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U.S. lenders cast wary eye on parental leave Maternity and paternity leave is proving to be something of an issue for U.S. consumers looking for a mortgage. The New York Times reports today that lenders are looking more closely at people wanting mortgages, and whose incomes have taken a hit during parental leave. That includes even parents planning on returning to work within weeks, the newspaper said. "Now that lenders have become more conservative, they are requiring new parents to jump through more hoops to prove their income will be enough to cover the mortgage," it added.
Part of this dates back to new measures earlier this year. Though the major mortgage companies that buy most of the mortgages from lenders, Fannie Mae and Freddie Mac, haven't changed their qualifications, the "system of checks and balances" has become more stringent. Officials of Fannie Mae and the Federal Housing Administration said guidelines had not changed, and there's nothing preventing a mortgage approval if income is and will be stable. Brokers, though, said many lenders are looking at that "through an increasingly conservative lens."
Bank of Canada hikes rates The Bank of Canada raised its benchmark overnight rate by one-quarter of a percentage point to 0.75 per cent today but painted a somewhat gloomier outlook and cut its forecast for economic growth. Here's why the central bank did what it did this morning:
"The global economic recovery is proceeding but is not yet self-sustaining. Greater emphasis on balance sheet repair by households, banks, and governments in a number of advanced economies is expected to temper the pace of global growth relative to the bank's outlook in its April Monetary Policy Report (MPR). While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery over the projection horizon. In the United States, private demand is picking up but remains uneven."
The central bank said economic activity is unfolding largely as it expected, driven by the government and consumer spending. But, it said, the housing sector is "declining markedly from high levels," and business investment is being held back.
- Carney hikes rates, but cuts outlook
- Rob Carrick: Control your debts, central bank says
- Earlier discussion: Analysis and reaction
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What troubles David Rosenberg David Rosenberg, the chief economist of Gluskin Sheff + Associates, issued another stern warning today on government debt levels. Mr. Rosenberg noted that debt-to-GDP ratios of 80 per cent or more are "a new dynamic and a game changer" in Europe and the U.S. For all the countries in the OECD, he added in a research note, general government debt as a share of GDP will hit a record 104 per cent next year, compared to 73 per cent when the U.S. recession began.
"The bottom line is that all levels of society, and across most countries in the industrialized world, have far too much debt and far too much debt-servicing costs in relation to income," he wrote. "... The problem of excessive debt leverage got worse in the aftermath of the financial crisis, not better. This is what keeps me up at night - kicking the can down the road in terms of addressing the global debt problem will only end up making the situation worse. Governments seem to believe that the solution to a debt deleveraging cycle is to create even more debt. But delaying the inevitable process of mean-reverting debt and debt-service ratios back to historical norms will be even more painful."
Goldman Sachs earnings plunge Goldman Sachs Group Inc. today cited a "more difficult" market climate as it posted an 82-per-cent drop in second-quarter profit. The Wall Street giant, stung by Britain's tax on bank bonuses and the cost of its recent settlement with the Securities and Exchange Commission, earned $613-million (U.S.) or 78 cents a share, down from $3.4-billion or $4.93. "The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined," chief executive officer Lloyd Blankfein said in a statement.
Michael Farr of Farr, Miller & Washington LLC told Bloomberg News before the earnings were released that "the clouds over the financial industry remain thick."
The Goldman results, falling shy on revenue, sent U.S. stock futures down even further than they already were.
Before the earnings release, BMO Nesbitt Burns noted some alarm bells in the financial services sector: "Investors will eye Wells Fargo's results closely on Wednesday. A number of banks have already reported a reduction in loan loss provisions, suggesting U.S. household finances are slowly improving, but the revenue outlook remains worrisome. Credit Suisse's results are worth watching on Thursday (one day before the European bank stress-test results are published), as Europe's slow-mo recovery continues to undermine bank earnings on the continent."
One of the more interesting bits in the Goldman results was that Britain's tax on bank bonuses cost the bank some $600-million. Excluding the cost of the tax and costs associated with the SEC settlement, profit was $2.75 a share.
Air Canada shares surge Shares of Air Canada surged today after the airline announced plans to refinance $900-million (U.S.) of debt and provided a better-than-expected outlook. The Montreal-based carrier said it plans a private offering of $900-million in senior secured notes due in 2015, and will use the proceeds to repay all its secured term $700-million credit facility from last July. It also expects its system capacity for the year to increase by between 6 and 7.5 per cent rather than the previously projected 4 to 6 per cent unveiled in its first-quarter release.
U.S. housing sinks The U.S. housing construction market continues to slump, prompting economists to warn of a threatened "double dip" in the sector unless job prospects in the United States improve quickly. The U.S. Commerce Department said today that housing starts fell 5 per cent in June to their lowest since October. Part of this is due to the expiry of a government tax incentive. Starts are now down 19 per cent since the credit expired in April, and sit almost 6 per cent below where they were a year ago. "Despite record low mortgage rates, housing it at risk of a double dip unless job growth strengthens soon," said BMO Nesbitt Burns senior economist Sal Guatieri.
Paul Dales, U.S. economist for Capital Economics in Toronto, said, however, that a 2.1 per cent monthly increase in building permits in June, which point ahead, mark the first rise in three months and suggest housing starts may have bottomed out. "Nonetheless, with high unemployment and tight credit likely to keep demand subdued and more foreclosures set to add to the already high number of unsold homes, homebuilding activity is going to remain weak for a long time," he said.
Bombardier strikes deals at air show Bombardier Inc. today struck several deals for business jets valued at more than $700-million (U.S.). The Montreal-based aerospace company made the announcement today, The Globe and Mail's Greg Keenan reports from the Farnborough International Air Show. The largest deal is with VistaJet, which ordered four Global Express and two Challenger aircraft. Steve Ridolfi, president of Bombardier's business aircraft unit, said the past couple of years have been tough in that sector but the market is beginning to strengthen.
Montreal port dispute heads for mediation The labour dispute between the Port of Montreal and its longshoremen is headed to a federal mediator. The Maritime Employers Association, which represents shippers and other groups at the port, and the union representing some 900 longshoremen, will meet with a mediator Thursday and Friday. The employers locked out the union yesterday morning.
Oil sands companies winners in U.S. restrictions Companies operating in Alberta's oil sands are doing well by investors in the wake of the ban on new drilling in the Gulf of Mexico. Suncor Energy Inc. and Canadian Natural Resources Ltd. , in particular, stand out as big winners, Bloomberg News reports today. Canadian energy stocks, it says, now have the highest premium since 2005, as the TSX energy index trades for 32.1 times reported profit from the past year. "It's going to be many months before people figure that offshore drilling in the U.S. is going to be something you can take a bet on," Donald Coxe, an adviser to BMO Nesbitt Burns, told the news agency. "For those looking for resources, the oil sands are the best place to go in North America."
From today's Report on Business
- Conrad Black granted bail
- China now world's top consumer of energy
- Onex, CPPIB deal fuels U.K. debate
- How a hot cocoa play left trader holding the bag
- Canadian companies spending big on share buybacks
And, read our Streetwise blog and Your Business section