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business briefing

Briefing highlights

  • Insolvencies on rise
  • Rival bid for Transat
  • Bank regulator raises buffer
  • Stocks, loonie, oil at a glance
  • Australia cuts interest rates
  • Required Reading

Making ends meet

More Canadians can’t make ends meet.

The number of consumer insolvencies climbed 9.3 per cent in April from a year earlier, to 11,785, according to the latest numbers from Canada’s Office of the Superintendent of Bankruptcy.

The number dipped 1.5 per cent on a monthly basis, from March.

There are two types of insolvencies. The first is a traditional bankruptcy, the second a proposal, under which the consumer in trouble negotiates new terms with a creditor.

The number of consumer bankruptcies inched up 0.2 per cent in April from a year earlier, and 4.7 per cent from March alone, while proposals shot up 16.7 per cent from April, 2018, and dipped 5.4 per cent from a month earlier.

These latest numbers come as the pace of household borrowing slows in Canada after a breathtaking run-up that prompted the federal bank regulator to bring in new mortgage stress tests at the beginning of last year.

But there are still concerns about the vulnerability of Canadians carrying hefty debts. Interest rates may be on hold, but they will rise at some point.

Recently, in its review of the financial system, the Bank of Canada warned that “the vulnerability associated with high household indebtedness remains significant, although it has declined modestly.”

It also noted that the number of Canadians unable to juggle their debt payments remain low, though that’s on the rise in Alberta and Saskatchewan.

Also worth noting is that about 11 per cent of Canadian households have a debt-to-income ratio above 350 per cent.

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Mach bids for Transat

A Quebec real estate firm is trying to horn in on Air Canada’s action with a $14-a-share rival bid for Transat AT Inc.

Group Mach Inc. said today its offer is all cash, and would eclipse the $13-a-share bid Transat was discussing when it chose recently to negotiate exclusively with Air Canada.

Mach’s conditions include financing from government of Quebec, with a 25-per-cent investment from Spanish real estate developer TM Grupo Inmobiliario, The Globe and Mail’s Eric Atkins reports.Mach said it approached Transat last January.

“We are excited about the potential synergies between our companies in which the leading integrated international tourism model of Transat could be combined with Mach’s vast experience in overseeing the construction, ownership and management of complex real estate development projects in a cost-effective manner and its ongoing initiatives at modernizing the leisure travel experience,” Mach chief executive Vincent Chiara said in a statement announcing the bid.

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Regulator raises buffer

For the second time in six months, Canada's large banks will be required to hold more capital as the country's banking regulator raises a buffer designed to guard against shocks to the financial system, The Globe and Mail’s James Bradshaw reports.

The Office of the Superintendent of Financial Institutions said "key vulnerabilities" faced by Canada's major banks "remain elevated,” and the regulator will raise the "Domestic Stability Buffer" to 2 per cent of a bank's risk weighted assets on Oct. 31, up from the current level of 1.75 per cent.

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Markets at a glance

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RBA cuts key rate

While markets ponder which central banks could cut interest rates, and when, the Reserve Bank of Australia did it.

Australia’s central bank cut its benchmark by one-quarter of a percentage point to 1.25 per cent, but analysts suggested there were no signals for further moves.

“I want to emphasize that the decision is not in response to a deterioration in our economic outlook since the previous update was published in early May,” said RBA governor Philip Lowe.

“The economic outlook remains reasonable, with the main downside risk being the international trade disputes, which have intensified recently,” he added.

“The Australian economy is still expected to strengthen later this year, supported by the low level of interest rates, a pick-up in growth in household disposable income, ongoing investment in infrastructure and a brighter outlook for the resources sector. So today’s decision does not reflect a weaker outlook.

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U.S. factory orders fall

From Reuters: New orders for U.S.-made goods fell in April and shipments dropped by the most in two years, indicating continued weakness in manufacturing activity that could undercut the broader economy.

South Africa slumps

South Africa’s economy has suffered its worst decline in a decade, contracting by an unexpected 3.2 per cent in the first quarter as the country struggles with electricity shortages and mining industry unrest. Africa bureau chief Geoffrey York reports.

May to say Huawei under review

From Reuters: Prime Minister Theresa May will make clear to U.S. President Donald Trump that Britain is reviewing “the right policy” on Huawei and its involvement in the U.K.’s 5G telecommunications network, her spokeswoman said.

Fund opposes Fiat-Renault merger

From Reuters: Activist hedge fund CIAM has written to the board of French automaker Renault to say it “strongly opposed” a planned US$35-billion merger with Fiat Chrysler.

Required Reading

U.S. said to prepare probe

From Reuters: The U.S. government is gearing up to investigate the massive market power of Amazon, Apple, Facebook and Google, sources told Reuters, setting up what could be an unprecedented wide-ranging probe of some of the world’s largest companies.

Enbridge faces setback

A Minnesota court has ruled that an environmental impact statement for Enbridge Inc.’s Line 3 replacement project was inadequate, raising the risk of lengthy delays for a key pipeline to bring more Alberta crude to U.S. refineries. Megan Devlin and Jeffrey Jones report.

Compensation raises flags

The $29.4-million compensation package for Hudson’s Bay Co. chief executive officer Helena Foulkes is raising red flags among governance experts. Retailing reporter Marina Strauss examines the issue.

‘Wait and watch’

‘Wait and watch’ is boring but good investment advice, market strategist Scott Barlow writes.