These are stories Report on Business is following Tuesday, March 13, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Bank shares climb Shares in major U.S. banks climbed today as word of stress tests filtered out before the official announcement, and major players began hiking dividends and launching share buybacks. The Federal Reserve then announced that 15 of 19 banks tested got a passing grade.
JPMorgan Chase & Co. unveiled a dividend hike and $15-billion (U.S.) share buyback, followed quickly by U.S. Bankcorp , which boosted its dividend by 56 per cent, to 19.5 cents quarterly, and announced plans to buy back 100 million shares, and by Wells Fargo & Co. , which also hiked its dividend.
JPMorgan hiked its quarterly dividend by 5 cents to 30 cents and announced the buyback, $12-billion of which is earmarked for this year and $3-billion by the end of the first quarter of 2013.
"We are pleased to be in a position to increase our dividend and to establish a new equity repurchase program," chief executive officer Jamie Dimon said in a statement. "We expect to generate significant capital and deploy that capital to the benefit of our shareholders."
Shares of JPMorgan, Bank of America and Citigroup Inc. surged higher before markets closed. Shares in other institutions, such as Wells Fargo and Morgan Stanley also climbed.
All of the banks may not fare so well tomorrow. Citigroup and three others, Suntrust, Metlife and Ally Financial, did not make the grade in the Federal Reserve tests of how banks would fare amid a shock, and Citigroup shares, for example, fell in after-hours trading. Citigroup is the country's third-biggest bank, and thus is important. Note that the tests looked at how institutions would fare if they carried through with their capital plans, such as dividend increases, by the end of next year.
Citigroup said in a statement that it's one of the strongest banks in the world, and plans to discuss the Fed's test model with the central bank. Without its proposed plans, it fared just fine, it said.
"The results showed that Citi exceeded the stress test requirements without the capital actions Citi proposed," it said.
"However, the Federal Reserve advised Citi that it objected to Citi's proposed return of capital to shareholders. In light of the Federal Reserve's actions, Citi will submit a revised capital plan to the Federal Reserve later this year, as required by the applicable regulations. The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the board of directors each quarter."
Derek Holt and Dov Zigler of Scotia Capital highlighted three points overall:
- Almost half of the 19 failed comparable tests in 2009, so "this is a significant improvement."
- The test itself was "highly stringent."
- Five of 30 banks failed in recent European tests, which resulted in "significant" stress in the financial sector.
"In short, a very stringent and fairly transparent stress test exercise showed general health in the U.S. financial system under a scenario of extreme duress," they said.
Paul Ashworth, the chief U.S. economist at Capital Economics in Toronto, agreed.
"This round of stress tests was pretty rigorous, with the Fed using a macroeconomic scenario that included a more severe decline in real GDP than we saw in 2008-2009, a jump in the unemployment rate to 13 per cent, a 50-per-cent decline in equity prices and a 20-per-cent decline in house prices," he said.
Overall, markets rallied today, helped along by the U.S. banks and a more optimistic view from the Federal Reserve in a separate announcement of its rate policy decision. Even the turmoil in the euro zone eased.
The Dow Jones industrial average , the S&P 500 and Toronto's S&P/TSX composite all rose.
The Nasdaq breached the 3,000 mark, while the Dow crossed 13,000.
Fed sees better times The Federal Reserve today painted a brighter picture of the U.S. economy, though still said it envisions holding rates at emergency lows until at least late 2014.
The Federal Open Market Committee, the central bank's policy-setting group, said the economy has expanded "moderately" since it met last in January.
"Labour market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated," the Fed said.
"Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable."
It made no changes to its policy.
"After the relative fireworks of the prior meeting – extending the expected period of low, low rates to late 2014 and setting an official inflation target of 2 per cent – this was going to be a tough follow-up act in any event," said deputy chief economist Douglas Porter of BMO Nesbitt Burns.
"In addition, the economic data have been generally quite favourable since late January (including two solid employment reports), stocks are at their highest in nearly four years, and Europe has shifted from an acute crisis to a chronic condition. Accordingly, the Fed gave no hint whatsoever of any additional easing moves in today’s statement."
Retail sales rise Americans opened up their wallets in February as retail sales in the United States rose at the best pace in months.
Sales rose 1.1 per cent, the Commerce Department said, boosted by a rebound in auto sales. Take out auto sales, and sales were up by 0.9 per cent.
Brazil won't play 'idiot's role' Brazil warned again today it will do what it takes to hold down its real, its Finance Minister telling the Senate the country will not play the "idiot's role" while others manipulate their currencies.
Money is flooding into emerging markets, Guido Mantega said, as central banks pour massive amounts into their economies and hold interest rates low.
While Brazil supports a floating exchange rate regime, it will still do what's necessary.
Earlier this week, Brazil, now the world's sixth-largest economy, expanded its levy on foreign exchange transactions.
Only yesterday, The Globe and Mail's Jeremy Torobin reports, the Bank of Canada's second-in-command suggested that Brazil and Canada work together on currency issues.
Both have been affected by their strong currencies.
“At the root of it, you’ve got the two biggest economies in the world, the United States and China, and there’s not enough exchange rate flexibility between the two,” Bank of Canada senior deputy governor Tiff Macklem said after speaking to the Brazil-Canada Chamber of Commerce.
How high will Viterra go? How much room do shares of Viterra Inc. have to run?
Of course it's impossible to say, particularly if a bidding war erupted for the Canadian agribusiness and grain handling company, but Raymond James suggests there's not a lot of room.
Viterra stock has surged since it disclosed Friday there have been "expressions" of interest from potential suitors. That, said Raymond James analyst Steve Hansen, is not really surprising after the loss of the Canadian Wheat Board's monopoly, which will benefit the grain handler.
Mr. Hansen, though, said in a research note that his calculations suggest Viterra could bring $16.50 a share, though that excludes the win from the wheat board deregulation, which he added is a "meaningful" catalyst.
"Nevertheless, the ensuing share surge leaves only 4.2-per-cent upside to our target, forcing us to become more cautious," he said. "For those investors willing to keep their 'toes in the water,' we acknowledge there could still be healthy upside in the event a formal bid (or bids) transpirs, however we advise trimming into recent strength in the even one does not."
- Viterra bid may need Canadian component
- Boyd Erman's Streetwise: For Viterra takeover, the Potash precedent a cautionary one
Transcontinental hikes dividend Transcontinental Inc. boosted its dividend by 7 per cent today even as the Canadian commercial printer and publisher swung to a first-quarter loss and posted a dip in revenue.
Transcontinental hiked its annual dividend to 58 cents from 54 cents, citing strong cash flow.
The company lost $33.3-million or 41 cents a share in the quarter, compared to a profit of $25.7-million or 32 cents a year earlier. Revenue slipped by 14 per cent to $495.9-million from $514.8-million, due largely to the sale of a printing unit, in turn part of a swap of assets that gave Transcontinental Quad/Graphics Canada.
"We continue to maintain a strong financial position with a solid balance sheet and an ability to generate significant cash flow," the company said. "If the advertising markets remain stable, we expect to improve our performance in the balance of the year given the lift from the Quad/Graphics Canada acquisition, the full impact from new contracts and the benefits related to the integration of our media and interactive sectors."
Britain overhauls consumer price measure Britain's statistics agency gave a nod to modern times today as it overhauled the list of products it uses to measure inflation, ditching glass ovenware in favour of iPads and vampires.
The changes announced by Office for National Statistics to its Consumer Price Index and Retail Prices Index, which are reviewed annually, illustrate the changes in consumer behaviour.
"A number of new items are introduced to represent specific markets where consumer spending is significant, and existing items in the basket may not adequately represent price changes for such goods," the agency said.
"For example, baby wipes are being introduced to represent ‘cleansers on the go.’ Bundled communication packages comprising telephone services, internet access and television subscriptions are also included for the first time. The three component parts were already in the basket and its addition reflects the way in which consumers are increasingly buying these services."
Among the changes:
- Tablet computeres such as the iPad were included for the first time.
- Teenage fiction, such as Twilight, was also added.
- Developing and print colour film was removed.
- Glass ovenware casserole dishes were removed, as were step ladders.
All the king's horses and all the king's men A curator has found 500 never-before-heard fairytales, myths and legends assembled by the late historian Franz Xaver von Schönwerth, which were hidden in an archive in Germany for 150 years, The Guardian reports. I haven't seen them, so I'm using my imagination for what could be tales of yore from the euro zone:
The kings and queens of all the realms joined together as one kingdom, ruled by a witch.
But to the people of her own land, she was as Snow White, but with 16 dwarfs, some grumpy, some sleepy, none bashful, many dopey.
A miller told one of the kings his daughter could spin straw into gold. And the king actually believed him.
The people of the land of Greece became the wisest in all the lands in the art of numbers. Until they ate poisoned apples and lost the ability to count.
The job of the noble court jester was to read aloud the finances of the king.
Wizards once gathered to magically cleanse the lands of their blights. It worked so well that they oft chose to do it .
The kings and queens taxed their people with ne'er a thought for mercy. And when the people rose up, they taxed them more. (Alas, Robin Hood had returned to England.)
The once (and future?) king of Italy had an eye for all the fair maidens. And ladies-in-waiting. And mermaids.
- Greece to need more despite biggest ever 'bond ripoff'
- Greece swaps bonds worth $232.5-billion
- The Guardian on the found fairytales