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(Michael DeLeon/iStockphoto)
(Michael DeLeon/iStockphoto)

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New take on household debt: Families have 'big cushion' Add to ...

These are stories Report on Business is following Tuesday, March 20, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Fresh take on debt Amid all the fretting over swollen consumer debt comes a different angle from the deputy chief economist at BMO Nesbitt Burns.

Douglas Porter isn't suggesting Canadians load up even more with cheap money, but he does note today that along with household debt, net worth is also climbing.

Just by way of catching up, Canada's debt-to-income ratio is high, and, according to Toronto-Dominion Bank yesterday, set to rise even more to about 160 per cent, the point at which American and British families ran into trouble. As well, Canada's banking regulator is looking at new rules to ensure banks know everything they can about a borrower before approving a mortgage, The Globe and Mail's Tara Perkins and Grant Robertson report.

This comes amid repeated warnings from policy makers that Canadians should get their finances in order before the inevitable rise in emergy-low interest rates.

There is, noted Mr. Porter, something to keep in mind here.

"We have often made the point that much of this debt is being channeled into the purchase of assets, so net worth is still rising - it now stands at a towering 596 per cent of disposable income," he said.

"The most frequent comeback is that the value of assets can come and go (see U.S. housing), but debt 'endures.' But even comparing financial assets to household debt still shows Canadian households overall have a big cushion."

At the end of last year, financial assets in Canada were worth $4.3-trillion, or more than 400 per cent of disposable income, he added.

"That ratio is in line with the 10- and 15-year average, even after a down year for the TSX," Mr. Porter said. "Subtracting household debt leaves a net financial asset ratio to income of 255 per cent."

Glencore strikes Viterra deal Glencore International PLC has unveiled its not-that-long-awaited deal for Canada's Viterra's Inc. , a $6.1-billion takeover that would break up the company with parts going to Agrium Inc. and the Richardson family.

Glencore is offering $16.25 a share for Viterra, and has promised to headquarter its North American agriculture business in Regina, Saskatchewan, the company's home base, in a bid to ease concerns over the proposed takeover.

"The acquisition of Viterra reflects our strong belief in the importance and future potential of the Canadian and Australian grain markets," said Chris Mahoney, Glencore's director of agricultural products.

Glencore, already in a merger deal with Xstrata, isn't swallowing Viterra whole. It announced plans to sell the bulk of Viterra's retail business to Agrium and an almost one-quarter stake in its grainhandling assets to Richardson International for some $800-million.

Glencore also made a bid for the hearts and minds of Canada's farmers amid the proposed sale of the agribusiness and grainhandling giant.

"Glencore is confident the acquisition of Viterra will deliver significant overall benefits to grain farmers," it said.

"The transaction will give farmers access to Glencore's unparalleled global distribution channels and increase their ability to export their product into international grain and oilseeds markets. Glencore's global reach and expertise will provide farmers with strong protection from market volatility, more options to market their grain and oilseeds and more competitive pricing resulting from Glencore's wider markets access and its more consistent demand for grains and oilseeds."

Breaking up Viterra will likely ease regulatory concerns, particularly after the deregulation of the Canadian Wheat Board, which gives the company a leg up.

Today's deal, which includes a break fee for Glencore of $185-million, is huge for Agrium, as well.

The potash giant said it's paying about $1.2-billion, plus working capital, for 90 per cent of Viterra's Canadian retail outlets and the entire retail business in Australia. Agrium already has more than 1,200 outlets in Canada, Australia, the United States and other countries.

Markets slip Concerns over China's economy are on the minds of investors again today.

The mood was soured by a decision in China to raise gas prices again, and by comments from Ian Ashby, the chief of BHP Billiton's iron ore unit, who told reporters in Australia that demand for ore is waning.

"It may be the first day of spring but global financial markets aren’t blooming this morning," said senior economist Jennifer Lee of BMO Nesbitt Burns.

"Effective today, fuel prices in China were raised between 6 per cent to 7 per cent," she added in a research note.

"This is not only the second such move in five weeks, but it is the largest price hike since June 2009 and affects gasoline and diesel."

How do things look?

"The S&P 500 has rallied for 92 days since mid-December with only a 1.2-per-cent correction, suggesting a pause as it approaches our yearend target of 1420," said Ed Solbach of Desjardins.

"While bond yields have also rallied 56 basis points, we note that deeper corrections in the past occurred at much higher yields, when bonds were relatively cheaper. The TSX has lagged the S&P 500 by 13.3 per cent since mid-December, by far the worst relative performance in 10 years."

IATA cuts outlook The industry body for the world's airlines has cut its forecast for profits this year, largely because of higher fuel costs.

The International Air Transport Association said today it now expects airlines to earn $3-billion (U.S.) collectively, down by $500-million.

"2012 continues to be a challenging year for airlines," the group's chief executive officer, Tony Tyler, said in a statement. "The risk of a worsening euro zone crisis has been replaced by an equally toxic risk - rising oil prices."

It could have been worse, IATA said, but for "the avoidance of a significant worsening" of the euro debt crisis, a pickup in the U.S. economy, and more stability in the cargo market.

Canada to speed up approvals The Canadian government has been complaining about the length of time it takes to approve energy projects.

Now, according to Bloomberg News, the Harper government plans to act to speed up environmental approvals.

Finance Minister Jim Flaherty will include fresh measures in his budget next week, the news agency said, citing a source familiar with his plans.

Bloomberg didn't specify what those measures could include, and Mr. Flaherty's department isn't commenting.

The move comes amid controversy over two proposed pipelines, including the Keystone XL line by TransCanada Corp. .

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  • Updated January 19 4:00 PM EST. Delayed by at least 15 minutes.

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