Staying CurrentStaying Current
Canadian economy may see turn of fortunes in second half of 2013
OTTAWA — If there is going to be a significant and extended recovery in the global economy, it will need to continue forming in the second half of this year and solidify in 2014.
Economists are recasting their forecasts upward for Canada and other countries after disappointing performances in 2012. Those turns of fortune hinge on a less crisis-challenged Europe and — critically — growing economic momentum in the United States.
“Momentum will pick up in the second half of this year, as the global economy regains confidence on the back of a stronger, more reassuring U.S. recovery,” TD Economics said Tuesday in its quarterly forecast.
That optimism should translate into relatively steady 1.7% growth in Canada this year — compared to a 1.8% advance in 2012 — and followed by a pickup of 2.5% in 2014, it said.
“The Canadian economy is making reassuring progress after last year’s growth slump,” TD said in its report, prepared by chief economist Craig Alexander and his team. “We have seen increased evidence of a soft landing in Canada’s housing market alongside a nascent rotation of growth drivers towards exports.”
TD’s outlook is “characterized by continued moderate growth, an export-driven acceleration next year, and a domestic economy that chugs along at a more modest pace.”
RelatedEven more optimistic, RBC Economics is calling for 1.9% growth this year and 2.9% in 2014.
“The first quarter of 2013 saw a marked turnaround in the domestic economy, with Canada realizing a solid 2.5% annualized gain, supported by a sharp turnaround in net trade, which added 1.4 percentage points to the quarterly growth rate — the largest contribution since mid-2011,” the bank said in a report to be released Wednesday.
“The improving trade balance underpins our forecast for Canada’s economy to grow at rates which should help propel the economy to full capacity in early 2015,” said RBC chief economist Craig Wright. “Stronger demand for autos, houses and industrial machinery from the U.S. will help sustain the lift in export growth that Canada experienced so far this year for the remainder of 2013.”
For the most part, the TD and RBC growth estimates are an improvement on previous Finance Department forecasts, which are based on a consensus of private sector economists. In its March 21 federal budget, the government had projected 1.6% growth this year and matching TD’s outlook for 2.5% in 2014.
“Businesses reduced the pace of investment in structures and capital goods in recent quarters, likely a reflection of the uncertainties surrounding the effect of U.S. government’s fiscal restraint on U.S. demand for Canadian goods,” RBC said in its report.
“Easy financial conditions in Canada, coupled with indications that the U.S. will clear the fiscal cuts in good stead, will support a rebound in business spending in the quarters ahead,” it said.
“Company balance sheets are healthy — business financing made headway in early 2013 and will continue to provide Canadian firms with the capacity to invest at an accelerating rate in 2014,” said RBC’s Mr. Wright. “After rising an expected 3.7% this year, business spending will strengthen to 7.3% in 2014.”
The global economy was soft at the start of 2013, but TD expects growth of 2.9% this year and 3.6% in 2014.
“Tail risks to the outlook have diminished. The main contributor to this has been the European Central Bank, which managed to allay fears of a eurozone implosion, by designing a program of sovereign bond markets intervention, which, thus far, remains untested. However, this does not mean that risks in the eurozone crisis are dead and buried,” TD said.
The U.S., meanwhile, should expand by 1.9% in 2013 and 2.8% next year.
“Policy choices — both fiscal and monetary — will have a decisive influence on the economic outlook.”
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Fewer Canadian businesses forecasting more losses: Conference Board
OTTAWA — Many Canadian businesses are still struggling to turn a profit, although fewer are forecasting more losses, according to the Conference Board of Canada.
The Ottawa-based think-tank said Tuesday its profitability index rose by 0.1 points in May — the smallest increase in nine months.
The board said profit increases, while meager, are being supported by “stronger performances in the services industries, rising consumer spending, and higher commodity prices — specifically, oil, natural gas, and agricultural products.”
However, it said the profit outlook “has yet to turn decidedly positive.”
The economy grew at an annual pace of 2.5% in the first quarter of 2013, “which offers hope for modest growth in corporate profits in the next six months.”
The Conference Board said first-quarter growth came mainly from increased output in oil and gas extraction, which is fueling demand for professional services that re needed in planning and development. The arts and entertainment industry also lifted the Q1 performance.
But growth in consumer spending between January and March was the slowest since the recession, theboard said.
“The weakness is apparent in the profitability outlook for different segments of the retail sector.”
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Scotia ‘failed to comply with trading supervision obligations’: IIROC settlement
Scotia Capital Inc., the capital markets division of Bank of Nova Scotia, has agreed to pay a fine of $150,000 to settle allegations it failed to implement policies and procedures to prevent and detect potential wash trades and artificial pricing transactions related to high closing.
Scotia “admitted that it failed to comply with its trading supervision obligations,” according to a notice released Tuesday by the Investment Industry Regulatory Organization of Canada.
The allegations related to discount brokerage E*Trade, later branded Scotia iTRADE, during the period between June of 2009 and November of 2011.
Scotia also agreed to pay $10,000 in costs.
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Facebook says it has one million advertisers
Facebook Inc. has revealed that one million advertisers are now actively advertising on the world’s largest social network – the first time it has made such data on its advertisers public.
The Menlo Park, Calif.-based company attributes this growth, not to big brands and marketers who have been using the Facebook platform to advertise for years, but to small, local businesses that have turned to Facebook more recently as a way of reaching an increasingly connected and digitally savvy clientele.
Facebook, which now boasts 1.1 billion users, considers an active advertiser to be anyone who has advertised with the social network in the past 28 days.
Related“We provide all businesses an authentic voice at a scale that has never before been available,” said Carolyn Everson, Facebook’s vice president of global marketing solutions. ”The work being developed on Facebook is personal, the results are real, and the impact is powerful.”
Approximately 70% of Facebook’s monthly active users in the U.S. and Canada have connections, or Likes, to a local business on Facebook. In the U.S., there are more than 2 billion connections with local businesses.
According to Facebook, the Promoted Posts ad unit has “probably” been the most popular, with more than 7.5 million posts promoted since June 2012. Ten million Page owners are also managing their Pages using Facebook’s Mobile Pages Manager app, which is double the number of users in January 2013.
Analysts expressed optimism last week that demand for Facebook advertising would only continue to increase, particularly with the introduction of video advertising units which, after reportedly being delayed, are now rumoured for release this fall.
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Behind Valeant’s US$1.75-billion common shares offering
At regular intervals, a transaction comes along that shows no matter how often reference is made to the North American capital markets, the reality is there are two: theirs and ours.
A planned US$1.75-billion offering of common shares by Valeant Pharmaceuticals International, a Canadian-headquartered company whose shares are listed on both the TSX and the NYSE, is the latest example that illustrates those differences.
Valeant which emerged from the former Biovail, needs to raise cash to help finance the acquisition of Bausch + Lamb, a US$8.7-billion purchase. Valeant plans “to effect debt financing transactions” of about $7.5-billion. Goldman Sachs is playing the key — and only — role in all the debt and equity financings.
RelatedBut rather than sell subscription receipts, the details of which typically are announced at the time of the acquisition and which tend to be the norm for large scale acquisitions, Valeant is selling common shares.
And, unlike subscription receipts, if Valeant’s purchase of B+L doesn’t close then “the proceeds from the offering of the offered shares will not be returned to investors but rather will be used for the company’s general corporate purposes.” The norm is for investors to receive their capital back if the acquisition doesn’t close
So why go this route?
We called Valeant seeking an explanation but calls were not returned by press time.
But other market sources speculated the decision to sell common shares and keep them outstanding (if the acquisition doesn’t close) could have been motivated by three factors:
- Valeant’s shareholder base. Valeant, while nominally Canadian, has increasingly become a U.S. company. Indeed, about three times as many shares trade each day on the NYSE than on the TSX.
- The securities being offered. U.S. investors, who are expected to purchase the bulk of the US$1.75 billion of shares, are unfamiliar with subscription receipts.
- The view of the two key stock exchanges. The NYSE, doesn’t list subscription receipts. The opposite applies in Canada: the local investors are very familiar with subscription receipts and they are regularly listed on the TSX while the underlying acquisition is working its way through the regulatory approval process. Once that closes then investors exchange their subscription receipts for regular common shares.
* * *
The route taken by Valeant in 2013 in opting to issue common shares and not subscription receipts favors U.S. investors. In the past, other Canadian issuers have opted to issue securities that favor Canadian investors. For instance, a decade or so back, partly paid shares – also known as installment receipts – were popular in the Canadian market – but not in the U.S., in part because they couldn’t be listed.
In those situations, an investor would normally advance half the money up front (receive a full dividend) and one year later would fund the other half. At the time of financing the back half, the investor would receive a common share. Unless the investor made the second installment payment, then they would not receive a common share.
* * *
In opting to raise equity a few weeks after the B&L acquisition was announced, Valeant is following the lead set by Canadian-based Fortis Inc. In February 2012, Fortis announced the US$1.5-billion acquisition of New York-based CH Energy Group, Inc. In June 2012, it closed a $601-million offering of common shares; last month it requested a meeting (to be held Thursday) to extend the deadline for expiry of the subscription receipts; one week back that acquisition received New York state regulatory approval.
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Ottawa ups liability for offshore oil spills in Arctic, Atlantic waters to $1-billion
CALGARY • Ottawa is boosting the liability cap on oil companies with plans to drill in Atlantic and Arctic waters as it looks to rekindle interest in Canada’s offshore.
In changes announced Tuesday, Natural Resources Minister Joe Oliver said companies operating in the Atlantic would be on the hook for a maximum of $1-billion in the event of a spill, up from $30-million previously. Arctic drillers, who face high costs and harsh operating conditions in the Canadian Beaufort Sea, would also be responsible for a $1-billion liability limit, up from $40-million under existing rules.
The changes come amid renewed interest from companies such as BP Plc, Royal Dutch Shell Plc, Imperial Oil Ltd. and the Canadian unit of Chevron Corp. in tapping offshore Atlantic and Arctic crude, and with new seismic work uncovering three large but highly prospective oil fields in the Labrador Sea.
“There still will be unlimited liability in the event the operator is negligent or at fault,” Mr. Oliver said in an interview from Halifax where he made the announcement. “But we need to have a larger absolute amount so that there is no issue about responsibility.”
What to do — and who pays — in the event of a disaster has emerged as a major issue as companies step up offshore exploration efforts in the Beaufort Sea and in the Atlantic Ocean. Similar concerns have also dogged plans to connect growing oil sands production in Alberta to Canada’s West Coast by pipeline.
RelatedEnbridge Inc., which is making the final case for its controversial Northern Gateway pipeline this week in Terrace, B.C., has balked at conditions that would compel the company to set aside nearly $1-billion in liability coverage.
One of nearly 200 conditions proposed by the three-member Joint Review Panel assessing the $6.6-billion project compels the Calgary-based pipeline giant to have total coverage of $950-million for costs and liabilities associated with a potential rupture, including $100-million on hand within 10 days of an incident.
Enbridge has rejected the condition, suggesting instead an industry-bankrolled spill fund.
The company estimates the maximum cost of a land-based oil spill in the rugged B.C. interior at roughly $200 million. It plans to obtain at least $250-million in third-party liability insurance for the project, it said in final written submissions to the review panel.
Current liability limits for ship-source oil spills, including oil tankers, top out at roughly $1.3-billion.
John Carruthers, president of the Northern Gateway project, said the worst pipeline spill in Canada cost $70-million to clean up, while his own company, Enbridge, spent more than $800-million to clean up its spill in Michigan in 2010, where costs tend to be higher.
Tuesday’s changes deal only with offshore activity, which is poised to accelerate as companies begin assessing prospective new fields on the East and Arctic coasts.
BP last year spent $1.05-billion on four exploration blocks offshore Nova Scotia. Exxon Mobil Corp. is moving ahead with its $14-billion Hebron development offshore Newfoundland and Labrador. The company is also hunting for oil in the Canadian Beaufort Sea through subsidiary Imperial Oil Ltd.
Imperial spokesman Pius Rolheiser said it’s too early to comment on the new liability limits.
“No business investment decisions have been made to drill a well” in the Beaufort, he said in an emailed message, adding the company was still assessing the “financial, operational and regulatory complexities” stemming from a sweeping review of Arctic drilling conducted by Canada’s National Energy Board in the wake of BP’s Macodo blowout in the Gulf of Mexico.
Under the new rules, companies must now provide a deposit of $100-million or a “pooled” fund of $250-million that regulators can access immediately in the event of a spill.
The amount pales in comparison to the $42-billion allocated by BP to cover cleanup, fines and other costs associated with the Deepwater Horizon tragedy.
The changes are “a step in the right direction, but certainly this is not best practice in comparison to other parts of the world,” said Shauna Morgan, an analyst with the Pembina Institute based in Yellowknife, N.W.T.
Norway, she noted, has unlimited absolute liability in which companies are required to pay for all cleanup costs in the event of a spill.
“Canada is at least moving in the right direction but we’re not at a point yet where we can say that we’re following best practices or a world leader in offshore liability issues,” she said.
With files from Claudia Cattaneo
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Even if approved, Keystone seen failing to relieve Canada’s oil glut
Even if U.S. President Barack Obama approves the Keystone XL pipeline, Canadian crude oil probably will remain the cheapest in the world, hampering expansion of the country’s largest export industry.
Canadian oil prices are forecast to fall compared with world benchmarks because production from oil sands, fields of sand coated with heavy oil beneath about 90,000 square kilometers (34,749 square miles) of boreal forest in northern Alberta, is estimated to more than double to 3.8 million barrels a day by 2022. Keystone, the 1,179-mile link from Alberta to Nebraska first proposed in 2008 and delayed in part by environmental activists, would only briefly relieve the glut.
“Keystone will help alleviate the lack of pipeline infrastructure but only temporarily,” David Bouckhout, a senior commodity strategist at TD Securities in Calgary, the securities unit of Canada’s second-largest bank, said in a telephone interview. “Growth of supply on both sides of the border, Bakken and Canadian supply, will outpace what Keystone’s capacity will provide in likely two to three years.”
Keystone will help alleviate the lack of pipeline infrastructure but only temporarily
The prospect of prices staying below other types of crude oil risks undermining investment in the Alberta oil sands, the world’s third-largest reserves and the U.S.’s biggest source of imports. Companies from Exxon Mobil Corp. to Canadian Natural Resources Ltd. lost a combined $2.5 billion in revenue last year on lower prices, according to Houston-based PPHB Securities LP. Oil-sands investment fell 10% last year to US$20.4 billion, Alberta’s Energy Resources Conservation Board said.
Supply Glut
Canada refined about 1 million barrels a day of its crude output last year, leaving 2.3 million to be exported. Domestic demand will grow by 346,000 barrels a day by 2020 if Canadian regulators approve pipelines to the country’s eastern provinces, while production will grow by 1.6 million over the same period, according to a June 5 forecast by the Canadian Association of Petroleum Producers. That means at least 1.3 million barrels of extra production will need to move out of the country by then.
The four existing routes from Alberta to the U.S. West and Midwest have a combined capacity of 3.7 million barrels a day, more than the 3.2 million barrels a day Canada produced last year, of which 55% was from the oil sands. Some of the lines carry extra supplies from North Dakota, which pumped 663,000 barrels a day in 2012, Energy Information Administration data show.
RelatedAdditional Supply
In addition, about 799,000 barrels a day of North Dakota and Canadian output is due to come online in 2013 and 2014, according to CAPP and the U.S. Energy Information Administration, sopping up almost all of the 830,000-barrel-a- day capacity that Keystone would add if it starts up as proposed in 2015.
“Once we get Keystone in place, that will not be the answer,” Greg Stringham, CAPP’s vice president of oil sands and markets, said in a June 5 interview from Calgary. “It may hold us off for a couple of years, but it’s clearly not going to be the long-term answer.”
Western Canadian Select, or WCS, swaps for 2019 were priced at US$61.81 a barrel, or US$19.93 below similarly-dated West Texas Intermediate, the U.S. benchmark grade, at 2 p.m. today, according to the Bloomberg Fair Value Index. Mars Blend, a medium-density, high-sulfur crude produced in the U.S. Gulf of Mexico, was at US$83.63 a barrel. Dubai crude, the benchmark Asian grade, was valued at US$86.49.
Handout/Canadian Oil Sands Ltd.Total Canadian production is forecast to grow more than 50% to 4.9 million barrels a day by 2020, while U.S. output expands 37% to 11.1 million barrels, the International Energy Agency said in its World Energy Outlook in November.Output Growth
Total Canadian production is forecast to grow more than 50% to 4.9 million barrels a day by 2020, while U.S. output expands 37% to 11.1 million barrels, the International Energy Agency said in its World Energy Outlook in November. Canadian output jumped 38% over the past 10 years, according to the National Energy Board, the federal energy regulator.
Canada’s export capacity will have to double to more than 8 million barrels a day by 2030 should production expand at the rate predicted by CAPP. Even if all the current pipeline projects are approved, additional capacity of more than 1 million barrels a day will be needed from 2025.
“That’s really just 13 years from now, and in pipeline years that’s not a long time,” Stringham said.
The US$5.3 billion project, connecting Hardisty, Alberta, with Steele City, Nebraska, was rejected by Obama in early 2012 because it was to be laid across the environmentally protected Sand Hills Grassland and Ogallala Aquifer areas. The president expects to make a decision on the re-routed line, now to run about 100 miles to the east of the Sand Hills, sometime this year, North Dakota Senator John Hoeven, a Republican, said after meeting the president in March.
Environmental Concerns
Environmental groups say the line shouldn’t be built because of the risk of spills and because it would increase pollution by encouraging development of the oil sands, from which is extracted bitumen, a thick, tar-like form of oil that flows like cold molasses at room temperature.
Emissions from the production and use of the sands are 8% to 37% higher than from oil, according to the Calgary-based Pembina Institute, a non-profit environmental research and advocacy group.
TransCanada Corp., the builder of the line, aims to complete a US$2.3 billion southern pipeline between Cushing, Oklahoma, and Nederland, Texas later this year that would take oil delivered on Keystone XL to refineries on the Gulf Coast.
DON EMMERT/AFP/Getty ImagesEnvironmental groups say the line shouldn’t be built because of the risk of spills and because it would increase pollution.Lacking Capacity
“We are out of pipeline capacity right now,” Peter Howard, chief executive officer of the Canadian Energy Research Institute, a non-profit energy economics and environment research group in Calgary, said yesterday by telephone. If Keystone is delayed further, “the political fallout from that is going to sour the relationship between Canada and the U.S. for sure.”
Canada is increasingly reliant on revenue from oil. Energy products were the country’s fastest-growing export over the past 20 years, rising to 23.2% of all shipments, from 9% in 1993, data from Statistics Canada show.
WCS dipped to a record discount of US$42.50 a barrel to WTI in December as pipelines reached capacity. The grade recovered this month as maintenance at oil-sands upgraders reduced production and as BP Plc prepared to start the largest crude unit at the Whiting, Indiana, refinery, after converting it to process mostly heavy Canadian oil. August WCS was US$17.25 below WTI at 1:54 p.m. today New York time. It has traded at an average US$22.29 a barrel discount from 2012, compared with US$13.69 in the previous three years, according to data compiled by Bloomberg.
Hurting Revenue
Alberta’s government said it will run a deficit in the coming fiscal year as it collects $6 billion less revenue than it expected, forcing cuts in services and the use of reserves from a provincial wealth fund. Steve Laut, president of Calgary-based Canadian Natural Resources Ltd., cited the price decline as a reason for a drop in first-quarter cash flow on a May 3 conference call.
We are out of pipeline capacity right now
“The resulting uptick in heavy and upgraded light oil supply is overwhelming local refining demand and pipeline takeaway capacity,” analysts at Goldman Sachs Group Inc. led by Arjun Murti in New York said in a note to clients June 2. WCS will average US$27 less than WTI next year and US$41 a barrel cheaper in 2015 if Keystone is delayed or the bottleneck worsens, the analysts said.
A decision blocking Keystone would reduce spending on oil-sands projects by about US$9.4 billion between 2014 and 2017, Dan MacDonald, an RBC Capital Markets analyst, wrote in a note to clients May 27.
Overwhelm Demand
North America’s growing supply of shale and oil-sands crude will overwhelm demand unless it’s exported, according to Jackie Forrest, the senior director of global oil research in Calgary at IHS CERA, an energy markets research firm based in Englewood, Colorado. The U.S. will be able to consume as much as 5 million barrels of its neighbor’s crude, she said.
“Sometime between 2020 and 2030, the Canadian oil sands will need other markets than the U.S.,” Forrest said. “Even then the vast majority of supply can fit into the U.S. market, because the refineries on the Gulf Coast and potentially California are so well fitted to process that heavy crude.”
Additional routes are under consideration. TransCanada is studying the conversion of a line from gas to oil that would transport as much as 1 million barrels a day of light oil to refineries in eastern Canada. Enbridge Inc.’s Northern Gateway line would bring as much as 525,000 barrels a day of heavy oil to Kitimat, British Columbia, for overseas shipment as soon as 2017. Kinder Morgan Energy Partners LP plans to almost triple the size of its Trans Mountain pipeline from near Edmonton, Alberta, to Vancouver to 890,000 barrels a day, by 2017.
“Even with Keystone XL there has to be some other method of getting oil out of Canada” if Keystone is rejected, Michael Formuziewich, who helps manage $2.2 billion at Leon Frazer and Associates Inc. in Toronto, said in a June 4 phone interview.
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Orbite strikes deal to sell alumina to Glencore
Emerging alumina company Orbite Aluminae Inc. has secured a top-notch customer for its product. Now it hopes that same customer will provide much-needed capital for its proposed processing plant in Quebec.
Montreal-based Orbite announced on Tuesday that commodity giant Glencore Xstrata PLC agreed to buy 100% of its alumina production from the Quebec plant for an initial period of 10 years.
Glencore is a dominant player in the business, controlling close to 40% of the alumina market and almost a quarter of the aluminum market. Its endorsement is thus a major positive for Orbite, which says it has developed an innovative, low-cost technology to extract alumina from clay (which can then be used to produce aluminum).
Related“I don’t have to go through Glencore’s pedigree in terms of their presence in the mining industry,” Orbite chief operating officer Glenn Kelly said in an interview.
“For us, it’s great recognition that we could be a game changer in the alumina business, and definitely a low-cost producer of alumina.”
Investors were also pleased, as Orbite’s long-suffering stock jumped as much as 31% on Tuesday.
“Glencore recognizes that Orbite could become a low-cost producer of alumina, disrupting the market by selling alumina at depressed prices to the world’s largest alumina-consuming region [i.e. Quebec],” Euro Pacific Capital analyst Luisa Moreno wrote in a note to clients.
The key for Orbite is it needs to raise between US$600-million and US$700-million to build the processing plant in Cap-Chat, Que. Orbite is a junior miner with less than $20-million of cash at the end of March, so it is crucial that the company bring in a deep-pocketed partner to finance the plant.
Orbite is hopeful that Glencore will fill that role. The two sides plan to start negotiations on a potential partnership that would make the mining giant a co-owner and operator of the facility. There is no guarantee a deal will be struck with Glencore and Orbite is looking at other potential partners. (Russia’s UC Rusal is also interested in Orbite’s technology). Mr. Kelly said he is “quite confident” a partner will be secured, probably in 2014.
Orbite needed some good news, as its stock price has been crushed this year amid weak metal prices and execution problems at its alumina facility. The company has also faced high-profile criticism from analyst Jon Hykawy of Byron Capital Markets, who raised doubts that Orbite’s proposed processing plant is economically viable.
Last month, the company brought in Mr. Kelly, a veteran engineer, to deal with its execution problems as it tries to transition from a technology developer to a project builder and operator.
“They’re different skillsets. And I believe that the new additions to the company, including myself, bring that [project management] skillset,” Mr. Kelly said.
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Cenovus to triple amount of crude moved by rail by end of next year
CALGARY — Cenovus Energy Inc. is looking to triple the amount of crude it ships by rail between the end of this year and next.
The Calgary-based oil company is expecting to finish 2014 by moving 30,000 barrels by rail — up from the 10,000 it’s anticipating by the end of 2013.
As part of the strategy, Cenovus has signed multi-year leases for 800 railcars.
Of those, 500 will be equipped with heated coils so that they can carry thick oilsands bitumen.
Cenovus and many of its peers are looking at rail as an alternative to get their oil to the most lucrative markets, as environmental opposition has led to delays in building pipeline projects such as Keystone XL and Northern Gateway.
CEO Brian Ferguson says trains have been carrying materials much more hazardous than oil through North America for decades, so he doubts there will be much public outcry to increasing crude transport by rail.
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Walmart Canada accepted clothing shipments from banned Bangladesh factory
The following article is from ProPublica.
Since the Rana Plaza building collapse killed more than 1,100 people in April, retailers have faced mounting pressure to improve safety at Bangladesh garment factories and to sever ties with manufacturers that don’t measure up.
The world’s largest retailer, Walmart, last month released a list of more than 200 factories it said it had barred from producing its merchandise because of serious or repeated safety problems, labor violations or unauthorized subcontracting.
But at least two of the factories on the list have continued to send massive shipments of sports bras and girls’ dresses to Walmart stores in recent months, according to interviews and U.S. customs records.
In June 2011, Walmart said, it banned the Bangladeshi garment factory Mars Apparels from producing goods for the retail giant. But over the last year, Mars has repeatedly shipped tons of sports bras to Walmart, according to U.S. customs records and Mars owners. The most recent shipment was in late May, almost two years after Walmart claims it stopped doing business with the Bangladeshi firm.
A second Bangladeshi clothing maker, Simco Dresses, was blacklisted in January but continued shipping to Walmart Canada into March.
Walmart spokesman Kevin Gardner said the Mars shipments were allowed because of confusion over whether Walmart’s standards applied. Mars didn’t produce garments with a Walmart house brand but instead with a Fruit of the Loom label. So, Gardner said, it wasn’t clear if Mars needed to meet Walmart’s standards or Fruit of the Loom’s.
Fruit of the Loom could not immediately be reached for comment.
As for Simco, orders that Walmart had already placed were accepted to lessen the impact on workers, Gardner said.
The shipments raise questions about Walmart’s ability to monitor its supply chain as well as its efforts to ensure decent working conditions in factories located in low-wage countries.
RelatedInterviews with Bangladeshi factory owners spotlight another potential problem: Walmart’s approach of publishing a blacklist with no further details might unfairly tar family businesses with minor violations.
International labor groups have been pressing retailers to sign an accord to pay for fire and building safety upgrades to Bangladesh factories. So far, several large retailers including H&M, Inditex and PVH Corp., which includes Tommy Hilfiger and Calvin Klein, have signed onto the agreement.
But many of the biggest retailers in the United States, including Walmart and Gap, have not. Instead, they are working on an alternative plan that they say will improve safety faster 2014 but that is not legally binding.
“We think the safety plan that we’ve put in place already meets or exceeds the [other] proposal and is going to get results more quickly,” Gardner said. “The point of the list is to get more accountability and transparency into our supply chain.”
Soon, he said, Walmart would also publish safety audits of its current suppliers in Bangladesh.
Dan Schlademan, a United Food and Commercial Workers leader who directs the union’s Making Change at Walmart campaign, said the shipments from barred factories show that Walmart’s program is hollow.
“It’s either a question of Walmart just telling people what they want to hear,” he said, “or it’s that Walmart has created a supply chain system that they have no control over.”
Making Change at Walmart initially provided the customs data. ProPublica verified the information and found other shipments using public data compiled by research firms serving the import-export industry.
Mars Apparels is a manufacturer of lingerie and sportswear in the port city of Chittagong. In the last year, the garment maker sent at least 22 shipments, totaling 80 tons, of sports bras through the Port of Newark, according to customs records compiled by Import Genius, a data consultant for the import-export industry. In each case, the customer was listed as “Walmart Stores” and the product mark as “Ariela-Alpha International,” whose brands include L.e.i. and Fruit of the Loom. (Ariela-Alpha did not return phone calls.)
Reached on a cell phone in Bangladesh, Shaker Ahmed, deputy managing director of Mars Apparels and the son of its founder, confirmed the customs data and said that the latest shipment went out last month. (Customs data show several May shipments in which the customer was listed as “WMR.”)
But Ahmed said that until contacted by ProPublica, he had never had any problems with Walmart or heard about its list of banned factories. He described Mars as a medium-sized garment manufacturer with less than 1,000 workers.
Ahmed said Mars has supplied Walmart for more than a decade, though since 2008 it has been making clothes for private labels such as Fruit of the Loom that are owned or licensed by an importer, which then supplies the clothing to Walmart.
When Mars was manufacturing clothing for Walmart brands, its factory was regularly audited by the company, Ahmed said. Walmart rates its suppliers green, yellow, orange and red, with green being the best and red the worst, he said. “We never received a rating below yellow.”
Since 2008, Ahmed said he has passed all audits by Fruit of the Loom, which uses the Worldwide Responsible Accredited Production program to inspect factories. Walmart said Mars didn’t meet all of its criteria, which it said is more stringent than WRAP’s. Ahmed said he welcomed Walmart to look at his factory and that the company is in the process of building a state-of-the-art facility.
Walmart accounts for a “very large” percentage of Mars’ business, Ahmed said. “If Walmart were to tell us they’re stopping production, if that were to happen, we would be destroyed. Our workers would be destroyed. We haven’t had a single incident in 19 years. We never had a problem. So that would be catastrophe.”
The other banned garment maker in the recent customs records, Simco Dresses, was blacklisted in January. The Import Genius records show three shipments of girls’ dresses in February and March to the Isfel Co. destined for Walmart Canada. Isfel didn’t return a call.
Customs records provided by another trade research firm PIERS show four more March shipments of knitted dresses and rompers, also destined for Walmart Canada.
The Bangladeshi press reported in January that Walmart had refused a shipment of women’s shorts from Simco after discovering unauthorized subcontracting to Tazreen Fashion, where a fire killed 117 people last year. Simco said at the time that Walmart’s ban could drive it into bankruptcy.
Simco’s managing director Muzaffar Siddique said his firm had subcontracted an order to an authorized Walmart supplier, which then sent the work to Tazreen without its knowledge.
Asked about the February and March shipments from Simco, Walmart spokesman Gardner said, “If it isn’t an egregious matter, we will accept goods produced under existing orders as part of our efforts to mitigate impact on the workers.”
Siddique contended that Walmart’s listing of his company is unfair and is damaging his family’s business. After the list was published, he said J.C. Penney canceled a $300,000 order for 500,000 pairs of pajamas.
“We are very upset about it,” Siddique said. “When I do business with you, it is like a doctor-patient relationship; there should be confidentiality. Walmart has no business going about publishing people’s names that it thinks are bad because that jeopardizes other business we are doing with our customers.”
Walmart is the only U.S. retailer to release a list of barred factories in Bangladesh. Gap, which also has a large presence in Bangladesh, said in a May statement that it has committed up to $22 million for factory improvements and that its stepped-up inspections have already led to some vendors upgrading their plants. But the company has said it would not sign on to the accord because of a provision that could allow victims of future factory accidents to sue the companies in U.S. courts.
Walmart, Gap and other large retailers are moving forward with developing an alternative safety plan with the help of former U.S. Sens. George Mitchell, D-Maine, and Olympia Snowe, R-Maine.
“We are committed to Bangladesh,” Gardner said. “We understand the role that we play in improving the livelihood of factory workers in that country. And improving the safety of those workers is very important to us.”
But Walmart’s approach of naming factories as “red-failed/unauthorized” has led to criticism in the Bangladeshi garment community that Walmart is trying to shift blame rather than serve as a partner.
“What Wal-Mart is doing at the moment is nothing but saving its own skin,” Reaz Bin Mahmood of the Bangladesh Garment Manufacturers and Exporters Association told Reuters. “As a responsible business partner they should stay with us and help improve working conditions for the safety and security of workers.”
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Expecting a rise in market volatility? There’s an ETF for that
Where the global economy may or may not go, what the Federal Reserve and other central banks may or may not do, whether “Abenomics” in Japan works – all fodder these days for those who expect volatility to come back to the financial markets.
And it has come back. While nowhere close to the 70, 80 and higher levels seen at the height of the 2008 market meltdown or at the peak of the European credit crisis, volatility has been on the rise of late and continues to creep higher. The Chicago Board Options Exchange Volatility Index, the most widely watched market volatility measure, is now hovering around 16.80, close to its highs for this year.
That rise is, in part, explains why low-volatility exchange-traded funds have been grabbing an increasing amount of attention, particularly in Canada where retail investors have been moving to put cash to work in a strategy that provides stock-market exposure with built-in downside protection against rising volatility.
“These days it can be a very bumpy ride, and what we’re seeing is growing interest in ETFs that mitigate volatility, ” said Mary Anne Wiley, managing director and head of iShares at BlackRock Asset Management Canada Limited, which at the end of May had US$40-billion in ETFs under management. “It’s being driven by those that can’t stand the stomach-churning roller-coaster ride.”
RelatedIndeed, so-called “min-vol” ETFs have slowly but surely been on the receiving end of a growing amount of asset flows in recent months as both retail and institutional investors look to hedge their exposure against the rising bouts of volatility they and others expect to come.
Where the money flows go in the ETF world in general paints an interesting picture. In April, non-market-cap-weighted funds captured 42% of all equity ETF flows, more than two times their share of equity assets, according to data compiled by BlackRock. Key drivers were dividend income-focused ETFs, with flows of $3.4-billion in April, a record monthly high.
Fast forward to May and those flows have shifted, moving to min-vol ETFs and other classes less geared toward “the stable dividend-paying story,” Wiley said. Year to date, min-vol has attracted $6.5-billion in flows, according to BlackRock data.
For the less faint of heart, fundamentally weighted ETFs have also been gaining traction, Wiley noted. Similar to small-cap-focused ETFs, fundamentally weighted ETFs give investors exposure to companies based on cash flow, total sales, total cash dividends and book equity value rather than equities that are capitalization weighted.
In other words, the underlying stocks aren’t forced to be part of an index because of their size. The fundamentally driven index is up approximately 5.5% so far this year, compared to the broad benchmark, which is down by about 0.5% and small caps, which have fallen close to 6%.
To be sure, Wiley and others note the flows typically follow behind the conversations, particularly with retail investors who might be starting to think about and exploring different ETF or other investment options that hedge against volatility, but haven’t yet acted on it.
“This is where the conversation is going with retail investors versus the actual flows as of yet, but the flows typically follow the conversations,” Wiley said.
There is also a difference between the U.S. and Canada, particularly with min-vol strategies, which have been adopted at a much quicker pace in the U.S., attracting more flows in the process.
“Part of it has to do with differences in market performance in the U.S. versus Canada, though investment ideas do tend to have earlier and faster adoption in the U.S.,” Wiley said.
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Canadian oil producers plead for Northern Gateway approval
TERRACE, B.C. • Eighteen months into expensive hearings across the far north of British Columbia, views on the proposed Northern Gateway pipeline between proponents and opponents remain as far apart as ever.
On the second day of final arguments here, oil producers pleaded for approval of the pipeline to permit them to access new markets, while members of local communities deplored their greed and questioned their audacity for putting their environment at risk.
“Kitimat is our home. The risk is too great,” Cheryl Brown, a member of Douglas Channel Watch, told regulators.
Northern Gateway “is about moving oil for more money to meet the business model of investors … It is not about the public interest.”
Ms. Brown complained the proposed project has fuelled a lack of trust and respect along the right of way as a result of proponent Enbridge Inc. failing to acknowledge the damage that could be caused by a spill, the result of an overconfident corporate culture.
“Enbridge says that the opponents tend to question the utility of oil sands development from a philosophical foundation,” she said. “This is a huge generalization by Enbridge that nowhere near captures the diversity of concerns,” particularly around the impact on the area’s fragile environment.
RelatedSeveral dozen people converged this week on this northern B.C. mining town near the pipeline’s end point for a final say on the project before a joint review panel of the National Energy Board and the Canadian Environmental Assessment Agency starts its final deliberations. The panel, chaired by Sheila Leggett, is to deliver a recommendation to the federal cabinet by the end of the year on whether Northern Gateway is in the public interest.
With many in the town openly hostile to the project and tired of the publicity it has brought to the area, Keith Bergner, lawyer for the Canadian Association of Petroleum Producers (CAPP), said oil producers welcome the debate and do not take issue with those who are taking part in it, just with their arguments.
He said Canada’s oil companies are increasingly concerned about delays affecting plans to expand Western Canada’s crude oil pipeline capacity and recommended approval of Northern Gateway.
Producers disagree with opponents’ claims the oil pipeline between Alberta and the British Columbia coast is not needed, he said.
“Current pipeline capacity is not sufficient,” he said, pointing to evidence that space on Canadian crude oil pipelines is so tight it’s frequently rationed, resulting in producers being unable to bring their supplies to market and to the discounting of Canadian crude.
The industry association also shot down views that Canada should build more refining and upgrading capacity at home, rather than pipe bitumen for processing abroad.
CAPP is concerned about the “protectionism and market restriction” arguments voiced in the Northern Gateway review, which is similar to arguments of opponents of other export pipelines, including Keystone XL from Alberta to the U.S. Gulf, Mr. Bergner said.
Expectations that oil that is not exported will result in the construction of new upgraders and refineries in Canada miss a key point, he said.
“This application before you is not about a choice between upgrading and refining on one hand, and exports on the other,” he told the hearing.
“This is about a pipeline designed to reach new markets. And once it’s in place, pipelines can be used to ship a wide variety of petroleum products. That has been the experience all across Canada. And there is no reason to treat this pipeline any differently.”
He said market demand should determine whether additional oil processing in Canada makes sense.
Bernette Ho, a lawyer representing Cenovus Energy Inc., INPEX Canada Ltd., Nexen Inc., Suncor Energy Inc., and Total SA, said producers have already spent $140-million in support of the project to date and are committed to entering into final shipping agreements.
Arguments that there is insufficient commercial support for the project misconstrue the evidence, she said.
Northern Gateway is seen by the oil community as a critical piece of infrastructure for the industry in Canada, she said.
Ian Morrison, representing the Edmonton Chamber of Commerce, said many of the opponents have little or no experience with pipelines, terminals or dealing with large hydrocarbon transportation companies.
But Edmonton does, as it has the largest concentration of petrochemical and pipeline activities it the country. In its experience, the hydrocarbon industry operates in a responsible fashion “and trusts Enbridge to do what they say.”
“In Edmonton, we have lived with Enbridge for over 50 years and we trust them as a good corporate partner.”
But Mr. Morrison acknowledged that benefits will not be distributed equally and called for timely compensation to make up for any negative consequences.
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As Detroit sinks deeper into debt, entrepreneurs offer hope
Despite the gloom and doom, there are a number of innovative companies expanding in the area, sparking hope of economic recovery Source
‘A rather serious setback for Canadian trade’: Harper ends EU trip unable to clinch deal
Prime Minister Stephen Harper concludes his eight-day European trip unable to complete a trade agreement with the European Union, just as the opening of EU-U.S. talks raises the risk that Canada will be left out.
Harper, who met German Chancellor Angela Merkel and Italian Prime Minister Enrico Letta on the sidelines of the Group of Eight leaders’ summit in Northern Ireland, couldn’t persuade his European peers to drop their remaining objections in the talks. One of the biggest sticking points for Canada is access for the country’s beef and pork producers, a concession that faces resistance from France and Ireland, two of Europe’s biggest meat suppliers.
Failure to ultimately reach an accord would undermine Harper’s efforts to diversify Canada’s trade away from the U.S., its largest trading partner. While Harper has made free trade a key plank of his economic agenda, completing six accords since 2006, none have been with major economies.
“The longer the matter is not brought to a conclusion, the more likely it becomes that the European Union will turn its attention to the U.S.,” said Lawrence Herman, a lawyer at Cassels Brock & Blackwell LLP in Toronto who specializes in trade issues, by telephone June 7. If a pact isn’t reached in the next few weeks, it would represent “a rather serious setback for Canadian trade policy, given all the efforts of the Harper administration,” he said.
Biggest Deal
Harper returns to Ottawa Tuesday night after the summit’s conclusion, a day after Merkel joined U.S. President Barack Obama, U.K. Prime Minister David Cameron and European Commission President Jose Barroso in announcing that talks will begin next month on what Cameron called “the biggest bilateral trade deal in history.” Harper has no announcements scheduled Tuesday.
Cameron, speaking to reporters following the summit, said Canada and the EU made a lot of progress this week and are very close to a pact.
“One more go and it will be there,” Cameron said. “The pressure of this G8 I think really got through a lot of the final issues and it’s now down to the last few yards and I’m sure it will be done.”
The risk is that the U.S. will leapfrog Canada in talks with Europe, as it did in finishing a trade pact with South Korea last year. Negotiations between Canada and the Asian nation reached an impasse in 2008 after 13 rounds of discussions.
RelatedProgress Continues
Harper’s chief spokesman Andrew MacDougall said this month he didn’t expect the prime minister to sign a pact with the EU on the week-long trip, where he met Cameron, French President Francois Hollande and Irish Prime Minister Enda Kenny.
“We’re not quite there, but we continue to make progress and we continue to be committed to progress,” Harper told reporters Tuesday. While the start of U.S.-EU talks may give some “disadvantages” for the negotiations with Canada, Harper said it doesn’t change his view that “we should stay at the table until we get a deal that’s in the best interests of Canadians.”
We’re not quite there, but we continue to make progress and we continue to be committed to progress
Former Bank of Canada Governor Mark Carney has said the nation’s poor export performance since 2000, the second worst in the Group of 20 after the U.K, is due to the country’s reliance on the U.S. economy.
Canadian companies such as Toronto-based insurer Manulife Financial Corp. and Montreal’s commercial-jet maker Bombardier Inc. have backed an agreement, while European companies including engineering conglomerate Siemens AG of Munich and London-based miner Rio Tinto Plc are supportive.
Strategic Step
“A Canada-EU agreement can serve as a strategic and important step towards the eventual creation of a comprehensive transatlantic trade and investment area,” senior executives of more than 100 European and Canadian companies said in a joint declaration supporting a deal.
“We are very close to an agreement,” said John Clancy, EU trade spokesman, in an e-mailed statement Tuesday. “The EU has shown pragmatism and flexibility and is ready to take the last steps to achieve a political breakthrough in the negotiations. We have been awaiting a similar message from Canada since the Trade and Agriculture Ministers met in Ottawa in early February.”
Canada has relatively more to gain from a deal, according to a joint study released in 2008 by the Canadian government and the European Commission. An agreement would increase annual Canadian gross domestic product by 8.2-billion euros (US$10.9-billion), equivalent at the time to about 0.77% of the country’s output, the study found. The EU economy would increase its annual output by 11.6-billion euros, or 0.08%.
Export Shares
While the EU bought 8.9% of Canadian exports in 2012, Canada represented 1.9% of total EU exports, according to Statistics Canada and Eurostat data. The U.S. received almost three-quarters of Canada’s exports in April.
The EU is seeking more access to Canada’s protected dairy market, while Canada wants its beef producers to be allowed to export more than 40,000 metric tons to Europe, according to Matthias Brinkmann, the European Union’s ambassador to Canada.
Brinkmann said May 9 in Ottawa that while the EU is willing to meet and potentially exceed the 40,000 metric ton figure, the two sides remain apart. “There’s a certain limit that we cannot go above, because then our own producers in some countries depend very much on that, like Ireland and France,” he said.
Canada is seeking more benefits for its cattle farmers at a time when live cattle prices have dropped 8.9% this year.
Politically Sensitive
The beef impasse is politically sensitive for Harper’s Conservative Party because Alberta, Canada’s largest cattle-producing province, has Conservatives holding 26 of its 28 districts in the federal legislature, including Harper’s.
J. Scott Applewhite/AP/The Canadian PressCanada wants its beef producers to be allowed to export more than 40,000 metric tons to Europe.Securing more access for beef and pork is “extremely important” to Canada, Canadian Agriculture Minister Gerry Ritz told reporters on a conference call June 7.
The country’s biggest federal opposition party is worried the government may compromise Canadian interests in pushing for a deal. “Desperation is a singularly bad adviser,” Tom Mulcair, leader of the New Democratic Party, told reporters at a news conference in Ottawa on June 7.
The agreement may increase the cost of prescription drugs by expanding patent protection for European pharmaceutical companies, harm Canadian dairy farmers and take away power from cities and provinces to choose suppliers for procurement projects, according to the NDP.
For its part, the EU wants to use a Canadian free trade agreement as a template for other talks. “It will help us in the negotiations with the U.S. and other developed countries if we can show we managed this and we can do such a comprehensive agreement,” Brinkmann said.
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Bernanke has remained at Fed ‘longer than he wanted,’ Obama says
United States President Barack Obama said Federal Reserve Chairman Ben Bernanke has stayed in his post “longer than he wanted,” one of the clearest signals the central bank chief will leave when his current term expires next year.
“Ben Bernanke’s done an outstanding job,” Obama said in an interview with Charlie Rose that aired Monday, when asked about nominating him for another term subject to Senate approval. “He’s already stayed a lot longer than he wanted or he was supposed to.”
Ben Bernanke’s done an outstanding job. He’s already stayed a lot longer than he wanted or he was supposed to
Obama likened Bernanke’s tenure to that of outgoing Federal Bureau of Investigation Director Robert Mueller, who stayed on for two years after his term expired in 2011 and is leaving his post in September. Bernanke’s second four-year stint at the central bank ends Jan. 31.
Bernanke, like Mueller, was initially nominated to the post by former President George W. Bush. Obama asked Bernanke to serve another term as chairman, which he began on Feb. 1, 2010. The 59-year-old former Princeton University professor and Great Depression scholar also served on Bush’s Council of Economic Advisers.
Fed spokeswoman Michelle Smith declined to comment. A White House official declined to comment until the president has made a decision and is ready to announce it, adding that Obama’s remarks were intended to express admiration for Bernanke.
Tapering Debate
Treasuries were little changed after the news, which came on the eve of a two-day meeting of the Fed’s policy-setting Open Market Committee. Yields on benchmark 10-year notes rose to 2.20% at 8:17 a.m. in New York from 2.18% late Monday. Fed officials in recent months have debated whether to scale back, or taper, their purchases of Treasuries as the U.S. economy extends its recovery.
“It’s really hard to believe the next chairman would change the course of monetary policy,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former economist for the Fed’s division of monetary affairs. At the same time, “it doesn’t help make the Fed’s communications easier if Obama is talking about Bernanke in the past tense,” he said.
Using extraordinary powers, Bernanke took the assets of troubled financial firms Bear Stearns Cos. and American International Group Inc. onto the Fed’s balance sheet and rolled out several emergency lending facilities to pump cash into a banking system where confidence had been shattered by the bankruptcy of Lehman Brothers Holdings Inc. in September 2008.
RelatedRecession Damage
The 18-month recession was the longest and deepest since the Great Depression, and the Standard & Poor’s 500 Index reached a 12-year low in March 2009. Joblessness peaked at a quarter-century high of 10 percent in October 2009. By March 2010, 10.1% of all mortgage loans were delinquent, according to data from the Mortgage Bankers Association.
“He has been an outstanding partner along with the White House, in helping us recover much stronger than, for example, our European partners, from what could have been an economic crisis of epic proportions,” Obama said in the interview.
Bernanke’s actions attracted the ire of Republicans. After a protracted debate, the Senate approved the second-term nomination on Jan. 28, 2010, by a 70-30 vote, the narrowest margin for any Fed chairman.
In August 2011, Texas Governor Rick Perry said it would be “almost treacherous — or treasonous” for Bernanke to step up central bank support for the economy before the 2012 presidential election. Perry was contending for the Republican presidential nomination at the time.
Romney Opposed
Mitt Romney, the Republicans’ eventual nominee, said during the campaign that he opposed a third term at the Fed for Bernanke. The former Massachusetts governor criticized Bernanke for printing too much money without reducing unemployment.
While neither the White House nor Bernanke have said definitively that the Fed chairman won’t seek a third term, there have been some signals that the chairman would like to leave.
Bernanke broke with tradition and decided not to attend the Fed’s annual central banking conference in Jackson Hole, Wyoming, this year.
“The odds of Bernanke staying on were pretty low,” said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York. “This will confirm one aspect of the story and allow people to think of the other scenarios — somebody else will be taking the helm.”
Bernanke told reporters in March that he’s “spoken to the president a bit” about his future and felt no personal responsibility to stay at the Fed and oversee the reversal of its policies.
Other Options
“I don’t think that I’m the only person in the world who can manage the exit,” Bernanke said at the March news conference in Washington.
As the financial crisis waned and the emergency lending programs were wound down, the Fed chairman faced a new challenge: A recovery hobbled by tight credit, a lacklustre housing market and financial turmoil in Europe that left the unemployment rate at 9.1% two years after the expansion began.
With the central bank’s benchmark lending rate cut close to zero in December 2008, the Fed chairman began once again to marshal the central bank’s balance sheet. This time, the FOMC began to press down longer-term interest rates with direct purchases of debt.
The strategy, called quantitative easing by economists, is now in its third round with the Fed purchasing US$85-billion a month in Treasury and mortgage-backed securities. The Fed’s assets now total US$3.41-trillion compared with US$877-billion at the end of August 2007.
Influencing Economics
“He has bridged the gap between academic analyses of monetary policy and the practical requirements of a running a central bank,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “He is in a unique position to redefine the way we think analytically about how monetary policy operates in the real world and to do it in a way that other academics will have to pay attention to.”
Still, the Fed is far from its congressional mandate to achieve maximum employment and stable prices.
Inflation rose 0.7% for the 12 months ending April, below the 2% goal of the FOMC. The unemployment rate stood at 7.6% in May, compared with the Fed’s 5.2% to 6% estimate of a jobless rate that corresponds to efficient use of labour resources.
Global Poll
A majority of investors expect Bernanke will leave office in January, according to the latest Bloomberg Global Poll of investors on May 14. A third of those surveyed expect he’ll be succeeded by Fed Vice Chairman Janet Yellen, 66, according to the poll of investors, analysts and traders who are Bloomberg subscribers.
Investors were more divided over who would be the best successor. Asked who would make the best Fed chairman, Yellen was named by 26%, followed by former Treasury Secretary Timothy F. Geithner, 51, favoured by 11%, and Bank of Israel Governor Stanley Fischer, 69, a Bernanke mentor, with 7%. Former White House adviser and ex-Treasury Secretary Lawrence Summers, 58, was selected by 6%, and 3% named former Fed Vice Chairman Roger Ferguson, 61.
“At some point you have to make a transition,” Feroli said, noting that there has never been an ideal time to announce a transition “in the past five years.”
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Ottawa raising offshore liability cap to $1B in Arctic, Atlantic waters
HALIFAX — Ottawa is raising the liability cap for companies operating in Atlantic Canada’s offshore to $1-billion up from the current $30-million under new proposed legislation.
Speaking today in Halifax, Natural Resources Minister Joe Oliver also announced that liability in the Arctic will increase to $1-billion from $40-million when the legislation is introduced in the fall.
Oliver says the move is aimed at aligning Canada’s accountability regime with current international standards in the event of an oil spill.
Changes will also be put in place in Nova Scotia and Newfoundland and Labrador to make the so-called polluter pays principle explicit in provincial legislation later this year.
Other changes would see operators required to pay offshore regulators $100-million in order to address any potential spills or make an operation pool of $250-million available.
Last week, Oliver announced that nuclear operators would also face a higher liability ceiling when Parliament resumes following the summer break.
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Spectra Energy under pressure to sell Canadian assets and consider public offering
CALGARY – Spectra Energy Corp., which distributes natural gas in Ontario and operates in British Columbia as Westcoast Energy Inc., is facing pressure to spin off its Canadian assets from an activist investor.
In a June 17 letter to Spectra chief executive Greg Ebel, Thomas E. Sandell, chief executive of New York-based Sandell Asset Management, said Spectra should review strategic alternatives for Westcoast, including a potential initial public offering. Spectra should also consider transforming itself into a holding company akin to Kinder Morgan Inc., Williams Companies, Inc. and Oneok, Inc., Sandell said.
Sandell Group estimates Spectra is worth $48 a share, or more than 40% over its current price. Holding companies “trade at a premium valuation as strategic allocators of capital in the fast-moving, competitive North American energy infrastructure landscape,” the activist fund, which says it is now one of Spectra’s largest shareholders, says in the letter.
RelatedSandell says Spectra has underperformed its peers by up to 40% in the past three years. “This performance is in stark contrast to CEO compensation, which has consistently ranked at the top amongst CEOs of the same peer group, demonstrating a complete lack of alignment between executive compensation and shareholder returns,” the letter states.
In a statement, Spectra said it recently transferred its U.S. legacy natural gas pipeline and storage assets into its publicly traded unit Spectra Energy Partners LP in a bid to enhance shareholder value.
“By completing this drop-down, Spectra Energy Partners will become one of the largest MLPs [master limited partnerships] in the U.S. and provide dividend and distribution increases to investors in both companies,” Caitlin Curie, direction of communications at Spectra said in a statement, adding that the strategy could generate
opportunities worth $25-billion for the companies.
“Securing these growth opportunities, while providing investors with growing dividends and distributions, results in strong shareholder returns,” Ms. Curie said “We continue to appreciate and carefully consider ideas that will enhance shareholder value.”
If the company follows Sandell’s advice, the Canadian midstream space could see a Westcoast IPO or a sale of Westcoast assets, FirstEnergy Capital analyst Steven Paget said in a note. The standalone company would have a market cap of $8.2-billion and net debt of $6.1-billion including subsidiaries, he said.
“There is no obvious Canadian buyer for the Westcoast suite of assets but it would likely be an attractive standalone organization if it were spun off in an IPO,” Mr. Paget said.
Westcoast was a publicly traded company until 2002, when Duke Energy bought it.
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Bonnie Brooks steps aside as Hudson’s Bay president to take on vice-chairman role
TORONTO • Bonnie Brooks may be stepping aside as president of Hudson’s Bay Co., but she will be taking on an even more important role at the storied department store retailer she helped to revive, its chief executive stressed on Tuesday.
“Bonnie is not going anywhere,” Richard Baker, the Connecticut-based real estate investor who bought HBC in July 2008 and put Ms. Brooks in charge of the drifting Canadian unit, then known as The Bay, a month later.
HandoutLiz Rodbell, Hudson Bay's new president.“Bonnie will be working as hard and as much as I can get her to and she is a very important part of our management team,” Mr. Baker said in an interview. “As we go forward and as business grows, we need to have a more dynamic team and a stronger bench.”
Ms. Brooks’ role as president will be assumed by Liz Rodbell, who joined corporate sibling Lord &Taylor in 1985 and worked her way up the management ladder before being named executive vice-president and chief merchant of HBC in February, 2012.
The news came a week after Lululemon CEO Christine Day shocked investors with the announcement she would exit her role once the company found a suitable replacement for her. The athletic wear retailer’s shares have lost more than a third of their value since the news last week. Hudson’s Bay shares closed down 3% after its announcement on Tuesday, which named Ms. Brooks vice-chairman of the retailer.
“Since Bonnie is not departing, it is really not a similar situation [to that of Lululemon],” Mr. Baker said. “Liz Rodbell has been with the company for 25 years and she was ready to become president and then allow me to better leverage Bonnie’s time.
“Business is very good [and] we really thought this was a great time to leverage Bonnie’s creative capability to grow multiple businesses rather than having her spend as much time as she was on the day to day operations.”
Mr. Baker sees the online business, which grew sales by 33% to $31-million in the latest quarter, as a big growth vehicle with potential of $500-million in annual sales over the next four to five years. The ongoing expansion of U.K. apparel chain TopShop within HBC stores and forging similar partnerships with other retailers or brands will also spur growth and make the retailer more productive, he said.
Ms. Brooks, a former Holt Renfrew executive, has been widely credited with shedding moribund brands, bringing in fashionable new ones, and injecting vitality into the veteran company’s store marketing strategies. Her job transition to Ms. Rodbell will be complete by January.
RelatedApparel market expert Randy Harris, head of market research firm Trendex North America Inc., believes the shift enables Ms. Brooks to give more strategic oversight to Lord & Taylor, which saw same-store sales at its 48 U.S. locations slide 1.4% in the first quarter. Hudson’s Bay’s 90 Canadian locations saw a robust same-store sales increase of 7.6% during the same period.
“[Ms. Brooks] would be an asset in the bigger-picture strategic planning, especially related to Lord & Taylor,” Mr. Harris said, calling the first-quarter performance at Hudson’s Bay “spectacular.”
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Implications of Rio Tinto’s potential IOC sale
It is no secret that Rio Tinto Ltd. wants to unload its majority stake in Iron Ore Co. of Canada (IOC), and the sale process is back in the headlines this week following reports that Apollo Global Management LLC and China Minmetals Corp. are pursuing bids.
Stifel Nicolaus analyst Michael Scoon noted Apollo, a private-equity firm, has the financial resources to bid for IOC. But he questioned its ability to operate the mine more efficiently than Rio Tinto, suggesting its returns would have to come from financial leverage.
“Apollo may have identified a reorganization strategy to unlock embedded value in the infrastructure assets [rail and port]; however, in our opinion, efficiencies at the mine have likely been fully evaluated by Rio,” he wrote in a note.
Any offer for IOC would have key implications for Labrador Iron Ore Royalty Corp., which holds both a 15.1% stake in IOC and a royalty on its sales. If Rio sells its IOC interest, BMO Capital Markets analyst Tony Robson wrote that Labrador Iron Ore could separate the royalty and the minority IOC stake, with the bidder for Rio’s position possibly buying the latter.
Ultimately, the valuation of Labrador Iron Ore will be very dependent on Rio Tinto’s sale price for IOC. Mr. Robson values Rio’s 58.7% stake at US$4.4-billion, but noted other analysts say it is worth as little as US$2-billion.
“Given the size of Rio, the exact price it receives for IOC is not material, as long as it is not a rushed sale that generates a very low price,” he wrote.
“The transaction’s impact on [Labrador Iron Ore] is uncertain and not necessarily positive unless it results in a bid for the company.”
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National outdoor retailer Mountain Equipment Co-Op is shedding its image of being a store just for the granola-eating, sandal-wearing, mountaineering-type.
Canadian Press/Handout/MECOut with the old . . .The Vancouver-based retailer unveiled a new logo Tuesday in its first major rebranding since the co-operative was founded more than 40 years ago.
The redesigned logo refers to the retailer simply as MEC and does away with the iconic image of a mountain.
Canadian Press/Handout/MEC. . . in with the new.MEC’s chief marketing officer Anne Donohoe said the original logo was designed in 1974, and it was time for a facelift.
“The rebrand reflects the reality of the new MEC,” she said from Vancouver. “We’ve grown from six members to 3.5 million members over the last 40 years, many of whom live in urban centres.”
Donohoe said originally, the sporting goods retailer was formed in Vancouver to sell hard to find rock-climbing equipment to the outdoor enthusiast. Today, 71% of its members live in urban centres.
RelatedAlthough MEC is still focused on providing equipment for backcountry hiking, skiing and paddling, it also has diversified into other areas including cycling, running and yoga.
“MEC has stayed true to its values yet is able to broaden its offering to more Canadians,” she said. “Truly, our mission is to inspire Canadians to be active outdoors.”
The new logo will begin appearing on products beginning in July, and stores will be completely rebranded sometime in September.
MEC sells more than 28,000 products at 17 stores across the country. In 2012, it reported sales of $302-million.
Jason Payne/Postmedia Although MEC is still focused on providing equipment for backcountry hiking, skiing and paddling, it also has diversified into other areas including cycling, running and yoga.Canadian Press
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