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Wall Street could see 10,000 more job losses, bonus cuts Add to ...

These are stories Report on Business is following Tuesday, Oct. 11. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Wall Street to lose more jobs Wall Street can expect more job losses and shrinking bonuses, according to a new report today.

Already, says the report from New York State Comptroller Thomas DiNapoli, thousands of jobs have been lost since the beginning of 2008, and more are expected in banking and other areas of the financial services sector, so key to New York's state of mind.

"The Office of the State Comptroller (OSC) forecasts that the city could lose nearly 10,000 additional jobs by the end of 2012, which would bring total job losses in the securities industry to 32,000 since January 2008," according to the report.

"It now seems likely that profits will decline sharply from last year’s level, job losses will grow, and cash bonuses will be smaller," it adds. "Such developments would have a ripple effect through the rest of the local economy and hinder the recovery."

Slovakia last to vote All eyes are on the tiny country of Slovakia - it's a speck on the world map in central Europe - as politics play havoc with the European bailout fund and the markets in general.

Slovakia's parliament is voting today on its contribution to an enhanced rescue fund, known as the EFSF. Its portion would be about 1 per cent of the total, just shy of €8-billion, but the governing coalition hasn't been able to reach a deal, leading Prime Minister Iveta Radicova to tie it to a confidence vote.

"Yes, a country of 5.5 million could determine the fate of the EFSF this morning," said Derek Holt and Karen Cordes Woods of Scotia Capital.

All 17 governments in the euro zone must approve the plan to beef up the fund, known as the EFSF, and Slovakia's is the last to vote. The jostling there has investors somewhat nervous today.

"The rest of the day is likely to be dominated by news from Slovakia, who are the last country with European funny money to vote on the EFSF changes," said Will Hedden, sales trader at IG Index in London. "Coalition issues there threaten to hold up the euro zone’s rescue plans and stop the euro in its tracks."

Where's all of this headed? If the vote doesn't pass, another will probably be held.

"The ratification of the EFSF by Malta yesterday evening doesn’t hide the fact that vast differences remain between political leaders in Europe, not least in Slovakia where there is widespread opposition to the latest EFSF changes, though the likelihood is it could well be passed, though the price is likely to be the resignation of the Prime Minister and a general election," said CMC Markets analyst Michael Hewson.

Markets have been generally upbeat lately on signals from the monetary union that it's finally getting a grip on its debt crisis, particularly after Germany's Angela Merkel and France's Nicolas Sarkozy, who, to their credit, are taking a leadership role, promised to make everything work.

But, as always with the European debt crisis, the euphoria is not likely to last long, given the divisions among the union's leaders over many issues, including a proposal to use the bailout fund to shore up the region's banks.

"As things stand there is still no agreement on the use of the EFSF for recapitalization of banks with France in favour of using it for that purpose and Germany against such a measure," said Mr. Hewson.

"It is not hard to see why France wants to do this given how susceptible to a ratings downgrade it would become if they had to recapitalize their biggest banks, and in the process increasing their contingent liabilitie," he said in a research note. "Germany, on the other hand as the largest net contributor to the EFSF, doesn’t really want to become lender of last resort to every undercapitalised bank in Europe, which they would do if they agreed to such a measure."

Troika completes review There's so much at play here that it's hard sometimes to keep track of it all.

On another front, the debt inspectors from the European Union, the European Central Bank and the International Monetary Fund said today they've reached an agreement with Athens that will allow the next tranche in bailout money to be released.

But the picture they painted is a harsh one for Greece and its people.

"Regarding the outlook, the recession will be deeper than was anticipated in June and a recovery is now expected only from 2013 onwards," the EU, ECB and IMF said in a statement.

"There is no evidence yet of improvement in investor sentiment and the related increase in investments, in part because the reform momentum has not gained the critical mass necessary to begin transforming the investment climate. However, exports are rebounding - albeit from a low base - and a shift towards a more dynamic export sector, supported by a moderation of unit labour costs, should lead to more balanced and sustainable growth over the medium term. Inflation has come down over the last year and is expected to remain below the euro area average in the period ahead."

They said they believe that additional measures will still probably be needed. But, for now, the next €5.8-billion from the euro zone and €2.2-billion from the IMF should be available in early November once the euro zone and the IMF executive board have approved the latest review.

It's notable that the three groups, the so-called Troika, said in their statement that the money will "most likely" be available early next month. As so much in this saga, everything is "most likely" or a plan in progress. As many observers see it, officials are simply kicking the can down the road and delaying an inevitable default by Greece.

A key EU meeting, for example, was delayed by a week so the Troika could complete its review.

"The delay by a week of next week’s EU Summit until the 23rd October has been dressed up as an excuse to give the Troika more time to compile their dossier on Greece, but in reality it is probably because EU leaders are struggling to agree on a comprehensive crisis response," said CMC's Mr. Hewson.

RBC seeks to settle Dexia Royal Bank of Canada is in talks to buy out struggling Dexia from its partnership in RBC Dexia Investor Services, as the European bank looks to jettison assets and shore up capital, The Globe and Mail's Grant Robertson report.

An official with the Luxembourg government said RBC intends to use its right of first refusal to buy the remaining 50 per cent of the joint venture from Dexia’s Banque Internationale Luxembourg (BIL).

The 50-per-cent stake RBC Dexia Investor Services is among Dexia’s collection of so-called ‘good’ assets that are now being sold off to raise capital.

CPPIB in dollar store deal The Canada Pension Plan is getting into the dollar store business.

The CPP Investment Board said today it has teamed up with Ares Management LLC in a $1.6-billion (U.S.) deal for 99 Cents Only Stores (something of a misnomer given that the stock has been climbing over takeover jostling).

The two have struck a deal to pay $22 a share cash, and the family behind the outfit has agreed to it, The Globe and Mail's Tim Kiladze reports.

In March, the founding family and an L.A. firm bid $1.3-billion, but shareholders weren't keen.

Housing starts rise Residential construction in Canada picked up in September, but don't take that to the bank.

Housing starts climbed last month to a seasonally adjusted annual rate of 205,900 units, compared to 191,900 in August, Statistics Canada said today. This was driven by condo developments in Eastern Canada, Quebec and British Columbia.

However, the agency said, “multiple housing starts are expected to move back towards levels consistent with demographic fundamentals in the near term.”

And think back to last week, when Statistics Canada reported the value of building permits plunged in August by 10.4 per cent, marking the second month in a row of decline and a signal of construction intentions going forward.

"The Canadian housing market continues to get help from low interest rates," said senior economist Krishen Rangasamy of National Bank Financial.

"However, all good things eventually come to an end. We are already seeing a slow move in the real estate market towards 'buyers’ market' territory. Disposable income is flatenning out and, if as we expect the labour market also moderates, the housing market should cool further."

Headlines of note

In Personal Finance Older Canadians are nearing or entering retirement more indebted than ever before, piling on debt at a much faster pace than their younger counterparts, according to a report from TD. The Globe and Mail's Roma Luciw reports.

In Economy Lab Calling for Ottawa to ‘do something’ about job creation when hiring rates are already at pre-recession levels is puzzling, Stephen Gordon writes.

In International Business Global regulators insist the economic cost of implementing tough new rules on bank capital requirements will have only a tiny effect on global growth, Patrick Jenkins of The Financial Times reports,

In Globe Careers Is there room for one more Nobel prize, this one for management? Andrew Hill of The Financial Times examines the issue.

From today's Report on Business

Report Typo/Error
  • Royal Bank of Canada
  • Updated January 22 4:00 PM EST. Delayed by at least 15 minutes.

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