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Brick soars on Leon’s bid (but Greece needs the ‘don’t pay a cent event’) Add to ...

These are stories Report on Business is following Monday, Nov. 12, 2012.

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Brick shares soar
Shares of The Brick Ltd. surged by more than 50 per cent today in the wake of the $5.40-a-share friendly bid from rival Leon’s Furniture Ltd.

As The Globe and Mail’s Marina Strauss reports, Canada’s two biggest specialty furniture companies are teaming up amid a cooling housing market and growing competition from foreign retailers, such as Target Corp., that are piling into Canada.

“During these economic times where have seen multiple American corporations make inroads in our country through acquisitions, it is a pleasure to see two successful Canadian retailers reach such an agreement that will better serve Canadian consumers,” said Leon’s chief executive officer Terry Leon.

One would be tempted to speculate that the deal won’t close for a year - Canadians are intimately familiar with the Leon’s “don’t pay a cent event,” though, given the holidays loom its website now boast “Ho Ho Hold the payments – but it’s expected to close in the first quarter of 2013.

(Just a little side note here, Hilary Duff is part of the Brick family given her marriage to retired hockey player Mike Comrie a couple of years ago.)

Greece hurtles toward deadline as 'Ponzi scheme goes on'
Greek politicians have approved a new austerity budget, but still find themselves racing against the clock to stave off default.

Finance ministers from the 17-nation euro zone are meeting today in Brussels, and while Greece’s troubles are a big part of that, Germany has warned that another round of bailout money isn’t likely until a final report from the so-called troika of lenders that includes the International Monetary Fund, the EU and the European Central Bank.

But at the same time, Greece faces a Friday deadline on €5-billion ($6.3-billion U.S.) in debt payments to the ECB.

“Another key week for Europe begins with last night’s decision by the Greek parliament to approve a budget for 2013 … and in so doing overcoming the latest obstacle in a long line of hurdles in the long running saga that has marked the debt crisis in Europe since Greece got its first bailout in early 2010,” said senior analyst Michael Hewson of CMC Markets in London.

Athens plans to meet the Friday deadline with a treasury bill sale tomorrow, though the Greek banks that would buy the bills can't put together more than about €3.5-billion of the necessary collateral unless the central bank changes the collateral rules.

“With its cash reserves almost depleted and a €5-billion T-bill rollover later this week the hope is that this will be enough for EU finance ministers, meeting in Brussels today, to sanction the release of the next tranche of aid,” Mr. Hewson said in a research note.

“Unfortunately things are never that simple with arguments raging amongst EU ministers about how best to get Greece’s runaway debt levels under some semblance of control, without the need to find any more money. A difficult prospect when a two-year extension is likely to require another €30-billion.”

The ECB probably will change the collateral rules, Mr. Hewson added in an interview, allowing Athens to meet its Friday deadline. And then "the Ponzi scheme goes on," Mr. Hewson said.

"If Greece was a company, it would have been wound up months ago," he added.

Greece wants an extra two years to meet its goals for cutting its deficit, which, according to a draft report of estimates seen by Bloomberg News, would see a financing gap of some €15-billion in the next couple of years, almost €18-billion in the two years after that.

“EU finance ministers are looking at ways to somehow address the issue of getting Greece’s debt down to a more sustainable 120 per cent of GDP, with the funding gap for an extension from 2014 to 2016 reported to be about €32.5-billion, just slightly above some of last week’s estimates,” said Mr. Hewson.

It's not at all clear how this will all play out at the Brussels meeting, though markets appear to be taking it somewhat in stride.

“The lack of market response to this is a sign of the degree of crisis fatigue that prevails among investors, but more of a reaction seems likely tomorrow as Athens makes a bid for emergency funding from bond markets in case the bailout tranche does not arrive in time,” said market analyst Chris Beauchamp of IG in London.

That could well change tomorrow, however.

“Aside from digesting the news from Monday’s euro zone finance ministers’ meeting, markets will be closely watching Tuesday’s Greek Treasury bill auction,” said Ben May of Capital Economics.

“With Greece unlikely to receive its next bailout loan until the end of the month, a bad auction could increase the chances of the government defaulting on the €5-billion of Treasury bills which mature on Friday.”

In past sales, noted Mr. May, the government could rely on Greek banks to do their bit. But there’s now the threat of Athens not being able to issue enough new paper.

“However, given the turmoil that a default could cause, we think that euro zone policy makers may go to significant lengths to prevent a disorderly default,” Mr. May said.

“One option would be for the ECB to accept more Treasury bills as collateral from the Greek banks. Alternatively, the troika could allow the government to use reserves in the Hellenic Financial Stability Fund (its bank recapitalization fund).”

There are several things at play here. First, Prime Minister Antonis Samaras promises this will be the last austerity budget, in a country deep in recession and crippled by 25-per-cent unemployment. Protests have been frequent.

But, said Mr. Hewson, it won't be the last austerity budget and it won't be the last bailout given Greece's outlook and finances.

"He's kidding himself, or trying to kid the Greek people," the analyst said. "If people believe that, they're deluding themselves. He's selling a lie."

The other problem is Germany, where voters are running out of patience with being the deep pockets and where Chancellor Merkel is heading into an election in less than a year. Ms. Merkel wants Athens to remain in the euro zone, at least until then, as she has promised Germans that the bailouts will, in the end, be profitable.

"Unfortunately, the Greek situation is now out of her hands," said Mr. Hewson, referring to the widespread social unrest in Greece.

Spanish banks halt evictions
Spain’s major banks pledged today to halt foreclosures for the neediest homeowners after the suicide of a 53-year-old woman.

The woman killed herself while she was being evicted, news agencies reported, sparking public anger in what already is already widespread social unrest.

The unemployment rate in Spain, where the housing market crashed several years ago, is forecast to top 26 per cent next year. Half the country’s young people are unemployed.

The Spanish Banking Association made the promise after several meetings with the government.

In a statement, it cited its policy of social responsibility, though, Reuters noted, there have been about 400,000 foreclosures since the meltdown.

RIM to launch BB10 in January
Research In Motion Ltd. has now set a firm date for its crucial BlackBerry 10 platform, The Globe and Mail’s Iain Marlow reports.

There have been several delays amid deteriorating financial results, and fears that the BB10 devices could be delayed again.

RIM, however, said today it would officially launch the BB 10 on Jan. 30, and unveil the first two devices.

“In building BlackBerry 10, we set out to create a truly unique mobile computing experience that constantly adapts to your needs. Our team has been working tirelessly to bring our customers innovative features combined with a best in class browser, a rich application ecosystem, and cutting-edge multimedia capabilities,” said chief executive officer Thorsten Heins.

“All of this will be integrated into a user experience - the BlackBerry Flow - that is unlike any smartphone on the market today.”

North America forecast to become net oil exporter
North America will become a net oil exporter by 2030, as booming unconventional production and tougher mileage standards for vehicles squeeze out offshore imports, the International Energy Agency forecast today.

The United States is expected to become the largest crude producer in the world by 2020, overtaking Saudi Arabia and Russia, due to soaring production in tight-oil fields like North Dakota’s Bakken and Texas’s Eagle Ford, the Paris-based energy agency said in its annual forecast of energy-market trends, The Globe and Mail's Shawn McCarthy reports.

Japan's economy shrinks
Japan may well be in the midst of another recession amid fresh data showing the economy contracted in the latest quarter at an annualized pace of 3.5 per cent.

Two back-to-back quarters of decline typically marks a recession.

Today’s reading of gross domestic product will add to the already intense pressure on the Bank of Japan, notably from its government, to do more.

Japan has been struggling with a high yen and, adding to the troubles of its exporters, a dispute with China over a string of island that has sparked a consumer backlash in that country over Japanese goods.

“This was the first quarterly decline since 2011 and increases pressure on the BoJ to ease monetary policy further,” said senior currency strategist Sue Trinh of RBC in Hong Kong.

Just sayin'
From Automobil Lamborghini today:

“Automobili Lamborghini presents the new Lamborghini Aventador LP700-4 Roadster, the most exciting series production Lamborghini ever built and the new benchmark in the world of open-top luxury super sports cars … The new Lamborghini Aventador LP 700-4 Roadster is a dream that can be realized and ordered at any Lamborghini dealer in the world for the price of €300,000, excluding taxes.”

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