Today's top stories from Report on Business :
Toyota faces subpoena, testimony
Toyota Motor Corp.'s troubles are mounting by the day. The auto maker said today it has received a subpoena from a federal grand jury in New York asking for documents related to its huge recalls. It has also been asked for documents by the Securities and Exchange Commission. This comes as Toyota chief Akio Toyoda prepares to testify at a congressional hearing Wednesday. And it follows weekend reports of internal documents in which the auto maker touted the fact that it saved more than $100-million (U.S.) by bargaining with the U.S. government on a recall of floor mats. Toyota responded to the reports by stressing again that it puts safety first, and to believe otherwise based on one document would be wrong. Jeff Kingston, the director of Asian studies at Temple University Japan, told the Associated Press, "this is any executive's worst nightmare - a damning document comes out and exposes your company as having basically gone slow and tried to delay addressing significant safety problems with their product."
Canada's households are now in "a decent financial position," but there will be risks as interest rates inevitably rise, a new report from National Bank warns. National Bank senior economist Marc Pinsonneault said in today's report that the ratio of debt to net worth in Canada has deteriorated to the point where the ratio stands at 24.7 per cent, its highest on records dating back four decades. But this is not because of a shift in attitudes toward debt, he said. Rather, it is because the value of financial assets has dropped. In terms of the ratio of debt to disposable income, Mr. Pinsonneault wrote, Canadian households were running debts of $1.45 to every dollar of personal disposable income, or PDI, in the third quarter of last year. That compares to $1.57 in the United States. However, household debt in the U.S. has peaked while it is still rising quickly in Canada.
"This means that if the interest rate on this increased one percentage point, households would have to devote 1.45 percentage points more of their income to cover interest charges," he said, referring to Canada. "This additional burden would have to be shouldered at the expense of savings or the proportion of income allocated to consumer expenditures."
The risk, he said, comes with the anticipated rise in interest rates from their historic loans and borrowers have to shoulder a higher burden. He cited Finance Minister Jim Flaherty's move last week to tighten mortgage standards and protect consumers from taking on too much.
"Our basic scenario doesn't forecast a catastrophe in that area," Mr. Pinsonneault said in an interview. "… It is something to keep an eye on and sufficiently worrisome for the authorities to have expressed concern already."
Tensions between Britain, Argentina rise
Tension over drilling near the Falkland Islands are mounting. Argentina and Britain, which battled for seven weeks over the islands in 1982, have been feuding anew over what are believed to be vast energy offshore energy resources in the region. Argentina wants to restrict exploration in the waters off the Falklands, while Britain says it will do what is necessary to protect its interests, though both sides have promised to settle the dispute peacefully. Today, Desire Petroleum PLC, a British oil exploration firm, upped the ante when it announced it had started drilling north of the islands. The region could hold as much as 60 billion barrels, according to one estimate. Read the story
Goldman Sachs defends Greek swaps
Goldman Sachs Group Inc. is defending its actions in structuring derivatives for Greece that brought down the country's reported debt by almost €2.4-billion. Greece has been under fire because of its debt crisis, and amid questions about its fiscal figures. Gerald Corrigan, a managing director at Goldman Sachs, told a British parliamentary hearing today that the swaps "did produce a rather small, but nevertheless not insignificant reduction, in Greece's debt-to-GDP ratio." While there was nothing inappropriate, Mr. Corrigan said, according to reports, "with the benefit of hindsight, it seems to be very clear that the standards of transparency could have, and probably should have been, higher." Greece's troubles, and whether it can get its fiscal house in order, have rippled through stock and currency markets for weeks.
Soros frets over euro
George Soros fears for the euro, even if Greece emerges intact from its debt crisis. Writing in The Financial Times, Mr. Soros goes through the history and principles of the currency union and notes that while "makeshift" help should be enough to save Greece, whose debt troubles have spooked financial markets and prompted the EU to promise to support the country, still in question is the outlook for other debt-burdened European countries such as Spain, Italy, Portugal and Ireland. Wrote Mr. Soros: "Together they constitute too large a portion of euro land to be helped in this way. The survival of Greece would still leave the future of the euro in question. Even if it handles the current crisis, what about the next one? It is clear what is needed: more intrusive monitoring and institutional arrangements for conditional assistance. A well-organized euro bond market would be desirable. The question is whether the political will for these steps can be generated." Read the article
Markets await Bernanke
U.S. Federal Reserve chairman Ben Bernanke gives his so-called Humphrey-Hawkins testimony to the U.S. House and Senate on Wednesday and Thursday. While markets always pay close attention to the Fed's monetary policy report to Congress, there may be even more scrutiny, given the U.S. central bank's decision to raise its discount rate by one-quarter of a percentage point last week. While the Fed had flagged plans to do that, its timing caught markets surprise. "Given the market's sensitivity to tightening prospects, he will likely outline, again, the Fed's exit strategy road map - to explain the difference between measures that are designed to unwind emergency lending support and measures that raise the cost of funds or reduce their supply," BMO Nesbitt Burns said this morning. "While credit markets have healed sufficiently and no longer need life-saving support, the economy is still in the recovery room. Removing the monetary medicine prematurely would risk sending the patient back into intensive care. And with inflation pressures extinct - witness the first monthly decline in core consumer prices in 26 years - the Fed can take its time to nurse the economy back to full health."
CIBC, National report Thursday
Canadian Imperial Bank of Commerce and National Bank of Canada kick off the first-quarter results of Canada's major banks, both reporting earnings on Thursday. Investors are watching bank results for signs of credit losses stabilizing. "We think that credit card provisions have peaked," UBS Securities Canada analyst Peter Rozenberg said of CIBC. "Therefore declining card losses should drive lower [provisions for credit losses]and higher earnings growth in the near term."
Mr. Rozenberg added in a research note that UBS expects National Bank and Royal Bank of Canada "to be amongst the first major banks to raise dividends in [fiscal 2010]when there is more clarity on [provisions for credit losses] the economy, and the regulatory and capital environment."
EMI to keep Abbey Road
EMI has decided to keep the renowned Abbey Road recording studio after all. The music company's earlier plan to sell the studio that had been home to The Beatles sparked angst in Britain and a grassroots campaign to save it. EMI said on the weekend, though, that it is instead talking to outside investors about plans to "revitalize" the studio made so famous by the cover of the band's 1969 album Abbey Road.
Superman's first sells for $1-million
The first comic book to feature Superman has turned out to be a worthwhile investment. Auction site ComicConnect.com said it auctioned a copy for $1-million (U.S.), eclipsing the $317,000 paid for the comic last year, though it was not in as good shape. The comic sold this morning is the 1938 edition of Action Comics No. 1, which cost 10 cents when it was issued and whose cover features Superman lifting a vehicle.
From today's Report on Business