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Which banks might raise dividends? Analysts today are pondering which of Canada's major banks could be first to boost their dividends as their regulator prepares to remove a constraint in place for two years. The Office of the Superintendent of Financial Institutions is poised to lift the handcuffs that had pushed the banks to preserve excess capital instead rather than use it to hike dividends, buy back shares or pay for acquisitions. OSFI chief Julie Dickson told Globe and Mail banking reporter Grant Robertson in an interview that if weekend talks in Basel, Switzerland, go well, the regulator will begin working on a plan to end the restriction. That will be significant for both the banks and their shareholders.
"If the article is accurate and OSFI lifts restrictions earlier than November, it is possible that some of the banks we thought could be early dividend raisers could move in [the fourth quarter of this year]rather than [the first quarter of 2011]" analyst Andre-Philippe Hardy of RBC Dominion Securities, adding that Toronto-Dominion Bank and National Bank of Canada would be in a position to move first.
National and TD could announce dividend hikes as early as December, Bloomberg News said separately today, adding National could be the first, followed by TD and Bank of Nova Scotia BNS-T. Royal Bank of Canada could also move early, it said.
"Dividend increase announcements are likely in late 2010, early 2011," Tony Demarin, chief investment officer of BCV Asset Management in Winnipeg, told the news agency. "You're going to get increases from all them in 2011 unless we hit a real hard economic patch, or if the regulatory issues are delayed."
Mr. Hardy added that he does not expect buyback programs quickly.
Carney gives himself breathing room The Bank of Canada boosted its benchmark lending rate again today, for the thrd time in a row, but left itself some room to take a breather going forward. Still, Governor Mark Carney and his rate-setting panel weren't as harsh as economists expected in the statement - about as non-commital as they come as to future moves - that accompanied their decision to boost the overnight rate for the third time in a row. And they signalled they're still troubled by global developments given the faltering U.S. recovery and jitters from Europe.
As it raised its overnight rate by one-quarter of a percentage point to 1 per cent, the bank cited the uncertainty but still pointed to what it expects will be solid domestic spending:
"The global economic recovery is proceeding but remains uneven, balancing strong activity in emerging market economies with weak growth in some advanced economies. In the United States, the recovery in private demand is being held back by high unemployment and recent indicators suggest a more muted recovery in the near term.
"Economic activity in Canada was slightly softer in the second quarter than the Bank had expected, although consumption and investment have evolved largely as anticipated. Going forward, consumption growth is expected to remain solid and business investment to rise strongly. Both are being supported by accommodative credit conditions, which have eased in recent weeks mainly owing to sharp declines in global bond yields.
"The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report (MPR), largely reflecting a weaker profile for U.S. activity. Inflation in Canada has been broadly in line with the Bank's expectations and its dynamics are essentially unchanged."
The immediate reaction from economists was mixed. Jonathan Basile, vice-president of economics at Credit Suisse, said the lack of commitment looks like a "pause" going forward, though BMO Nesbitt Burns deputy chief economist Douglas Porter said the statement was "a bit more hawkish" than expected.
"The Bank of Canada clearly retains its tightening bias, and seems generally unfazed by the recent cooling in the Canadian economy," Mr. Porter said. "While we had been expecting the bank to now move to the sidelines for a spell, it appears that it will take a deeper slowdown in domestic spending (and core inflation) than what we have seen so far to prompt them to stop raising rates."
The bank's statement pushed up the Canadian dollar . "While slower growth was noticed in the U.S. and Canada, as long as the economic recovery is intact, there is no reason to keep rates exceptionally stimulative," said Rahim Madhavji of Knightsbridge Foreign Exchange. "More clarity results in a rate hike, more economic cloudiness could result in a pause."
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BP finds series of "failures" led to disaster An investigative report by BP PLC into the Gulf of Mexico disaster concludes that "a sequence of failures" involving several parties led to the explosion that killed 11 people in April and the environmental nighmare that followed. In a 193-page report posted on the company's website today, the energy giant shared the blame, saying no single factor caused the tragedy but that decisions by "multiple companies and work teams" fed into the accident. BP cited "a complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces."
According to the company, the four-month probe found that:
- "The cement and shoe track barriers - and in particular the cement slurry that was used - at the bottom of the Macondo well failed to contain hydrocarbons within the reservoir, as they were designed to do, and allowed gas and liquids to flow up the production casing;
- "The results of the negative pressure test were incorrectly accepted by BP and Transocean, although well integrity had not been established;
- "Over a 40-minute period, the Transocean rig crew failed to recognise and act on the influx of hydrocarbons into the well until the hydrocarbons were in the riser and rapidly flowing to the surface;
- "After the well-flow reached the rig it was routed to a mud-gas separator, causing gas to be vented directly on to the rig rather than being diverted overboard;
- "The flow of gas into the engine rooms through the ventilation system created a potential for ignition which the rig's fire and gas system did not prevent;
- "Even after explosion and fire had disabled its crew-operated controls, the rig's blow-out preventer on the sea-bed should have activated automatically to seal the well. But it failed to operate, probably because critical components were not working. "
"The investigation report provides critical new information on the causes of this terrible accident," chief executive Tony Hayward, who is leaving his post, said in a statement. "It is evident that a series of complex events, rather than a single mistake or failure, led to the tragedy. Multiple parties, including BP, Halliburton and Transocean, were involved."
In a statement, Transocean described it as a "self-serving report that attempts to conceal the critical factor that set the stage for the Macondo incident: BP's fatally flawed well design."
Small business confidence falling Canada's small business owners continue to fret. Confidence among small businesses fell again in August for the third month in a row, the Canadian Federation of Independent Business says, citing the drop in its confidence index to 64.9 from 65.7 in July. That's well below the peak of 69.9 in March, the organization says, and suggests the economy is growing at a modest rate of 2 per cent.
"Business optimism fell in seven of 10 provinces, but it was mainly weaker sentiment among firms in western Canada that drove the national index lower," the CFIB says. "A nearly five-point decline in B.C., coupled with one-to-three point reductions in the Barometer indexes in Alberta, Manitoba and Saskatchewan, drove the region to below the national average. Shifts in optimism were mixed in Atlantic Canada, rising in Nova Scotia but falling elsewhere in the region. Against the trend, business owners in Ontario and especially Quebec recorded improving sentiment in August."
A reading above 50 means small business owners who expect a better performance over the next year outnumber those expecting a weaker showing.
Citing broad based slowing given weaker readings in eight of 13 industries, Jonathan Basile, vice-president of economics at Credit Suisse questioned whether job cuts may be coming next, given that the CFIB noted that "there is ample evidence that business owners are seeking efficiencies wherever possible. Short-term hiring expectations have turned negative for both full- and part-time positions."
Building permits dip in July Canada's real estate sector continues to soften. Building permits issued by municipalities in July dipped 3.3 per cent in July from June, though they were still 33 per cent above the levels of a year earlier, Statistics Canada said today. Both the residential and non-residential sectors suffered a pullback, the federal statistics gathering agency said. On the residential side, permits fell 2.4 per cent, marking the fourth decline in a row, falling in six provinces. In the non-residential sector, permits fell 4.3 per cent.
Dana buys Suncor assets Dana Petroleum PLC, fending off a hostile bid from Korea National Oil Corp., is paying more than $370-million (U.S.) to buy some old Petro-Canada assets in the North Sea from Suncor Energy Inc. The deal includes 12 production and exploration licenses.
From today's Report on Business
- Trailer parks a sweet spot in real estate
- Meet a fan of emerging markets
- A white knight is on the way: Potash CEO
And, read our Streetwise blog and Your Business section