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Be they ever so humble Allied Irish Banks, one of the institutions at the heart of Ireland's crisis, has learned one of the secrets of government largesse, much to the chagrin of employees who now won't be getting a bonus. This statement from the bank late today says it all:
"The Board of Allied Irish Banks ... met this evening to consider a letter received from the Minister for Finance in relation to the payment of bonuses to certain employees.
"Previously the Board had received strong legal advice that it was obliged to pay these bonuses. However the letter from the Minister conveys a decision by him to legislate which overtakes this obligation.
"In his letter, the Minister stated that the provision of further State funding to AIB will be conditional on the non-payment of any bonuses awarded, no matter when they may have been earned.
"The letter to the Board stated that without the State support which had been provided in a variety of forms, AIB could not have survived until now.
"The bank very much appreciates the support it has received to date from the State and the Irish taxpayers and acknowledges that it will continue to rely on this support for some time to come.
"Accordingly, the Board has decided not to pay the bonuses.
"The Executive Chairman of AIB Mr David Hodgkinson said 'The Board of AIB very much welcomes the actions of the Minister and is relieved to be in a position not to pay these bonuses. We are determined to position the Bank to play a full role in the recovery and development of the Irish economy. In doing so, we are committed to treating our customers, staff, the taxpayer and the public in a fair and transparent manner.'"
Carney warns again on debts Mark Carney has a great line today in the text of a speech he was giving in Toronto: "Cheap money is not a long-term growth strategy."
Actually, the Bank of Canada Governor had several good lines as he continued his attack against the evils of burgeoning household debt in an environment of low interest rates, and spoke more broadly about the challenges of these "extraordinary times." Consumers, companies, banks and governments, he added, all form the first line of defence, Globe and Mail economics writer Jeremy Torobin reports.
In the world of interest rates, everything that goes down must come up. And Mr. Carney, in his speech to the Economic Club of Canada, warned of just that day. Among his comments:
On interest rates: "We have weathered a severe crisis – one that required extraordinary fiscal and monetary measures. Extraordinary measures are only a means to an end. Ordinary times will eventually return and, with them, more normal interest rates and costs of borrowing. It is the responsibility of households to ensure that in the future, they can service the debts they take on today.
"Similarly, financial institutions are responsible for ensuring that their clients can service their debts.
"More broadly, market participants should resist complacency and constantly reassess risks. Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning."
On debt and housing: "While there are welcome signs of moderation in the pace of debt accumulation by households, credit continues to grow faster than income. In some regions, lower house prices have begun to weigh on personal net worth. Without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from an adverse shock will continue to grow."
On risks: "Even if the growth in debt continues to slow, the vulnerability of Canadian households is unlikely to decline quickly given the outlook for subdued growth in income. In addition, private consumption is unlikely to be bolstered by gains in house prices going forward."
On policy: "But the question remains whether there will still be cases where, in order to best achieve long-run price stability, monetary policy should play a supporting role by taking pre-emptive actions against building financial imbalances. As part of our research for the renewal of the inflation-control agreement, the Bank is examining this issue. While the bar for further changes remains high, the Bank has the responsibility to draw the appropriate lessons from the experience of others who, in an environment of price stability, reaped financial disaster."
Rising debt levels are clearly "a major concern" for the central bank, said economist Benjamin Reitzes of BMO Nesbitt Burns.
"It appears that as soon as economic conditions allow, Carney & Co. will opt to push rates higher in an effort to keep debt levels from marching ever higher," Mr. Reitzes added. "For now, look for bank officials to continue their public warnings in an effort to at least make households aware of the risks of borrowing beyond income bounds."
Mr. Carney's comments came as Statistics Canada reported that the ratio of household credit market debt-to-personal disposable income hit a record 148.1 per cent in the third quarter from 143.4 per cent in the prior quarter.
Much of the reason stemmed from a 1.5-per-cent drop in disposable income, The Globe and Mail's Tavia Grant reports.
Other measures of debt are rising, too. Household debt, household debt per capita and debt-to-personal disposable income are all increasing, a development that has sparked concern among Bank of Canada officials and federal policy makers alike.
Household net worth grew 2.7 per cent in the third quarter, the strongest quarterly growth in a year, as stock markets rose.
"Given these types of asset gains, we believe that an appropriate level of household-debt-to-income is in the range of 138 per cent to 142 per cent," said Toronto-Dominion Bank economist Diana Petramala.
"For now, however, debt for the majority of households remains quite affordable, with the interest only debt-service ratio in the third quarter remaining relatively stable at a four-year low of 7.2 per cent despite the acceleration in the level of indebtedness. This is because interest rates have remained exceptionally low over the last two years.
- Carney warns complacency can lead to reckoning
- Household debt ratio hits record
- Ottawa, banks discuss measures to rein in personal debt
- Mr. Carney's warnings, and the peril of pride
- Carney warns about consumer debt
Franco-Nevada, Gold Wheaton strike deal Franco-Nevada Corp. and Gold Wheaton Gold Corp. are are merging in a friendly deal valued at $830-million, The Globe and Mail's Tim Kiladze reports today.
The transaction provides Franco-Nevada with exposure to precious metals streams such as 50 per cent of Quadra FNX's Sudbury footwall deposits, which hold gold, platinum and palladium in ore, as well as 25 per cent of the gold stream from First Uranium’s mine waste solutions uranium and gold tailings recovery operation.
BMO warns on investing returns Investment returns over the next decade will probably be lower than many people expect, BMO Nesbitt Burns warns, likely in the range of 5 per cent to 6 per cent on an average annual basis in a balanced portfolio.
“Even with a relatively upbeat medium-term outlook for corporate profits, investors should be prepared for only moderate financial market returns in the years ahead,” BMO economists Douglas Porter and Robert Kavcic said in a research report, basing their findings on a balanced portfolio that is weighted 60 per cent in stocks, 35 per cent in bonds and 5 per cent in cash.
“Our view is that a typical balanced portfolio will do well to generate average returns of more than 6 per cent in the medium term, a significant downgrade from widespread upbeat expectations as recently as five to 10 years ago,” they said.
One way to estimate the longer-term equity returns, they added, is to assume that stock prices will, at most, rise in concert with corporate profits, which are already high as a share of gross domestic product, particularly in the United States. Thus, a growth rate faster than that of nominal GDP will be challenging over the next decade.
“Arguably, the biggest issue for prospective investor returns has been the relentless decline in long-term interest rates,” they said. “Even with a late-year back-up, 10-year Canadian government bond yields are only slightly above 3 per cent, down almost 40 basis points since the start of the year and roughly 2 percentage points below the average of the past 15 years ... The broad bond market should return little more than the current yield on the Canadian bond universe of just over 2 per cent, and investors need to adjust their expectations accordingly.”
How bad is China inflation? China reported higher-than-expected inflation data Saturday - 5.1 per cent for November compared to 4.4 per cent a month earlier - but held fast on interest rates despite investor fears.
Beijing has already taken steps to tighten conditions - on Friday it again raised the reserve requirements for the country's banks - and economists had increasingly speculated that officials could hike the benchmark lending rate after seeing the inflation data.
That could have spooked markets by heightening concerns that it would have helped curb China's huge appetite for imported commodities.
"Recent policy moves and official statements, including that from this weekend's high-level policy meeting, give the strong impression that the government believes inflation is under control," said Mark Williams, senior China economist at Capital Economics in London.
"We agree, but market jitters will remain high until it is clear that the headline inflation rate has peaked."
Mr. Williams said there's still "a good chance" that China will raise rates before the end of the year, though he expects inflation to fall back in December and stabilize over the next few months.
Berlusconi warns of crisis Italy's prime minister is playing to investor fears, warning politicians that the country could become the next victim of Europe's debt crisis if he loses a non-confidence tomorrow.
Italy is already caught up in the crisis, just not to the extent of others such as Portugal, Ireland, Greece and Spain, the so-called PIGS. One might want to remind Silvio Berlusconi that the other acronymn making the rounds is PIIGS, which, alas, includes Italy.
"It is madness to initiate a crisis without any foreseeable solutions," Mr. Berlusconi told politicians today, speaking in the Senate.
A&P files for Chapter 11 The Great Atlantic & Pacific Tea Co. may not be so great any more. A&P, one of the best known names in U.S. groceries, though struggling mightily, filed yesterday for Chapter 11 bankruptcy protection, with debts topping $3.2-billion (U.S.).
The grocery chain filed for bankruptcy protection with $800-million in debtor-in-possession finance from JPMorgan Chase & Co., money meant to keep it running through the process.
Air Canada rejoins index Sign of the times? Air Canada is returning to the S&P/TSX composite after seven years. The move will be effective next Monday.
Spies find new work in business One wonders what spies can bring to the business world.
The alleged Russian sleeper agents kicked out of the United States earlier this year with great fanfare are beginning to find work in private business.
Anna Chapman, or Anna Vasil’yevna Kushchyenko, who gained some celeb status as she became known as a "femme fatale" and a modern day "Bond girl," went into financial services when she returned to Moscow.
And today, the Russian business daily Kommersant reported that Andrei Berzukov, who lived in Boston under the name of Donald Howard Heathfield, has been hired as an adviser to the president of Rosneft, the oil giant owned by the government.
He'll be advising on international projects, of course.
In Your Business today
Mylifelist.org – a next-generation social networking site – encourages people to consider their deepest dreams and desires, be it a fitness, travel or career goal, then write them down and draft a plan to make them become reality. Find out what inspired entrepreneur Bill Starr.
Canadian entrepreneur and philanthropist John McCall MacBain was the founder and former president and CEO of Trader Classified Media, which he sold in 2006 for more than $2-billion. He recently received an honourary degree from Dalhousie University and delivered a convocation speech containing advice and challenges for other entrepreneurs, which he has agreed to share with Globe readers.
Columnist Mark Evans writes that "no matter how you feel about negative feedback, customers are footing the bill so you need to deliver the services and products to meet their needs. It is a simple economic proposition."
In Personal Finance today
The holidays are the perfect time to hit grandparents up for an RESP contribution, make sure you're maximizing government grants, review your savings goals and rebalance your portfolio.
You'll save on flights and hotels, but there are some hidden costs and other pitfalls to consider before you buy an all-inclusive deal.
Consumers are putting away the plastic this Christmas, much to the chagrin of retailers and credit card companies.
In Technology today
The medium hackers work in has become the ultimate driver of global culture, commerce and statecraft. If the WikiLeaks drama is any indication, they’ve only just begun rocking the world.
Gawker Media is “deeply embarrassed” today after revealing hackers accessed the customer database over the weekend. The company, which runs a series of irreverent blogs on media, technology and other issues, is urging subscribers to change their passwords.
From today's Report on Business
- Ottawa, banks discuss measures to rein in Canadians' personal debt
- EU's flaws need to be addressed for euro to survive
- Solar firm making return to its Canadian roots
- 'Perimeter' remains a dream, while beefed-up U.S. border the reality
|AC.B-T Air Canada||9.72||
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|FNV-T Franco-Nevada Corp.||62.57||
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