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Report on Business

ROB Insight

Fresh, focused analysis of today's business news
available exclusively to subscribers of Globe Unlimited

Entry archive:

Bank of America’s FIRREA-swallowing act causes indigestion

REYNOLDS HOLDING

U.S. regulators are using the obscure law with longer deadlines to extract hefty penalties, including a record $16.7-billion (U.S.) from Bank of America. Even Countrywide Financial’s Angelo Mozilo may be in their grasp. It’s a dubious way, though, to make up for a missed crackdown.

The latest settlement resolves most of the bank’s mortgage woes with a nearly $10-billion penalty and $7-billion in homeowner relief. It also covers dodgy loans BofA acquired by purchasing Countrywide and Merrill Lynch six years ago, a period beyond the typical statute of limitations. The bank led by Brian Moynihan was kept on the hook, however, with the Financial Institutions Reform, Recovery and Enforcement Act.

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Don’t be so quick to say Canada is becoming a part-time nation

DAVID PARKINSON

Canada’s surge in part-time employment isn’t necessarily a sign of a broken labour market. Rather, economists say, it may be a symptom of longer-term shifts in the dynamics of the country’s work force – including its aging demographics.

“The narrowing gap between male and female [workforce] participation rates, as well as the shift to an aging population in Canada, may work to increase the prominence of part-time hiring in the future,” said Toronto-Dominion Bank economists Randall Bartlett and Derek Burleton in a research report published Thursday.

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Chip maker Infineon’s $3-billion buy relies on profit margin hike

DOMINIC ELLIOTT

Infineon’s pricey purchase of U.S. rival International Rectifier is a belated attempt to play catch-up in the semiconductor industry’s consolidation.

The German chip maker agreed on Aug. 20 to pay $3-billion (U.S.), a rich 48 per cent premium to International Rectifier’s average share price over the last three months. The deal gives Infineon geographic diversification, more products and better technology. To reconcile the valuation, however, Infineon will have to double the target’s 7.7 per cent profit margin and find further synergies.

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Look to Hong Kong data for a glimpse into global retail troubles

CARL MORTISHED

If you want any more evidence that commerce has been globalized, just cast a glance at Wall Street this morning where analysts have been scanning the half-year financial figures published by a Chinese trader, Li & Fung, hoping to glean some wisdom about the future of Main Street, USA.

The feng shui from Hong Kong is distinctly bearish. Li & Fung Ltd. is a logistics and supply management firm, in simple terms a middle-man that bridges the gap between big fashion and apparel retailers, such as Target Corp., Wal-Mart Stores Inc. and Marks & Spencer Group PLC and their largely Asian suppliers. Owning no sewing machines and employing no seamstresses, it nonetheless is at the cutting edge of global retailing, making $8.7-billion (U.S.) in revenues over six months. It is no more nor less than the back office for some very big brands, organizing the supply of raw materials, the manufacturing, the distribution and warehousing of the frocks you see in the shops.

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Tax credits are not the way to boost innovation

ANDREW JACKSON

There is a lot of talk about the need to build a “knowledge-based economy” if we are to retain and create good jobs in a world where production is shifting in a major way to lower-wage developing countries.

To compete, Canada must indeed produce high value-added goods and services commanding a price premium in world markets because they are sophisticated and unique. However, there are few signs of a sustained transition to a more innovative economy in Canada. Indeed, we are moving in the wrong direction.

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Glencore’s capital promises are those of a trader

CHRIS HUGHES AND SWAHA PATTANAIK

Glencore Chief Executive Ivan Glasenberg is playing to the gallery.

His plan to hand back up to $1-billion (U.S.) of cash to shareholders is largely symbolic given the proposed buyback represents only about 1 per cent of the trader-miner’s market capitalization. But in an industry saddled with a reputation for value destruction, the signal matters.

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All eyes on Yellen at Jackson Hole for new policy direction

DAVID PARKINSON

A sleepy mountain retreat in Wyoming has become synonymous with market-moving monetary policy, and for that we have Ben Bernanke to thank.

We’re about to see whether his successor intends to build on the former U.S. Federal Reserve Board chairman’s tradition, by clearing up some increasingly burning questions in the financial markets.

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Ballmer’s Microsoft departure means Nadella must keep the momentum

JEFFREY GOLDFARB

Steve Ballmer’s exit value is now Satya Nadella’s to preserve.

Microsoft’s market capitalization swelled by over $100-billion (U.S.) from the day about a year ago when the 34-year veteran of the software giant said he would resign as chief executive until Tuesday, when he stepped down from the board of directors.

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Boost in Canadian net worth closely tied to real estate surge

IAN McGUGAN

Do you seem richer today? You should, according to a new study by Statistics Canada that shows Canadians rapidly closing the wealth gap with Americans.

Look more closely, though, and the numbers demonstrate why many of us may not feel all that affluent despite our apparent leap ahead on the international wealth scale.

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Latest jobs report a bad sign for Quebec's budget hopes

CLÉMENT GIGNAC

The July Labour Force Survey (LFS), which was published on Aug. 8 and revised last Friday, shows that the Canadian labour market is losing momentum.

Let’s be honest: Canada has enjoyed an enviable run through the recession, emerging as the most reliant member of the Group of Seven, but the Canadian ship seems to have less wind in its sails as of late. For the country as a whole, 41,700 jobs were added in July, a figure that hides the fact that full-time employment was down 18,100 in this month alone, and that all the added jobs are part-time.

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Enormous challenges ahead as global manufacturing shift leaves Canada behind

IAN McGUGAN

It is now cheaper to make goods in once high-cost countries such as Japan or Britain than in Canada, according to a new map of global manufacturing competitiveness.

For Bank of Canada Governor Stephen Poloz, who is counting on a surge in exports to help drive a stronger economy, the unflattering comparison points out the enormous challenge ahead. Canada’s inability to produce internationally competitive products, outside of energy and raw materials, is proving to be a powerful drag on job creation, especially in Ontario.

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Canadian R&D’s downward trend is rooted in manufacturing neglect

DAVID PARKINSON

In recent months, we’ve seen glimmers of hope that Canada’s long-dormant business capital investment is starting to pick up – considered a critical element to spurring the country’s next phase of economic growth and addressing its chronic productivity underperformance. But sadly, a key missing piece of the productivity puzzle – research and development – is being left behind.

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Infrastructure investment won’t save the economy

MARTIN HUTCHINSON

Economies cannot develop without good infrastructure. However, when it comes to government investment programs, it is all too easy to waste money. That is the challenging conclusion of a new study from an International Monetary Fund researcher. Without careful analysis and controls, cost-boosting regulations and giveaways will drain value away.

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BHP spinoff won’t appeal to commodity players

SWAHA PATTANAIK

BHP Billiton plans to spin off unwanted parts of its business into a new company. Aluminum and nickel, whose prices are rising, are among assets which will be parked in the yet-to-be-named organization. A potentially more focused and nimble mining company might sound like an ideal vehicle for investors who want to follow a rising market.

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Foreign investors still have compelling reasons to stay with Canada

DAVID PARKINSON

Foreign investors haven’t lost their appetite for Canadian securities. They may just be suffering from a bit of government-bond indigestion.

Statistics Canada reported Monday that foreigners trimmed their Canadian holdings of investment securities (stocks, bonds and money-market instruments) by $1.1-billion in June. Given that foreigners had piled into Canada to the tune of $31.6-billion in the previous two months combined, a step back was inevitable – and this is a relatively modest one.

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Why cheaper oil could be here to stay

Carl Mortished

The price of oil seems to be suffering from a commodity market version of compassion fatigue. Like charity donors who begin to tire of images of suffering, crude oil traders seem to have become weary of tales of Middle East turmoil.

Even as the media reported the military successes of ISIS and held out the prospect of a brutal Islamic caliphate ruling over large oil-producing areas of Iraq and Syria, Brent crude has been on a downward slide, losing more than 10 per cent of its value since the beginning of June.

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Private equity playing risky game of ‘pass-the-parcel’

JEFFREY GOLDFARB

Private equity firms are getting awfully cozy. They’re buying portfolio companies from each other at a record pace as corporate buyers use valuable shares and hefty synergies to steal a march in this year’s brisk merger market. So-called pass-the-parcel deals tend to generate weaker returns, however. Buyout fund investors may need parcel protection.

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Blockbuster bust puts summer chill on box-office receipts

Patrick Plasterer

This season’s biggest Hollywood blockbuster is “Cinema: The Reckoning” and can be seen in theatres across America. It’s a cliffhanger that revolves around how new technology might undermine investors in old entertainment.

After a steady $10.9-billion (U.S.) of ticket sales in the United States and Canada last year, the movie business is heading for one of its worst summer slumps. Spider-Man and X-Men sequels won’t be enough to stop a decline of up to 20 per cent at the box office from a year ago, which trade publications peg as the worst decline in three decades.

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BHP tests whether repackaging can create value

SWAHA PATTANAIK AND CHRIS HUGHES

Why bother making the Big Australian smaller? BHP Billiton shares rose on news the world’s biggest miner is closer to demerging some unwanted assets. Yet it is hard to see this move transforming either business. This will test whether companies can create sustainable shareholder value merely by putting assets into different packages for different investors.

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Canadian jobs locked in a see-saw cycle

IAN McGUGAN

Whew. The huge upward revision in Canada’s job numbers for July shows that the national labour market is not doing nearly as badly as we were led to believe a week ago.

Unfortunately, the latest rendition of the now-you-see-it, now-you-don’t Labour Force Survey offers little reason to think that job creation is doing markedly better than we assumed before the statistical comedy began.

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Canada’s key indicators pointing in right direction

MICHAEL BABAD

The latest jobs report caps a string of indicators that suggest Canada’s economy may have reached a “turning point” and is headed for better times.

It’s not that Friday’s revised reading of the jobs market was anything great, but it was better than expected and markedly better than the incorrect report pulled by Statistics Canada earlier in the week.

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The GMO scare: Fear and confusion in the grocery aisles

TODD HIRSCH

If consumers can be convinced they should be nervous or fearful of something, it’s an easy step to sell them things they don’t need. Sadly, this kind of marketing is plaguing the world of agriculture and food retailing.

Robert Saik, chief executive officer of Agri-Trend Group of Companies, is a professional agrologist and a long-time watcher of trends in agriculture. In his nifty little book, The Agriculture Manifesto: 10 Key Drivers That Will Shape Agriculture in the Next Decade, he takes on the fear mongering currently gripping the production of genetically modified organisms (GMOs). It’s a short but fascinating read that raises plenty of questions around the future of Canadian agriculture.

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Coke innovation may be flat, but its deal making still has fizz

Kevin Allison

Coca-Cola’s latest investment reveals its idea bottle to be half empty. The $180-billion (U.S.) pop giant is paying $2.2-billion for 17 per cent of Monster Beverage, a maker of trendy energy drinks. It goes to show how even a global powerhouse with significant distribution and marketing advantages can struggle to keep ahead of upstart rivals. At least Coke got the deal formula right.

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The duelling pressures of collecting jobs data

Every day ROB Insight delivers exclusive analysis on breaking business news and market-moving events. Streetwise offers news and analysis on Bay Street and the world of finance. Inside the Market delivers up-to-the-minute insights on market news as it develops.

Here are our editors’ picks of some of the best reads available to Globe Unlimited subscribers this week.

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Deepening EU slump may force Draghi to pull QE trigger

DAVID PARKINSON

Europe’s foundering economy sprung new leaks Thursday – and they’re serious enough to turn up the heat on the European Central Bank to get off its hands and deliver a quantitative-easing lifeline.

New data showed that the euro zone’s economy stalled utterly in the second quarter, with gross domestic product unchanged from the first quarter – short of even the puny 0.1-per-cent quarter-over-quarter gain that economists had anticipated. On a year-over-year basis, euro zone growth is now a tepid 0.7 per cent.

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EU’s deluge of migrants a badge of economic success

Carl Mortished

Hunkered down and hidden in bushes beside a ramp leading off a highway in northern France, four young Africans watch a stream of trucks heading for the Channel Tunnel and Britain. If the vehicles slow to a crawl, the men will try to jump on board, grabbing on to the cages holding spare wheels, or they may even get into the driver’s cab using threats of violence or the promise of bribes. Calais, a bleak, windswept and impoverished Channel port, has become a magnet for desperate young men from as far afield as Eritrea, Sudan, Syria and Somalia. It is the choke point, the final hurdle on a terrible journey to Britain: the promised land of jobs, free health care, benefits and a future.

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Run on high-yield funds may foreshadow worse to come

Neil Unmack

Like an old-fashioned bank run, no one knows for sure what started the run on high-yield funds in July, 2014.

Deutsche Bank has a plausible account. It thinks so-called short-duration funds started to suffer outflows in May, perhaps because they had been particularly richly priced by yield-crazed investors. Then investors started to worry that the U.S. economy would soon be strong enough to support higher policy interest rates, which would make junk less attractive. Janet Yellen turned a jog into a run in July when the Federal Reserve chair said high-yield valuations “appear stretched.”

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Contributors

Scott Barlow

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW).

Brian Milner

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports.

Follow Brian on Twitter @bmilnerglobe

Dave Morris

Dave Morris joined the Globe and Mail in 2010 as Associate Editor of Report on Business Magazine.

Carl Mortished

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K.

David Parkinson

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000.

Sean Silcoff

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine.

Follow Sean on Twitter @SeanSilcoff

About ROB Insight


Presenting a selection of exclusive analysis from Report on Business and Reuters Breakingviews.


Reuters Breakingviews delivers agenda-setting financial insight. Every day, a global team of 30 correspondents comments on the big financial stories as they break.

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