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| Market News: News Archive : Morning News Call week ending |
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Apr 22, 2010
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THURSDAY, APRIL 22, 2010, CANADIAN EDITION
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TOP NEWS
• Precision Drilling Q1 profit rises
• Celestica Q1 earnings rise on new wins from customers
• West 49 Q4 profit falls
• CenturyTel to buy Qwest in all-stock deal
• PepsiCo Q1 revenue misses Street view
BEFORE THE BELL
Toronto’s main stock index is set for a lower open on Thursday after the European Union said Greece's budget deficit worsened than was first believed, sending commodity prices sliding. Bank of Canada is expected to throw more light on the tightening bias in its April Monetary Policy Report, due to be released later today. Canada's March leading indicator is poised for a tenth straight rise, with a Reuters poll showing an gain of 0.8 percent. U.S. stock futures also indicate a negative start on Wall Street ahead of key economic data. Amid a flurry of corporate results, investors will also be closely watching President Barack Obama’s speech on financial reforms where he will urge sweeping new rules for Wall Street. Markets in Europe turned sharply negative led by banks. World's top cellphone maker Nokia cut the profit outlook for its key phone unit sending its shares lower by more than 14 percent. Asian stocks were down with Nikkei shedding more than a percent pressured by tech shares. Oil fell below US$83 a barrel after U.S. data showed inventories soared unexpectedly.
COMPANIES REPORTING RESULTS
• International Forest Products (IFPa). Expected to report Q1 loss of 5 cents a share, according to Thomson Reuters I/B/E/S
STOCKS TO WATCH THIS MORNING
• Algonquin Power and Utilities Corp. (AQN). The company announced the commencement of construction of the 26.4 MW Phase I Red Lily Wind Project in south-eastern Saskatchewan and said total capital investment for the project is expected to be $67.5 million.
• Bombardier Inc. (BBDb). Swiss-based VistaJet on Thursday said it plans to place an order worth US$200 million for seven new business jets form the civil aircraft maker.
• Celestica Inc. (CLS). The contract electronics maker on Thursday posted a 28 percent rise in adjusted first-quarter earnings due mainly to new wins from existing customers and an improving economic environment. The company reported net earnings of 11 U.S cents a share compared with 8 U.S cents a share, a year earlier and forecast second-quarter adjusted earnings of 19 U.S. cents to 23 U.S.cents a share, on revenue of US$1.5 billion to US$1.6 billion.
• Husky Energy Inc. (HSE). The proposed spinoff of Husky’s Asian operations should be complete by the end of this year, assuming the plan hits no regulatory or tax roadblocks, the company's outgoing chief executive said on Wednesday.
• New Gold Inc. (NGD). The company said on Wednesday gold sales increased 44 percent in the first-quarter and reaffirmed 2010 production outlook.
• Precision Drilling Trust (PD_u). The oil well-drilling company on Thursday posted an 8 percent rise in first-quarter profit, helped by an increase in drilling activity in the country. The trust, which intends to convert to a corporation by June 1, posted an earnings of 22 cents a unit, compared with 28 cents a unit, a year-ago.
• West 49 Inc. (WXX). The teenage clothing retailer on Thursday posted a lower fourth-quarter profit, hurt by a fall in product margins. The company reported net income of 1 cent a share, compared with a loss of 13 cents a share, a year earlier.
ECONOMIC CALENDAR
08:30 Leading indicators for March: Prior 0.8% Expected 0.8%
10:30 Bank of Canada releases Monetary Policy Report
CORPORATE EVENTS
10:00 Celestica Inc. (CLS). Shareholders meeting
10:00 Toromont Industries Ltd. (TIH). Shareholders meeting
14:00 Precision Drilling Trust (PD_u). Q1 earnings conference call
14:00 Teck Resources Ltd. (TCKb). Annual and special meeting
16:00 Guyana Goldfields Inc. (GUY). Annual Shareholders meeting
16:30 Cipher Pharmaceuticals Inc. (DND). Annual and special meeting of shareholders
ANALYST RECOMMENDATIONS
• GMP Capital (GMP) price target cut to $12.50 from $13; rating neutral at Macquarie
• Metro Inc. (MRUa) price target raised to $45 from $42; rating neutral at UBS
• Reliable Energy (REL) started with outperform rating; price target of 60 cents at Raymond James
• Russel Metals (RUS) price target raised to $20 from $18; rating market perform at Raymond James
• Teck Resources (TCKb) price target cut to $52 from $53.50; rating buy at UBS
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
BREAKINGVIEWS - Canada's tighter money won't spur Fed to follow
The Bank of Canada flagged a rate hike sooner than was expected. But don't expect the U.S. Federal Reserve to get in lock step with the Mounties. While both countries have a near-zero interest rate policy, Canada has a stronger economy, sounder banks, lower unemployment and a smaller budget deficit. Raising rates should preserve Canada's healthier trajectory, preventing a resurgence of inflation.
While the U.S. and Canadian economies historically have run in tandem, owing to their tight economic linkage, there has been considerable divergence since 2008. Canadian banks didn't suffer an equivalent mortgage meltdown, and have kept a better public reputation -- reflected in Finance Minister Jim Flaherty's opposition to the "arbitrary, excessive and punitive" bank taxation just proposed by the International Monetary Fund.
Economic downturns in the two countries even ran parallel to each other, initially. Canada's was exacerbated by the collapse in energy and commodity prices. Unlike America, however, Canada didn't use much fiscal stimulus, so with a solid banking system and no housing hangover, economic recovery was considerably healthier once oil, gas, coal and metals prices recovered. Canada's forecast budget deficit in 2010 is only 3.7 percent of GDP. Its unemployment remains at a historically high 8.2 percent, but is still well below the U.S. level.
Since the Canadian recession has been shallower than that of its immediate neighbor to the south, Canada should probably reverse its excessive monetary stimulus sooner. Canada's short-term interest rates are negative in real terms. The country's savings rate in the fourth quarter of 2009, at 4.6 percent, was healthier than America's yet still short of what's needed to fund the country's capital investment.
In the short term, foreign investment in the energy and commodities sectors, for example by PetroChina in Athabasca tar sands and the Chinese government in Vancouver's Teck Resources, will help offset any shortfall. Longer term, higher interest rates will restore Canada's savings rate and prevent any spill-over from energy and commodity exuberance into general inflation. Uncle Sam, for now, will be trudging behind.
CONTEXT NEWS
-- The Bank of Canada kept its benchmark interest rate at its all-time low of 0.25 percent at its meeting on April 20, but in a statement said: "With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus."
-- RBC Economics in March 2010 forecast Canadian economic growth at 3.1 percent with Alberta's economy growing at 2.5 percent in 2010 and 4.4 percent in 2011 after a 3.6 percent decline in 2009. RBC Economics forecasts British Columbia's economic growth at 3.4 percent in 2010 and 3.4 percent in 2011 after a 2.5 percent decline in 2009. Capital spending in British Columbia is expected to increase 21 percent in 2010.
-- The Economist team of forecasters expects Canada's GDP to grow 3 percent in 2010 and again in 2011, with consumer price inflation of 1.7 percent in 2010, a current account deficit of 1.7 percent of GDP in 2010 and a budget deficit of 3.7 percent of GDP in 2010. Canada's unemployment rate was 8.2 percent in March.
-- Alberta's oil output, conventional and tar sands, is forecast in February's provincial Budget to increase from 1.97 million barrels per day in the year ended June, 2010 to 2.20 million barrels per day in the following year.
--- Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own
NEWS ACCESS MADE EASY
Reuters Top News page displays a range of market and sector-specific subjects including: US, Europe and Asian companies, fixed income, credit, the global economy, emerging markets, corporate finance and industry sectors.
To access Top News
-- Thomson ONE: Click News tab, Select Front Page from top right, Click Top News.
-- 3000 Xtra: Click Top News tab from the menu bar.
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© 2010 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.
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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WEDNESDAY, APRIL 21, 2010, CANADIAN EDITION
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TOP NEWS
• EnCana Q1 profit up three-fold on hedging gain
• Metro Q2 profit rises
• AT&T Q1 profit hit by charge but above estimates
• United Tech Q1 profit up 20 pct as cost cuts pay off
• Boeing Q1 profit declines on fewer deliveries
• Lockheed posts lower Q1 profit, cuts outlook
BEFORE THE BELL
Canada’s main stock index could open lower on Wednesday, after two sessions of gain, pressured by weaker metal prices. The Canadian dollar climbed to its highest level in nearly two years against the U.S. dollar after the Bank of Canada signalled an interest rate rise as early as June, making it the first G7 central bank willing to end emergency policy steps. On the calendar, wholesale trade data is expected to have risen 0.7 percent, according to a Reuters poll. Wall Street is set for a mixed open with tech-heavy Nasdaq index futures up following strong Apple results, whereas S&P 500 and Dow futures are down. The U.S. Senate Agriculture Committee debates legislation on over-the-counter derivatives reform, and could hold a vote on Wednesday. European shares turned negative dragged by banks and commodity stocks. Technology-inspired rally lifted most Asian stocks. Oil edged towards US$84 on optimism of fuel demand recovery after data showed a drop in U.S. inventories and air travel resumed in Europe.
STOCKS TO WATCH THIS MORNING
• Aastra Technologies Ltd. (AAH). The business communications company posted a 72 percent drop in first quarter earnings on Tuesday hurt by lower sales volumes and stronger Canadian dollar. Aastra said it earned $3.9 million, or 28 cents a share, down from a profit of $14.1 million, or $1.02 a share, in the same period a year earlier.
• EnCana Corp. (ECA). The natural gas producer said on Wednesday its first-quarter profit rose 3 fold, helped by hedging gains, and plans divestitures and share buybacks worth US$500 million. The company reported net income of US$1.97 per share, including after-tax unrealized mark-to-market hedging fund gains of US$912 million.
• Etrion Corp. (ETX). The renewable energy company on Wednesday said first electricity sales from its 4 megawatt solar power plants in southern Italy are expected in the third quarter. The ground-based solar photovoltaic power plants at Puglia, once built, will generate about 6.8 million kilowatt hours of electricity per year, Etrion said in a statement.
• General Donlee Income Fund (GDI_u). The company said on Tuesday it signed an agreement to convert to a publicly listed corporation.
• Metro Inc. (MRUa). The grocery chain said on Wednesday that its second-quarter profit jumped even as the price for groceries fell slightly. The company earned 74 cents a share, up form 68 cents a share, in the same period a year earlier when it benefited from rising food prices.
• Nortel (NRTLQ). Sweden's Ericsson has agreed to buy bankrupt Nortel's controlling stake in a venture with LG Electronics for US$242 million, to get better access to the Korean telecoms equipment market.
• North American Palladium Ltd. (PDL). The company has entered into bought deal agreement with a syndicate of underwriters co-led by Cormark Securities Inc and Haywood Securities Inc to sell 15 million units at a price of $5 per unit.
• Northern Freegold Resources Ltd. (NFR). The company is mulling the sale of its Burro Creek gold-silver asset in Arizona, while it continues to identify increases in its resource base at Freegold Mountain in Canada's Yukon territory, top company officials said on Tuesday.
• Teck Resources (TCKb). The miner said on Tuesday its first-quarter profit more than tripled on the back of asset sales and said it would pay back the remaining short-term debt from its 2008 Fording acquisition this week. Profit for the period was $908 million, or $1.54 a share.
• Tranzeo Wireless Technologies Inc. (TZT). Following the acquisition of Aperto Networks the company said it expects second-quarter revenue of $5 million to $7 million and for the FY 2010 in the range of $40 million to $45 million.
ECONOMIC CALENDAR
08:30 Wholesale trade for Feb: Prior 3.0% Expected 0.7%
CORPORATE EVENTS
11:00 Genesis Land Development Corp. (GDC). Q4 earnings conference call
11:00 Teck Resources Ltd. (TCKb). Q1 earnings conference call
12:00 EnCana Corp. (ECA). Q1 earnings conference call
16:00 NovaGold Resources Inc. (NG). Q1 earnings conference call
ANALYST RECOMMENDATIONS
• Canfor Corp. (CFP) price target raised to $11.50 from $10.5; rating outperform at Raymond James
• Coastal Energy (CEN) price target cut to $5.50 from $6.25; rating overweight at Thomas Weisel
• International Forest Products (IFPa) price target raised to $7 from $6; rating outperform at Raymond James
• Norbord Inc. (NBD) rating raised to outperform from market perform at Raymond James
• SFK Pulp Fund (SFK_u) price target raised to $1.75 from $1.35; rating market perform at Raymond James
• West Fraser Timber (WFT) price target raised to $48 from $44; rating outperform at Raymond James
EXDIVIDENDS
• Opmedic Group Inc. (OMG). Amount $0.01
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Identity crises and overpaid bankers
Oversimplified economic credos were hugely responsible for the financial shock of the past decade, demanding greater attention now be paid to more subtle ideas of how employees behave.
It may be that an average worker's sense of personal identity has as much a bearing on the solutions to the global crisis as any devout belief in the efficiency of markets.
For the myriad causes and effects of the credit crisis, the widespread failure of giant banking corporations in the United States and Europe was the most shocking and far-reaching.
Beyond the public outrage at taxpayers picking up the tab for the bailouts, a more puzzling question has been how chief executives and senior managers of these private institutions could have failed their shareholders so badly.
Alan Greenspan, who as U.S. Federal Reserve chief for 18 years was the prime advocate of the free-market philosophy blamed by many for crisis, has remained adamant that his sole error was in misjudging the behaviour of the bankers.
"I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders," he told Congress as the crisis snowballed in 2008.
Yet, others are less willing to let him off the hook.
Trust in the efficiency of market mechanisms to safely and optimally distribute money and resources around the globe had become virtually unshakable in many quarters -- most alarmingly among policymakers and regulators such as Greenspan.
Allowing banks an ever-freer hand in financial innovation, derivatives, securitisation, speculation and cross-border finance was just an extension of that.
In a speech to a conference organised by the Institute for New Economic Thinking this month, Britain's top financial regulator Adair Turner acknowledged the dangers of what many dub "market fundamentalism" and opined that "good" economics should be not be slave to any monolithic set of ideas.
"For while the simplified pre-crisis conventional wisdom appeared to provide a complete set of answers resting on a unified intellectual system and methodology, really good economic thinking will provide multiple partial insights, based on varied analytical approaches," Turner said.
NUANCES AND INSIGHTS
So, if a root of the crisis was leaving banks to their own devices in a belief they would act rationally and selfishly, how do experts account for the fact that they patently did not?
The debate on excessive pay and bonuses for bankers remains central to thinking on this.
The scale of the mismatch between UK-based bankers' wages and the failure of their institutions was shown this week by data from the Centre for Economic Performance. It said the increased share alone of total UK wages that bankers received in the decade to 2008 amounted to some 12 billion pounds a year.
With Britain's general election due on May 6, UK politicians are queuing up to urge pay controls or taxes on bank bonuses.
But economists reckon a better way of viewing the issue is to examine how employees respond to monetary rewards.
2001 Nobel Laureate George Akerlof this year co-authored a book with Rachel Kranston call "Identity Economics".
Akerlof's theory is that people make decisions and choices -- such as where and how they work -- based partly on norms, value systems and their sense of identity and not solely on the direct economic rewards or benefits such as wages or incentives.
Although economists have previously taken behaviour and differing tastes into account, their models on workplace incentives have not included a variable of people's "identity."
For example, if you feel proud to work for a company and derive personal satisfaction from contributing to work of the organisation, you tend to put more effort into that work.
Akerlof then makes a distinction between these sorts of employees, "insiders", and those who clock in and clock out and care less about the firm, or "outsiders".
One conclusion is a firm needs to pay an insider less of a bonus to work hard than it needs to pay an outsider -- creating an incentive for the firm to invest money in convincing outsiders to have a greater stake in the company's performance.
The flipside -- and this is where the banks come in -- is that the more workers are dependent on monetary rewards, the more they are simply going to complete the personal tasks required and care less about the wider firm.
"If you give too much economic reward and incentive, people are just going to game the system and that's exactly what we've just seen," Akerlof told Reuters at the INET meeting.
This amounts to the creation of more and more "outsiders" meeting personal targets with little interest in the long-term success or the viability of the company at large.
Bankers were adept at meeting personal targets set for them -- quarterly sales or profit goals, new products etc -- and sealed complex contracts to reap associated short-term bonuses.
But they had no incentive to make sure their work was healthy for the bank, its customers or its society longer term.
"Because firms and other organizations are the backbone of all economies, this new description transforms our understanding of what makes economies work or fail," Akerlof said.
---Mike Dolan, Reuters
NEWS ACCESS MADE EASY
Reuters Top News page displays a range of market and sector-specific subjects including: US, Europe and Asian companies, fixed income, credit, the global economy, emerging markets, corporate finance and industry sectors.
To access Top News
-- Thomson ONE: Click News tab, Select Front Page from top right, Click Top News.
-- 3000 Xtra: Click Top News tab from the menu bar.
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|
|
© 2010 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.
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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WEDNESDAY, APRIL 21, 2010, CANADIAN EDITION
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TOP NEWS
• EnCana Q1 profit up three-fold on hedging gain
• Metro Q2 profit rises
• AT&T Q1 profit hit by charge but above estimates
• United Tech Q1 profit up 20 pct as cost cuts pay off
• Boeing Q1 profit declines on fewer deliveries
• Lockheed posts lower Q1 profit, cuts outlook
BEFORE THE BELL
Canada’s main stock index could open lower on Wednesday, after two sessions of gain, pressured by weaker metal prices. The Canadian dollar climbed to its highest level in nearly two years against the U.S. dollar after the Bank of Canada signalled an interest rate rise as early as June, making it the first G7 central bank willing to end emergency policy steps. On the calendar, wholesale trade data is expected to have risen 0.7 percent, according to a Reuters poll. Wall Street is set for a mixed open with tech-heavy Nasdaq index futures up following strong Apple results, whereas S&P 500 and Dow futures are down. The U.S. Senate Agriculture Committee debates legislation on over-the-counter derivatives reform, and could hold a vote on Wednesday. European shares turned negative dragged by banks and commodity stocks. Technology-inspired rally lifted most Asian stocks. Oil edged towards US$84 on optimism of fuel demand recovery after data showed a drop in U.S. inventories and air travel resumed in Europe.
STOCKS TO WATCH THIS MORNING
• Aastra Technologies Ltd. (AAH). The business communications company posted a 72 percent drop in first quarter earnings on Tuesday hurt by lower sales volumes and stronger Canadian dollar. Aastra said it earned $3.9 million, or 28 cents a share, down from a profit of $14.1 million, or $1.02 a share, in the same period a year earlier.
• EnCana Corp. (ECA). The natural gas producer said on Wednesday its first-quarter profit rose 3 fold, helped by hedging gains, and plans divestitures and share buybacks worth US$500 million. The company reported net income of US$1.97 per share, including after-tax unrealized mark-to-market hedging fund gains of US$912 million.
• Etrion Corp. (ETX). The renewable energy company on Wednesday said first electricity sales from its 4 megawatt solar power plants in southern Italy are expected in the third quarter. The ground-based solar photovoltaic power plants at Puglia, once built, will generate about 6.8 million kilowatt hours of electricity per year, Etrion said in a statement.
• General Donlee Income Fund (GDI_u). The company said on Tuesday it signed an agreement to convert to a publicly listed corporation.
• Metro Inc. (MRUa). The grocery chain said on Wednesday that its second-quarter profit jumped even as the price for groceries fell slightly. The company earned 74 cents a share, up form 68 cents a share, in the same period a year earlier when it benefited from rising food prices.
• Nortel (NRTLQ). Sweden's Ericsson has agreed to buy bankrupt Nortel's controlling stake in a venture with LG Electronics for US$242 million, to get better access to the Korean telecoms equipment market.
• North American Palladium Ltd. (PDL). The company has entered into bought deal agreement with a syndicate of underwriters co-led by Cormark Securities Inc and Haywood Securities Inc to sell 15 million units at a price of $5 per unit.
• Northern Freegold Resources Ltd. (NFR). The company is mulling the sale of its Burro Creek gold-silver asset in Arizona, while it continues to identify increases in its resource base at Freegold Mountain in Canada's Yukon territory, top company officials said on Tuesday.
• Teck Resources (TCKb). The miner said on Tuesday its first-quarter profit more than tripled on the back of asset sales and said it would pay back the remaining short-term debt from its 2008 Fording acquisition this week. Profit for the period was $908 million, or $1.54 a share.
• Tranzeo Wireless Technologies Inc. (TZT). Following the acquisition of Aperto Networks the company said it expects second-quarter revenue of $5 million to $7 million and for the FY 2010 in the range of $40 million to $45 million.
ECONOMIC CALENDAR
08:30 Wholesale trade for Feb: Prior 3.0% Expected 0.7%
CORPORATE EVENTS
11:00 Genesis Land Development Corp. (GDC). Q4 earnings conference call
11:00 Teck Resources Ltd. (TCKb). Q1 earnings conference call
12:00 EnCana Corp. (ECA). Q1 earnings conference call
16:00 NovaGold Resources Inc. (NG). Q1 earnings conference call
ANALYST RECOMMENDATIONS
• Canfor Corp. (CFP) price target raised to $11.50 from $10.5; rating outperform at Raymond James
• Coastal Energy (CEN) price target cut to $5.50 from $6.25; rating overweight at Thomas Weisel
• International Forest Products (IFPa) price target raised to $7 from $6; rating outperform at Raymond James
• Norbord Inc. (NBD) rating raised to outperform from market perform at Raymond James
• SFK Pulp Fund (SFK_u) price target raised to $1.75 from $1.35; rating market perform at Raymond James
• West Fraser Timber (WFT) price target raised to $48 from $44; rating outperform at Raymond James
EXDIVIDENDS
• Opmedic Group Inc. (OMG). Amount $0.01
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Identity crises and overpaid bankers
Oversimplified economic credos were hugely responsible for the financial shock of the past decade, demanding greater attention now be paid to more subtle ideas of how employees behave.
It may be that an average worker's sense of personal identity has as much a bearing on the solutions to the global crisis as any devout belief in the efficiency of markets.
For the myriad causes and effects of the credit crisis, the widespread failure of giant banking corporations in the United States and Europe was the most shocking and far-reaching.
Beyond the public outrage at taxpayers picking up the tab for the bailouts, a more puzzling question has been how chief executives and senior managers of these private institutions could have failed their shareholders so badly.
Alan Greenspan, who as U.S. Federal Reserve chief for 18 years was the prime advocate of the free-market philosophy blamed by many for crisis, has remained adamant that his sole error was in misjudging the behaviour of the bankers.
"I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders," he told Congress as the crisis snowballed in 2008.
Yet, others are less willing to let him off the hook.
Trust in the efficiency of market mechanisms to safely and optimally distribute money and resources around the globe had become virtually unshakable in many quarters -- most alarmingly among policymakers and regulators such as Greenspan.
Allowing banks an ever-freer hand in financial innovation, derivatives, securitisation, speculation and cross-border finance was just an extension of that.
In a speech to a conference organised by the Institute for New Economic Thinking this month, Britain's top financial regulator Adair Turner acknowledged the dangers of what many dub "market fundamentalism" and opined that "good" economics should be not be slave to any monolithic set of ideas.
"For while the simplified pre-crisis conventional wisdom appeared to provide a complete set of answers resting on a unified intellectual system and methodology, really good economic thinking will provide multiple partial insights, based on varied analytical approaches," Turner said.
NUANCES AND INSIGHTS
So, if a root of the crisis was leaving banks to their own devices in a belief they would act rationally and selfishly, how do experts account for the fact that they patently did not?
The debate on excessive pay and bonuses for bankers remains central to thinking on this.
The scale of the mismatch between UK-based bankers' wages and the failure of their institutions was shown this week by data from the Centre for Economic Performance. It said the increased share alone of total UK wages that bankers received in the decade to 2008 amounted to some 12 billion pounds a year.
With Britain's general election due on May 6, UK politicians are queuing up to urge pay controls or taxes on bank bonuses.
But economists reckon a better way of viewing the issue is to examine how employees respond to monetary rewards.
2001 Nobel Laureate George Akerlof this year co-authored a book with Rachel Kranston call "Identity Economics".
Akerlof's theory is that people make decisions and choices -- such as where and how they work -- based partly on norms, value systems and their sense of identity and not solely on the direct economic rewards or benefits such as wages or incentives.
Although economists have previously taken behaviour and differing tastes into account, their models on workplace incentives have not included a variable of people's "identity."
For example, if you feel proud to work for a company and derive personal satisfaction from contributing to work of the organisation, you tend to put more effort into that work.
Akerlof then makes a distinction between these sorts of employees, "insiders", and those who clock in and clock out and care less about the firm, or "outsiders".
One conclusion is a firm needs to pay an insider less of a bonus to work hard than it needs to pay an outsider -- creating an incentive for the firm to invest money in convincing outsiders to have a greater stake in the company's performance.
The flipside -- and this is where the banks come in -- is that the more workers are dependent on monetary rewards, the more they are simply going to complete the personal tasks required and care less about the wider firm.
"If you give too much economic reward and incentive, people are just going to game the system and that's exactly what we've just seen," Akerlof told Reuters at the INET meeting.
This amounts to the creation of more and more "outsiders" meeting personal targets with little interest in the long-term success or the viability of the company at large.
Bankers were adept at meeting personal targets set for them -- quarterly sales or profit goals, new products etc -- and sealed complex contracts to reap associated short-term bonuses.
But they had no incentive to make sure their work was healthy for the bank, its customers or its society longer term.
"Because firms and other organizations are the backbone of all economies, this new description transforms our understanding of what makes economies work or fail," Akerlof said.
---Mike Dolan, Reuters
NEWS ACCESS MADE EASY
Reuters Top News page displays a range of market and sector-specific subjects including: US, Europe and Asian companies, fixed income, credit, the global economy, emerging markets, corporate finance and industry sectors.
To access Top News
-- Thomson ONE: Click News tab, Select Front Page from top right, Click Top News.
-- 3000 Xtra: Click Top News tab from the menu bar.
|
|
|
© 2010 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.
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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TUESDAY, APRIL 20, 2010, CANADIAN EDITION
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TOP NEWS
• Goldman Sachs Q1 earnings surge, UK launches formal probe
• Coca-Cola reports higher Q1 profit
• Weatherford Q1 results misses Street
• Delta posts smaller Q1 loss, sees profitable Q2
• Provident Energy to combine upstream unit with Midnight
• Lundin's Portugal mine faces 1-week work stoppage
BEFORE THE BELL
Toronto main stock exchange could open higher on Tuesday as commodity prices rise on a weaker U.S. dollar. On the macro front, Bank of Canada is likely to keep overnight rate unchanged at 0.25 percent, according to a Reuters poll. Wall Street is also poised for a higher start after better-than-expected results from Coco-Cola and Goldman Sachs bolstered investors’ sentiment. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner will testify on Lehman Brothers collapse before the House Financial Service Committee. European shares rose after German sentiment data rebounded strongly in April, boosting expectations the economy will pick up in the second quarter. Most Asian equities were back to positive, while Nikkei and China's key stock index closed down. Oil rose past US$82 a barrel, as jet fuel demand increased, with European planes taking back to the skies. Gold rose back above US$1,140 an ounce.
COMPANIES REPORTING RESULTS
• Aastra Technologies Ltd. (AAH). Expected to report Q1 earnings of 90 cents a share, according to Thomson Reuters I/B/E/S
• Teck Resources Ltd. (TCKb). Expected to report Q1 earnings of 49 cents a share
STOCKS TO WATCH THIS MORNING
• Capstone Mining Corp. (CS). The company on Tuesday reported its production for the first-quarter of 22 million pounds of copper in contained concentrates and said total cash cost was US$1.12 per pound of payable copper produced.
• Extendicare Real Estate Investment Trust (EXE_u). A unit of the company received subpoenas from the U.S. Department of Health and Human Services relating to an investigation into the possible submission of claims that may be in violation of the U.S. Social Security Act. The health department has also requested for document relating to the general operations of eight skilled nursing centres located in U.S.
• High River Gold Mines Ltd. (HRG). The miner reported a narrower loss of $9.8 million for the full-year 2009, compared with a loss of $57.5 million in the previous year, helped by increase in gold revenue.
• Indigo Books & Music Inc. (IDG). Canada's biggest book retailer increased quarterly dividend by 10 percent to 11 cents a share.
• Kingsway Financial Services Inc. (KFS). The high-risk auto and truck insurance seller said on Tuesday it raised its stake in Kingsway Linked Return of Capital Trust to about 26.72 percent. The company bought 121,000 more KLROC units at $10.45 each, representing about 3.9 percent of the trust.
• Lundin Mining Corp. (LUN). The company said on Tuesday it received notice from the union representing employees at its Neves-Corvo copper mine in Portugal that they plan a total work stoppage from May 5 to May 12.
• Noranda Income Fund (NIF_u). The company said its subsidiary has secured an extension of its revolving credit facility for six months, under the condition that no cash distributions are made during the extension period.
• Pan American Silver Corp. (PAA). The company on Monday said it produced 5.5 million ounces of silver and 27,896 ounces of gold, which increased by 13 percent and 34 percent respectively, from year ago.
• Provident Energy Trust (PVE_u). The company said on Tuesday Midnight Oil Exploration Ltd (MOX) agreed to acquire its upstream business in a $460 million cash-and-stock deal. The company said it will get $120 million in cash and 324 million shares of Midnight valued at about $340 million at Monday's closing.
• Suncor Energy Inc. (SU). Canada's No. 1 oil and gas producer said on Monday it has begun producing natural gas from the $1.2 billion Ebla project in Syria.
• Thomson Reuters Corp. (TRI). The news and financial data publisher launched a global, high-speed network on Tuesday for financial firms to access real-time data as well as share information with each other directly. The company's new network, called Elektron, includes hosting centres in New York, Chicago, London, Frankfurt, Tokyo and Singapore, with more to come in Hong Kong, India and Brazil later in the year, all connected by a fibre optic ring.
• Vero Energy Inc. (VRO). The company said on Monday it sees production for 2010 to average between 8,500 to 9,000 boed.
• VMS Ventures Inc. (VMS). The metal miner said on Tuesday it will commence first drill program at its fully owned copper project, snow lake, Manitoba this week. The company added a minimum of 1,500 metres of drilling is planned.
ECONOMIC CALENDAR
09:00 BOC overnight rate for April: Prior 0.25% Expected 0.25%
CORPORATE EVENTS
17:30 Aastra Technologies Ltd. (AAH). Q1 earnings conference call
ANALYST RECOMMENDATIONS
• Gildan Activewear (GIL) price target raised to $32 from $29; rating buy at UBS
• Vero Energy (VRO) price target raised to $10 from $9.50; rating outperform at Macquarie
EXDIVIDENDS
• Royal Bank of Canada (RY). Amount $0.50
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
With debt shrinking, Teck may soon resume dividend
Teck Resources' could soon reinstate its shareholder dividend after a year-long struggle to rehabilitate its balance sheet, and some think the move could come as early as this week.
Teck cut its payout in late 2008 as it struggled to get out from under the weight of US$9.8 billion in short-term debt taken on to finance the 2008 acquisition of Fording Coal Trust.
A signal of the company's improved financial health came late on Friday when Standard & Poor's upgraded the company's debt to investment grade status.
That upgrade -- the agency cut Teck's debt to junk status early last year -- follows a campaign of asset sales and cost-cutting by Teck, as well as a rebound in metals prices that has increased the diversified miner's cash flows.
Teck issued US$4.2 billion in bonds last year to rid itself of the bulk of its remaining short-term debt, and as of early March it had US$800 million remaining.
John Hughes, an analyst at Desjardins Securities, believes Teck may announce the full payoff of the debt this week, which would clear the way to reinstate the dividend. Teck will release first-quarter results late on Tuesday and hold its annual shareholder meeting on Thursday.
"A full payoff of that term debt would certainly position this company again into making a positive dividend decision when the board next meets on April 22," Hughes said.
A return of the dividend would attract income-seeking investors, and also would put the company back on the radar screen of dividend funds that would have dumped the company's shares after the annual $1-a-share payout was suspended.
"I think anticipation of the dividend coming back is certainly in the market," said Orest Wowkodaw, an analyst at Canaccord Adams, who said he was unsure of the timing.
"When they do bring it back, it should put some pop into the stock for them.
HOT STOCK
Teck's shares have already been on a tear in the past year, even by the standards of the resource sector, which has been in recovery mode following the late 2008 crash in metals prices.
After bottoming at $3.35 a share in early March 2009, the stock has risen 12-fold and was at $42.34 on Monday.
The S&P debt upgrade, meanwhile, is key to removing restrictions on Teck's balance sheet that were taken on when it loaded up on debt in 2008.
Under lender agreements, certain security restrictions fall away when Teck is returned to investment-grade status by both S&P and Moody's, which has not yet upgraded the debt.
Teck Chief Executive Don Lindsay has said, however, that the debt upgrades are not needed to reinstate the dividend, and that the trigger for that move will be paying down the remaining term debt.
"Once we see our way clear to having paid off the term loan, then we would recommend to the board reinstating the dividend," he told Reuters in an interview on March 31, adding at the time that he expected the term loan to be paid off in the "very near term".
In addition to cash flow from its coal, copper, and zinc sales, Teck had a cash position of $1.3 billion at the end of 2009.
(US$1=$1.02 Canadian)
--- Cameron French, Reuters
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© 2010 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.
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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MONDAY, APRIL 19, 2010, CANADIAN EDITION
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TOP NEWS
• Hasbro posts better-than-expected Q1 profit
• Halliburton Q1 profit off as Latin America weighs
• Lilly Q1 profit tops views, but reform hits results
• Newmont in bid talks with Lihir advisers - report
• Philips Q1 beats expectations, H2 still uncertain
BEFORE THE BELL
Canada’s main stock market is expected to open lower on Monday as fraud charges against Goldman Sachs continue to rattle commodity and equity markets. Wall Street is also set for a lower start with focus on the banking sector. Heavy hitters on the earnings agenda include Citigroup and IBM. European shares were down, with banks extending declines from Friday and airlines sliding as flying restrictions persisted. Airline industry group IATA criticized Europe's response to a volcanic ash cloud and called for urgent steps to reopen airspace after five days of closures that have cost airlines US$250 million a day. Asian markets suffered their biggest loss in 10 weeks after China clamped down harder on property speculation, telling banks to refuse credit to people who are clearly buying homes for speculative purposes. Oil hit a 3-week low around US$81 a barrel as lingering disruption of flights curb jet fuel use. Gold fell about a percent to its lowest in nearly two weeks hurt partly by stronger greenback.
STOCKS TO WATCH THIS MORNING
• Akela Pharma Inc. (AKL). The drugmaker said on Friday it agreed with HEP Spring Davis to terminate its lease on a Texas property, eliminating future payment obligations of US$14.5 million.
• Brookfield Asset Management Inc. (BAMa). General Growth Properties Inc would welcome an improved offer from Brookfield to help it finance a plan to exit bankruptcy as a stand-alone company, after Simon Property Group Inc offered to replace Brookfield, a source close to the U.S. mall owner said on Friday.
• CryptoLogic Ltd. (CRY). A unit of the Internet casino and branded gaming software company, WagerLogic Ltd, has begun formal arbitration proceedings against Marvel Enterprises Inc and Marvel Enterprises B.V. on ground of committing material breaches of certain provisions of an agreement.
• Kingsway Financial Services Inc. (KFS). The insurer said CEO Colin Simpson is stepping down to pursue other career interests on June 30, and will be replaced by Larry Swets, the company’s executive vice president of corporate development.
• Pan American Silver Corp. (PAA). The miner ended a strike on Friday that had halted production at the Huaron silver mine, a union leader told Reuters.
• Paramax Resources Ltd. (PXM). The company said it sold the Saskatchewan properties for a gross proceed of $363,953.
• Toronto-Dominion Bank (TD). Canada's No. 2 bank said on late Friday it acquired assets and liabilities of three troubled Florida banks worth US$3.8 billion from the Federal Deposit Insurance Corp.
• WestJet Airlines (WJA). Southwest Airlines Co said on Friday it has told WestJet that it will end a partnership agreement that would have given the low-cost U.S. carrier a foothold in the Canadian market.
ECONOMIC CALENDAR
08:30 Foreign investment in Canadian securities for Feb: Prior $11.83 bln Expected $10.00 bln
08:30 Canadian investment in foreign securities for Feb: Prior $5.83 bln
ANALYST RECOMMENDATIONS
• Anooraq Resources Corp. (ARQ) rating raised to outperform from market perform at Raymond James
• NAL Oil & Gas Trust (NAE_u) rating raised to outperform from market perform at Raymond James
• Stornoway Diamond Corp. (SWY) rating raised to outperform from market perform at Raymond James
EXDIVIDENDS
• Cogeco Cable Inc. (CCA). Amount $0.14
• Cogeco Inc. (CGO). Amount $0.10
• Gennum Corp. (GND). Amount $0.035
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Goldman CDO case could be tip of iceberg
The case against Goldman Sachs Group Inc over a 2007 mortgage derivatives deal it set up for a hedge fund manager could be just the start of Wall Street's legal troubles stemming from the subprime meltdown.
The U.S. Securities and Exchange Commission charged Goldman with fraud for failing to disclose to buyers of a collaterlized debt obligation known as ABACUS that hedge fund manager John Paulson helped select mortgage derivatives he was betting against for the deal. Goldman denied any wrongdoing.
The practice of creating synthetic CDOs was not uncommon in 2006 and 2007. At the tail end of the real estatebubble, some savvy investors began to look for more ways to profit from the coming calamity using derivatives.
Goldman shares plunged 13 percent on Friday and shares of other financial firms that created CDOs also fell. Shares of Deutsche Bank AG ended down 9 percent, Morgan Stanley 6 percent and Bank of America, which owns Merrill Lynch, and Citigroup each declined 5 percent.
Merrill, Citigroup and Deutsche Bank were the top three underwriters of CDO transactions in 2006 and 2007, according to data from Thomson Reuters. But most of those deals included actual mortgage-backed securties, not related derivatives like the ABACUS deal.
Hedge fund managers like Paulson typically wanted to bet against so-called synthetic CDOs that used derivatives contracts in place of actual securities. Those were less common.
MORE LAWSUITS?
The SEC's charges against Goldman are already stirring up investors who lost big on the CDOs, according to well-known plaintiffs lawyer Jake Zamansky.
"I've been contacted by Goldman customers to bring lawsuits to recover their losses," Zamansky said. "It's going to go way beyond ABACUS. Regulators and plaintiffs' lawyers are going to be looking at other deals, to what kind of conflicts Goldman has."
An investigation by the online site ProPublica into Chicago-based hedge fund Magnetar's 2007 bets against CDO-related debt also turned up allegations of conflicts of interest against Deutsche Bank, Merrill and JPMorgan Chase.
Magnetar has denied any wrongdoing. Deutsche Bank declined to comment. Merrill and JPMorgan had no immediate comment.
The Magnetar deals have spawned at least one lawsuit. Dutch bank Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., or Rabobank for short, filed suit in June against Merrill Lynch over Magnetar's involvement with a CDO called Norma.
"Merrill Lynch teamed up with one of its most prized hedge fund clients -- an infamous short seller that had helped Merrill Lynch create four other CDOs -- to create Norma as a tailor-made way to bet against the mortgage-backed securities market," Rabobank said in its complaint filed on June 12 in the Supreme Court of New York.
Regulators at the SEC and around the country said they would be investigating other deals beyond ABACUS.
"We are looking very closely at these products and transactions," Robert Khuzami, head of the SEC's enforcement division, said. "We are moving across the entire spectrum in determining whether there was (fraud).
Meanwhile, Connecticut Attorney General Richard Blumenthal said in a statement his office had already begun a preliminary review of the Goldman case.
"A key question is whether this case was an isolated incident or part of a pattern of investment banks colluding with hedge funds to purposely tank securities they created and sold to unwitting investors," Connecticut Attorney General Richard Blumenthal said in a statement.
--- Aaron Pressman and Joseph Giannone, Reuters
NEWS ACCESS MADE EASY
Reuters Top News page displays a range of market and sector-specific subjects including: US, Europe and Asian companies, fixed income, credit, the global economy, emerging markets, corporate finance and industry sectors.
To access Top News
-- Thomson ONE: Click News tab, Select Front Page from top right, Click Top News.
-- 3000 Xtra: Click Top News tab from the menu bar.
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© 2010 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters and its affiliates. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.
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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(Please note Canadian quotes are delayed 15 min)
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