Industries Ltd. (TIH). The company announced on Friday a $597 million offer to acquire Enerflex after friendly talks for a deal with the management of the supplier of equipment for the oil and gas industry collapsed.
ANALYST RECOMMENDATIONS
• Canadian Royalties (CZZ) price target raised to $0.80 from $0.65; rating market perform at Raymond James
• Crescent Point Energy (CPG) coverage started with outperform; price target of $42 at Raymond James
• Detour Gold (DGC) price target raised to $18.75 from $16; rating outperform at Raymond James
• Great West Lifeco (GWO) price target raised to $27 from $25 at Genuity
• Industrial Alliance Insurance (IAG) price target raised to $35 from $31at Genuity
• Petrobakken Energy (PBN) coverage started with market perform; price target of $36.50 at Raymond James
• Sun Life Financial (SLF) price target raised to $40 from $39 at Genuity
• Trinidad Drilling (TDG) price target raised to $8.25 from $7; rating outperform at Raymond James
EXDIVIDEND
• Global Credit Pref Corp. (GPA_pa). Amount $0.3281
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"
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INSIGHT
U.S. earnings need to clear ever higher bar
Unexpectedly strong results from Alcoa Inc, Intel Corp and JPMorgan Chase & Co could be the worst thing to happen to third-quarter earnings.
"The expectation bar based on this week's earnings reports from big companies has been reset fairly high," said Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. "There may be some question as to whether companies over the next couple of weeks are going to be able to come in and deliver the numbers to the same degree."
Some companies have already been stung by investor disappointment.
Goldman Sachs Group Inc, General Electric Co and IBM some of the most closely watched companies in the market, failed to impress this week.
Goldman's earnings quadrupled, but its investment banking results were lackluster. GE reported sales that missed expectations.
Coming into the quarter, investors were hoping for improvement in revenue growth that was not seen in the first two quarters of earnings.
They got a taste of it with Alcoa, which last week beat on earnings and revenue. This week Intel did the same and JPMorgan's profit came in much stronger than expected.
That helped the three major indexes end with gains for the week, while the Dow Jones industrial average closed above the 10,000 level twice during the week and the Standard & Poor's 500 remains up some 60 percent since its early March lows.
The news follows a slew of economic reports pointing to a steady recovery from the recession. Analysts say companies need to show revenue growth to convince investors the economy isn't just spinning its wheels.
NO FORGIVENESS
Next week marks the third week of third-quarter results, and with the likes of Microsoft Corp, Caterpillar Inc, McDonald's Corp reporting, investors are eager to see revenue beating expectations and positive comments on the economic outlook from chief executives, instead of just better-than-expected net income.
So far, earnings and revenue estimates are improving since the start of the quarter. As of Friday, third-quarter earnings for S&P companies were seen down 22.6 percent from a year ago, compared with expectations for a decline of 24.7 percent earlier this month, according to Thomson Reuters data.
Revenue is seen down 10.4 percent as of Friday, versus a decline of 11.5 percent Oct. 2.
Some 79 percent of companies are beating earnings expectations, while 61 percent are beating revenue estimates.
"With signs of a gradual recovery evident, we believe that investors will not be as forgiving and will need to hear commentary and/or see signs of improvement in firms' top-line to push stocks higher," Brown Brothers Harriman analysts wrote in a research note.
Shares of IBM were down 5 percent at US$121.64, even after it late Thursday raised its full-year outlook and reported a higher-than-expected quarterly profit. The stock had risen 24 percent in the past three months.
"It's like it's almost insufficient just to beat market expectations," said Charles Lieberman, chief investment officer, Advisors Capital Management LLC in Paramus, New Jersey.
Just more than 10 percent of S&P companies have reported so far. Next week 135 S&P companies are expected to post results, 13 of them Dow components, according to Thomson Reuters.
Other top names on the earnings agenda include a number of names in health care, including Gilead Sciences, UnitedHealth and Pfizer.
Also to report: Apple Inc, Texas Instruments, 3M Co, American Express, Fifth Third Bancorp, KeyCorp and Wells Fargo & Co.
--- Caroline Valetkevitch, 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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