OTTAWA–Prime Minister Stephen Harper will test drive his priorities for the G8 and G20 summits this week at an elite conference in Davos, Switzerland, and he’s expected to highlight the environment, development and global economic growth.
While Canada’s official agenda for the end-of-June summits is not yet finalized, climate change will figure prominently at both meetings, a senior government official said.
Economic recovery, banking regulations, aid for mothers and children in poor countries and global security are also top of mind for the prime minister as he leaves Tuesday night for a quick three-day trip.
His speech on Thursday will be the first public unveiling of how Harper sees the two summits unfolding – starting with the Group of Eight industrialized countries meeting in Huntsville, Ont., at the end of June, and followed immediately by the larger Group of 20 summit in Toronto.
While Canada has been widely pilloried for its lack of plans to reduce greenhouse gas emissions, Ottawa wants the two summits to push the world closer to a binding international treaty on emissions reduction, based on the agreement-in-principle reached in Copenhagen last month.
"We want to see a long-term agreement on climate change," said the Canadian official, speaking on background. He stressed that final decisions will need to be made through the United Nations.
The summits, he said, "can play a supportive role online payday loans."
For the G8 summit, Harper plans to make child and maternal health a central theme, several sources said, although it was unclear whether Harper was ready to focus on that topic in his Davos speech.
Ottawa wants to foster collaboration among the richest countries to improve hospitals and health care for mothers and newborns in poor countries.
The federal government also wants to set an example by increasing its own spending on maternal and child health in developing countries – although money has not yet been allocated for this effort.
Stopping the spread of nuclear weapons and other security concerns will also be on the G8 discussion list.
For the G20, Harper will use his Davos speech to signal that the Toronto summit in June will focus on entrenching the global economic recovery.
Specifically, Harper is expected to stress that the rebound is fragile, and that the world won’t really feel like recovery has taken hold until employment rises.
He is expected to signal that he wants all G20 countries to demonstrate that they are living up to their unprecedented commitments to stimulate their economies.
Kellwood Co., a privately held apparel company based in Town and Country, announced today that it has bought ISIS, an company that focuses on women’s outdoor apparel. Terms of the deal were not disclosed.
ISIS, which is based in Vermont, sells its clothes mostly through various outdoor retailers such as REI and the Alpine Shop.
Kellwood said in a news release that it has been impressed by ISIS’ consistent growth since its founding in 1998. Kellwood hopes to double ISIS’ sales over the next four years by continuing to aggressively expand its distribution channels through more speciality dealers and through its online business.
"In an otherwise challenging retail and fashion marketplace, ISIS continues to perform well, with solid operations, a loyal customer base, and a track record of growth," Michael Kramer, president and CEO of Kellwood, said in a statement.
Option-ARMs: File under, "It sounded good at the time."
These exotic mortgages allowed homebuyers to come to closing with little cash and choose, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.
Of course, the last option is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.
But eventually, everyone has to pay the piper.
Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.
That means borrowers are about to start paying very hefty prices for their homes. In one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.
25% default rate
But that doesn’t just spell bad news for borrowers. Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report’s coauthors.
And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.
That includes all option-ARMs issued in 2007. But if you calculate default rates for only 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.
So, while there may not be an awful lot of these loans out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.
Bubble markets
And the markets where they’ll produce the most foreclosures are still among the most vulnerable in the nation.
Option ARMs were most popular in bubble markets — California, Nevada, Florida and Arizona — where double digit home annual price increases put the cost of buying a home out of reach.
In fact, 60% of these loans went to residents of California and other Western states, places where prices have fallen the most, according to report coauthor Diane Westerback. "The geography is negative for these products," she said.
Many borrowers in these places could only afford a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.
We all know how that worked out.
Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves severely underwater.
"Because borrowers of [options ARMs] are in a much worse position," said Westerback. "You’ll see defaults rising very rapidly."
And most option ARM borrowers will not be good candidates for refinancing or mortgage modifications because their loan-to-value ratios will be far too high. Under the administration’s Making Home Affordable program, for example, mortgages with balances that exceed 125% of the home’s value are not eligible for help.
Not so white lies
There is another little problem that many option-ARM borrowers seeking refinancing would face: "Upwards of 80% of were stated-income loans," said Westerback.
These are the so-called "liar loans" in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers’ income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.
Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.
Spanish producer prices fell the least in six months in October as oil prices rose.
Prices of goods leaving Spain’s factories, mines and refineries declined 4.2 percent from a year earlier, the National Statistics Institute in Madrid said today, after a 5.4 percent drop in September. Prices were unchanged from the prior month, today’s report showed.
The price of crude oil rose 14 percent in the year to the end of October and traded at $76.94 today. Weak demand is still pulling producer prices lower as the Spanish economy contracted for a sixth quarter from July through September even as Germany, France and the euro region expanded.
Spanish consumer prices have been falling in annual terms since March, as inflation slows more sharply than in the euro region overall. The Spanish economy may contract 0.7 next year, the International Monetary Fund forecast on Oct. 1, while the euro area, the U.S. and the U.K. post full-year growth.
Industrial production in Spain decreased 12.5 percent from a year earlier in September, declining for a 17th month as companies reduced staff to weather the slump. Nissan Motor Co. cut production of cars and light trucks 57 percent in September from a year earlier, compared with a global decline of 8.5 percent, it said on Oct. 28.
U.S. private equity firm Bain Capital is finalizing a roughly 100 billion yen ($1.1 billion) deal to buy Japanese telemarketer Bellsystem24 from Citigroup Inc, three sources familiar with the matter said.
It would be the largest buyout by a foreign private equity firm in Japan in nearly two years.
Bain has beaten off rivals Permira PERM.UL and a team of CVC Capital and Blackstone, which had also made offers in the final round of bidding for Bellsystem24, the sources said, speaking on condition of anonymity because the talks are not public.
Bain is working on final details and an official announcement could be made within the next few days, the sources told Reuters.
“A deal is imminent,” one of the sources said.
Bain had been tipped as the likely buyer when it secured exclusive negotiating rights earlier this month.
But the door was thought to be still open to the other bidders after the deadline for Bain’s exclusive rights passed on November 6 with no deal announced.
Talks had been ongoing with the CVC and Blackstone team after the exclusivity period ended, and that team had improved its bid, one source familiar with the move told Reuters.
Citigroup put Bellsystem24 up for sale as part of a global effort to raise cash and replenish its capital. It has already raised more than $7 billion by selling other assets in Japan including a broker, a trust bank and a fund management arm same day payday loans.
The sale of Bellsystem24 initially drew strong interest from a number of private equity firms including Kohlberg Kravis Roberts & Co KKR.UL, which teamed up with trading house Itochu Corp before dropping out of the race.
The deal will likely reach or exceed 100 billion yen, sources said, making it Japan’s largest buyout by a foreign private equity firm since March 2008, when Permira bought agrichemical company Arysta LifeScience Corp for more than $2 billion.
Bellsystem24 is Japan’s largest telemarketing firm. It competes against Moshi Moshi Hotline Inc and Transcosmos Inc in Japan.
Bellsystem24 is now owned by Citigroup Capital Partners, which was known as Nikko Principal Investments, a private equity arm of brokerage group Nikko Cordial, which was bought by Citigroup in 2007.
Nikko Principal paid 220 billion yen to buy Bellsystem24 in 2004. The sale price would be lower than the purchase price but Citigroup had made returns from the investment by restructuring the company’s debt to take some cash out, a method known as recapitalization.
Bain’s financing will be supported by banking units of Mitsubishi UFJ Financial Group Inc, Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc, according to sources familiar with matter.
Calpers, the nation’s largest public pension fund, does not face “moral hazard” despite state guarantees of pension solvency, the funds chief investment officer said on CNBC on Wednesday, in comments responding to a Reuters report.
“Does the ultimate taxpayer guarantee mean we take excessive risk? No,” California Public Employees’ Retirement System Chief Investment Officer Joseph Dear said, when asked if the prospect of a state bailout if the fund ran low on funds created incentives to take extra risk.
Public policy and financial industry experts and officials in a Reuters special report on Calpers risk management published last week argued that the California pension system’s risk management policies put taxpayers at risk and needed reforming.
“Well, all pension funds for the public sector have the nature of a public taxpayer backup for what we do,” Dear said on CNBC.
Calpers has told government agencies using the fund to manage their pensions that their contribution rates to the system are at risk of rising as a result of the fund’s losses.
Critics note the California state guarantee of Calpers is more clear than the implicit federal promise to save Wall Street banks “too big to fail” savings account payday advance. The Wall Street bank bailouts sparked widespread debates about “moral hazard”, the idea that bailouts only encourage risk taking.
Calpers recently raised its asset allocation to private equity, considered one of the riskiest areas of investment. A rise in the commitment to private equity in June to 14 percent of the fund from 10 percent looked “gigantic”, Dear said, but reflected the reality that the fund’s allocation had already passed its 10 percent target, hitting 13 percent.
“Again, if you have a long horizon and you have a reasonable return target, and you have a globally diversified portfolio, you’ll be able to make, in our case, 7.75 percent return we need,” he said.
Other financial professionals quoted in the report questioned that outlook. Laurence Fink, chief of gargantuan asset manager BlackRock told the Calpers board in July he didn’t think the fund would hit its target 7.75 percent return target. “I think it’s going to be subpar for many years,” he said, suggesting that cuts in benefits be considered.
Tough talk from the Bank of Canada briefly pulled the rug from under Canada’s rebounding currency this week, but strong commodity prices and a weak U.S. dollar mean the rant likely won’t have a lasting impact.
Last week, the Canadian dollar nearly climbed above the U.S. dollar for the first time since July 2008, something the central bank fears would endanger the economic recovery, given Canada’s reliance on exports to the United States.
Clearly anxious to contain the currency’s surge off a four-year low hit in March, the Bank of Canada on Tuesday renewed its commitment to keeping interest rates low and forecast delays in the economic turnaround.
The statement extinguished any talk that the Bank of Canada would follow Australia’s central bank in hiking interest rates quickly, and Canada’s currency fell 3.6 percent from the 14-month high it hit last week.
But the currency nudged its way higher on Wednesday, and seems set to resume its march toward parity with the greenback once the sting of the central bank statement wears off.
“This is a short-term trend reversal but it’s really not a game changer,” said Jack Spitz, managing director of foreign exchange at National Bank Financial in Toronto.
“The reaction to the statement, not surprisingly, was to bid dollar/Canada higher, but the sustainability is going to be based on ongoing fundamentals which continue to advocate for a stronger Canadian dollar over time.”
Spitz said this week’s pullback in the Canadian dollar was driven mainly by speculative accounts, which he described as sensitive to short-term volatility driven by news like the Bank of Canada statement payday loans with low fees.
The Canadian dollar has risen 17.5 percent this year, helped by lofty prices for oil and gold, economic data that hinted at a rebound, and surging equity markets.
When those factors reclaim the spotlight, many experts say the currency could climb again as investors sell the greenback and buy assets that are more closely correlated with economic recovery.
“Can we trade down to parity? Yes, we absolutely can. Are we going to stay there? I don’t think so,” said Steve Butler, director of foreign exchange trading at Scotia Capital.
“We had an upside day last Thursday which technically says we are overdue for a correction, but I just don’t think (the C$ upside) is over yet because I don’t think the pressure is off the U.S. dollar right now.”
Some experts even suggest the Canadian dollar could keep rallying until the U.S. Federal Reserve starts raising interest rates again, which it is not expected to do until the second half of 2010.
C$ NEAR UPSIDE LIMITS
But foreign investors may also opt to sell Canadian dollars and buy higher yielding growth sensitive currencies, a move that could boost to the Australian dollar and Norwegian crown and limit the upside for the Canadian currency.
General Motors Co’s bid to find an outsider to replace its chief financial officer is being complicated by pay restrictions imposed on companies that got big U.S. government bailouts, The Wall Street Journal said on Saturday.
GM executives met recently with U.S. Treasury pay czar Kenneth Feinberg and left with the understanding the automaker would be able to offer a significant amount of stock but no more than a $1 million annual salary, the newspaper said, citing people familiar with the matter.
Sources have told Reuters that GM directors in September backed a plan for CFO Ray Young to leave the company.
GM emerged from bankruptcy in July after receiving $50 billion in emergency U.S. financing.
A spokesman for GM would not comment on whether the CFO search specifically was being hindered by the pay restrictions.
“We’ve consistently said that one challenge to filling any position from outside might be the pay restrictions,” GM spokesman Tom Wilkinson said.
(Reporting by Brad Dorfman; Editing by Peter Cooney)
Last month, Missouri gambling regulators essentially put the President Casino’s license up for grabs.
Now the company that owns the casino is crying foul.
Pinnacle Entertainment has asked a state appeals court in Kansas City to overturn a ruling by the Missouri Gaming Commission that said Pinnacle must reapply for a license if it hopes to move the President or replace or repair the aging Admiral Riverboat on which it sits.
That ruling, Pinnacle argues in an appeal filed Thursday, essentially revokes the President’s license — one of just 13 allowed in the state — because it ties the casino to the Admiral, which is widely expected to fail its next Coast Guard inspection in July. Pinnacle would like the court to overturn the decision and give it time to fix the President.
It is the latest step in a long discussion over what to do with the casino, which Las Vegas-based Pinnacle bought for $45 million in 2006 as part of its development of Lumi
BlackBerry maker Research In Motion could see its share of the smartphone market eroded by competing devices like Apple’s iPhone, analysts warned on Friday as RIM’s shares plunged 15 percent in wake of a disappointing profit and outlook report.
Analysts again wondered whether RIM would be able to hold its own as it fights an increasingly intense battle for retail and corporate subscribers, even as the economy seems to be stabilizing.
Such worries first surfaced ahead of the iPhone’s launch in the summer of 2007, but RIM maintained it would be unshaken. It continued to post impressive subscriber gains and in late 2008 rolled out the touchscreen-based BlackBerry Storm, its answer to the iPhone.
Now, in wake of a profit and outlook report that fell short of expectations, analysts are again starting to doubt the Waterloo, Ontario-based company will be able to sustain its success.
“RIM is unlikely to maintain its over 50 percent share in North America in the face of increasing competition from Apple, Motorola, and Palm, among others,” Goldman Sachs analyst Simona Jankowski wrote in a note to clients.
“Even in a still-benign competitive environment and with two newly launched products, RIM lost share for the second consecutive quarter,” Jankowski added.
Goldman also cut its rating on the stock to “neutral” from “buy.”
Part of RIM’s strength in the smartphone market is its impressively sized distribution network. Retail consumers and corporate clients can buy the BlackBerry from more than 500 carriers and distribution partners in about 170 countries around the world.
But as the iPhone and other rivals expand their reach, RIM could find itself fighting for previously uncontested territory.
Canada, RIM’s home turf, is a good example. The iPhone is currently available from only one of the country’s Big Three carriers, Rogers Communications.
However, the other two big players — BCE Inc and Telus Corp — are working together on a network upgrade that could let them offer the iPhone as early as next year.
All three carriers currently offer the BlackBerry.
RIM has also historically reported strong growth outside North America, but Jankowski cautioned this could now be stalling.
“A second consecutive decline in international sales tempers our expectations for share gains overseas,” the Goldman analyst wrote.
RIM’s shares were down 15.6 percent at $70.10 on Nasdaq on Friday morning. In Toronto, the stock was down 15.4 percent at C$76.25. The company issued its latest earnings report after markets closed on Thursday.
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