Money world

The country’s broadcast regulator has approved the sale of BCE Inc. to a consortium of Canadian and U.S. buyers, but investors continue to express doubt the $52 billion transaction will be completed.

The Canadian Radio-television and Telecommunications Commission said yesterday after the markets closed that it has approved, with conditions, the takeover of the Bell Canada parent by the Ontario Teachers’ Pension Plan, Providence Equity Partners Inc. and Madison Dearborn Partners LLC.

The conditions include minor tweaks to the deal’s original structure to ensure the number of Canadians always outnumber the number of foreigners on the company’s board.

As well, the chair of the board must be Canadian and cannot be nominated by a non-Canadian director.

The chair is also prohibited from holding the position of chief executive, the CRTC said.

"These conditions will ensure that control of BCE remains in Canadian hands once the transaction is completed," CRTC chair Konrad von Finckenstein said in a statement.

While the CRTC had previously expressed concern with the way Teachers’ attempted to overcome rules that bar pension funds from holding more than 30 per cent of a company’s voting shares – a retired Teachers’ executive, Morgan McCague, will hold BCE shares for the pension plan – the regulator said it was satisfied by a letter provided by the country’s pension regulator that approved of the structure.

The CRTC’s approval should provide some comfort to nervous BCE investors, who have been valuing the company’s stock well below the accepted offer of $42.75 per share in the belief the transaction will fall apart.

But the biggest hurdle continues to be whether the buyers – or the banks backing them – remain committed to the deal despite an ongoing credit crunch resulting from billions of dollars worth of home-loan writedowns in the United States.

A Texas judge yesterday issued a temporary injunction barring a group of banks from refusing to fund a $20 billion (U.S.) buyout of U.S paydayloans. radio broadcaster Clear Channel Communications Inc. The order came a day after Clear Channel’s private-equity buyers launched a lawsuit claiming the banks were backing out of commitments to provide $22.1 billion in financing because of "lender’s remorse" stemming from the rising cost of borrowing.

Some of the U.S. banks involved in the Clear Channel transaction, Citigroup, Deutsche Bank and the Royal Bank of Scotland Group, are also backing the BCE takeover.

BCE investors viewed the Texas injunction as a sign the courts could be counted on to uphold existing buyout agreements. Shares of BCE yesterday regained the ground they lost a day earlier, closing up $1.92 (Canadian) at $36.94 on the Toronto Stock Exchange.

The BCE takeover is also being backed by Canada’s Toronto Dominion Bank, which pledged to underwrite $3.3 billion of a $34.2 billion credit facility and provide a $500 million equity bridge loan.

A spokesperson for TD Bank said yesterday the bank remains "comfortable" with the BCE deal.

Richard Powers, assistant dean of the University of Toronto’s Rotman School of Management, said the prospect of a major Canadian bank backing out of the biggest-ever private equity transaction is unlikely since it would undermine confidence in the country’s financial sector.

"In the Canadian markets, the banks set the standard," Powers said.

"We are in unprecedented waters, but for the banks to act contrary to the intention of the deal, I think, would be sending the wrong message to the Canadian markets and that’s the last thing we want to be doing at this time."

Powers added that, according to his understanding of the BCE agreement, there isn’t much "wiggle room" for any of the parties involved – no matter how badly they might want out.

"It’s obvious that everyone’s going to take a hit on this deal," he said.

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FORT WORTH–American Airlines canceled about 200 flights on Wednesday so its crews can inspect some wire bundles aboard its MD-80 aircraft.

The cancelled flights represent less than 10 percent of the nation's biggest airline's scheduled service for the day.

The need for the new inspections became known during an audit of American by a joint team of inspectors from the Federal Aviation Administration and the Fort Worth-based airline, according to a statement from American.

"We are reinspecting the MD-80s to make sure the wiring is installed and secured exactly according to the directive,'' American spokesman Tim Wagner said in the statement, which did not describe the function of the wiring.

"We are in the process of completing the inspections on the remaining airplanes and will return them to service on a rolling basis throughout the day," Wagner said.

About 50 departures each were canceled at American's hubs at Dallas-Fort Worth and Chicago O'Hare international airports.

Shares of American's parent AMR Corp instant payday advance. fell 43 cents, or 4.5 per cent, to $9.20 in morning trading Wednesday. They have traded in a 52-week range of $8.38 to $34.

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You don’t want to be chair of the United States Federal Reserve. You really don’t.

Wall Street wails at you to drum up business for it by cutting the Fed’s key lending rate, which an initially reluctant Fed chair Ben Bernanke has done, dropping the rate to 2.25 per cent, half what it was six months ago.

Fearing a domino effect, Bernanke forced the dramatic arranged marriage between crippled investment bank Bear Stearns Cos. and America’s third-largest bank.

But hold the applause for arresting a potential death-spiral among other investment banks vulnerable to the kind of bank run that abruptly hit Bear.

His salutary step, during arguably the worst credit crisis since the Great Depression, brought scorn from the Motley Fool, a popular investing-tipster coven. It accuses Bernanke of "theft" by preventing Bear bondholders from standing first in line for the proceeds from a Bear bankruptcy.

Yesterday, Bear buyer J.P. Morgan Chase & Co. quintupled its offer for the troubled investment bank, to $10 per share, in a bid to win shareholder approval. Go figure.

Here’s a firm, complicit in the subprime-mortgage mess at the heart of the global crisis, with shareholders and bondholders who knew Bear was in trouble.

That was apparent last summer, when two of Bear’s hedge funds collapsed. By March 16, Bear had prepared bankruptcy papers in the event no one was willing to buy and rescue it.

And yet there’s a fair-sized audience of critics who feel Bear’s investors were roughly treated by the Fed’s effort to keep the firm from collapsing altogether.

Bernanke, on the same day he put ill-managed Bear out of the Street’s misery, took the unprecedented step of inviting the rest of Wall Street to borrow emergency Fed funds to bolster their depleted capital bases, a privilege until then extended only to commercial banks.

Gold-plated investment banks, including Lehman Brothers, Morgan Stanley and Goldman Sachs, promptly four-legged it to the trough, sucking up an impressive $28.8 billion.

That would seem to vindicate Bernanke’s take on Wall Street’s shaky foundations of late paydayloans.

But no, Los Angeles Times columnist Joel Stein frets that the inflation Bernanke is beckoning with that innovation borne of urgency "makes money fun to borrow and not worth saving, which is how the trouble started in the first place. Plus, it makes the dollar fall, allowing the Canadians to make fun of us."

Among the first things you learn as Fed chair is that you’re to blame for most of what ails the economy. That would be the case even if the president who appointed you demonstrated the acuity of his forecasting powers, as part-owner of the Texas Rangers, by trading slugger Sammy Sosa for journeyman Harold Baines. (See Principle, the Peter.)

And that much of what you attempt by way of curing the patient is thought to reveal you as a quack. Now we understand why Bernanke predecessor Alan Greenspan was so purposefully obscure in his public utterances.

In contrast to U.S. President George W. Bush and Congress, who have talked a bit and done little, Bernanke, after an admittedly slow start, has shown that someone in D.C. is aggressive in trying to revive the economy; injecting the mother’s milk of liquidity into a paralyzed global system; and forestalling the dreadful possibility of as many as two million Americans losing their homes.

Bernanke’s own four-bedroom home in D.C. jumped 30 per cent in appraised value soon after he bought in 2004. Today, he would sell at a loss, after brokers’ fees. Not that Bernanke needs the reminder, but he gets one every night, when he pulls into the drive, about the awesome damage of which undisciplined markets are capable.

dolive@thestar.ca

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Peter Whitehouse had a visit in January from a Direct Energy sales agent, offering to save him 10 per cent on his gas and electricity bills.

He found it surprising, because he already had a contract with the company for his gas.

He asked his wife to deal with the sales agent. Later, he asked to see the documents she had signed, but no copies had been left at his home. When he tracked down the agent, who was still on his street, he got another surprise.

The electricity contract showed a price that was about 50 per cent higher than what he was paying with his local utility, Enersource Corp. of Mississauga.

As for the natural gas contract, it had been left blank (to be filled out later by the agent). This meant the promised 10 per cent saving had to be taken on faith.

The Ontario Energy Board licenses gas and electricity sellers and sets standards for how they operate.

The board requires door-to-door salespeople to state the price to be paid under the contract.

But Whitehouse had more surprises in store.

A month later, he got a call from a rival seller asking him to reaffirm the gas and electricity contracts signed by his wife. It seems she had signed two contracts with Direct Energy and two more with Wholesale Energy Group Ltd.

How did this happen?

The agent was an independent contractor representing Wholesale Energy Group. Later, she was hired by Direct Energy.

When she came to the Whitehouse home, she was working for both companies at the same time.

"We have records of the customer being signed with us in January and cancelling in February," said Scott Knapman, vice-president of sales and operations for Wholesale Energy Group, which set up shop in Ontario last May.

He said the agent was terminated once the company learned what she had done.

"She violated our agreement, which prohibits agents from working for other companies payday loans application.

If you’re going to represent the Wholesale Energy Group, you represent only the Wholesale Energy Group."

Direct Energy also terminated the agent, said spokesperson Joshua Orzech. "That agent did not follow our practices at all. That’s why she is no longer with us."

Agent conduct, such as misrepresentation and guarantees of savings that may not exist, has been a long-standing problem for door-to-door energy marketers.

Wholesale Energy Group had almost 20 complaints about agent conduct for each 1,000 gas contracts signed or renewed, more than for other marketers, according to Ontario Energy Board statistics for the third quarter of 2007.

The company started operations in Ontario only last May, Knapman said. "We did have problems with some agents, but we dealt with them."

Two big energy marketers, Direct Energy and Ontario Energy Savings Corp., have been working together on a code of practice for the industry that would require higher standards.

One idea is to create a list of sales agents with disciplinary issues, which companies could consult when hiring.

Knapman also supports such an initiative, as long as it conforms to privacy laws.

When Whitehouse contacted me, he was getting nowhere with Direct Energy.

But he eventually got an apology from senior executives in both Canada and the United States.

Direct Energy has now made it easier to escalate complaints. Its website displays an email address and phone number for Clinton Roeder, senior vice-president of mass markets (cw.roeder@directenergy.com, 647-393-3058).

Write to onyourside@thestar.ca or check at www.ellenroseman.com for the On Your Side blog.

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NEW YORK–General Mills Inc. Wednesday posted a 60.8 per cent rise in net quarterly profit as cost-cutting measures and higher sales helped offset soaring prices for wheat and other commodities.

The maker of Cheerios cereal, Progresso soup and Yoplait yogurt said net profit was $430 million, or $1.23 a share, in the fiscal third quarter that ended Feb. 24, compared with $267.5 million, or 74 cents share, a year earlier.

Excluding one-time items, earnings were 87 cents a share.

Like most food companies, General Mills has been hit by commodity costs that have risen well above expectations fast cash online. One way the company has dealt with rising costs has been to reduce the size of its cereal boxes, effectively raising the price per ounce.

Sales rose 11.5 per cent to $3.4 billion.

The company also reiterated its forecast for fiscal year 2008. In February, General Mills raised its forecast to $3.45 to $3.47 a share, excluding special items.

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Canadian financial companies took a hit Monday as CIBC stock briefly tumbled to its lowest level in nearly five years, while fellow banking and investment firms faced renewed scrutiny amid the fallout from the U.S. and international credit crunch.

Overall, the TSX financial sector was down about 3.3 per cent in Monday afternoon trading as the Canadian Imperial Bank of Commerce (TSX: CM) stock tumbled 5.6 per cent.

While Canadian banks came under selling pressure by investors over the credit crisis that has befallen many former blue chip Wall Street financial companies, most analysts do not expect any of the big Canadian financial institutions to suffer major long-term damage to their business.

Many U.S. banks have been plunged into crisis by their poor lending policies, which saw hundreds of billions of dollars loaned to risky borrowers in recent years, mainly to finance subprime home purchases at extremely low – but short-term – mortgage rates.

When the loans were renewed at higher rates, the borrowers couldn't meet the terms and were forced to abandon their homes, leading to a wave of foreclosures that has battered the U.S. housing industry and through complex financial instruments linked to subprime, spilled onto credit markets around the world.

CIBC, which has taken $3 billion in charges on its exposure to the subprime market, was the focus of analyst speculation Monday which suggested the Toronto bank could face further writedowns after one of the U.S. monoline bond insurers it works alongside posted a major loss.

On Monday, Financial Guaranty Insurance Co., also known as FGIC, reported a US$1.89 billion loss in the 2007 fourth quarter, which triggered Blackmont Capital analyst Brad Smith to note its connection with CIBC.

Financial Guaranty is counterparty to about $566-million of the bank's subprime exposure, which could mean that CIBC could take another writedown of $362 million, he wrote.

Smith added that Financial Guaranty could also be a "sizable counterparty" to $22 billion in non-subprime monoline hedges held by the bank.

CIBC stock fell $3.36 to $56.54 on the TSX after falling as low as $56.25 earlier in the session, it's lowest level since August, 2003. The bank has a 52-week high of $107.45.

Meanwhile, a surprise agreement this weekend by JPMorgan Chase & Co pay day loans. to buy Bear Stearns for a fraction of its Friday trading value gave investors more reason to worry, but also softened what could've been a complete collapse of the firm.

"Generally, across the board you're just seeing broad-based fear and people fleeing from the sector," said Chris Blumas, a banking analyst at Morningstar Canada.

Blumas described a financial sector that has faced worsening conditions even as investors tried to hang onto optimism.

"People even said in Q4 last year that things were going to get better, but in Q1 things got worse from then," he said.

In the first quarter you started to see "Canadian banks protect their capital or their equity as much as they could for things to get a lot worse."

CIBC is the Canadian bank that has been hit hardest by the credit crunch in the United States, with writedowns of about $3 billion. Part of the charges were from collateralized debt obligations, also known as CDOs.

"Our thesis on CIBC has been that this exposure that they have to subprime and these CDOs is going to linger from them," said Craig Fehr, a financial services analyst with Edward Jones in St. Louis.

"Until we start to see some material improvement in these capital markets and structured product market, CIBC is going to be hampered in writedowns."

Bank of Montreal has also been hit hard by its exposure to bad debt and has lost a big chunk of its share value in recent months.

Other bank stocks began to tumble Monday after Federal Guarantee reported its big loss. Most notable was Royal Bank (TSX: RY), the biggest of Canada's commercial banks, which fell 3.6 per cent, and Montreal-based National Bank (TSX: NA), down five per cent.

Scotiabank (TSX: BNS), Canada's most international bank with major operations in emerging markets like the Caribbean and Latin America, was down 1.9 per cent.

Meanwhile, TD Bank (TSX: TD), which says it does not have any exposure to the subprime mortgage sector but has a big retail presence in the U.S. northeastern states, fell more than three per cent.

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Housing in Canada deteriorated in 2007 to its least affordable level since 1990, the year the real estate bubble burst.

And cracks may be showing in the seemingly bulletproof housing market, with once hot Alberta bucking the trend with a rapid cooling of housing prices, says a report released yesterday by RBC Economics.

"Alberta’s housing market is on watch for further negative developments," RBC economist Derek Holt said in his quarterly report. "This also marks the start of what we fear could become a trend."

In three months, bungalow prices in Alberta fell by more than 7 per cent, compared with the third quarter. Standard two-storey homes fell by 4.3 per cent, compared with three months earlier, condos fell by 5.3 per cent and townhomes dropped 4 per cent, the bank said.

While prices have not slipped in Ontario, economists are worried that the housing market in this province could follow the lead of the beleaguered U.S. market. RBC’s affordability measures show income needed to service the costs of owning a home deteriorated across all four classes last quarter.

One big reason was that by the end of 2007, the annual pace of income growth was the slowest among provinces, which was one of the factors that led to the deterioration in affordability, the bank report said.

"The province may well be teetering on the brink of recession and by a number of measures is nowhere near as resilient as first thought," Holt wrote.

"The impact of a weaker economy, slower job growth and lower income gains should restrain housing activity in 2008."

In Toronto, it takes 47.3 per cent of pre-tax income to afford a benchmark detached bungalow, up from 46.3 per cent in the third quarter.

The higher the figure, the harder it is to afford a home. A measure of 50 per cent, for example, means it takes half of pre-tax income to afford ownership costs including mortgage payments, utilities and property taxes.

RBC defines a detached bungalow as 1,200 square feet, while a standard condo is 900 square feet.

Back in 1990, "soaring interest rates and a recession sparked most of the trouble," Holt said payday loans lenders.

"Today, a long upward trend in house prices driven by sounder macroeconomic fundamentals like job growth, is primarily responsible for the deterioration in affordability."

RBC said Toronto’s downtown core "remains tight," pushing prices higher and eroding affordability. However, with a larger supply of condominiums coming to market over the next two years, RBC said, prices in the city should "start to level off."

Toronto’s prices pale in comparison to Vancouver, where it takes 73.8 per cent of pre-tax income to afford a similar bungalow.

Compared with Americans, Canadians are better able to withstand a downturn, since they are not as highly leveraged as American families, Holt wrote.

The strong loonie is also a plus.

"The sharp depreciation in the U.S. dollar over the past six years has made Canadians relatively richer over time by raising the relative value of what their wealth will buy in world markets compared to Americans."

Six years ago, when the Canadian dollar bottomed out at 62 cents (U.S.), Canadian household net worth was much lower than Americans’.

Some relief may come by the end of this year, as Holt predicted five-year mortgage rates will drop 75 basis points if the Bank of Canada reacts to a cooling economy by dropping key overnight rates.

Meanwhile, a cold February meant house resales also fell by 6.4 per cent to a seasonally adjusted 25,588 units last month, according to a separate report released yesterday by the Canadian Real Estate Association.

The association said sales activity will fall short of last year’s record with new listings to increase, a more balanced market and smaller price gains throughout Canada.

"With the further slide in February, Canadian home sales are now firmly below year-ago levels," BMO Nesbitt Burns deputy chief economist Doug Porter said yesterday.

"This is another sign the Great White North’s housing boom is grinding to a finish."

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WASHINGTON – U.S. consumers, battered by plunging home prices and a credit crunch, stayed away from the malls in February, pushing retail sales down by a larger-than-expected amount. It was another worrisome sign that the country could be falling into a recession.

The Commerce Department reported today that retail sales fell by 0.6 per cent last month, far worse than the 0.2 per cent increase that analysts had been expecting.

The weakness was widespread with sales of autos, furniture and appliances all down.

It marked the second time in the past three months that retail sales have taken a tumble. Sales had fallen by an even bigger 0.7 per cent in December, the largest drop in six months, as the nation's retailers suffered through a dismal holiday shopping season. Sales posted a modest 0.4 per cent gain in January.

Consumer spending is closely watched because it accounts for two-thirds of total economic activity. Many economists believe that the country will suffer a mild recession in the first half of this year as the economy is unable to withstand the blows from a prolonged slump in housing, record-high energy prices and a severe credit crisis brought on by soaring mortgage defaults.

At the White House, deputy press secretary Tony Fratto said the Bush administration expected that this quarter would be a “difficult and challenging" period for the U.S. economy as it deals with the fallout in housing and higher energy prices.

He said that the message to consumers is that they should have confidence in the long-term future of the economy because the benefits of tax relief and the economic stimulus package are “coming on line," and the Federal Reserve is taking measures that will allow growth to return to the economy.

Bush is headed to New York on Friday to deliver a speech on the economy.

"I think it's important for the president to get out and talk about how he sees the economy, and why he sees the economy improving as the year goes on," Fratto said. "We do have this economic growth package in place. We are taking aggressive action on one of the root causes for the slowdown in the economy, and that's in the housing sector http://abc-cashadvance.com. … What the president will be doing is, again, being very transparent and clear about what the economy looks like today, what are the activities that we are doing to strengthen it, the economy, as the year goes on."

In another report, the Labor Department said today that the number of laid-off workers filing applications for unemployment benefits was unchanged this past week at 353,000, the same number as last week. That was a slightly better showing than analysts had been expecting although the benefit applications remain at elevated levels indicating the labour market is under stress.

The government reported last week that employers slashed payrolls by 63,000 in February, the second straight monthly decline in employment and the most dramatic evidence to date that the country could be sliding into a recession.

A third report today showed that U.S. import prices rose last month by 0.2 per cent after jumping an even larger 1.6 per cent in January. Compared to a year ago, import prices are up a sharp 13.6 per cent, reflecting the fact that petroleum prices are up 60.9 per cent over the past year.

The rising cost of imported goods reflects the bind the Federal Reserve faces at the current time as it must deal with the twin threats of a sluggish economy and higher inflation.

Analysts expect that the Fed will continue to emphasize its battle against recession and cut interest rates sharply when officials hold a regularly scheduled meeting on Tuesday.

Meanwhile, the government said that inventories held by businesses on shelves and backlots shot up by 0.8 per cent in January, the largest amount in nearly two years. That gain was much larger than the 0.5 per cent increase that had been expected and it followed a sizable 0.7 per cent rise in December.

The big jump likely reflected an unwanted rise in inventories as business confidence falters in the face of the sharp slowdown in overall economic activity.

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NEW YORK–Stephen Schwarzman is Wall Street's $4.78 billion man.

That's how much money the co-founder of private equity shop Blackstone Group LP made in compensation for 2007, the year he brought the firm public, according to a filing with the Securities and Exchange Commission. His payday was almost as much as the $7.47 billion profit that international investment bank Morgan Stanley made that year.

Schwarzman – who earlier this week announced a $100 million personal donation to the New York Public Library – made $175,000 in salary but took no bonus in 2007, according to the filing. The Blackstone chairman and chief executive received $179,482 in other compensation, which includes use of a car and driver.

He received $4.77 billion worth of stock awards as part of last year's initial public offering of Blackstone's management division. Twenty-five percent, or about $1 billion, of those shares immediately vested, while the remaining will vest in equal installments over the next four years.

His stock holdings have declined in value since the June IPO, when shares initially sold for $31 a piece http://easy-quick-payday-loans.com. Today, the shares are trading around $16 each.

The figures included are drawn from Blackstone's annual report filed Wednesday. The company did not yet file its annual proxy statement, where it could provide additional details about his compensation.

The AP's total pay calculations include executives' salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. The calculations don't include changes in the present value of pension benefits, and they sometimes differ from the totals companies list in the summary compensation table of proxy statements filed with the Securities and Exchange Commission.

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Plane and train manufacturer Bombardier (TSX: BBD.B) has signed a compensation agreement with a Scandinavian airline, which includes orders for new aircraft, after troubles with landing gear left some planes grounded last year.

Bombardier said Monday that terms of the agreement were being kept confidential, but SAS Scandinavian Airlines said it will receive just over $164 million (U.S.) in compensation in cash and credits for future aircraft orders.

The compensation deal also includes Goodrich Corp., a North Carolina-based landing-gear manufacturer that was involved in the dispute.

Neither Bombardier nor Goodrich would disclose how the compensation charges would be divided between the two companies, though Bombardier Aerospace spokesman John Arnone said "the agreement itself is not material to Bombardier."

SAS also joined three of its affiliates in signing firm orders for 27 regional jets and turboprops, with options taken for two dozen more.

Last year, the airline permanently grounded its entire fleet of 27 Bombardier Dash 8 Q400 aircraft after suffering three landing accidents over a seven-week period. It blamed the accidents on faulty landing gear.

SAS said the combined value of the new orders based on CRJ900 and Q400 NextGen list prices is $883 million (U.S.) , with a potential value of $1.75 billion (U.S.) if all options are exercised.

The 27 orders do not necessarily replace the 27 planes that were grounded because some will be delivered to SAS affiliates Estonian Air, Norwegian firm Wideroe's Flyveselskap A/S and AirBaltic of Latvia, Arnone said free credit reports.

Both SAS and Bombardier were locked in a dispute last year over who was to blame for the landing gear malfunction.

Bombardier insisted that the aircraft were safe, and cited findings from Danish Accident Investigation Board that said the problem was caused by a rubber ring that was stuck in the landing gear, preventing it from opening properly.

Several other carriers stood behind Bombardier's Q400 aircraft and the European Aviation Safety Agency said there weren't any problems with the aircraft's design.

The new aircraft order had been expected from SAS for "some time" according to Desjardins analyst Benoit Poirier.

"SAS had been vocal regarding plans to acquire regional aircraft from Bombardier following the airline's landing gear issues," he said in a note that held the company at a "buy" rating with a target price of $7.65.

"The new order will not impact our estimates, but provides added visibility on Bombardier's aircraft deliveries."

Goodrich spokeswoman Laurie Tardif said the company will continue its relationship with Bombardier, which includes equipping both the Q400 and CRJ900 models with landing gear.

Deliveries of the new aircraft will be made successively until 2011, starting in the autumn 2008.

Bombardier shares lost eight cents to $5.22 afternoon trading on the Toronto Stock Exchange.

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