These are stories Report on Business is following Monday, Nov. 26, 2012.
Carney jumps ship
There was a light dusting of snow on the ground in Ottawa this morning, which must have prompted Bank of Canada Mark Carney to take a page from Pierre Trudeau and decide on a job change
Because otherwise, how do you explain such an abrupt about-face from the central banker who said in August he would never, ever jump to the Bank of England.
As The Globe and Mail’s Kevin Carmichael and Bill Curry report, Mr. Carney, who’s also the chief of the global Financial Stability Board, will succeed Mervyn King as head of Britain’s ancient central bank.
Mr. Carney had been oft mentioned for the role, and denied he’d been approached.
Indeed, in early August he told the BBC that “I’m very focused on my post at the Financial Stability Board, and I look forward to working with the new or the next governor of the Bank of England.”
That would have been fine, but Mr. Carney was asked whether that was a “no, or a never?” His response: “It’s both, it’s both. How’s that?”
Asked yet again whether “It’s never,” Mr. Carney said: “Yes.”
Today, he said talks heated up in the last two weeks, and that he had a chance to reflect. Apparently, snow has that effect on Canadians. (Of course, the former prime minister decided to stay, while the current governor decided to go.)
“This is highly unexpected and quite shocking because he had taken himself out of the running for the job,” said finance professor Louis Gagnon of Queen’s University.
The Canadian dollar dipped on the news because, said senior currency strategist Camilla Sutton of Bank of Nova Scotia, Mr. Carney’s move introduces uncertainty around monetary policy in Canada and around who the next governor could be.
Given Mr. Carney’s strengths and reputation, it’s great news for the Bank of England. And Europe’s troubles, of course, are far greater than Canada’s at this point.
“Taking us by surprise, Mark Carney has indeed been appointed to lead the Bank of England, a rare move by a country that would seem to be suggesting that none of the U.K.’s many esteemed economists were worthy of the job,” said chief economist Avery Shenfeld of CIBC World Markets.
“For Canada, it’s a nice recognition that we’ve handled our monetary and regulatory affairs well enough to be recognized abroad, but it leaves a gap at the top of the monetary policy house here,” he said in a research note.
“Governor Carney has been somewhat hawkish in words, but dovish in action, in the past couple of years, but the absence of rate hikes since 2010 largely lines up with the absence of inflation pressures and the generally mediocre growth picture. In that sense, then, it’s unclear that any likely replacement would have a markedly different take on monetary policy in the near term, as Canada will still need faster growth than we’ve seen to justify higher rates, and an easing in rates would be similarly unlikely without an extended run of weak growth that would open up slack.”
- Mark Carney named Bank of England governor
- Shock, speculation greet Carney's move to Bank of England
- Mark Carney: A common touch, an uncommon task
Ottawa boosts TFSA limit
The Canadian government today boosted the limit on its popular Tax-Free Savings Account, by $500.
Beginning next year, the ceiling will be $5,500 a year.
When it introduced the savings vehicle in 2009, the government said the $5,000 limit would move in $500 increments tied to inflation. This is the first year that's happening.
"An additional $500 in annual TFSA contribution room can have an important impact on the amount of tax-free savings an individual can earn," the government said.
"Over a 20-year period, an individual can accumulate significantly more in TFSA savings than under the original $5,000 annual contribution limit. For example ... a middle-income saver could accumulate about $2,340 more in tax savings on their investments than if the additional investment had been made in a taxable savings vehicle (unregistered account)."
The TFSA has been popular since it was introduced, though recent surveys suggest Canadians still need more education.
The latest survey by Bank of Montreal showed less than 50 per cent of savers are putting in the maximum of $5,000 a year, though 57 per cent say they will go to ceiling within the next five years.
But while 60 per cent of those polled claim to be “knowledgeable” about the savings vehicle, only 44 per cent knew the contribution limit and 37 per cent didn’t know what TFSAs can hold, such as stocks and bonds.
Once more unto the breach
European finance ministers are meeting again in Brussels today, again debating what to do about Greece.
But, as always, this is a deeply divided group, with Germany reportedly unwilling to forgive some of the country’s debt and the International Monetary Fund pushing for more stringent fiscal targets.
At stake is the next tranche of bailout money - €31-billion – which has been tied up for some time.
“A decision today, or this week, is not a foregone conclusion by any means, despite the recent market gains,” said senior analyst Michael Hewson of CMC Markets in London.
He noted that IMF chief Christine Lagarde has moved off her original position, a demand that the ratio of Greek debt to gross domestic product be cut to 120 per cent by 2020.
She’s now looking for 124 per cent, and has suggested the writedowns on debt be studied, which the European Union will reject.
Another RIM upgrade
Shares of Research In Motion Ltd. climbed again today amid another analyst's upgrade.
The more upbeat look by Todd Coupland of CIBC World Markets follows moves by two analysts last week.
Mr. Coupland hiked his price target on RIM shares to $17 (U.S.) from $8, citing, as did the others, the feedback from carriers and developers on the new BlackBerry 10 devices scheduled to be launched Jan. 30.
"Our rating change is based on RIM's existing subscribers wanting to upgrade to BB10," he said in a report.
RIM now has 80-million subscribers.
- Darcy Keith's Inside the Market blog: CIBC upgrades RIM by two notches, more than doubles price target
- RIM's Thanksgiving (as in: Thank you, National Bank analyst)
- RIM investors bet on BB10 bounce
- Putting money on a RIM comeback is no safe bet
Onex to acquire USI
Onex Corp. is buying U.S. insurance broker USI in a $2.3-billion (U.S.) deal, The Globe and Mail's Bertrand Marotte reports.
Based in Briarcliff Manor, N.Y., USI is the ninth biggest insurance broker in the United States, and recently acquired the TD Insurance Inc. unit from Toronto-Dominion Bank.
USI has a mix of property and casualty, employee benefits and retirement consulting, with more than 3,300 employees in some 100 offices throughout the U.S.
The current owner of USI, Goldman Sachs Capital Partners, bought the company for $1.4-billion in 2007.
Quebec’s proposed, sweeping pilule empoisonnée spells trouble ahead.
For those who may have missed it, Nicolas Marceau, the Parti Québécois finance minister, announced late Friday that he plans to shelter Quebec companies from foreign hostile suitors.
As The Globe and Mail’s Rhéal Séguin reports, he wants to give boards of directors the power to examine the impact on a company’s employees, pensioners and suppliers and, if need be, refuse to call a vote among shareholders.
His proposal would also ensure shelter from legal action.
To be fair, this was a promise made during the recent election campaign. And the PQ has pledged to consult with the business community.
For those who may be unfamiliar with business terms, shareholders are the people who own a company but, in Quebec now, would have no say in what to do with it. Chief executive officers and directors are the people who run a company, and, in Quebec now, are probably rubbing their hands in glee.
I actually support the sentiment behind the PQ move: The impact on all stakeholders in a company is generally ignored in a buyout because a takeover premium rules.
The PQ’s plan can’t work anyway. At this point, it’s not defined. And when it comes to pass, it promises to be ill-defined.
Several U.S. jurisdictions have “just say no” regulations and a co-ordinated, well-defined, cross-Canada plan may be in order.
But that’s not where we’re headed.
First, what happens if a board of directors opts for a takeover that the government doesn’t like? Will the PQ intervene? How far does this go?
And what happens in the case of a shareholder battle, as is now the case at Rona Inc., the hardware chain that put the PQ on this path?
I’m not suggesting for a moment that takeovers should not be scrutinized for their impact on communities, only that this may not be the best way to do it.
One need only look at Rona to understand the pitfalls and dangers ahead.
The home improvement chain needs a corporate improvement chain of command.
Which is why Invesco Canada is now trying to unseat the board. Should that happen, and a new board decide that a sale of the company is in order, will the government stand in its way?
This began with America’s Lowe’s Cos. Inc. taking a run at Rona at $14.50 a share, sending the target stock to a high of $14.49.
The previous Quebec government suggested it was a strategic asset, which is about as nutsy as the current government’s suggestion that shareholders own the company only when the PQ government says they do.
Lowe’s, of course, was sent packing, only to be named as a potential suitor again after Rona’s CEO left the company amid horrendous financial results and Invesco launched its battle.
As David Milstead wrote in our Inside the Market blog, Rona’s stock tumbled to $9.25 after Rona’s latest quarterly report, but before the resignation of the CEO. Thus, he says, that’s what the market thinks it’s worth.
It’s now just shy of $11, and, one could argue now, there’s absolutely no reason why it should go any higher.
- PQ plans to protect corporations from hostile foreign takeover bids
- David Milstead's Inside the Market blog: Why a blockbuster new bid for Rona isn't going to happen
- Subscribers only: Caisse needs to get behind a rona renovation
- Kevin O'Leary entering mortgage business with a simpler product
- Rob Carrick on money: It’s the financial industry’s world
- How do I start saving for retirement?