Some intriguing thoughts from Sebastien Galy, Societe Generale FX strategist, on Icelandic politicians’ interest in the Canadian dollar:
An independent currency for a country with the population of the size of a decently sized Canadian city was always going to be a problem. Having that country run a financial bubble while offering very high yield was a recipe for a very rapid rise of a financial empire followed by a catastrophic collapse with the currency ceasing to have a market at one point. The past few years have been of picking up the broken pieces and a move to a new currency would help to bring credibility while forcing adjustments in internal prices. Read more
Almost three times as many skyscrapers and high-rises are being built in Toronto than in New York, reviving fears that Canadian property prices are unsustainable, reports Bloomberg. Investors have rushed into Canadian housing in response to record low interest rates. Toronto’s condominium market has grown rapidly, with over a hundred housing units either under construction or in the planning stages. The “condo surge” of supply alone could drive down prices in the next few months even if interest rates remain low well into 2013, Bank of America analysts have warned. Read more
In the first installment of US money market funds versus the eurozone, the funds were seen fleeing the continent as quickly as possible, leaving all sorts of funding chaos in their wake.
In part two, the flight of the US money market funds seems to have intensified, but the outflows have been more clearly redirected… namely into Australian, Canadian and Japanese banks instead. Read more
Foreign governments and asset managers are mounting a last-ditch push against the US Volcker rule, worried that the proposed ban on proprietary trading could exacerbate a liquidity crunch, the FT says. Japanese and Canadian regulators have warned the US government that the rule, which is due to be finalised within weeks and put into force in July, could harm world markets by preventing or deterring US banks such as Goldman Sachs from trading. The Volcker rule is designed to prohibit most “prop trading” by banks, where institutions take positions for their own accounts, but Wall Street has argued that the restrictions will also hamper “market making”, where a bank stands between a buyer and seller of securities. Jun Mizuguchi, assistant commissioner for international affairs at Japan’s Financial Services Agency, said: “We are afraid that US financial institutions may refrain from trading” Japanese government bonds. In a letter to US regulators, the Canadian Office of the Superintendent of Financial Institutions said the rule could “undermine the liquidity of government debt markets outside of the US”. Read more
It seems like more or less anything can be deemed an asset class these days.
Here’s the latest one from Citigroup analysts: ‘Carbs’. No that’s not McDonalds and Coca Cola, but Canada, Australia, Russia, Brazil and South Africa, i.e. the world’s top commodity players. Read more
Sinopec has offered C$2.2bn (US$2.1bn) to buy Canadian oil and gas firm Daylight Energy, the latest in a series of acquisitions by Chinese oil companies hungry for assets in North America, the FT reports. China is the world’s second-biggest crude oil consumer after the US, and China’s state-owned oil and gas companies are among the world’s most active in global oil deals. Sinopec is offering C$10.08 per share for Daylight, a junior oil and gas exploration company with large acreage in Western Canada that is only partially developed. The offer price is more than twice Friday’s closing level for shares in the Toronto-listed company, and represents a 44 per cent premium to the 60-day trade weighted average share price. Daylight’s board said they supported the deal, which must still be approved by shareholders and regulators. Read more
Salida Capital, a Toronto-based hedge fund, has said speculation of its collapse are “unfounded”, Bloomberg reports. According to the news agency, the fund has now increased its hedging in energy and other holdings as oil prices fall. In a report to clients the fund said “we’ve now raised our level of hedging in both the energy sector and the broad market”. Salida told investors in May that commodity prices were in a correction and were poised to rebound, adds Bloomberg. At the time, Chief Executive Officer Courtenay Wolfe said her firm managed about $900m in assets, focusing on natural resources, with about 50 per cent of the investments in Canada. The company’s Salida Strategic Growth Fund has dropped 20 percent this year, including a 17 percent drop in the past month, according to data compiled by Bloomberg. Read more
George Osborne is recruiting international support for his unyielding stance on deficit cutting. In an article published in the FT on Monday, Mr Osborne calls for “hard decisions on spending, entitlements and taxation in countries with large budget deficits”. The article is co-authored with the finance ministers of Australia, Canada, Singapore and South Africa. The FT says the article comes at the same time as two reports, published on Monday, suggest that the UK economy will remain stagnant in the near future. In a survey by the Chartered Institute of Personnel and Development and KPMG, the professional services firm, the balance of employees planning to increase staffing levels has shifted from positive to negative. The Monthly Business Trends Indices published by BDO, an accounting firm, was also gloomy. The report, which is prepared by the Centre for Economics and Business Research and aggregates other business surveys, documents continuing pessimism in both manufacturing and services.
Maple Group, the consortium of Canadian banks and funds bidding to take control of TMX, have seen the London Stock Exchange bow out as a rival but must still convince competition regulators, reports the Globe and Mail. Maple’s plans for TMX involve combining it with an alternative trading exchange, leaving 80 per cent of the Canadian stock market in the combined entity’s hands. The banks could close down the alternative market in order to comply with regulators, but also face a large minority of hostile shareholders, the FT says. Read more
The Canadian consortium looking to upset the London Stock Exchange’s merger with TMX has moved to add up to four new members as the clock ticks on a takeover, the WSJ reports. Desjardins, GMP Capital, and Dundee Capital are among the financial services firms in talks on joining the Canadian banks and pension funds that form Maple Group. New members would improve Maple’s chances in the eyes of TMX shareholders — a fragmented group who remain uncertain whom to back in the contest, ahead of a vote on the LSE merger this month, Reuters says. Read more
Canada is open to selling its 1.7% stake in Chrysler directly to Italy’s Fiat, but will wait to see what price the US government gets for its shares in the automaker before deciding, Canadian finance minister Jim Flaherty said on Monday, reports Reuters. Fiat took operational control of Chrysler as part of the Detroit-based automaker’s US and Canadian-backed bankruptcy restructuring in 2009. It is in the process of exercising an option to buy the U.S. Treasury’s 6% stake and the two sides are negotiating a purchasing price. Fiat has no option to buy the Canadian shares, and Flaherty said Ottawa would consider the outcome of the US deal before deciding if it will sell its stake directly to Fiat or wait for Chrysler’s IPO, the date of which has yet to be decided. Read more
Battle lines are being drawn in Canada between supporters and opponents of a C$3.6bn ($3.7bn) bid by nine domestic banks and pension funds for TMX Group, operator of the Toronto and Montreal stock exchanges, the FT reports. The bid consortium, Maple Group Acquisition, announced on Sunday that it would offer cash and shares valued at C$48 per TMX share, about 20 per cent above the value of an all-share deal between TMX and the London Stock Exchange agreed in February. Reaction to the Maple bid has been divided. Supporters see it as a vehicle for the creation of a Canadian “national champion” and an affirmation of the strength and stability of Canada’s financial system. Critics contend that a takeover of TMX will severely restrict competition in securities trading and exacerbate conflicts of interest. Read more
Here’s a chart to ponder from the peer review of residential mortgage practices, just published by the internationally-coordinated Financial Stability Board:
Canada’s banks are split on whether to support the proposed tie-up of the London and Toronto stock exchanges, the FT reports. Four of the country’s six biggest banks – Toronto-Dominion, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank – are working on a public statement expressing doubts about the deal, although Royal Bank of Canada and Bank of Montreal will support it. Several banks are shareholders in an alternative trading system that competes with the Toronto exchange, and may propose for it to be merged with TMX instead. In any case, the banks’ opposition shows that LSE-TMX is generating far more resistance than first thought. Read more
PetroChina on Wednesday gobbled up another chunk of the world’s resources, agreeing to pay C$5.4bn ($5.4bn) for a 50 per cent stake in a large natural gas field in Canada owned by Encana, the Calgary-based oil and gas producer.
Or rather, China’s largest oil and gas producer said on its website it had agreed to the deal and had “for years” been seeking opportunities to work with Canadian oil and gas companies in areas including LNG and oil sands in Canada, as well as projects in China. Read more
The London Stock Exchange does not have a great track record of consummating deals (remember the proposed Deutsche Borse transaction of the 2001?) or grabbing big strategic opportunities.
So will its’s proposed merger with TMX Group, Canada’s largest exchange company, go the way of Northern Foods/Greencore or British Airways/Iberia? Read more
For British Columbia’s sawmills, China has become more than just a booming market. By persuading customers across the Pacific to build houses, schools and even apartment buildings out of wood instead of cement, the Canadians are realising a long-held dream: to shake off their dependence on the fickle and protectionist US. China’s importance was underlined last month when the Obama administration sought arbitration over a US claim that the BC government unfairly subsidised sales of diseased logs from provincially owned forests, reports the FT. The complaint came on the heels of a separate ruling that Canada must impose almost C$60m ($59.8m) in new taxes on lumber exports to the US to offset other illegal subsidies. Read more
Onex is in talks to sell its Husky Injection Molding Systems unit to rival buyout firms, Bloomberg reports, in a deal which could be worth up to $2bn according to sources. Canada’s largest private-equity firm has hired Goldman Sachs and JPMorgan Chase to handle the auction the news agency reported. Ontario-based Husky manufactures machines turning resin into plastic products. Toronto-based Onex bought Husky for about $953m in 2007. Read more
Activists have overstated the environmental damage caused by Alberta’s oil sands projects while producers and regulators have failed to address risks posed by the industry, a report by Canada’s top scientists has concluded. “Is the oil sands industry the most environmentally destructive project on earth, as has been suggested by some media and declared critics of the industry?” the panel, set up by the Royal Society of Canada, has asked, reports the FT. “Based on our review of the publicly accessible evidence, a claim of such global magnitude is not accurate.” The oil sands, covering an area the size of Florida and second only to Saudi Arabia in estimated reserves, have drawn tens of billions of dollars in investment from many of the world’s biggest energy groups. Read more
Royal Bank of Canada lost its Moody’s triple-A credit rating on Monday, leaving its smaller rival Toronto-Dominion as the only Canadian bank — and one of less than half a dozen worldwide — to retain top ranking, reports the FT. In cutting the rating to Aa1, Moody’s cited concerns about RBC’s growing international capital markets business which, it said, “poses significant risk challenges”. Nevertheless, said Moody’s senior vice-president Peter Nerby, the bank still “enjoys one of the highest ratings globally among banks with substantial capital markets operations”. The Telegraph adds that Moody’s warnings echo growing concerns among investors about risks taken by investment banking divisions to attain the higher returns that make them attractive to banks. Read more
Canada plans to toughen its foreign-investment law in a bid to force greater transparency and accountability from investors amid political controversy after Ottawa last week rejected BHP Billiton’s bid for PotashCorp, reports the FT. Tony Clement, industry minister, told the FT the review was not specifically linked to the BHP deal, which his government said did not offer a “net benefit” to Canada, as required under the Investment Canada Act. In particular, he said the government would seek to require foreign investors to publicise their undertakings on jobs, local processing, technology transfers, and other commitments typically made to meet the “net benefit” test. Read more
BHP Billiton’s $39bn hostile bid for Canadian group PotashCorp appears dead even though it has 30 days to improve its terms, politicians and analysts said, reports the FT. Tony Clement, Canada’s industry minister, on Wednesday said he was not satisfied BHP’s deal would be of “net benefit to Canada”, as required under foreign investment rules. He is due to explain his reasons after a 30-day period in which BHP can improve its terms. Reuters reports that Canada’s farm minister said one reason was that BHP’s deal would have given Australia’s farm sector too much advantage. The WSJ adds that even as BHP weighed its next move, Russian fertiliser group PhosAgro confirmed it is considering buying a stake in PotashCorp. FT Alphaville meanwhile looks at the real losers from the BHP knockback. Read more
The “obvious loser” from the Canadian government’s rejection on Wednesday of BHP Billiton’s $39bn hostile bid for PotashCorp is BHP chief Marius Kloppers, according to the Wall Street Journal’s Heard on the Street column.
But wait. Kloppers still has a few reasons to smile. And the real losers could well be right at home in Canada. Read more
Canada has rejected BHP Billiton’s $39bn bid for PotashCorp, in a potentially fatal blow to the Australian miner’s 10-week pursuit of the Saskatchewan-based fertiliser producer, reports the FT. In announcing Ottawa’s decision, Tony Clement, Canada’s industry minister, said he was “not satisfied” the deal would be of net benefit to Canada (as required by the country’s foreign investment law). But, he noted, the law gives BHP 30 days for additional representations and undertakings. Lex says the deal was – and still is – “certainly worth a crack”, while FT Alphaville asks: “What now Marius Kloppers? Will you sweeten the deal or… do a massive share buyback instead?” The WSJ concludes that PotashCorp’s takeover premium has faded and Canada has sent a “chilling signal” to investors. Read more
Get your hands off our potash!
Ottawa, November 3, 2010 — Today, the Honourable Tony Clement, Minister of Industry, made the following statement regarding an application submitted by BHP Billiton Development 2 (Canada) Limited (BHP Billiton) on a proposed acquisition of Potash Corporation of Saskatchewan Inc. (PotashCorp): Read more
BHP Billiton’s $39bn hostile bid for Saskatchewan-based PotashCorp faces a crucial test on Wednesday with the Canadian government’s announcement on whether it will allow the deal to go ahead, reports the FT. Amid frenzied market speculation, local media said on Tuesday that Canada’s industry department had endorsed the deal. According to several sources, BHP has offered unprecedented undertakings to show that its bid would provide a “net benefit” to Canada, as required under foreign investment rules, including the creation of a panel to monitor compliance. Reuters adds that Ottawa insisted on Tuesday that no decision had been made ahead of Wednesday’s announcement. The news agency later reported on Wednesday that Russian fertilizer company Phosagro is planning to bid for PotashCorp, according to a report in Russian business daily Vedomosti, saying that Phosagro chairman Vladimir Litvinenko has asked Russian prime minister Vladimir Putin to approve a potential deal and request financing from Russian banks. Read more
Domestic political pressure mounted on the Canadian government to block BHP Billiton’s $39bn hostile bid for PotashCorp, as three other provinces joined Saskatchewan to oppose any such deal, reports the FT. A private poll found that most of the party’s 13 MPs from Saskatchewan could lose their seats if the deal went ahead, said sources close to the Conservative party, which leads a minority government with 144 MPs out of a total 308. One lobbyist said it was hard to predict Ottawa’s final decision, although it recently appeared to favour BHP’s bid. Meanwhile, reports Reuters, citing the Sunday Times, BHP is considering raising its $39bn Potash bid by 10%. Read more