The final numbers of the day's trading is shown on a board on the floor of the New York Stock Exchange in New York May 6, 2010LUCAS JACKSON
Stories Report on Business is following today:
Markets tank on Europe debt fears
Global financial markets suffered one of their wildest days as a mysterious plunge in New York added to debt-related fears already playing out around the world. The Dow Jones industrial average plunged almost 1,000 points before rebounding somewhat, and the S&P/TSX composite fell with it. Currency markets were also roiled as the euro dipped again and the Canadian dollar sank.
The Wall Street Journal reported late today that officials of the Securities and Exchange Commission and major U.S. stock exchanges were holding an emergency conference call to examine possible trading errors. The newspaper also cited automated selling.
Investors had already been spooked by the growing debt troubles in Europe, which have rippled through stock and currency markets for weeks.
"The bull market always had to end somewhere and it looks like this could be the trigger," IG Markets analyst Ben Potter told the Reuters news agency. "There's no let-up in concerns that the euro zone debt crisis could continue to worsen and as a result equity markets across the globe remain under pressure," Gluskin Sheff + Associates chief economist David Rosenberg pointed to the size of Europe's economy in relation to the global economy and the fact that 25 per cent of U.S. corporate profits come from that region.
Added Jake Dollarhide, chief executive of Longbow Asset Management, in an interview with The New York Times: "I think three days makes a pattern, and we as investors grew complacent that every time we had a bad day we had a good day. This is a terrible, terrible day."
Markets have been on edge as the Greek debt crisis plays out. Today, Greek politicians approved harsh austerity measures tied to its €110-billion ($150-billion Canadian) bailout by the EU and the International Monetary Fund. As the debate raged in Greece's parliament, and Prime Minister George Papandreou warned the country faced bankruptcy unless the plan was approved, protests continued against the cutbacks.
But even as the parliament approved the bill by a vote of 172-121, markets were shifting their fears to Europe's banks, which are now in the spotlight over their exposure to the Greek debt crisis. Fears of contagion continued to ripple through financial markets.
This morning, Moody's Investor Service warned that the spreading debt crisis in southern Europe could hit banks in Portugal, Spain, Ireland, Italy and Britain. While the banking systems in those other countries have different challenges, Moody's said, the "contagion risk could dilute these differences and impose very real, common threats on all of them."
Credit default swaps on several banks, or the cost of insuring their bonds, surge. According to Bloomberg News, the Markit iTraxx Financial Index of CDS on 25 financial institutions rose by up to 20 basis points to 168, the highest since April of last year.
Markets are also nervous ahead of tomorrow's German parliamentary debate over its sizable contribution to the Greek bailout, an unpopular move.
"The biggest question was always going to be over whether the bailout proposals would actually receive the necessary pan-euro zone ratification - the Germans continue to remind us that it is not a done deal," said RBC Dominion Securities strategist Simon Ballard. "We remain of the opinion that it is not just cash that the indebted peripherals need, but a structural adjustment to the euro zone itself."
Mr. Ballard said a restructuring of Greek debt appears likely, with haircuts in the area of 30 per cent, but he added that the more immediate concern for the markets is whether the Greek government can push through the austerity measures tied to the bailout. Investors wonder whether politicians will have the stomach for that given mounting protests by public sector workers who will bear the brunt of the cutbacks. Demonstrations against the measures turned violent yesterday, leaving three people dead.
The pressure on the euro zone as a whole is also building. Today, Nouriel Roubini, the well known economics professor at New York University, warned of the risk of a breakup of the common currency union.
"The breakup, the implosion of the euro cannot be ruled out at this point," he told Italy's daily paper La Repubblica. "The contagion is a real possibility and not only for countries most at risk."
Separately, Bloomberg News reported today that corporate bond sales have all but halted in Europe as investors shun company debt, fearing the bailout will not solve the crisis.
Read
Greek crisis could hit European banks, Moody's warns
Europe's fiscal crisis hinges on key votes
Eric Reguly: Why Italy has so far escaped Greece's fate
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Magna shares soar as Stronach to cede control
Magna International Inc. shares surged today after Frank Stronach, the auto parts king renowned for his entrepreneurial spirit and his rags-to-riches life story, said he would give up control of the company he founded decades ago and built into a leading multinational concern.
Magna unveiled a plan today that would eliminate the dual-class structure that allowed Mr. Stronach, its 77-year-old chairman, to control the Canadian company with just a small piece of its equity.
Under the deal, valued at $863-million (U.S.), the company would buy the class B multiple voting shares held by Mr. Stronach's trust for $300-million and hand over 9 million new class A shares. That would leave the trust with an equity and voting stake of just 7.44 per cent, Globe and Mail auto writer Greg Keenan reports.
Dual-class share structures have been controversial in Canada because they allow one party to control a company with a small equity stake.
Don Walker and Siegfried Wolf, co-CEOs of the auto parts giant, said in a statement that the proposed move could "unlock significant share value" for its shareholders. For his part, Mr. Stronach said he was content under the status quo, though recognized the potential of the deal. And, as is Mr. Stronach's way, he defended the share structure common among some family-controlled enterprises.
"The ability for an entrepreneur to raise growth capital under a multiple voting share structure has enabled Canada to create a number of world-class companies, like Magna," he said. "For me, that opportunity occurred in the late 1970s, when I gave up a sizable portion of my total equity value as part of a shareholder-approved reorganization in exchange for the control that enabled me to establish the principles, culture and entrepreneurial framework that have been the cornerstone of Magna's impressive growth and success over the years."
There were other goodies this morning for shareholders, as well. Magna announced it will restore the dividend it suspended last year at the height of the recession, when two of its biggest companies filed for bankruptcy protection in the United States. It also posted a turnaround in first-quarter results, rebounding to a profit of $223-million from a loss of $200-million a year earlier.
"[Magna's]olid balance sheet and reputation as an excellent operator will allow the company to continue winning takeover and new business," said analyst John Murphy of Bank of America Merrill Lynch. Read the story
Related: Frank Stronach's corporate rise
Related: Stronach takes control of electric vehicle project
Rio Tinto to boost production
Rio Tinto PLC is reviving plans to boost iron ore production in Canada, citing rising demand for the steel making product and an attractive investment climate in the country. The world's third-biggest miner said today the Iron Ore Co. of Canada board approved a $401-million (U.S.) investment to push up annual concentrate capacity by 4 million tonnes to 22 million by 2012. Rio's share of the investment is $235-million. Read the story
Manulife swings to profit
Manulife Financial Corp. , Canada's biggest insurance company, rebounding to a profit of $1.15-billion or 64 cents a share in the first quarter from a loss of $1.07-billion or 67 cents a year earlier, boosted by the recovery in North American stocks. Revenue rose 15 per cent to $9.17-billion.
Manulife easily topped analysts' estimates, following the path of Sun Life Financial Inc. , which yesterday posted a first-quarter profit of $409-million.
"Both of them are fundamentally sound companies in the insurance business, and I think they've probably turned the corner now," Caldwell Securities portfolio manager John Kinsey told Dow Jones. "Their earnings performance over the past year has been all over the map with losses and gains. It makes for a rough ride." Read the story
BCE tops forecasts
BCE Inc. soared past analysts' estimates this morning with a 60-per-cent jump in first-quarter profit to $608-million or 79 cents a share from $377-million or 48 cents a year earlier. Notably, its wireless unit, Bell Mobility, posted record subscriber growth. "With our financial performance this quarter we have delivered a strong start to the year, highlighted by increased earnings growth and free cash flow that doubled year over year," said chief financial officer Siim Vanaselja.
"We note that BCE benefited heavily from its marketing push in conjunction with the Olympics, and wireless remains a less significant segment than wireline [landline]" said Desjardins analyst Maher Yaghi. " "Wireline continues to exhibit an organic decline; however, BCE is undertaking investment to stem overall customer losses by focusing on [internet-protocol television] which could bring back some needed revenue growth."
Mr. Yaghi pointed out that BCE did not boost its dividend, though he believes it may in the second half of the year. Read the story
Air Canada narrows its loss
Air Canada today narrowed its first-quarter loss to $85-million or 31 cents a share from $400-million or $4 a year earlier, while revenue jumped more than 5 per cent to $2.52-billion. Chief executive officer Calin Rovinescu cited the growth in revenue and traffic, adding that "we are encouraged to see some evidence of an economic recovery and that a gradual improvement in business travel demand can be expected over the coming year." Read the story
British company raises Falkland oil hopes
A British energy company said today it may have found oil off the Falkland Islands, raising the possibility of renewed tensions between Britain and Argentina. Rockhopper Exploration PLC cited early data from a platform in the waters off the Falklands, and is now deciding its next move. "While we are presently acquiring additional data, current indications are that we have made the first oil discovery in the North Falkland Basin," managing director Samuel Moody told The Associated Press.
Britain and Argentina went to war over the Falklands in the early 1980s. Britain won that conflict, and has tensions have flared over recent exploration in the region. Britain has said it has every right to the waters, while Argentina has disputed that, and has ordered ships using its ports to get a permit.
From today's Report on Business
Sears Canada seeks currency clawback from suppliers
Canada in league of its own when it comes to risky debt