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EU leaders meet
Europe's leaders met in Brussels today for a make-it-or-break-it summit, agreeing to certain measures but leaving any Grand Plan far from a done deal.
They agreed to force the region's banks to boost their capital levels and, according to reports of a draft statement, to increase the heft of their bailout, with terms to be settled later. They also plan to push holders of Greek debt for haircuts of more than 50 per cent, though the group that represents many of them says there's no deal in place.
Today's summit was key, with the leaders of the 17-member euro zone under intense pressure by other governments to settle the two-year-old debt crisis once and for all, given the potential to derail the global recovery.
Of course, Germany's Angela Merkel and her ally, France's Nicolas Sarkozy, set the bar extremely high for the meeting, saying there would be a plan. It has been two years since this crisis began, and Europe's leaders have been slammed for letting it heighten and spread.
Under discussion was a three-pronged plan that would boost the heft of the euro zone's bailout fund, known as the EFSF, to somewhere around €1-trillion, recapitalize the region's banks, and arrange a "haircut" of between 40 per cent and 60 per cent (or more?) for holders of Greek debt.
The statement on the banks said the financial institutions must have a capital ratio of 9 per cent by June 30, 2012, and that they should first try to find private sources for that, via restructuring and debt-to-equity vehicles. Dividends and bonuses should be delayed to meet that target, and, only if necessary, should they tap governments or borrow from the bailout fund.
The European Banking Authority, or EBA, said later that would amount to some €106-billion based on preliminary numbers.
"Banks will be required, by the end of 2011, to submit to their respective national authorities their plans detailing the actions they intend to take to reach the set target," the EBA said.
"These plans will have to be agreed with national supervisory authorities and discussed with the EBA. The targets will have to be achieved avoiding excessive deleveraging, so as to contain the potential impact on the real economy. To reach the targets, banks will be expected to withhold dividends and bonuses," the group said in a statement.
"The capital needs will be met only with capital of the highest quality. For private instruments, only new issuances of very strong convertible capital will be accepted if in line with strict and standardized criteria to be defined by the EBA."
That raises questions, and concerns, said Stewart Hall, senior fixed income and currency strategist at RBC Dominion Securities in Toronto.
"In the absence of the ability to tap private capital and a likely reticence to accept government and EFSF capital that may come with conditions, bank recapitalization threatens to become an exercise in burning off of assets," Mr. Hall said in a research note.
"For the EU economy – an economy that funds itself through its banks - it points to the potential for a credit crunch, deflation and a contraction in money supply getting layered onto already onerous growth challenges associated with Spartan-like fiscal austerity. Make no mistake, EU officials are fully aware of the potential. From today's statement 'national supervisory authorities, under the auspices of the EBA, must ensure that banks' plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy.' Good luck."
A major concern, as well, is the extent to which private debt holders, primarily banks, will take a hit.
"This could remain a sticking point with banks reluctant to take more than a 40-per-cent hit while the IMF and EU leaders insist on a much bigger haircut. This impasse could well delay the second Greek bailout, and we may well find that some parts of any agreement could get kicked down to G20 at Cannes next week."
- Euro leaders eye November date to pin down terms of rescue fund
- Read the statement on the banks
- Read the EBA bank data
- 'The world is watching': Merkel
- Audio: Eric Reguly on Europe's 'moment of truth'
- Last-minute deal breaks stalemate threatening Berlusconi government
- Accord at EU summit in doubt: official
- Unresolved debt crisis sets off political shock waves
The lighter side of the crisis Reuters correspondent Michael Roddy today provides a fun retelling of jokes making the rounds in Europe. They're not likely to be told openly at the summit table in Brussels, but they make for enjoyable water cooler breaks. Here's a sampling from the news agency.
A Greek, an Irishman and a Portuguese man go into a bar and order a drink. Who picks up the bill? A German.
"So are you willing to accept a 50-per-cent haircut?" This was asked by an Amsterdam hairdresser of a Reuters correspondent who's Greek.
What's the difference between Iceland and Ireland? One letter and about six months.
What's the outlook for Europe's economy, a double dip, a V or or something different? A bathtub: A steep decline, a period of stagnation, and then down the drain.
"Working session of the European Council 19.15 Working dinner 20.00 Bilateral meetings/Eurozone only session 22.00 Press Conference... 22:05 - Silvio Berlusconi heads off to the nightclub; drinks on him.......Angela declines because she wants to, Sarko because he has to, Papandreou because he can't afford the taxi back."
What's the coat of arms of COMECON, the old eastern European economic bloc? Seven skin-and-bone cows in a green pasture milking each other. Now, it's 27 cows and the EU.
Perhaps, though, the funniest thing today was real.
Deputies from the governing coalition got into it with some from the opposition, at least two of them grabbing each other by the throat. This apparently was started by a comment on TV by the speaker of the opposition party about the wife of the leader of the Northern League party, Reuters reports. (They take "at each other's throat" literally in Italy's parliament.)
TD quits ombudsman Canada's independent banking ombudsman has suffered another major blow with the pullout of Toronto-Dominion Bank's personal and commercial banking division, which has decided to set up its own independent office to handle customer disputes, The Globe and Mail's Grant Robertson reports today.
TD Bank Group, the retail division of Canada's second-largest bank, said Wednesday it was starting a new external ombudsman, which will be operated by ADR Chambers, a company that provides dispute resolution services.
Barrick hikes dividend Barrick Gold Corp. today boosted its quarterly dividend by 25 per cent to 15 cents (U.S.).
The gold giant, which is scheduled to report quarterly results tomorrow before markets open, said in a statement its "strong earnings and operating cash flows, combined with its positive outlook on the gold price, enables the company to continue to make high-return investments in its project pipeline and also increase its dividend."
Gas prices high compared to oil The Bank of Canada today offers the explanation behind the complaints of everyone who has banged their head against the gas pump: Gasoline prices are definitely higher than oil prices would suggest. And, worse, it expects them to remain high.
Here's how the central bank explained it all in its Monetary Policy Report today:
The price at the pump is a combination of oil costs, taxes and profit margins among refiners and retailers, with crude being the biggest factor. Though what's refined in Canada comes from different grades, West Texas Intermediate crude, the U.S. benchmark, has "historically been a good proxy for the crude costs of Canadian refineries, closely tracking fluctuations in Canadian gasoline prices."
Since the beginning of the year, though, pump prices have climbed more than WTI, and, until September at least, didn't come down when crude fell last spring. That's also added into a jump in inflation, as measured by the consumer price index.
"In September 2011, gasoline prices were about 20 per cent higher than their historical relationship with WTI would suggest, a difference amounting to an additional 1.2 per cent on the level of total CPI," the central bank said.
Canadian refineries use different blends, of both WTI and Brent, which is the benchmark beyond North North America. Central Canadian refiners are heaving on WTI pricing, while those on both coasts lean toward Brent. Nationally, of course, their use is about equal, which until recently didn't matter as their prices were largely similar.
But because of a supply surge in a main U.S. oil hub, WTI has been cheaper than Brent, and cheaper in comparison historically.
"In this context, the crude costs paid by Canadian refineries have, on average, been higher than those implied by WTI," the Bank of Canada said. "Partly as a result, gasoline prices in Canada have remained relatively elevated at the national level. Taxes and profit margins have also played a role."
This WTI discount, by the way, is expected to last for "a few more years." That means Canadian crude costs "are thus expected to remain peristently elevated relative to WTI." And you know what that means.
Overall today, the central bank's report mirrored yesterday's statement, painting a picture of slower growth amid troubles in the euro zone and the United States, The Globe and Mail's Jeremy Torobin writes.
The Globe and Mail's Shawn McCarthy has also done a good primer on the gas price issue.
- Carney sees more than year of soft growth
- Read the Bank of Canada report
- Shawn McCarthy on why gas prices are still a pain
- Canada's economy goes on a slower path
- Flaherty hints at delay to balancing books
RIM delays system launch Research In Motion Ltd. has has delayed the launch of an updated operating system for its PlayBook tablet until February 2012, marking yet one more setback in the company's efforts to come out with a viable alternative to the ipad from Apple Inc. , The Globe and Mail's Iain Marlow writes today.
Many have been looking forward to the updated PlayBook OS 2.0 because it was expected to include the native e-mail application and other features that were notably missing when the PlayBook launched, contributing in part to the device's negative reviews and its lack of traction in the marketplace.
Rogers profit jumps Rogers Communications Inc. today posted a better-than-expected third-quarter profit but relatively weak wireless growth, highlighting the struggle of Canada's largest wireless company through one of the toughest competitive environments it has ever faced.
Rogers earned $485-million or 89 cents a share in adjusted net income in the usually lucrative back-to-school quarter, compared to $479-million or 83 cents per share in the same quarter last year, The Globe and Mail's Iain Marlow reports. Analysts had expected adjusted earnings per share of 82 cents.
The company also announced the retirement of its chief financial officer Bill Linton, who will be replaced by Anthony Staffieri, who joins the company from rival BCE Inc. Mr. Linton will remain with Rogers until the end of 2012, the company said.
Ford profit dips Ford Motor Co. posted a slightly lower third-quarter profit today but it's still on a roll.
The auto maker, alone among the Detroit Three in not needing a recession-era bailout, earned $1.65-billion or 41 cents a share, compared to $1.7-billion or 43 cents a year earlier. Revenue climbed 14 per cent to $33.1-billion.
"We remain well on track to deliver improved full year pre-tax operating profit and automotive operating-related cash flow, consistent with our guidance," CFO Lewis Booth said in a statement. "Our liquidity remains strong, and we will continue to take actions when appropriate to strengthen our balance sheet."
Delaying retirement Canadians are delaying their retirement and staying on the job for longer, a trend that had profound implications for the country's current and future work force, The Globe and Mail's Tavia Grant reports.
A 50-year-old worker in 2008 stayed in the labour force three and a half years longer than in the mid-1990s, according to a Statistics Canada indicator that tracks peoples' retirement behaviour.
Dumb, smart and weird 1. "Our challenge today is not simply to save the euro," Greek Prime Minister George Papandreou said today. "It is to safeguard the ideas we cherish so much in Europe: Peace and co-operation amongst our nations, social cohesion and solidarity without prejudice amongst our people." Eloquent but ... To the first point, right, it's to save Greece. To the second, on co-operation, that's yet to be seen. And to the third, the Greek people are indeed in solidarity, but it's not with Mr. Papandreou.
2. "Canada's superior political and economic profile rests, among other factors, on its policy making and political institutions, which we see as highly effective, stable and predictable." Standard & Poor's credit analyst Nikola Swann said this today as the agency affirmed the country's triple-A ratings, and you can bet the Tories will quote it.
3. "The world is watching Europe and Germany; it is watching whether we are ready and able, in the hour of Europe's most serious crisis since the end of World War II, to take responsibility." This comment by Angela Merkel to Germany's Bundestag today is one of the smartest things anyone has said in two years of crisis.
4. H&M said today it's bringing the look of Stieg Larsson's heroine Lisbeth Salander to its stores. Trish Summerville, the woman behind the costumes for the Hollywood version of The Girl With The Dragon Tatoo, has designed a 30-piece collection with "the dark urban feel that defines her character, with leather jackets and trousers, torn jeans and slouchy hoodies all in industrial shades of black, grey, worn white or dark red." A smart move by t he Swedish retailer in advance of the movie.
5. Ruth Madoff tells CBS' 60 Minutes that she and her husband tried to kill themselves by overdosing on pills on Christmas Eve after he was exposed. "I don't know whose idea it was, but we decided to kill ourselves because it was so horrendous what was happening."
6. Botox sales aren't suffering in Europe's new age of austerity, The Financial Times reports today. The chief executive officer of Allergan, which manufactures it, told the newspaper he has been surprised by that. The entire euro zone needs a facelift, so why not?
7. An official of the UN Population Fund says the world's population boom isn't the fault of a Catholic church ban on contraceptives because, basically, many Catholics appear to be ignoring it. "In Catholic countries like Italy, Spain or Malta people are still using contraceptives like condoms, so the Church ban is not having an impact," Safiye Cagar, director of the information and external relations division at UNFPA, told reporters, according to Reuters.
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The European Central Bank alone has the power to quell the euro zone crisis. Its new chief, Mario Draghi, must choose between two paths: the orthodox one leads towards failure; the unorthodox one should lead towards success. Martin Wolf of The Financial Times writes an open letter to Mr. Draghi.
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