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World's central banks load up on Canadian dollars Add to ...

These are stories Report on Business is following Monday, Sept. 30, 2013.

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Canadian currency in demand
The world’s central banks are loading up on loonies.

According to the International Monetary Fund today, central banks increased their holdings of Canadian dollars to $108.9-billion in the second quarter of the year.

That was up markedly from the $94.9-billion of the first quarter and $90.1-billion of the final three months of last year.

(The most recent figures also show the loonie, as the dollar coin is known in Canada, outpacing the Australian currency, at $101-billion in the second quarter. So take that, mate.)

Canadian dollars have been in strong demand this year, given the country’s fiscal standing, though one analyst says the latest move is probably more related to general diversification among central banks.

The Canadian dollar and the Australian currency only recently joined the IMF list known as Currency Composition of Official Foreign Exchange Reserves.

The others include the U.S. dollar, the euro, the British pound, Japan’s yen and the Swiss franc.

This year's high point for the value of the loonie came in January, at $1.0188 U.S., and the low point in early July, at 94.26 cents. It now hovers around the 97-cent mark.

What price BlackBerry?
BlackBerry Ltd. has dropped off a noted list of the world’s top 100 brands, but the company behind the rankings notes that a takeover by Fairfax Financial Holdings Ltd. could give the smartphone maker a new lease on life.

BlackBerry had been number 93 on the Interbrand Best Global Brands list last year, when the value of its brand was pegged at $3.9-billion (U.S.).

Its failure to make this year’s list marks a decline from its debut in 2008 at number 73, valued at $4.8-billion. It climbed to number 63 in 2009, at $5.1-billion, and then peaked a year later at number 54, and $6.8-billion, before beginning its decline a year later, slipping to number 56 and $6.4-billion.

“BlackBerry’s fall out of the top 100 is not a surprise, but with Fairfax Financial’s potential acquisition, BlackBerry would have a new opportunity to clarify its business strategy outside of the public eye and communicate it clearly to all audiences,” Alfred DuPuy, the managing director of Interbrand Canada, said in a statement.

“The opportunity would also exist for BlackBerry to define and implement a new brand direction with full internal alignment and commitment – something the organization struggled with in the past.”

Topping the list this year, for the first time, is Apple Inc., followed by Google Inc., which bumped Coke from its 13-year perch to the number 2 spot on the key annual report from the consultancy.

Apple and Google carry a brand value of $98.3-billion and $93.3-billion, respectively.

The release of the Interbrand list came today amid ongoing speculation over the fate of Fairfax's proposed $4.7-billion buyout.

CanaccordGenuity, for one, said it believes Fairfax will indeed complete the takeover, but at a much lower price.

Investors continue to question the likelihood of a deal - BlackBerry stock is still more than $1 below the proposed offer of $9 a share (U.S.) - while analyst Michael Walkley sees a final offer of just $7.

BlackBerry shares remain well below the suggested bid despite repeated assurances from Fairfax chief executive officer Prem Watsa that he's confident of success.

Mr. Watsa proposes a Fairfax-led consortium that would acquire BlackBerry, but markets are skeptical, citing financial issues and questions about who else would join the takeover group.

Mr. Watsa has until early November to firm up his letter of intent after scouring BlackBerry’s books.

“While we maintain our hold rating, we lower our price target to $7 reflecting our updated sum-of-parts valuation and our belief the most likely outcome for BlackBerry is a sale to Fairfax Financial and its partners at a lower price of $7 post further diligence,” analyst Mr. Walkley said today.

Analyst Todd Coupland of CIBC World Markets, however, pegs the value of BlackBerry at $12, based on a sum-of-the-parts analysis.

In the wake of the company’s second-quarter loss of almost $1-billion, reported Friday, Mr. Coupland said he believes Fairfax will get the financing needed, and that a rival offer could materialize.

Investors anxious
Global markets tumbled today as the U.S. government headed toward a partial shutdown of services.

As The Globe and Mail’s Kevin Carmichael reports, politicians got nowhere over the weekend to settling their issues over health care, thus failing to extend Washington’s spending authority.

If the Democrat and Republican forces can’t settle their differences by midnight – and it certainly appears at this point like they won’t – the fiscal year will end and certain non-essential services will halt. As Mr. Carmichael writes, it took the Senate less than half an hour today to reject a House proposal to tie a government shutdown to amending “Obamacare,” shifting the focus back to Republican Speaker John Boehner and his restive Tea Party caucus.

Investors are, of course, on edge, with the prospect of the first politically-sparked government shutdown since the mid-1990s, and the hit to the economy that that would mean.

Political “shenanigans” in Italy are also playing into the turmoil, noted market analyst Alastair McCaig of IG in London.

“Not since 1995 has the U.S. public sector had to shut down operations due to the two heavyweight political powers failing to agree debt ceiling issues, but unless progress is made within the next 24 hours that looks likely to change,” Mr. McCaig said.

“Historically, it's the government sovereign debt markets that have suffered rather than equities,” he said this morning.

“Unsurprisingly this has badly affected confidence and all the major U.S. equity markets are looking softer ahead of the open.”

Markets sank across the globe, beginning in Asia, spreading to Europe and then to North America.

Senior market analyst Michael Hewson of CMC Markets in London slammed politicians in both the United States and Italy.

On Italy: “The actions of Silvio Berlusconi in pulling his five ministers out of the government have shattered the uneasy truce between the coalition parties that had been in place since April, and effectively made Europe’s third-biggest economy even more ungovernable than it already has been in the last few months.”

On the U.S.: “Things aren’t much better in the U.S. where Republicans and Democrat politicians are doing their best impression of looking at pressing the self-destruct button as both parties dig in their seemingly entrenched positions over the agreement of a budget to avert a government shutdown, by agreeing a budget by Oct. 1 as well as trying to find an agreement to raising the debt ceiling by Oct. 17.”

He was referring to Treasury Secretary Jack Lew’s warning that the U.S. government will be tapped out by Oct. 17 if the debt limit isn’t raised.

By one calculation, a shutdown of two weeks would trim fourth-quarter gross domestic product by 0.3 of a percentage point, annualized. A 30-day shutdown would 0.7 of a percentage point.

The last shutdown in the mid-1990s was estimated to cut economic growth by half a percentage point in the fourth quarter, but GDP rose by almost 3 per cent nonetheless on consumer and business spending, said senior economist Sal Guatieri of BMO Nesbitt Burns.

"However, it's no stretch to say the economy rests on softer ground today," he added.

"Higher rates of foreclosure and unemployment than in late 1995 (2.4 and 1.7 percentage points higher, respectively), combined with more household debt (one-fifth more relative to disposable income), suggest consumers are more vulnerable today," he added in a research report.

Brookfield to meld units
Brookfield Property Partners plans to buy the rest of Brookfield Office Properties in a $5-billion deal that would form one of the world’s biggest commercial real estate companies, The Globe and Mail's Eric Atkins reports.

Shareholders in Brookfield Office would receive $19.34 (U.S.) a share, a 15-per-cent premium over the current trading price, or one unit in Brookfield Property.

If the deal goes ahead, Brookfield Property would own $45-billion worth of office, retail and apartment properties.

Brookfield Property was spun off this year from Brookfield Asset Management, the head of the Brookfield family of companies that is formerly known as Brascan. It owns 51 per cent of Brookfield Office.

Economy perks up
Canada’s economy rebounded in July, expanding by 0.6 per cent after slipping 0.5 per cent a month earlier.

Industry winners included construction, manufacturing, mining and energy, Statistics Canada said today, while the agriculture and forestry sectors slipped.

The bounce-back in construction, which grew by almost 2 per cent, was partly because of the end of a major strike in Quebec.

“Remember than June also saw the impacts of floods in Alberta, so the see-saw figures for the two months have to be put together,” said chief economist Avery Shenfeld of CIBC World Markets.

“In that sense, the economy was barely better that flat in the two months, but the absence of the downward weather/strike impacts in Q3 will set that quarter up for an above trend gain.”

32 seek amnesty
SNC-Lavalin Group Inc. says a total of 32 people made amnesty requests under its three-month program encouraging employees to blow the whistle on corruption within the company.

The amnesty program, however, failed to ferret out any new information “of a material nature” regarding alleged ethical violations in addition to those already uncovered at the engineering and construction giant, The Globe and Mail's Bertrand Marotte reports.

Still, Montreal-based SNC said in a statement today that “the information the company received did confirm its previous assessment of corruption risks.”

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