23 de junho de 2017


Consumer Price Index

StatCan. 2017-06-23. Consumer Price Index, May 2017

Consumer Price Index
May 2017
1.3% increase
(12-month change)
Source(s): CANSIM table 326-0020.

The Consumer Price Index (CPI) rose 1.3% on a year-over-year basis in May, following a 1.6% gain in April.

Overall, energy prices rose less year over year in May than they did in April, with the year-over-year growth rate in gasoline prices slowing to half of what it was the previous month. Declines in food prices continued to moderate.

Excluding food and energy, the CPI was up 1.4% on a year-over-year basis in May, after posting a 1.5% increase in April.

Chart 1   Chart 1: The 12-month change in the Consumer Price Index (CPI) and the CPI excluding food and energy
The 12-month change in the Consumer Price Index (CPI) and the CPI excluding food and energy

Chart 1: The 12-month change in the Consumer Price Index (CPI) and the CPI excluding food and energy

12-month change in the major components

Prices were up in six of the eight major components in the 12 months to May, with the shelter and transportation indexes contributing the most to the year-over-year rise in the CPI. The clothing and footwear index and the food index declined on a year-over-year basis.

Chart 2   Chart 2: Consumer prices increase in six of the eight major components
Consumer prices increase in six of the eight major components

Chart 2: Consumer prices increase in six of the eight major components

Shelter costs grew 1.9% in May on a year-over-year basis, after increasing 2.2% in April. This deceleration was led by the electricity index (-5.5%), which declined year over year for a fifth consecutive month. On a monthly basis, electricity prices were down 3.3% in May, led by declines in Ontario. On a year-over-year basis, the natural gas index rose less in May than in April. Conversely, homeowners' replacement costs were up more in May (+4.4%) than in April (+3.9%).

The transportation index rose 2.2% over the 12-month period ending in May, compared with 4.2% in April. Gasoline prices contributed the most to this deceleration, up 6.8% on a year-over-year basis in May, after a 15.9% gain in April. The purchase of passenger vehicles index edged up 0.2% in the 12 months to May, marking its smallest year-over-year increase since February 2015. At the same time, the price of air transportation rose more in the 12-month period to May than in April.

The recreation, education and reading index rose 2.5% in the 12 months to May, following a 3.3% increase in April. The travel tours index was up 6.8% year over year in May, after a 9.4% increase in April. Prices for video equipment fell more on a year-over-year basis in May than in April. At the same time, the traveller accommodation index rose 6.3% over the 12-month period ending in May, following a 5.7% increase in April.

In May, the food index was down 0.1% on a year-over-year basis, following a 1.1% decline in April. Prices for food purchased from stores decreased 1.2% year over year in May, with the meat and bakery products indexes contributing the most to the drop. The decline in fresh fruit prices (-1.0%) slowed in May, following a 6.2% decrease in April. Prices for fresh vegetables rose year over year for the first time since August 2016. Meanwhile, prices for food purchased from restaurants posted a 2.4% increase in the 12 months to May.

12-month change in the provinces

Year over year, consumer prices rose less in May than in April in all provinces. Growth in the CPI decelerated most in Manitoba, while the smallest deceleration in the growth of prices occurred in Quebec.

Chart 3   Chart 3: Consumer prices rise at a slower rate in all provinces
Consumer prices rise at a slower rate in all provinces

Chart 3: Consumer prices rise at a slower rate in all provinces

The CPI in Manitoba was up 1.0% year over year in May, following a 1.6% increase in April. The gasoline index registered a 0.9% decline in the 12 months to May, following an increase of 12.5% in April. Manitoba was the only province to post a year-over-year decline in gasoline prices. Natural gas prices in the province fell 4.9% in the 12-month period ending in May, providing the largest downward contribution to the natural gas index at the national level. At the same time, passenger vehicle insurance premiums rose 3.4% over the course of the year ending in May.

Consumer prices in Ontario rose 1.4% in the 12 months to May, after a 1.9% increase in April. Electricity prices declined 16.1% year over year in May, partly reflecting decreases in the time-of-use rates. Among the provinces, the cost of women's clothing fell the most in Ontario, declining 5.0% in the 12-month period ending in May. At the same time, the homeowners' replacement cost index registered a 7.9% year-over-year increase in May, the largest gain among the provinces, following a 6.8% increase in April.

In Quebec, consumer prices rose 0.7% year over year in May, following a 0.8% increase in April. The Internet access services index fell 11.7% in the 12-month period ending in May, the largest decline among the provinces. In contrast, fresh vegetable prices increased more in Quebec than in any other province on a year-over-year basis in May.

Seasonally adjusted monthly Consumer Price Index

On a seasonally adjusted monthly basis, the CPI fell 0.2% in May, after rising 0.4% in April.

Chart 4   Chart 4: Seasonally adjusted monthly Consumer Price Index
Seasonally adjusted monthly Consumer Price Index

Chart 4: Seasonally adjusted monthly Consumer Price Index

Four major components decreased on a seasonally adjusted monthly basis in May, while four increased.

On a seasonally adjusted monthly basis in May, the transportation index (-1.1%) posted the largest decline, while the clothing and footwear index (+0.6%) recorded the largest gain.

Chart 5   Chart 5: The gasoline index, annual average, Canada, 1950 to 2016
The gasoline index, annual average, Canada, 1950 to 2016

Chart 5: The gasoline index, annual average, Canada, 1950 to 2016


REUTERS. Jun 23, 2017. Canada inflation rate cools in May, making July rate hike less likely
By Leah Schnurr

OTTAWA (Reuters) - Canada's annual inflation rate cooled more than expected in May, moving it further away from the Bank of Canada's target and reducing the odds of an interest rate hike next month.

The annual inflation rate declined to 1.3 percent from April's 1.6 percent, Statistics Canada said on Friday, the lowest level since November 2016 and below forecasts for 1.5 percent.

The three measures of core inflation the Bank of Canada set last year remained subdued, with two of them declining.

Economists said the figures give the central bank room to hold off on raising interest rates at its next meeting in July after hawkish comments from two top policymakers last week set the stage for hikes sooner than had been anticipated.

"When we're looking for reasons for the bank to take its time in raising rates, core inflation has been exhibit A," said Doug Porter, chief economist at Bank of Montreal.

"Certainly very modest core inflation continues to rumble in the background as a pretty strong reason for the bank not to rush the proceedings. That story was just pounded home today."

The Canadian dollar weakened against the greenback, while markets reduced the likelihood of a July hike to 22 percent from 34.8 percent before the report was released. [CAD/]

Nonetheless, a hike by the end of the year is nearly fully priced in, suggesting markets do not expect weak inflation to delay the bank for long.

The bank, which has an inflation target of 2 percent, has held rates at 0.50 percent since 2015 when it cut borrowing costs twice to offset the hit from cheaper oil.

CPI common, which the central bank says is the best gauge of the economy's underperformance, held at 1.3 percent. CPI median, which shows the median inflation rate across CPI components, declined to 1.5 percent, while CPI trim, which excludes upside and downside outliers, dipped to 1.2 percent.

Food prices fell on an annual basis for the eighth month in a row, down 0.1 percent as consumers paid less for meat and fresh fruit.

Still, food price declines have been moderating in recent months and the cost of fresh vegetables rose for the first time since August 2016.

Gasoline prices were up 6.8 percent, slowing significantly from April's 15.9 percent annual increase. Shelter costs also moderated as electricity prices fell, particularly in Ontario, where the provincial government has introduced measures to alleviate high electricity costs.

(Additional reporting by Susan Taylor in Toronto; Editing by Chizu Nomiyama, Bernard Orr)

BLOOMBERG. 2017 M06 23. Canadian Core Inflation Slows to Lowest Since 1999
By Theophilos Argitis

  • Sluggish inflation will test Bank of Canada’s rate hike talk
  • Consumer price index rose 1.3 percent in May from year ago

Canadian inflation continued to ease in May, with a key gauge of price pressures at the lowest since 1999, a trend that will challenge the Bank of Canada’s recent efforts to set the stage for a rate increase.

The consumer price index rose 1.3 percent in May from a year ago, down from an annual pace of 1.6 percent in April, Statistics Canada reported Friday from Ottawa.

Measures of annual core inflation, a key indicator tracked by the Bank of Canada that excludes volatile components such as gasoline, fell to the lowest in almost two decades. The average of the central bank’s three core measures declined to 1.3 percent, the lowest since March 1999.

Key Points

  • The Bank of Canada last week began to play down sluggish inflation numbers, suggesting they were simply capturing the lagged effects of past excess capacity. But the numbers are below their forecasts. Inflation for the first two months of the second quarter is averaging 1.5 percent, versus Bank of Canada forecasts of 1.7 percent.
  • Economists surveyed by Bloomberg had forecast inflation would slow to 1.5 percent from 1.6 percent in April on lower gasoline prices.
  • Prices rose 0.1 percent on a monthly basis, lagging the 0.2 percent median economist forecast.
  • The Bank of Canada’s ‘common’ core rate was 1.3 percent in May, the ‘median’ core rate was 1.5 percent and the ‘trim’ measure was 1.2 percent.
  • Recent changes in electricity policy in Ontario seems to be having an impact. Electricity prices in that province were down 16.1 percent year over year in May, bringing inflation down in Ontario to 1.4 percent from 1.9 percent in April.

Big Picture

Inflation is important to the central bank since its mandate is to target inflation at 2 percent, an objective it has largely failed to deliver on over the past five years. When it talks about being less concerned about inflation, the Bank of Canada gives itself more leeway to talk about hiking interest rates, as it’s started do.

Other Details

  • On a seasonally adjusted basis, consumer prices fell 0.2 percent in May.
  • Gasoline prices fell 4 percent in May. Year-over-year, gasoline prices were up 6.8 percent. That’s down from a 15.9 percent increase in April.
  • The gap between goods and services inflation is widening. Price increases for services were 2.3 percent in May, compared with 0.1 percent for goods. The difference between the two rates was the widest since 2015.

What Economists Say

Nick Exarhos, CIBC Economics: Services inflation “is a better indicator of domestic slack, and where underlying inflation trends are heading. All told, a softer indicator on CPI, but something the market has gotten used to, and the trend in crude may be more instructive over the coming weeks for the path of inflation breakevens.”


Department of Finance Canada. June 22, 2017. Government's Plan to Build a Strong Middle Class Receives Royal Assent

Ottawa, Ontario – The Canadian economy is growing stronger, creating more opportunities for Canada's middle class. Budget 2017 is the next phase in the Government's ambitious plan to give every Canadian the chance to succeed in the new economy and be part of a strong middle class.

Finance Minister Bill Morneau today welcomed Royal Assent of the Budget Implementation Act, 2017, No. 1, which implements many of Budget 2017's measures, including preparing Canadians for the jobs of the future, strengthening Canada's health care system to meet the needs of Canadian families, and keeping Canada on the path to building a fairer, more inclusive country that reflects the priorities of Canadians.

With the passage of the Act, the following priorities will be implemented:

  • Immediate down payment on 2017–18 funding for home care and mental health services to provinces and territories that have accepted the federal offer of $11 billion over 10 years;
  • Establishment of the Canada Infrastructure Bank, an arm's-length organization that will work with provincial, territorial, municipal, Indigenous and private sector investment partners to transform the way infrastructure is planned, funded and delivered in Canada. The Canada Infrastructure Bank will be responsible for investing at least $35 billion in revenue-generating infrastructure projects that are in the public interest, and attracting private sector capital to those projects so that more infrastructure can be built across Canada;
  • Expansion of Employment Insurance (EI) benefits to offer more flexibility for families with different needs by allowing parents to choose to receive EI parental benefits over an extended period of up to 18 months, and allowing women to claim EI maternity benefits up to 12 weeks before their due date, if they so choose;
  • Greater support for Canada's veterans and their families to support a successful transition from military to civilian life, including the creation of a new Education and Training Benefit, and greater assistance for the families of disabled veterans;
  • Simplification of the existing system of tax relief for caregivers by replacing three existing tax credits with the single Canada Caregiver Credit, which will better support those who need it most, apply to caregivers whether or not they live with their family member, and help families with caregiving responsibilities;
  • Expansion of the range of courses eligible for the Tuition Tax Credit to include occupational skills courses that are undertaken at a post-secondary institution in Canada. In addition, the full amount of bursaries received for such courses would qualify for the scholarship exemption (where conditions are otherwise met);
  • Support for a Pan-Canadian Artificial Intelligence Strategy to retain and attract top academic talent, and to increase the number of post-graduate trainees and researchers studying artificial intelligence and deep learning; and
  • Strengthening of the Parliamentary Budget Office (PBO) by making it truly independent, recasting the head of the PBO as an officer of Parliament, supported by a team that is separate from the Library of Parliament, and with the authority to report directly to Parliament.


"I am pleased to see the implementation of this next phase of our government's long-term plan for growth and a strong middle class. By making these smart and responsible investments, we will ensure that all Canadians can succeed in the economy of tomorrow, with good, well-paying jobs and opportunities."

– Bill Morneau, Minister of Finance

Department of Finance Canada. June 22, 2017. Canada to Chair 2017 Commonwealth Finance Ministers Meeting

Ottawa, Ontario – The Government of Canada is continuing to build confidence in the middle class by deepening our engagement with other countries around the world and focusing on key partnerships that will help build an economy that works for all Canadians. Working towards this goal, Finance Minister Bill Morneau will chair the 2017 Commonwealth Finance Ministers Meeting (CFMM) in Washington, D.C., this October.

As the Commonwealth's third largest economy and a member of the G7 and G20, Canada is committed to contributing to global growth prospects that will lead to greater fairness and prosperity for Canadians and people around the world.

The Government of Canada's approach to creating long-term growth that works for the middle class and those working hard to join it has received international recognition and complements the theme of this year's CFMM, which is Advancing Jobs and Resilience through Innovation.

The CFMM will bring together 52 Commonwealth countries to discuss common economic challenges and opportunities. The meeting will take place on the margins of the Annual Meetings of the International Monetary Fund and World Bank Group, October 13-15, 2017. The CFMM date and other details will be announced in the coming months.


"I am proud that Canada has been asked to chair this meeting and to share our approach of creating the kind of economic growth that works to strengthen our middle class. Given this time of rapid global change, it is important that all countries work together to address our shared challenges and seize new opportunities. Above all, it is critical that the benefits of the growth we create in Canada and around the world are widely shared."

- Bill Morneau, Minister of Finance


The Globe and Mail. 23 Jun 2017. No need for a ‘Plan B’ for NAFTA: Trudeau

With North American free-trade agreement renegotiation talks only months away, Prime Minister Justin Trudeau said he is “100 per cent” confident there will still be a deal in place in a year’s time.
Speaking at a public event hosted by The New York Times in Toronto on Thursday, Mr. Trudeau emphasized that “there’s no need for a Plan B” when it comes to negotiating the trade deal. That’s despite dealing with a mercurial U.S. President, who threatened to tear up NAFTA as recently as March, before reportedly changing his mind following a phone call from Mr. Trudeau.
“NAFTA has been improved a dozen times over the years, and we will do it again to update it to what the challenges we’re facing now are,” Mr. Trudeau said.
The Prime Minister said that while he and President Donald Trump differ on many issues, the President is open to reasonable arguments.
“I highlighted the fact, fairly straightforward I thought, that in any trade deal, particularly one 25 years old, there has been certain momentum … and that to terminate it suddenly would be far more disruptive than renegotiating it, even if theoretically one could imagine a much better deal some time down the road,” Mr. Trudeau said of his phone call with Mr. Trump. “There was an openness to that.”
The sense of optimism about a successful NAFTA renegotiation is shared by David Jacobson, who served as the U.S. ambassador to Canada from 2009 to 2013 and is now the vice-chair of BMO Financial Group.
“Nobody can give you a guarantee, but I am confident it will work out because it is in the best interests of all of the parties involved that it work out,” Mr. Jacobson told The Globe and Mail after speaking at the Institute of Corporate Directors’ national conference in Toronto on Thursday.
He stressed, however, the timeline to secure a successful renegotiation is tight, particularly as Mexico heads into an election year in 2018.
“President [Enrique] Pena Nieto’s party, who will be the ones who are negotiating [NAFTA], is not going to want to be perceived, as the election approaches, as making compromises with the Trump administration, because the other side will make much of it.”
Revamping a major trade deal in five months – between the expected August start date and the end of the year – “would be a record,” Mr. Jacobson said.
However, the fact it follows on the heels of the extensive TransPacific Partnership negotiations, scuttled by the Trump administration earlier this year, could expedite the process, he added. Many of the issues that were hashed out in the TPP – electronic commerce, intellectual property rights, environmental protection – are likely to form the core of the NAFTA renegotiation.
“I would be surprised if when people sit down to negotiate, particularly when they’re under some time pressure, if they aren’t going to look back and say, ‘Well gee, we spent three years doing this, let’s at least take a look,’” Mr. Jacobson said. A number of the U.S. government bureaucrats who worked on the TPP deal will be on the NAFTA renegotiation team, even if the top political leadership has changed, he added.
Despite the confidence expressed about NAFTA, Mr. Trudeau did take a harder view of other pressure points between the two countries.
“We’re not reopening and renegotiating Paris, that’s simply not on the table,” Mr. Trudeau said of the Paris climate accord, which the United States pulled out of earlier this month. He also took objection to the U.S. investigation into national security implications of the Canada-U.S. steel trade.
“I made this point directly to the President, that Canada has no business being on a list of possible national security concerns,” Mr. Trudeau said.

REUTERS. Jun 22, 2017. Canada prime minister says steel exports not U.S. security threat

OTTAWA (Reuters) - Prime Minister Justin Trudeau on Thursday dismissed the idea that Canadian steel exports posed a national security threat to the United States and expressed confidence Canada would escape any punitive measures.

The U.S. administration of President Donald Trump is probing whether foreign-made steel imports pose a risk. The investigation is almost complete, officials say.

Trudeau told a public event in Toronto it was "just silly" to imagine Canadian exports were a threat to the United States, given how closely the two nations' militaries and security forces cooperated.

"I made this point directly to the President, that Canada has no business being on a list of possible national security concerns and I am confident we're moving in the right direction on that," he said. The two leaders spoke last Friday.

Foreign steel companies are concerned the probe may be aimed at shoring up American producers and cutting out foreign competition.

Reuters reported in March that Canadian officials fear any U.S. action against the highly integrated steel industry could result in major job losses.

(Reporting by David Ljunggren; Editing by Bernard Orr)


Trade Commissioner Trade. 23/06/2017. Canadians Diversifying Export Markets

Countries don’t trade; firms do and recent data analysis shows that while the United States remains important, Canadian businesses are increasingly diversifying their markets.

Information on bilateral trade between countries may be the norm, but businesses are actually the ones doing the trading and statisticians worldwide—including Statistics Canada—are increasingly recognizing that fact by producing and analyzing more data about the firms that buy and sell beyond their countries’ borders.

It is widely‑known that the U.S. accounts for a large majority of Canadian merchandise exports—more than 76 percent—of total exports by value in 2016. The U.S. market is even more important in terms of the number of exporters. In 2016, 81.4 percent of exporting firms were selling to the U.S., and more than two‑thirds of those—mostly small and medium‑sized enterprises (SMEs)—exported only to the U.S..

Destinations with Largest Increases in Number of Exporters
(excluding the U.S.)
Between 2010 and 2016, the number of Canadian firms exporting to non-U.S. markets increased.

Data: Statistics Canada, Trade by Enterprise Characteristics
Source: Office of the Chief Economist, Global Affairs Canada

More extensive analysis of data collected for the 2010‑2016 period, provides evidence that Canadian businesses are increasing selling to markets other than the U.S.. Between 2010 and 2016, the number of firms exporting to non‑U.S. markets increased, with China, the United Arab Emirates, and Vietnam witnessing the largest increases in numbers of Canadian exporters.

In 2016, 43,255 enterprises in Canada exported goods, according to recently‑released data by Statistics Canada. That’s 667 fewer Canadian businesses exporting than in the previous year. The figure represents a decline of 1.5 percent spread across numerous sectors, but a 6.5 percent increase from 2010, the first year for which the information is available.

Of the 43,255 exporters in 2016, the majority—97.4 percent—are SMEs (based on the widely‑accepted definition of SMEs as firms with fewer than 500 employees). These SMEs account for 40.7 percent of Canadian merchandise exports by value; the 1,129 large firms (those with 500 or more employees) which make up only 2.6 percent of the total number of exporters, by contrast, account for nearly 60 percent of the value of Canadian goods exports.

The Upshot

While the U.S. retains its dominant position as Canada’s most important trading partner, Canadian companies are increasingly diversifying their export markets.  More extensive data analysis is providing an increasingly nuanced view of Canadian exports.


The Globe and Mail. 23 Jun 2017. How Warren Buffett struck Home Capital handshake deal in three days

Investing guru says short e-mail from Canadian banker sparked his interest in troubled mortgage lender Legendary value investor Warren Buffett’s interest in rescuing Home Capital Group Inc. was piqued by an e-mail from 82-yearold Don Johnson, a Canadian banker who sends his thoughts to the investing guru now and then.
“This one wasn’t long, but it was to the point and that got my interest,” Mr. Buffett, a fellow octogenarian at 86, told The Globe and Mail by telephone from his office in Omaha, Neb.
After that, a deal in which a subsidiary of Mr. Buffett’s Berkshire Hathaway Inc. is poised to invest as much as $400-million into troubled Canadian mortgage lender Home Capital came together at breakneck speed – from first contact to a handshake deal in three days flat. Berkshire arrived late on the scene, where an array of financial firms were circling, catching even sophisticated financial players tracking the process by surprise. Mr. Buffett said he’s bullish on Canada in general, though he insists he has no fixed expansion plans for the country, and no particular insight into the direction of the Canadian housing market. Rather, he figured that by lending his firm’s name to the struggling alternative mortgage provider, he could shore up faith in its stability and have a shot at healthy long-term returns, while collecting steady interest payments over the next year.
“I really thought we could bring something to the party in addition to money in restoring confidence,” Mr. Buffett said.
The chair of Home Capital’s board, Brenda Eprile, hopes the investment “represents a turning point” for the company, which has been hammered by a crisis of market confidence and a run on deposits since it ran afoul of securities regulators over a failure to disclose concerns about mortgage fraud inside its business. » It soon became clear to directors that the company needed a reputable “sponsor” to burnish its battered reputation. Berkshire Hathaway is set to become Home Capital’s largest shareholder through a two-stage agreement that could give it a 38-per-cent equity stake at a significant discount if investors give the green light at a September vote.
Berkshire also signed on to provide a new $2-billion line of credit with slightly less onerous terms than the emergency loan from the Healthcare of Ontario Pension Plan (HOOPP) that has kept Home Capital afloat since April.
Eventually, Home Capital hopes to rebuild its portfolio of guaranteed investment certificates (GICs) as its core funding source. Home Capital’s stock soared 27 per cent to $19 a share on Thursday as shareholders embraced the news.
Berkshire must hold the Home Capital shares for at least four months. Mr. Buffett claims he didn’t even know that – “it must have been something the lawyers stuck in,” he said – and insists Berkshire is here to stay.
“I can tell you, we have no intention whatsoever of getting out in four months or eight months or 12 months,” he said.
In fact, Mr. Buffett could move deeper into the market.
While he waits for his investment to mature, he will learn more about Home Capital’s competitors and might explore opportunities for further acquisitions. “Six months from now or a year from now, as we see how this develops, you always think about that in any industry. But I have absolutely no grand plan for now,” Mr. Buffett said.
He added: “I don’t rule out anything in the future, either.”
In the month since the worst of the panic subsided, Home Capital refreshed its board, bringing on director Alan Hibben to replace retiring founder Gerald Soloway.
The company also tapped financial advisers at RBC Dominion Securities Inc. and BMO Nesbitt Burns Inc. to evaluate its options.
Investment bankers worked the phones, approaching potential investors and processing non-disclosure agreements for more than 70 interested parties granted access to a confidential data room. The names of some private-equity firms eyeing the lender began to leak into the market, with Toronto-based Onex Corp. and Brookfield Business Partners LP among the potential bidders. But none of the offers that were tabled proved attractive.
Then came the investment pitch via e-mail from Mr. Johnson, a veteran at Bank of Montreal. He reminded Mr. Buffett of their meetings over the past few decades, attaching a photo to the e-mail from an encounter in Omaha, and passed along a colleague’s contact information.
Mr. Buffett “did some thinking on it” with one of his lieutenants, Ted Weschler, and on June 12, they made their move. They sent a formal, no-conditions offer on June 13, and Mr. Weschler was dispatched to Toronto to discuss it. He reported back to Mr. Buffett that he was impressed with Home Capital’s directors.
True to Berkshire’s style, there wasn’t much negotiating, though the two sides did have to tweak some specific terms to fit Canadian laws and regulations, which Mr. Buffett was studying on the fly. Mr. Weschler “went up and just explained what we would do. And then it was up to them,” Mr. Buffett said.
By June 14, the two sides had agreed in principle.
“We’ve bought a lot of entire businesses here with what would look to a typical lawyer or investment banker as being a very peculiar way of doing due diligence,” Mr. Buffett said. “But, essentially, we’ve got our own way of evaluating facts and sometimes we make mistakes. And hopefully our batting average is decent over time. It’s not conventional.”
There were good reasons to move quickly. Home Capital is still trying to narrow its shortlist and hire a full-time chief executive officer – a role it hopes to fill by July. Mr. Buffett hopes it will be easier “getting him or her to join the place” with “an anchor shareholder like Berkshire.”
Home Capital also had concerns over staff morale. “It’s very difficult if you’re coming to work every day and you’ve got a bunch of guys chirping about your stock going to zero,” Mr. Hibben said, referring to shortsellers betting against the company.
The deal was announced just after 11 p.m. on Wednesday night, and in Shanghai, where it was already late morning, Hugo Chan was in shock. Mr. Chan, whose investment firm Kingsferry Capital bought up Home Capital shares after the share price plunged in late April, was surprised Mr. Buffett’s massive firm would get involved in such a relatively small investment. But he approves of the pact.
“In the short run, yeah, it’s a big dilution. But at the same time, I think with the support of Berkshire, Home Capital will just have enormous potential to emerge into a more profitable business,” he said.
The deal may seem like pocket change for Berkshire Hathaway, a financial juggernaut with nearly $100-billion (U.S.) available to invest. But at its core, the strategy is simple.
“Guys like that like to make money and so I suspect that was part of their motivation,” Mr. Hibben said.
Home Capital expects to seal further asset sales and deals in the near future and will use the Buffett name to woo depositors. At its peak, the company was collecting between $25-million (Canadian) and $35-million in deposits a day, before confidence in the firm evaporated and jittery investors began pulling their money.
Mr. Hibben hopes to return to accepting roughly $30-million a day.
If they’re successful, “it’s not victory, but it is certainly going in the right direction,” he said.

The Globe and Mail. Jun. 22, 2017. The nuts and bolts behind Home Capital’s deal with Berkshire Hathaway

Warren Buffett doesn’t come cheap. Just ask Home Capital Group Inc.

His Berkshire Hathaway Inc. has agreed to indirectly buy $400-million of Home Capital’s shares – at a steep discount to the current trading price – and provide a new $2-billion line of credit on slightly better terms than the emergency loan the Toronto-based mortgage lender received in April.

Here’s how the financing will work.

The equity portion of the deal is broken up into two chunks.

Berkshire, through subsidiary Columbia Insurance Co., will make an initial investment of $153.2-million to acquire more than 16 million shares of Home Capital, which represents a stake of nearly 20 per cent in the company. Each share will be issued at $9.55, which is about half of Thursday’s closing price of $19.

Home Capital says the discount is not as large as it seems, because Berkshire actually made its final offer on June 13. The shares closed at $11.30 that day. Since then, the company announced a major asset sale to raise cash and stabilize its financial position and reached a settlement in a regulatory case with the Ontario Securities Commission. Both moves caused the share price to rise.

While such a stock sale would normally be subject to a shareholder vote, Home Capital is trying to bypass this and speed things up by relying on an infrequently-used clause in the Toronto Stock Exchange’s company manual called the “financial hardship exemption.”

Home Capital expects the TSX will approve its proposed use of the exemption after five business days, in which case it will close on June 29.

Berkshire has agreed to make another investment – also through Columbia – of $246.8-million to buy another 24 million shares of Home Capital at $10.30 a share. This deal, however, requires a green light from investors, which will be sought at a special meeting in September.

If both transactions are completed, Berkshire will own a stake of almost 39 per cent in Home Capital at an average price of $10 a share. Private placements such as these have to be held for at least four months.

Berkshire is also lending Home Capital $2-billion to repay its existing credit facility, which was given in April by the Healthcare of Ontario Pension Plan (HOOPP).

It is slightly cheaper than the HOOPP loan: There is no upfront commitment fee. The interest rate on outstanding balances will decline to 9.5 per cent from the current 10 per cent, while the standby fee on undrawn funds will decrease to 1.75 per cent from the current 2.5 per cent.

Once Berkshire makes its initial investment in Home Capital, these amounts will drop to 9 per cent and 1 per cent, respectively.

The Globe and Mail. 23 Jun 2017. Investors who choose to follow the lead of Warren Buffett and buy into Home Capital are not making the same bet.

There is one thing to keep in mind if you are considering investing in Home Capital Group Inc.: You are not Warren Buffett.
Mr. Buffett, a legendary investor who attracts copycats with his every move, has agreed to provide financial backing to the beleaguered Canadian mortgage lender, in the form of a $400million equity investment and a $2-billion line of credit.
Investors love it. Home Capital shares jumped 27.2 per cent on Thursday, closing at $19 – for a gain of 225 per cent from the stock’s low point in early May.
The impressive rebound suggests renewed confidence in Home Capital, two months after its share price collapsed amid fleeing deposits that raised questions about the company’s ability to survive.
However, while Mr. Buffett’s financial backing appears to be a wildly bullish argument in favour of buying Home Capital shares, the deal he has struck cannot be replicated by other investors: If you choose to follow Mr. Buffett, you are not making the same bet.
The deal resembles the one Mr. Buffett struck with Goldman Sachs Group Inc. during some of the darkest days of the financial crisis last decade. In September, 2008, Mr. Buffett’s Berkshire Hathaway Inc. provided a much-needed cash infusion to the Wall Street investment bank.
Mr. Buffett bought $5-billion (U.S.) worth of preferred shares yielding 10 per cent annually. He also got warrants that would give him the right to buy 43.5 million Goldman Sachs common shares at $115 each (or $5-billion in total) – giving him an easy profit if the shares rose above this price. And they did. But investors couldn’t piggyback on this exact deal. It was a made-for-Buffett deal.
His agreement with Home Capital, also through Berkshire Hathaway, has similar qualities. Yes, Mr. Buffett will become a significant shareholder in the mortgage lender if the deal goes through, which speaks volumes about the perceived quality of the company’s loan book.
But Mr. Buffett is getting a few things here that new investors are not. For one, his first investment of about 16 million shares is priced at just $9.55 a share.
That is a 15-per-cent discount to the five-day volume-weighted average price, as Home Capital’s press release helpfully points out – and it is a dazzling 36 per cent below Wednesday’s close.
Based on Thursday’s closing price of $19, new investors who decide to ride on Mr. Buffett’s coattails are buying shares that are already about 100 per cent more expensive than Mr. Buffett’s sweetheart deal.
Mr. Buffett is also getting a steep discount on a second investment of about 24 million Home Capital shares. These will be priced at $10.30 each, or 31 per cent below Wednesday’s close.
Berkshire Hathaway has also agreed to extend a $2-billion line of credit to Home Capital that will pay an interest rate of 9.5 per cent on drawn funds. Try getting that on a fixed-income investment.
This deal is good for Mr. Buffett, who stands to double his equity investment the minute the deal goes through (expected later this month). It’s also good for Home Capital, which has found a highprofile investor, a new financial lifeline and the best confidence booster it could hope to get.
But for new investors hoping to tag along with Mr. Buffett, the deal is bittersweet. Home Capital is on safer ground and you might do fairly well if you hold on to your shares for the long run. Tha Oracle, however, is a giant step ahead of you.

The Globe and Mail. 23 Jun 2017. Why Buffett is a bull on Canada. Warren Buffett’s warm feelings for Canadian investments date back to his childhood.

Just don’t ask the Oracle of Omaha where house prices will be in 12 months. The legendary value investor said he made a potential $2.4-billion debt-andequity investment in Home Capital Group Inc., the country’s largest alternative mortgage lender, “with no specific view on whether home prices are going to be up 10 per cent or down 10 per cent in a year’s time. No one knows that.”
In a deal that combined the folksy charm and financial acumen that has made him one of the world’s wealthiest men, the chairman and CEO of Berkshire Hathaway Inc. said in an interview with The Globe and Mail that he first considered backing Home Capital, which came close to collapse in early May, after getting an e-mail from a Bank of Montreal executive who occasionally passes along interesting opportunities.
That note was a seed landing in fertile soil. Mr. Buffett’s warm feelings for Canadian investments date back to his childhood – he owned shares in miner Noranda as a 13-year-old. The upbeat outlook was reinforced in May when Mr. Buffett listened to Prime Minister Justin Trudeau and Finance Minister Bill Morneau speak about Canada’s prospects at a Microsoftsponsored CEO summit in Seattle.
“I always have been enthusiastic on Canada generally, but I felt even more so after talking to them,” Mr. Buffett said, adding in a can’t-make-this-up moment that he was impressed by the country’s Prime Minister after watching Mr. Trudeau “win that prize fight” – his famous charity boxing match with Senator Patrick Brazeau in 2012 – on YouTube.
The attraction of Home Capital was simple, to hear Mr. Buffett tell it. This was a solid company facing a lapse in confidence and a run on the bank. Mr. Buffett said: “Financial institutions trade on confidence, and we believed Berkshire could bring something in terms of confidence, to improve an already secure situation.”
Home Capital’s clients are folks who can’t borrow from banks, including immigrants and the self-employed, and Mr. Buffett said he and his colleagues were impressed by company’s ability to lend to homeowners who pay back mortgages and avoid deadbeats.
Berkshire also sees an opportunity to expand Home Capital’s business, potentially through acquisitions, in a fragmented market for alternative mortgages.
“A lot of people who don’t fit the cookie-cutter approach to borrowing are perfectly decent credits,” he said. Mr. Buffett, who is famously paid just $100,000 (U.S.) to run Berkshire, added: “I’m not sure whether I’d qualify very well on loans, when you get right down to it … if you look at my salary.”
While Mr. Buffett’s thesis for investing in Home Capital started with an optimistic view of Canada – with a strengthening economy and inflow of immigrants – and a positive take on the company’s credit culture and prospects, it was Berkshire’s ability to make quick decisions that sealed this deal.
More than 70 suitors looked at Home Capital’s books after the Toronto-based lender was effectively put up for sale in May. Berkshire’s team went from a first meeting to a handshake deal in three short days, warp speed in deal-making terms.
“Our style is never to really haggle over price,” said Mr. Buffett, who can draw on the deep financial resources within Berkshire to fix balance sheet woes at Home Capital – the conglomerate has some $90-billion (U.S.) in cash. “We’ve bought a lot of businesses. … We’ve got our way of doing things. Hopefully, our batting average is decent over time.”
Mr. Buffett’s batting average at Berkshire has turned a theoretical $1,000 investment when he arrived at the company in 1964 into a stake worth more than $10-million today. For Berkshire, the Home Capital transaction is a small one – but it should nevertheless enhance that track record. Assuming all parts of the deal close, he has already turned a paper profit of $360million on the Home Capital shares he has agreed to buy.

The Globe and Mail. 23 Jun 2017. Berkshire to the rescue: How Home Capital’s deal works

His Berkshire Hathaway Inc. has agreed to indirectly buy $400-million of Home Capital’s shares – at a steep discount to the current trading price – and provide a new $2-billion line of credit on slightly better terms than the emergency loan the Toronto-based mortgage lender received in April.
Here’s how the financing will work.
The equity portion of the deal is broken up into two chunks.
Berkshire, through subsidiary Columbia Insurance Co., will make an initial investment of $153.2-million to acquire more than 16 million shares of Home Capital, which represents a stake of nearly 20 per cent in the company. Each share will be issued at $9.55, which is about half of Thursday’s closing price of $19.
Home Capital says the discount is not as large as it seems, because Berkshire actually made its final offer on June 13. The shares closed at $11.30 that day. Since then, the company announced a major asset sale to raise cash and stabilize its financial position and reached a settlement in a regulatory case with the Ontario Securities Commission, Both moves caused the share price to rise.
While such a stock sale would normally be subject to a shareholder vote, Home Capital is trying to bypass this and speed things up by relying on an infrequently-used clause in the Toronto Stock Exchange’s company manual called the “financial hardship exemption.”
Home Capital expects the TSX will approve its proposed use of the exemption after five business days, in which case it will close on June 29.
Berkshire has agreed to make another investment – also through Columbia – of $246.8million to buy another 24 million shares of Home Capital at $10.30 a share. This deal, however, requires a green light from investors, which will be sought at a special meeting in September.
If both transactions are completed, Berkshire will own a stake of almost 39 per cent in Home Capital at an average price of $10 a share. Private placements such as these have to be held for at least four months.
Berkshire is also lending Home Capital $2-billion to repay its existing credit facility, which was given in April by the Healthcare of Ontario Pension Plan (HOOPP).
It is slightly cheaper than the HOOPP loan: There is no upfront commitment fee. The interest rate on outstanding balances will decline to 9.5 per cent from the current 10 per cent, while the standby fee on undrawn funds will decrease to 1.75 per cent from the current 2.5 per cent.
Once Berkshire makes its initial investment in Home Capital, these amounts will drop to 9 per cent and 1 per cent, respectively. Home Capital Group (HCG) Close: $19, up $4.06
Berkshire Hathaway (BRK.B) Close: $168.32 (U.S.), down $1.30

The Globe and Mail. 23 Jun 2017. Home Capital GICs: A new layer of confidence. With Buffett’s Berkshire Hathaway offering financial support, the company may not need to offer premium rates for long

Warren Buffett is widely seen as one of the investing world’s best judges of companies offering value.
Capital enough to invest in its shares, then there’s less reason to hold back on the company’s GICs.
That 3.25-per-cent, five-year guaranteed investment certificate that Home Capital’s selling under its Oaken Financial brand? Get it while you can. With Mr. Buffett’s Berkshire Hathaway helping to financially support Home Capital, the company may not need to offer premium rates like this for long.
I argued against buying Home Capital’s GICs in a May 25 column after seeing how freaked out investors were about the company’s struggles following a run-in with regulators that has since been settled. Some people spoke of cashing in Home Capital GICs, even though combined principal and interest are protected by Canada Deposit Insurance Corp. to a maximum of $100,000 per eligible deposit.
Getting financial support from Mr. Buffett’s holding company is a big win for Home Capital. The deal, which has yet to be finalized, seems calculated to soothe investor concerns about buying a supposed safe-investment product from a troubled company. There’s no question that with Mr. Buffett on board, people buying GICs from Home Trust, Home Bank or Oaken Financial now have an additional reason for confidence beyond CDIC’s trustworthy backing.
That reason is Mr. Buffett’s acumen. The man is a legendary investor who has made plenty of scandal-free wealth over the years for Berkshire Hathaway shareholders. Mr. Buffett is so divorced from the usual investment industry spin and salesmanship that he encourages people to buy low-cost index funds instead of picking their own stocks like he does.
Mr. Buffett has made mistakes, as anyone who manages money does from time to time, but he’s widely seen as one of the investing world’s best judges of companies offering value. If he’s willing to buy shares of Home Capital and provide a line of credit to the company, that’s a significant endorsement.
The Home Capital shares that Berkshire Hathaway is buying were priced at a steep discount to the trading price. This demonstrates how Mr. Buffett has found an angle on profiting from a Home Capital rebound that isn’t available to everyone. You could buy some Home Capital shares yourself, but they jumped 12.5 per cent in the first 30 minutes of trading on Thursday on news of the Berkshire deal and were already up about 62 per cent in the past month.
Negative news about Home Capital in the future would send those shares right back down again. So consider those GICs from Oaken, Home Trust and Home Bank. The latter two outfits deal through deposit brokers or investment dealers and offer slightly lower rates than Oaken, which deals directly with investors. In the Home Capital organizational chart, Oaken GICs are protected through the CDIC membership of Home Capital or Home Trust. Oaken itself is not a CDIC member.
Oaken offered 2.75 per cent for a one-year GIC as of early Thursday, Home Bank offered 2.55 per cent and Home Trust 2.5 per cent. Compared with Oaken’s 3.25 per cent over five years, Home Bank offered 3 per cent and Home Trust 2.95 per cent. Posted rates from the big banks were a bit less than 1 per cent for one year, and no more than 1.6 per cent for five years. GICs are basically pointless if this is all you’re getting.
When it introduced its current rates a couple of weeks ago, Home Capital was desperate to attract money from investors to sustain its business of lending out money to so-called alternative mortgage clients – entrepreneurs and immigrants, for example. These are premium rates that beat the competition cleanly, while also addressing the main reason for being wary of GICs today – returns lag or barely keep up with inflation.
Oaken’s five-year GIC rate is a little more than double the mostrecently reported 1.6-per-cent inflation rate. That said, the sweet spot in Oaken’s GIC offerings just might be the three-year term at 3.05 per cent. You still hit that elusive 3-per-cent threshold, but you only have to lock up your money for three years.
The Berkshire deal destresses the experience of investing in Home Capital GICs a lot. But even with Mr. Buffett on board and CDIC protection in place, there could still be a certain level of drama associated with the company. Continue to avoid Home Capital if you’re investing in GICs to escape the financial headlines.

The Globe and Mail. Jun. 22, 2017. Investment advisers regaining confidence in Home Capital savings products

As Warren Buffett swoops in to save the day for Home Capital Inc., a surge of renewed confidence has been restored throughout the investment community.

Earlier this year, Home Capital was seen as an attractive mortgage lender that was able to offer better-than-average interest rates for both high-interest savings accounts (HISAs) and guaranteed investment certificates (GICs). But after regulatory concerns surfaced within their mortgage business, brokers at other financial institutions grew wary and a flood of investment dollars was immediately pulled from the company’s HISAs.

Over the past several months, balances in those accounts dropped to approximately $112-million from $1.9-billion.

Total GIC deposits, including Oaken and broker GICS, stood at approximately $12.03-billion and Oaken savings accounts stood at approximately $142-million, as of Wednesday.

In hopes of drawing in new investment dollars, Home Capital has remained aggressive in both the HISA and GIC markets offering attractive interest rates that at times were more than double what Canadian banks were offering.

Currently, Oaken Financial GICs are offering 2.75 per cent for a one-year GIC, while Home Trust is slightly less at 2.5 per cent (Home Trust GICs are sold through the adviser channel while Oaken GICs are sold directly to investors).

Despite aggressive rates and the security of Canadian Deposit Insurance Corp. (which insures the majority of deposits under the $100,000 threshold) many advisers were hesitant to take on the risk of their clients money being tied up in the case Home Capital had to shut its doors. Several financial institutions – including Scotia Wealth Management – placed a capped limit of $100,000 of Home Capital product an adviser could sell to a client. (That capped limit still remains for Scotia wealth advisers.)

Now, with Berkshire Hathaway agreeing to indirectly acquire $400-million of Home Capital’s common shares, confidence is being restored and many financial advisers – and their clients – may be more willing to turn to the mortgage lender for attractive cash options.

Here is what investment advisers are saying about the potential backing of Berkshire Hathaway in Home Capital:

Brian Evans, chair of the Registered Deposit Brokers Association and head of Brian J. Evans Financial Services

“We never stopped recommending Home Capital products because we were pretty confident that there would not be a failure in the company but there were some clients who chose to stay clear of potential risks with their deposit products. Now I wouldn’t be surprised if some of these same clients would be looking at Home Capital in a different light than they did a few weeks ago. For both the retail investor, and the deposit brokers, seeing an investment partner, like Berkshire, come on-board adds strength and confidence to the firm. We know this is the start of the anticipated resolution to the matter.”

Darren Coleman, portfolio manager with Raymond James

“This news about Warren Buffett buying in brings a huge vote of confidence for deposit holders. Not only is there an injection of capital into the company, but now there is also a steady hand at the wheel for deposit holders to see. Warren Buffett is one of the most highly respected investors in the industry and has obviously done the due diligence to make an investment in the company. This would make me very comfortable as an investor now. But what will really be interesting is whether the company will drop the interest rates back down. The company ramped up interest rates to draw in funds … if the perception of risk goes down then it would make sense that the rates would follow suit.”

Brad Brain, portfolio manager at Aligned Capital Partners Inc.

“Unquestionably, this is good news. I am a long-term Buffettophile and am very familiar with his philosophy and his previous transactions. This is exactly in his circle of competence and he doesn’t work with management teams that he doesn’t have full faith and confidence in.”

Darren Farwell, director of wealth management with The Farewell Group at Scotia Wealth Management

“There is no question that as of today, with a strong corporate sponsor like Berkshire Hathway, there is a higher level of comfort for any Home Capital depositors and stakeholders. But, for these kinds of investment products, I am reluctant to expose my clients to that unnecessary kind of risk in a product that has so little differentiation in a rate of return.”

The Globe and Mail.  23 Jun 2017. Foreign buyers are a limited part of Montreal housing: CMHC

MONTREAL - Foreign buyers are pushing into Montreal’s real estate market in increasing numbers but they remain a limited part of the property picture, data from Canada’s national housing agency confirms.
About 235 foreign buyers snapped up property in the Montreal area from January to April this year, a 40-per-cent jump from the first four months of 2016, the Canada Mortgage and Housing Corp. (CMHC) said in a research note Thursday. That continues an upward trend from last year as a whole, when there were 60 per cent more buyers than in 2015.
The increases are large in percentage terms and signal a continued interest by people outside Canada in Quebec’s largest city. But they are small when considered as part of the wider market, with 235 buyers representing just 1.8 per cent of all residential real estate transactions.
“A slight shift in demand from Vancouver to Montreal may have occurred after the introduction of the foreign buyers’ tax on housing in Vancouver” in August, 2016, the housing agency said. Given the introduction by Ontario of a similar tax in April of this year, the agency said it will continue to follow the situation closely over the coming months.
Prices in Montreal climbed 6 per cent in May compared with the same month last year and sales volume set a record for the month with 15-per-cent growth, according to the Québec Federation of Real Estate Boards. The federation says Montreal’s market is being driven by demand from local buyers in an economy with record low unemployment and low interest rates, not by foreign-based purchasers.
Buyers from the United States and France still make up the largest pool of foreign buyers in Montreal, according to the CMHC data. The housing agency said the number of Chinese buyers in Montreal more than tripled to 100 over the eightmonth span after Vancouver’s tax was introduced compared with the same span the year before.
Condominiums remained the first choice of property type for foreign investors in Montreal, the CHMC said. Chinese buyers were more inclined than buyers from the United States and France to opt for single-family homes.

BLOOMBERG. 2017 M06 23. Short-Seller Nailed Home Capital, Then Got Stung by Buffett
By Noah Buhayar  and Katia Dmitrieva

  • Cohodes says lender’s Berkshire deal is sign of desperation
  • I’m not wrong just because Buffett shows up, Cohodes says
  • Buffett Follows Goldman Model in Bailout for Home Capital

Marc Cohodes was having dinner Wednesday with a friend at the Slanted Door, an upscale Vietnamese restaurant on San Francisco’s Embarcadero, when he saw the news: Warren Buffett’s Berkshire Hathaway Inc. had just thrown a lifeline to Home Capital Group Inc.

“I said, ‘Boy, that’s interesting,”’ he remembers. “I’m surprised Berkshire Hathaway would show up in something like this.”

It was a mild reaction for an investor who’s shown time and again he’s got brass. More than anyone, Cohodes has tried to discredit Home Capital. A former hedge fund manager and veteran short seller, he began betting against the stock in 2014, publicizing his view that the Canadian mortgage provider had lax underwriting and poor management.

It didn’t take long for the wager to net returns. Two years ago, the company said it found fraudulent data in documents provided by partner brokers who submitted about C$2 billion in mortgages. The lender cut ties with them, prompting a lower profit forecast.

The troubles didn’t end there. The Ontario Securities Commission alleged in April that company executives had misled investors about the extent of the mortgage fraud. Clients began withdrawing funds from savings accounts. From its peak in 2014, Home Capital stock fell about 90 percent.

Cohodes seemed to be riding a wave of vindication. So many other investors piled into the trade that, at one point, almost two-thirds of Home Capital’s shares were sold short.

Stock Rebound

In recent weeks, though, things started to turn around. The stock began to climb on news of asset sales and partners willing to invest in the mortgage lender. The company and former executives settled the regulatory probe this month.

Then, late Wednesday, the bombshell: Berkshire agreed to take a 38 percent stake in the company for about C$400 million ($300 million) and provide a line of credit. Home Capital’s stock rocketed 27 percent on Thursday to C$19. The shares added another 43 cents as of 9:52 a.m. in Toronto.

“Partnering with an investor with the pedigree of Berkshire should go a long way in restoring confidence, particularly with depositors,” Dylan Steuart, an analyst at Industrial Alliance Securities Inc., said in a note Friday. “This transaction, combined with the recent settlement with the OSC, will likely lead to funding inflows as the smoke continues to clear.”

Few investors would want to be on the opposite side of such an economic force. But Cohodes isn’t backing down. He said he still thinks Home Capital’s stock could go to zero and that he continues to bet on a decline, though he won’t disclose the size of his wager.

“I may lose,” he said in a phone interview on Thursday, while pacing around his his chicken farm about an hour north of San Francisco. “It may go to C$20. It may go to C$30. But I’m in a whole lot higher. I’m willing to see more rounds.”

Desperate, Horrible

Cohodes says he takes comfort in the way the deal with Buffett was structured and believes there’s a scenario where both he and the billionaire can make money. In addition to getting discounted shares in Home Capital, Berkshire agreed to provide a C$2 billion credit line that will eventually carry a 9 percent interest rate, generating returns for Berkshire even if the lender’s shares slump. Cohodes sees the deal terms as a validation of his skepticism.

“This move shows how desperate this thing really is,” he said. “If it weren’t Warren Buffett’s name, it would be destroyed today, just absolutely destroyed, because it’s that horrible of a deal.”

Home Capital declined to comment about Cohodes, but said in its statement Wednesday that the Berkshire investment was a “very strong validation and endorsement.” In the same announcement, Buffett added that Home Capital was a good bet because of its “strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector.”

Buffett, 86, has spent decades building Berkshire’s reputation as a source of capital for troubled companies. During the 2008 financial crisis, he plowed billions into Goldman Sachs Group Inc. and General Electric Co. He also propped up Bank of America Corp. when that lender ran into trouble in 2011. In exchange for putting money and his reputation on the line, he’s negotiated preferential returns for Berkshire shareholders.

As with those previous deals, Berkshire moved quickly with Home Capital. For Cohodes, who’s spent years digging into the mortgage lender, that’s another sign that his thesis may still be right.

“I got the goods,” he said. “I’m not wrong just because he shows up.”

BLOOMBERG. 2017 M06 23. Buffett’s Home Capital Bet Backs Turbulent Canada Housing Market
By Katia Dmitrieva

  • Berkshire head supports lender as housing concerns mount
  • Toronto housing market cools after record price gains
  • Buffett Poised for Immediate Gain From Home Capital

Warren Buffett’s deal to back Home Capital Group Inc. does more than support a struggling mortgage lender -- it’s a vote of confidence for a housing market that everyone from investors to global ratings companies say is a bubble ready to burst.

Buffett’s Berkshire Hathaway Inc., is buying a 38 percent stake in Home Capital for about C$400 million ($300 million) and providing a C$2 billion credit line to backstop the Toronto-based lender. With the deal, the billionaire investor is wading into a housing market that’s been labeled overvalued and over-leveraged, with home prices in Toronto and Vancouver soaring as household debt hits record levels.

Naysayers “have been dissing our banks and dissing our real estate market for years because we didn’t go into the can the way that the Americans did in 2008 to ’09, and they’ve been waiting for a collapse in our markets,” said Ross Healy, chairman of Toronto-based Strategic Analysis Corp. and a Home Capital investor who bought shares when they dipped to C$6 last month. “Am I concerned about that? Nope. So thank you, Warren Buffett.”

Home Capital became a poster child for the ills in Canada’s housing market after it was accused by regulators in April of misleading investors about mortgage fraud. That sparked a run on deposits and raised concerns it would be the catalyst to bring down the housing market that organizations including Fitch Ratings Inc. and the International Monetary Fund warned was already at risk of correction.

Buffett’s equity investment and credit line for Home Capital suggest he’s not betting on a collapse anytime soon. At the same time, he’s being rewarded for the risk, buying shares at a 33 percent discount and making 9 percent interest on any tapped portion of the loan.

‘Leading Position’

“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” Buffett said in a Home Capital statement late Wednesday night.

Buffett joins a long list of investors who have taken a look Home Capital’s assets, even amid the housing-market risk and run on deposits. The company drew interest from Onex Corp., Brookfield Asset Management Inc., Catalyst Capital Group Inc. and others, according to people familiar with the matter. Home Capital was also in discussions with Canada’s major banks about refinancing its existing line of credit with a Canadian pension fund. Home Capital this week sold a C$1.2 billion portfolio of commercial mortgages to KingSett Capital Inc., a Toronto-based private equity firm.

Buffett’s investment could only be positive in a country where risks of housing are overblown, said Alan Hibben, one of the new board members put in place in May to rescue the company. In Toronto, average home prices have rallied 130 percent in the past decade to C$863,910 last month. In Vancouver, they’re up 115 percent to C$1.1 million in the same period. Though home price gains have slowed over the past six weeks, there is little risk of a crash, Hibben said.

Home Capital is “a very attractive business here in a marketplace that has already been cooled to some extent by government policy and may be cooling a bit more,” Hibben, a former RBC Capital Markets banker, said on Bloomberg Television. “While obviously we’re very interested and looking very closely at home values -- particularly in Toronto and greater Vancouver area -- we’re not seeing this to be as dire as some commentators might see it, particularly those outside of Canada.”

Fitch seemed to mirror that view, saying that although unsustainable home prices and historically high debt make Toronto and Vancouver vulnerable to a correction, the housing system would likely not follow the housing-sparked downturn in the U.S. in 2008.

“Canadian banks are subject to rigorous oversight and regulations requiring prudent mortgage lending and underwriting standards. What’s more, credit quality for Canadian mortgage loans remains strong,” Fitch analysts led by Kate Lin said in a report Thursday. Non-prime originations in Canada account for about 10 percent of volume, compared with a pre-crisis peak of 50 percent in the U.S., according to the report.

Home Capital mortgages account for about 1 percent of the country’s home loans, but it’s one of the biggest lenders to new immigrants -- about 250,000 of whom move to Canada each year -- as well as the self-employed, first-time buyers and those with poor credit histories. It’s become a more important player in the past few years as federal mortgage regulations made it harder for these borrowers to work with banks, which now require better credit scores and charge higher rates.

Lower Arrears

Despite dealing with riskier borrowers, Home Capital has fewer loans in arrears than traditional lenders do. Non-performing loans comprised only 0.24 percent of Home Capital’s gross book, according to the company’s first-quarter results. Canadian lenders had an average arrears rate of 0.28 percent as of February, according to the Canadian Bankers Association.

Consumers holding C$1.4 trillion in total mortgage debt nationwide aren’t defaulting on their home loans even with the record levels of debt. They’ve been helped by low mortgage rates -- as low as 2 percent -- and an economy that’s growing at the fastest pace among Group of Seven countries.

Despite the boost from Buffett’s investment, the troubles aren’t over yet for Home Capital. The company still needs to find a replacement chief executive officer after Martin Reid was forced to leave the firm, and founder and former CEO Gerald Soloway retired from the role last year. Board directors said on a conference call Thursday that the search was progressing well and a new CEO would be announced in July.

High Costs

The terms of the credit facility Buffett gave are also not that much better than a C$2 billion loan Home Capital had from Healthcare of Ontario Pension Plan, said James Price, director of capital markets products at Richardson GMP Ltd. Home Capital will pay 9 percent on any drawn capital and 1 percent on the standby amount. Hibben said the company expects to tap the new line soon to pay off part of the HOOPP loan.

“Home Capital certainly can’t run their business with a 9 percent cost of capital,” Price said by phone from Toronto. “Frankly, outside of the Buffett halo, the terms don’t look that good for existing shareholders. They get significantly diluted and they get diluted at a much lower price than they’re trading at.”

The company also needs to win back depositors to inject funds into the savings accounts that back its mortgages, said Stephen Boland, an analyst at GMP Securities LP. Home Capital’s high-interest deposit levels have stabilized at about C$110 million, down from C$1.4 billion in early April. The level of guaranteed investment certificates have fallen to about C$12 billion.

“You need a stamp of approval from somebody that will hopefully bring back the agent, the broker that buys a GIC for their client,” Boland said. “Warren Buffett is certainly the biggest name. The question is: will it bring them back?”

BLOOMBERG. 2017 M06 22. Buffett’s Home Capital Deal Kicked Off by 82-Year-Old Banker
By Doug Alexander

  • Banker Johnson reached out to Buffett 23 years after meeting
  • BMO piques Buffett interest amid Home Capital crisis
  • Buffett Follows Goldman Model in Bailout for Home Capital

Warren Buffett’s surprise investment in Home Capital Group Inc. all started with a single email from a Canadian investment banker who first met the billionaire 23 years ago.

Don Johnson, 82, an advisory board member at Bank of Montreal’s BMO Capital Markets unit, reached out to Buffett in a June 9 email, adding a photo of the two of them to remind Berkshire Hathaway Inc.’s chairman of their past connections.

“I just brought to his attention this Home Capital opportunity," Johnson said of his message to Buffett. “I informed him that BMO Capital Markets had been retained as one of the financial advisers to Home Capital, and so I sort of summarized the opportunity and put him in touch with the head of our financial institutions group."

Buffett clearly listened. The investor agreed to buy Home Capital shares at a deep discount and provided a fresh credit line for the struggling Canadian mortgage company, tapping a formula he used to prop up lenders from Goldman Sachs Group Inc. to Bank of America Corp. Berkshire will buy a 38 percent stake for about C$400 million ($300 million) and provide a C$2 billion credit line with an interest rate of 9 percent to backstop the Toronto-based lender.

Home Capital had been seeking financial stability after facing accusations by Ontario’s securities regulator in April of misleading shareholders on mortgage fraud some two years earlier. That sent its shares tumbling, accelerated deposit withdrawals and forced the firm to seek a costly emergency loan from a pension fund. Royal Bank of Canada and Bank of Montreal had been hired by Home Capital to advise on financing and other transactions.

Best Time

Johnson remembered Buffett’s criteria that the best time to consider an investment is when no one else wants to buy -- and Home Capital seemed to fit the bill. He suggested Buffett reach out to BMO Capital Markets bankers including Bradley Hardie, who heads the financial institutions group at the Toronto-based firm.

“I just opened the door, that was all," Johnson said. “I just made the introduction and he turned it over to one of his right-hand men and they contacted Brad Hardie on the Monday, right after my email on the Friday."

Buffett had already been showing interest in Canada in recent weeks. He spoke to Prime Minister Justin Trudeau and Finance Minister Bill Morneau at a CEO summit hosted by Microsoft Corp. in Seattle last month, and asked several questions about the Canadian economy, according to a person familiar with the discussions who asked not to be identified. Buffett’s other investments in the country include AltaLink LP, an Alberta utility. A Morneau spokesman later confirmed the meeting.

‘Strong Canadian Economy’

Morneau and Buffett “talked about the strong Canadian economy, the fundamental advantages of Canada as an investment destination, and the risks to the economy from mortgage debt, which, while real, are different than in the U.S.," Morneau said Thursday in a statement. The investment “is proof the system is working," he said.

Buffett didn’t immediately respond to a message seeking comment.

Alan Hibben, a Home Capital director, said Thursday in an interview at Bloomberg’s Toronto office that Berkshire’s involvement was due to "outreach" by Bank of Montreal.

“We had the company on our list for quite a while, so it wasn’t exactly inbound," said Hibben, who’s never met Buffett. “I had requested that our advisers touch base with him to see what we could do, and they did. And he came back very, reasonably quick.”

Buffett, 86, has been leaning more in recent years on his deputy investment managers, Todd Combs and Ted Weschler. Both are former hedge fund managers and were hired in the past decade to help pick stocks at Berkshire. Each runs a stock portfolio valued at about $10 billion. But they’ve also taken on special projects for the billionaire, vetting deals and serving as chairmen of some of Berkshire’s subsidiaries.

They’re also a cornerstone of Buffett’s succession plan at Berkshire. The billionaire -- who serves as the company’s chairman, chief executive officer and head of investments -- has said the deputies will one day oversee the company’s massive stock portfolio, which was valued at about $135 billion at the end of March.

Old Connection

Johnson’s connection to Buffett began more than two decades ago, when he was working on a potential Canadian deal and crossed paths with the investor. Johnson, who once was vice chairman of investment banking for the BMO Nesbitt Burns unit, stayed in touch over the years, attending one of Berkshire Hathaway’s annual meetings and seeing him in October 2007 when Buffett was a guest speaker at a fundraising dinner for the Royal Ontario Museum.

“I also invited him to my 80th birthday party, but Paul Anka was performing and he knows Paul Anka very well," said Johnson, who turned 82 on June 18.

Johnson said he feels great to be able to play a role in the deal, and reached out to Buffett as it was announced.

"I just sent Warren an email congratulating him on the decision," Johnson said. “It was a great investment for Berkshire Hathaway but it was also great for all the shareholders of Home Capital and all the stakeholders."

Not Retired

Johnson began his career in the investment industry when he joined Burns Bros. and Denton Ltd. in 1963. Over the years, he held a series of management roles and became president of Burns Fry in 1984. In 1989, he became vice chairman of investment banking for BMO Nesbitt Burns and its predecessor companies. He retired as vice chairman in 2004, but continues his involvement as a member of the advisory board of BMO Capital Markets.

“I wouldn’t say I’m retired," Johnson said. “I’m starting to slow down. I only go to the office five days a week, the other days I work from home."


The Globe and Mail. The Canadian Press. 23 Jun 2017. Boeing plays down Bombardier spat, aims to sell jets to Canada

OTTAWA - A senior Boeing Co. official says the U.S. aerospace giant’s trade dispute with Montreal-based rival Bombardier Inc. is a “company-to-company issue,” and that it still hopes to sell Super Hornet jets to Canada.
Leanne Caret, the head of Boeing’s multibillion-dollar defence and space division, made the comments on the sidelines of the Paris Air Show this week, where her company was snubbed by Canadian officials.
Members of the Canadian government met F-35 manufacturer Lockheed Martin and other fighter jet makers in Paris on Monday and Tuesday, but refused to have any contact with Boeing.
Economic Development Minister Navdeep Bains specifically cited Boeing’s complaints to the U.S. Commerce Department about Canadian rival Bombardier as the reason for the cold shoulder.
Ms. Caret, however, highlighted in an interview with U.S.-based Defense News what she said was Boeing’s nearly 100-year “working relationship” with Canada and the federal government.
“This is very much a companyto-company issue that we’re working through,” she said of the dispute with Bombardier.
“I’m looking forward to continued dialogue with the Canadian government in terms of the capabilities that they need, and how our best products might be best suited.”
The comments are the first
from a senior Boeing official since the Liberal government threatened last month to scrap plans to buy 18 “interim” Super Hornets over the company’s dispute with Bombardier.
Last November, the Trudeau government announced plans to purchase the planes to temporarily fill a critical shortage of fighter jets until a full competition to replace Canada’s aging CF-18s.
The government said at the time that the Super Hornet was the only aircraft able to meet its immediate requirements, including being a mature design compatible with U.S. fighters.
But that was before Boeing lodged a complaint with the U.S. Commerce Department that alleged Bombardier was selling its C Series jet liners at an unfair price with help from federal government subsidies.
U.S. authorities are currently investigating the complaint and are expected to decide in the coming weeks or months whether to penalize Bombardier with fines or tariffs.
A government source confirmed this week that Boeing’s rivals used their meetings with Canadian officials in Paris to pitch their own jets in the event the Liberals follow through on their threat to Boeing.
But Defence Minister Harjit Sajjan said this week that the Liberals continue to work closely with the U.S. government, through which any sale of interim Super Hornets to Canada would actually be arranged.
And defence chief General Jonathan Vance left the door open to buying Super Hornets, telling a House of Commons committee that while Boeing is “a bad partner now, maybe they become a good partner again.”
Many defence experts, including retired air force commanders, have criticized the Liberals’ plan to purchase interim Super Hornets and called for an immediate competition to replace Canada’s CF-18s. A survey of 75 such experts conducted by the Macdonald-Laurier Institute and released last week found that the vast majority didn’t believe there was a shortage of jets, known as a capability gap.
Gen. Vance, however, told the committee on Tuesday that the capability gap is real.

The Globe and Mail. Reuters. 23 Jun 2017. AIRBUS LAGS BOEING AT PARIS AIR SHOW

Airbus Group SE conceded defeat to rival Boeing in the race for new business at the Paris Air Show on Thursday, as a late haul of almost 100 aircraft failed to close a gap opened up by the launch of the U.S. company’s new 737 model.
The European plane maker said it won 326 net new orders and commitments against its estimate of a comparable Boeing tally of 443, excluding conversions from other models to support the launch of the Boeing 737 MAX 10.
Airbus on Thursday signed deals with AirAsia and privately-owned Iranian carriers Zagros Airlines and Iran Airtour. As Airbus was unveiling its numbers, Boeing topped up its tally by announcing a firm order for 125 units of the 737 MAX 8 airplanes with an undisclosed customer and another deal with AerCap to convert 15 of its MAX 8 orders into the larger MAX 10.
“Is this a slower show than previous years? Yes, it is. Are we conceding that Boeing sold a few more airplanes than we did? Yes,” Airbus sales chief John Leahy told a news conference. Mr. Leahy said he had expected the new Boeing plane to make more of a splash. “We had expected they would have had a bigger launch on the 737 MAX 10, not quite as many conversions, more incremental orders.”
While he did not expect the MAX 10 to be a viable competitor to the A321, Mr. Leahy said the Boeing plane’s launch could result in price pressure. “They’re clearly going to come after us on price.”
The A321 is larger than any member of the 737 family, a gap that the MAX 10 is intended to close.



FED. June 23, 2017. Speech. Central Clearing and Liquidity. Governor Jerome H. Powell. At the Federal Reserve Bank of Chicago Symposium on Central Clearing, Chicago, Illinois

Thank you for inviting me to speak today.1 The Federal Reserve Bank of Chicago and Darrell Duffie have provided a valuable public service in hosting this annual symposium on central clearing. I will start my remarks by taking stock of the progress made in strengthening central counterparties (or CCPs), and then offer some thoughts on central clearing and liquidity risks.

The huge losses suffered by the American International Group (AIG) on its over-the-counter derivatives positions contributed to the financial crisis and highlighted the risks in derivatives markets. In response, the Group of Twenty nations committed in 2009 to moving standardized derivatives to central clearing. Central clearing serves to address many of the weaknesses exposed during the crisis by fostering a reduction in risk exposures through multilateral netting and daily margin requirements as well as greater transparency through enhanced reporting requirements. Central clearing also enables a reduction in the potential cost of counterparty default by facilitating the orderly liquidation of a defaulting member's positions, and the sharing of risk among members of the CCP through some mutualization of the costs of such a default.

But central clearing will only make the financial system safer if CCPs themselves are run safely. Efforts to set heightened expectations for CCPs and other financial market infrastructures have been ongoing for years, with the regulatory community working collectively to clarify and significantly raise expectations. These efforts resulted in the Principles for Financial Market Infrastructures (or PFMI), which was published in 2012 by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). The PFMI lays out comprehensive expectations for CCPs and other financial market infrastructures.

Recent Accomplishments

Extensive work has been done to implement the PFMI.2 The joint CCP work plan agreed to in 2015 by the Financial Stability Board (or FSB), CPMI, IOSCO, and the Basel Committee on Banking Supervision (or BCBS) laid out an ambitious program to provide further guidance on the PFMI and better understand interdependencies between CCPs and their members.3

CPMI and IOSCO will soon publish more granular guidance on CCP resilience, focusing on governance, stress testing credit and liquidity risk, margin, and recovery planning. While this guidance will not establish new standards beyond those set out in the PFMI, I believe that it will encourage CCPs and their regulators to engage in thoughtful dialogue on how they could further enhance their practices.

The FSB has led the work on resolution planning for CCPs, publishing draft guidance this past February. The guidance covers a range of topics, including the powers that resolution authorities need in order to effectively resolve a CCP, the potential incentives related to using various loss-allocation tools in resolution, the application of the "no creditor worse off" safeguard, and the formation of crisis management groups--a key step in facilitating cross-border regulatory coordination in the event of a failure of a systemically important CCP.

Ensuring the safety of the system also requires an understanding of the interdependencies between CCPs and their clearing members. Work on this is ongoing. Preliminary analysis confirms that there are large interdependencies between banks and CCPs, including common exposures related to financial resources held to cover market and credit risk, as well as common lending and funding arrangements.

Having pushed for the move to greater central clearing, global authorities have a responsibility to ensure that CCPs do not themselves become a point of failure for the system. The progress I have just described is helping to meet this responsibility by making central clearing safer and more robust. Global authorities also have a responsibility to ensure that bank capital standards and other policies do not unnecessarily discourage central clearing. In my view, the calibration of the enhanced supplementary leverage ratio (SLR) for the U.S. global systemically important banks (G-SIBs) should be reconsidered from this perspective. A risk-insensitive leverage ratio can be a useful backstop to risk-based capital requirements. But such a ratio can have perverse incentives if it is the binding capital requirement because it treats relatively safe activities, such as central clearing, as equivalent to the most risky activities. There are several potential approaches to addressing this issue. For example, the BCBS is currently considering a proposal that would set a G-SIB's SLR surcharge at a level that is proportional to the G-SIB's risk-based capital surcharge. Taking this approach in the U.S. context could help to reduce the cost that the largest banks face in offering clearing services to their customers.

The Federal Reserve is also considering other steps. First, we are developing an interpretation of our rules in connection with the movement of some centrally cleared derivatives to a "settled-to-market" approach. Under this approach, daily variation margin is treated as a settlement payment rather than as posting collateral. Under our capital rules, this approach reduces the need for a bank to hold capital against these exposures under risk-based and supplementary leverage ratios. Second, we are also working to move from the "current exposure method" of assessing counterparty credit risk on derivative exposures to the standardized approach for counterparty credit risk (SA-CCR). The current exposure method generally treats potential future credit exposures on derivatives as a fixed percentage of the notional amount, which ignores whether a derivative is margined and undervalues netting benefits. SA-CCR is a more risk-sensitive measurement of exposure, which would appropriately recognize the counterparty risks on derivatives, including the lower risks on most centrally cleared derivatives.

Central Clearing and Liquidity

CCPs are different from most other financial intermediaries in the sense that the CCP stands between two parties to a cleared transaction whose payment obligations exactly offset each other. A CCP faces market or credit risk only in the event that one of its members defaults and its required initial margin or other pre-funded financial resources are insufficient to cover any adverse price swings that occur during the period between the time of default and the time that the CCP is able to liquidate the defaulting party's positions.

However, like most other financial intermediaries, CCPs do face liquidity risks. Their business model is based on timely payments and the ability to quickly convert either the underlying assets being cleared or non-cash collateral into cash. For this reason, CCPs should carefully consider liquidity when launching new products and only offer clearing of products that can be sold quickly, even in times of stress. Liquidity problems can occur in central clearing even if all counterparties have the financial resources to meet their obligations, if they are unable to convert those resources into cash quickly enough. The amount of liquidity risk that CCPs face can sometimes dwarf the amount of credit or market risk they face. This is particularly true for the clearing of cash securities such as Treasuries. In that case, the securities being cleared are extremely safe and likely to rise in value in times of stress. But in contrast to most cleared derivatives, the cash payments involved are very large because counterparties exchange cash for the delivery of the security on a gross basis.

I will look at these risks from two perspectives, first in terms of the payments that CCPs must make, and then in terms of the payments they expect to receive.

Payment Flows from CCPs 

In the case of a member's default, a CCP must be equipped to make the cash payments owed to non-defaulting counterparties when due. This requirement can be met as long as there is sufficient margin, mutualized resources such as the guarantee fund, or the CCP's own resources held in cash and in the required currency. But if those funds are held in securities, then the CCP will need to convert them to cash, either by entering into a repurchase agreement, or using them as collateral to draw on a line of credit. And if the CCP holds either cash or securities denominated in a currency different from the one in which payment must be made, it will need to either engage in a spot FX transaction or in an FX swap.

Principle seven of the PFMI addresses these liquidity risks, calling for all CCPs to meet a "Cover 1 standard"--that is, to hold enough liquid resources in all relevant currencies to make payments on time in the event of the default of the clearing member that would generate the largest payment obligation under a wide range of potential stress scenarios. More complex CCPs and those with a systemic presence in multiple jurisdictions are encouraged to meet a "Cover 2 standard." The PFMI also provide guidance on the resources that qualify in meeting these requirements: cash held at a central bank or a creditworthy commercial bank, committed lines of credit, committed repurchase agreements, committed FX swap agreements, or highly marketable collateral that can be converted into cash under prearranged and highly reliable funding arrangements.

There are two sets of risks involved here. First, where should CCPs put their cash? As central clearing has expanded, CCPs have had to deal with increasingly large amounts of cash margin. CCPs can deposit some of these funds with commercial banks. But regulatory changes have made it more expensive for banks to take large deposits from other financial firms, and in some cases banks may be unwilling to accept more cash from a CCP. And many of the largest banks are also clearing members, which introduces a certain amount of wrong-way risk. A clearing-member default could be especially fraught if the defaulting bank also held large cash balances for the CCP. For this reason, CCPs may prudently place limits on the amount deposited at a given institution. In order to diversify their holdings, many also place cash in the repo market. If it is available, the ability to deposit cash at a central bank allows for another safe, flexible, and potentially attractive option--a subject I will return to later.

Second, how can CCPs be assured that they will be able to convert securities into cash or draw on other resources in times of stress? The PFMI uses the words "committed" and "pre-arranged" in describing qualifying liquid resources. Indeed, the PFMI does not view spot transactions on the open market as reliable sources of liquidity during times of stress. The Federal Reserve has strongly supported this approach. Liquidity plans should not take for granted that, at a time of stress involving a member default, lines of credit, repurchase agreements, or FX swaps could be arranged on the spot. Committed sources of liquidity are more likely to be available. They also allow market participants and regulators to make sure that plans are mutually consistent. If a CCP has arranged for a committed liquidity source, then the provider should account for it in its own plans and demonstrate that it can meet its commitment.

Of course, this liquidity is not free, nor should it be. Regulatory changes have forced banks to closely examine their liquidity planning and to internalize the costs of liquidity provision. The costs of committed liquidity facilities will be passed on to clearing members. These costs are perhaps highest in clearing Treasury securities, where liquidity needs can be especially large. To meet its estimated needs, DTCC's Fixed Income Clearing Corporation (FICC) is planning to institute a committed repo arrangement with its clearing members. Despite initial concerns, the industry seems prepared to absorb these costs, but they will not be trivial for many members.4

Payment Flows to CCPs

While initial and variation margin help mitigate credit risk in central clearing, they can also create liquidity risk. Clearing members and their clients are required to make margin payments to CCPs on a daily basis, and in times of market volatility these payments may rise dramatically. This source of liquidity risk can occur even in the absence of a default. For example, after the UK referendum on Brexit, the resulting price swings triggered many CCPs to make substantial intraday and end-of-day margin calls. Fortunately, members had prepared and were able to make the needed payments, but the sums involved caught many off guard and the experience served as a useful warning.

According to data from the Commodity Futures Trading Commission (CFTC), the top five CCPs requested $27 billion in additional margin over the two days following the referendum, about five times the average amount.5 In most cases, clearing members have an hour to meet intraday margin calls. Clearing members have no choice but to hold enough liquid resources to meet the range of possible margin calls, as the consequences of missing a margin call are considerable.

Brexit was only the most recent example in which margin calls were unexpectedly large. Margin calls were also quite large after the stock market crash of October 1987. That episode helps to demonstrate how complicated payments flows can be and why liquidity risk also needs to be viewed from a macroprudential perspective, considering potential risks to flows across the system. After falling about 9 percent the week before, on October 19, 1987, the S&P 500 stock market index fell about 20 percent. Margin calls were about 10 times their normal size, and caused a very complicated set of payment flows across multiple exchanges, CCPs, and banks.6

The next slide helps to represent the ensuing payment flows.7 Calls requesting payment are on the left in red. When making a margin call, a CCP requests payment from its clearing members. Clearing members in turn request margin payments from the customers for whom they are clearing, and those customers must then direct their bank to make the payment. If everything works as it should, payments (in green, on the right) will ensue. The customer's bank will deliver the requested payment to the clearing member's bank (or payment bank). The payment bank will then deliver the funds to a settlement bank used by the CCP, and the settlement bank will then credit the funds to the CCP. In theory, each of these payments would have to happen sequentially, but often parties offer intraday credit (represented by the dashed orange lines) to help smooth these flows. For example, the settlement bank may provide intraday credit to the clearing member, sending funds to the CCP before the member has delivered funds to the payment bank or before those funds have been transferred to the settlement bank. Clearing members or the customer's bank may also provide intraday credit to their customers, again making payments before funds have been received in order to help speed the payments chain.

Over the course of October 19, 1987, the system worked largely as I have just described. But on October 20, every single link in these payments and credit chains was interrupted. This is represented graphically in the next slide. By that morning, many settlement banks and clearing members had yet to receive offsetting payments for credit that had been extended the previous day. Goldman Sachs and Kidder, Peabody had together extended $1.5 billion in credit that had not yet been paid.8 As a result, some firms pulled back on providing further credit, which then forced each link of the payments chain to operate sequentially. Payments slowed, with the unintended consequence that uncovered positions grew larger and stayed open for even longer. Without credit, some customers were unable to meet their margin calls and were forced to liquidate their positions. This gridlock sparked fears that a clearing member or even a CCP would be forced to default. The Federal Reserve reacted to this threat by encouraging banks to continue to extend credit and by injecting funds into the system to help ensure that credit was available. The 1987 stock market crash did not leave much lasting impact on the economy, but if these liquidity problems had been allowed to cause the default of a major clearing member or even a CCP then it could have had a much more serious impact. While this might seem like simply an interesting bit of history, the payments chains involved in central clearing are still very similar today. To guard against the same sorts of liquidity risk today, we need to make sure that every link in these chains will work as it is intended to under stress.

While neither Brexit nor the October 1987 crash involved a clearing member default, these incidents do point to the potential complications of such a default. I have already discussed the steps that a CCP might need to take in the event of a default to meet its liquidity needs. Some of those needs, such as committed lines of credit or repo agreements, could involve tapping financial resources at the same banks that are clearing members. Thus, clearing members may need to juggle several different liquidity exposures simultaneously in the event of a default. They may face draws on committed sources of liquidity, and if there are market stresses around the default, which seems a near certainty, they may at the same time face a sudden increase in intraday margin calls and their own internal demands for more liquid resources.9 These are risks that we should seek to understand better.

Policy Implications

The Federal Reserve is the primary supervisory authority for two designated financial market utilities (or DFMUs), and plays a secondary role relative to the six other DFMUs. As a central bank, we are particularly concerned with liquidity issues.10 I will address four policy issues that need careful consideration as the public sector and market participants continue to address liquidity risks in central clearing.

Stress Testing

The 1987 stock market crash showed that we need to look at liquidity risks from a systemwide perspective. That event involved multiple CCPs and also involved multiple links in the payments chains between banks and CCPs. Conducting supervisory stress tests on CCPs that take liquidity risks into account would help authorities better assess the resilience of the financial system. A stress test focused on cross-CCP liquidity risks could help to identify assumptions that are not mutually consistent; for example, if each CCP's plans involve liquidating Treasuries, is it realistic to believe that every CCP could do so simultaneously?

Authorities in both the United States and Europe have made progress in conducting supervisory stress tests of CCPs. In the United States, the CFTC conducted a useful set of tests of five major CCPs last year.11 The tests analyzed each individual institution's ability to withstand the credit risks emanating from the default of one or more clearing members. This was innovative and necessary work. It would be useful to build on it by adding tests that focus on liquidity risks across CCPs and their largest common clearing members. Such an exercise could focus on the robustness of the system as a whole rather than individual CCPs. The European Securities and Markets Authority is already expanding its supervisory stress testing exercise to incorporate liquidity risk. A similar exercise here in the United States should be seriously considered.

Ensuring Efficiency

The industry collectively needs to ensure that the liquidity flows involved in central clearing are handled efficiently and in a way that minimizes potential disruption. As I noted, there was some concern about the size of margin calls following Brexit, and certain CCPs have taken measures to address this. For example, LCH has subsequently made changes to its intraday margining procedures in an effort to reduce liquidity pressures on its clearing members, allowing them to offset losses on their client accounts with gains on the house account.12

Other CCPs are also actively engaged in efforts to increase their efficiency.FICC is looking at potential solutions using distributed ledger technology to clear both legs of overnight repo trades, which could allow for greater netting opportunities and thereby reduce potential liquidity needs.13 Several CCPs are also looking at ways to expand central clearing to directly include more buy-side firms, which could also offer greater netting opportunities. Doing so could also offer new sources of liquidity if the new entrants are able to take part in the CCP's committed liquidity arrangements. Diversification of sources of liquidity would offer tangible benefits--CCPs would avoid relying on the same limited set of clearing members for all of their liquidity needs. As one example, the Options Clearing Corporation established an innovative pre-funded, committed repurchase facility with a leading pension fund.

As regulators, we should encourage innovations that increase clearing efficiency and reduce liquidity risks where they meet the PFMI and our supervisory expectations.

Central Bank Accounts

As I discussed earlier, CCPs have a complicated set of decisions on how and where to hold their cash balances. Title VIII of the Dodd-Frank Act authorized the Federal Reserve to establish accounts for DFMUs, and we now have accounts with each of the eight institutions that the Financial Stability Oversight Council has so designated. These accounts permit DFMUs to hold funds at the Federal Reserve, but not to borrow from it.14 Allowing DFMUs to deposit balances at the Federal Reserve helps them avoid some of the risk involved in holding balances with their clearing members. Doing so also provides CCPs with a flexible way to hold balances on days when margin payments unexpectedly spike and it is difficult to find banks that are willing to accept an unexpected influx in deposits. In such a case, it may also be too late in the day to rely on the repo market. The availability of Fed accounts could help avoid potential market disruptions in those types of circumstances.

Cross-Border Cooperation

The lessons from Brexit also point to the need for cross-border cooperation. Brexit triggered payments flows to CCPs across many jurisdictions. As far as liquidity risks are concerned, it is immaterial whether a CCP is based in the United States or abroad so long as it clears U.S. dollar denominated assets and must make and receive U.S. dollar payments. There are different possible approaches to such cross-border issues. Efforts to address these liquidity risks should carefully take into consideration the effect that they would have on the broader financial system. For example, splintering central clearing by currency area would fragment liquidity and reduce netting opportunities, which in the case of events like Brexit could actually trigger even greater liquidity risk. In my opinion, we should be searching for cooperative solutions to these issues.


In the years following the financial crisis, one of the primary lessons for market participants and their regulators was the criticality of liquidity risk management. Financial firms such as Lehman Brothers and AIG struggled to obtain sufficient liquidity to meet their obligations. Liquidity is also a crucial concern in central clearing, and while regulatory reforms have done much to strengthen both CCPs and their clearing members, we should continue to make progress in creating a more robust and efficient system.

  1. The views I express here are my own and not necessarily those of others at the Federal Reserve. 
  2. In 2013, CPMI-IOSCO launched a multi-level, multi-year monitoring program to evaluate how the principles and responsibilities in the PFMI are being implemented around the world. Several different assessments have been completed to date and the findings have provided important insight on both the progress and methods by which authorities and CCPs have sought to implement the PFMI. In 2014, CPMI-IOSCO published supplemental guidance and a menu of recovery tools to help financial market infrastructures, including CCPs, meet the expectations in the PFMI that all financial market infrastructures have a comprehensive and effective recovery plan. 
  3. While the work done in the context of the joint work plan represents significant regulatory efforts related to CCPs, progress is also being made on a parallel path. In particular, it is important to highlight the adoption and implementation of the SEC's Covered Clearing Agency Standards, which further strengthens the risk management standards that clearing agencies registered with the SEC must meet. In addition, the SEC and the industry have been working jointly to shorten the settlement cycle to two days for many securities products, culminating in the SEC's adoption of amendments to Rule 15c6-1(a) earlier this year. 
  4. "Treasury repos may hit 20bp under DTCC liquidity plan,", November 25, 2015. 
  5. "Derivatives traders forced to provide $27bn collateral post-Brexit," Financial Times, November 16, 2016. 
  6. Cash equities were traded in New York on the New York Stock Exchange, equity futures were traded and cleared in Chicago by the Chicago Mercantile Exchange, while stock options were traded on the Chicago Board Options Exchange and cleared by the Options Clearing Corporation. 
  7. This figure is an adaptation from one presented in Andrew Brimmer (1989), "Central Banking and Systemic Risks in Capital Markets," Journal of Economic Perspectives, Spring, 3–16. 
  8. "The Day the Nation's Cash Pipeline Almost Ran Dry," The New York Times, October 2, 1988. 
  9. Regulatory changes since the financial crisis have encouraged banks to hold much greater amounts of high-quality liquid assets, which would help them in meeting such liquidity demands. 
  10. Section 804 of the Dodd-Frank Act requires the Financial Stability Oversight Council to designate those financial market utilities that the council determines are, or are likely to become, systemically important. Eight utilities have been designated: The Clearing House Payments Company, L.L.C.; CLS Bank International; Chicago Mercantile Exchange, Inc.; The Depository Trust Company; Fixed Income Clearing Corporation; ICE Clear Credit L.L.C.; National Securities Clearing Corporation; and The Options Clearing Corporation. 
  11. "Supervisory Stress Test of Clearinghouses (PDF)," Commodity Futures Trading Commission, November 2016. 
  12. LCH has also moved forward by one hour the timing of the last intraday margin call and made procedural changes that will speed up the processing of the call, which should also help with payment flows. 
  13. "DTCC & Digital Asset Move to Next Phase after Successful Proof-Of-Concept for Repo Transactions Using Distributed Ledger Technology," DTCC, February 2017. 
  14. According to title VIII of the Dodd-Frank Act, a designated financial market utility may only borrow from the discount window only in unusual and exigent circumstances and only upon a majority vote of the Board of Governors following consultation with the Secretary of the Treasury. 



IBGE. 23/06/2017. IPCA-15 fica em 0,16% em junho e IPCA-E acumula 0,61%

O Índice Nacional de Preços ao Consumidor Amplo 15 (IPCA-15) variou 0,16% em junho e ficou abaixo da taxa de 0,24% de maio. Desde junho de 2006, quando o índice situou-se em -0,15%, não há registro de resultado mais baixo para os meses de junho.
O Índice de Preços ao Consumidor Amplo Especial (IPCA-E), que se constitui no IPCA-15 acumulado por trimestre, situou-se em 0,61%, abaixo da taxa de 1,78% registrada em igual período de 2016. Com isto, o primeiro semestre do ano está em 1,62%, bem abaixo dos 4,62% referentes ao primeiro semestre do ano anterior. Este resultado (1,62%) é o menor para um primeiro semestre desde 1994.
Considerando os últimos 12 meses, o índice desceu para 3,52%, abaixo dos 3,77% registrados nos 12 meses imediatamente anteriores, constituindo-se na menor variação acumulada em períodos de 12 meses desde junho de 2007 (3,44%). Em junho de 2016, a taxa foi 0,40%.
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Responsáveis por quase metade das despesas do brasileiro, os grupos alimentação e bebidas (-0,47%) e transportes (-0,10%) vieram em queda no índice de junho. O grupo dos alimentos, que tem participação de 26% nas despesas das famílias, exerceu o mais intenso impacto negativo, de -0,12 ponto percentual (p.p.), enquanto o grupo dos transportes, que participa com 18%, ficou com -0,02 p.p.
A queda nos alimentos foi ainda mais intensa quando considerados os produtos comprados para consumo em casa, que chegaram a ficar 0,83% mais baratos. Todas as regiões pesquisadas se mostraram em queda, indo desde -0,14% em Goiânia até -1,92% na região metropolitana de Fortaleza. Os preços da maioria dos produtos ficaram mais baixos de maio para junho, com destaque para o tomate (-12,41%), as frutas (-7,20%), o óleo de soja (-3,85%), os pescados (-2,93%) e o arroz (-1,70%). Já na alimentação fora de casa, a média foi 0,19%, com as regiões apresentando variações entre a queda de 0,94% da região metropolitana de Salvador até a alta de 1,08% da região metropolitana de Curitiba.
Nos transportes, a queda de 0,10% foi influenciada pelos preços dos combustíveis, que caíram 0,66%, especialmente pelo etanol, que atingiu -2,05%, sendo que a gasolina ficou em -0,37%. Caíram, também, as tarifas dos ônibus interestaduais (-0,95%), enquanto as passagens aéreas aumentaram 6,83%.
Entre os demais grupos de produtos e serviços pesquisados, habitação teve a mais elevada variação de grupo (0,93%).

GrupoVariação Mensal (%)ImpactoVariação Acumulada (%)
AbrilMaioJunhoJunhoTrimestre12 meses
Índice Geral0,210,240,160,160,613,52
Alimentação e Bebidas0,310,42-0,47-0,120,262,13
Artigos de Residência-0,430,020,150,01-0,26-0,34
Saúde e Cuidados Pessoais0,910,840,640,082,417,80
Despesas Pessoais0,230,270,260,030,765,26

A alta das despesas com habitação ficou na conta da energia elétrica, cujo resultado de 2,24% levou à contribuição de 0,08 p.p., a mais elevada no ranking. Apesar da substituição, a partir de 1º de junho, da bandeira vermelha pela verde, o que significa redução de R$3,00 a cada 100 kwh consumidos, o retorno aos valores sem os descontos que ainda haviam incidido, em parte, no índice de maio, aliado a outros movimentos em parcelas específicas, levaram à alta nas contas. Tais descontos referem-se à devolução do chamado Encargo de Energia de Reserva (EER) voltado a remunerar a usina de Angra III, que havia sido cobrado, indevidamente, em 2016. Em Belo Horizonte, houve redução de 6,03% nas tarifas vigentes a partir do dia 28 de maio. Já em Recife ocorreu aumento de 8,87% desde o dia 29 de abril.
O grupo habitação (0,93%) foi pressionado, ainda, pela taxa de água e esgoto (1,57%), condomínio (1,14%) e artigos de limpeza (0,84%). Na taxa de água e esgoto (1,57%), as pressões foram exercidas por Brasília (1,39%), com reajuste de 3,10% em primeiro de junho; pela região metropolitana de Salvador (5,00%), onde o reajuste foi de 8,80% em 06 de junho; e na região metropolitana de Curitiba (10,80%), cujo reajuste de 8,53% está vigente desde o dia 18 de maio. As regiões de Salvador e Curitiba refletiram, também, revisão na metodologia de cobrança nas contas.
A respeito dos índices regionais, Recife foi a região metropolitana que ficou com o resultado mais elevado (0,46%), já que, entre outros fatores, as contas de energia elétrica aumentaram 12,71%, bem acima da média nacional de 2,24%, tendo em vista o reajuste de 8,87% nas tarifas, vigente desde 29 de abril. No lado das quedas, o destaque ficou com a região metropolitana de Belo Horizonte (-0,21%) onde, além da queda de 2,33% na energia elétrica, a alimentação no domicílio (-1,36%) ficou distante da média nacional (-0,83%), sobressaindo as frutas, que apresentaram queda de 12,66%.

RegiãoPeso Regional (%)Variação Mensal (%) Variação Acumulada (%) 
AbrilMaioJunhoTrimestre12 Meses
São Paulo31,680,170,380,200,753,73
Rio de Janeiro12,460,510,200,170,884,23
Porto Alegre8,400,350,270,110,732,99
Belo Horizonte11,23-0,070,18-0,21-0,102,85

Para o cálculo do IPCA-15 os preços foram coletados no período de 16 de maio a 13 de junho de 2017 (referência) e comparados com aqueles vigentes de 13 de abril a 15 de maio de 2017 (base). O indicador refere-se às famílias com rendimento de 1 a 40 salários mínimos e abrange as regiões metropolitanas do Rio de Janeiro, Porto Alegre, Belo Horizonte, Recife, São Paulo, Belém, Fortaleza, Salvador e Curitiba, além de Brasília e Goiânia. A metodologia utilizada é a mesma do IPCA, a diferença está no período de coleta dos preços e na abrangência geográfica.

FGV. IBRE. 23/06/2017. Inflação prevista pelos consumidores recua em junho

Em junho de 2017, a expectativa de inflação dos consumidores para os 12 meses seguintes recuou 0,2 ponto em relação a maio para 6,9%, a menor desde janeiro de 2013 (6,3%). Na comparação com o mesmo período no ano anterior, o indicador registra recuo de 3,6 pontos percentuais.

“A tendência de queda das taxas projetadas de inflação vem ocorrendo desde março de 2016 e refletem a recessão prolongada e seus efeitos sobre o consumo das famílias. Nos últimos meses, o ritmo de queda das expectativas dos consumidores aumentou, fazendo com que a diferença em relação às expectativas dos especialistas consultados pelo Banco Central para o Boletim Focus, que alcançara 4,7 pontos percentuais, em fevereiro de 2016, tenha se reduzido a apenas 2,3 p.p., a menor desde março de 2015. A tendência sinaliza aumento da confiança na política monetária, e favorece a recuperação da economia nos próximos meses”, afirma a economista Viviane Seda Bittencourt, da FGV/IBRE.

O movimento de migração de respostas para valores inferiores ao limite superior da meta de inflação estabelecida pelo Banco Central para este ano continuou em junho, quando 53,8% dos consumidores consultados preveem inflação inferior a 6% nos 12 meses seguintes. Destaca-se o aumento da frequência relativa de respostas na faixa entre 3,5% a 4,5%, para 18,5% do total, o maior percentual desde março de 2008 (18,5%).  Entre os intervalos superiores ao teto de 6%, a faixa entre 7 e 8% sofreu a maior redução relativa de frequência de respostas, ao passar de 10,6% para 8,7% das escolhas.

A inflação prevista recuou em todas as faixas de renda exceto nas famílias com renda entre R$ 2.100,01 e R$ 4.800. A queda mais expressiva ocorreu na faixa de menor poder aquisitivo (até R$ 2.100) cuja expectativa passou de 8,5% em maio para 7,3% em junho, o menor nível desde dezembro de 2013.

Durante todo o ano de 2016, houve um expressivo descolamento das expectativas de inflação dos consumidores e de especialistas. A partir de janeiro de 2017 iniciou-se um movimento de redução desta diferença, o atingindo menor nível em junho.


FGV. IBRE. 23/06/2017. Inflação pelo IPC-S registra queda na terceira semana de junho

O IPC-S de 22 de junho de 2017 apresentou variação de -0,12%1, 0,25 ponto percentual (p.p.) abaixo da taxa registrada na última divulgação.

Nesta apuração, sete das oito classes de despesa componentes do índice apresentaram decréscimo em suas taxas de variação. A maior contribuição partiu do grupo Habitação (0,44% para -0,18%). Nesta classe de despesa, cabe mencionar o comportamento do item tarifa de eletricidade residencial, cuja taxa passou de 1,92% para -2,16%.

Também registraram decréscimo em suas taxas de variação os grupos: Alimentação (-0,39% para -0,57%), Transportes (-0,08% para -0,20%), Educação, Leitura e Recreação (0,36% para 0,32%), Saúde e Cuidados Pessoais (0,56% para 0,40%), Comunicação (-0,04% para -0,17%) e Despesas Diversas (0,49% para 0,45%). Nestas classes de despesa, vale destacar o comportamento dos itens: carnes bovinas (0,13% para -0,88%), gasolina (-0,89% para -1,53%), salas de espetáculo (0,03% para -0,85%), artigos de higiene e cuidado pessoal (0,60% para 0,14%), mensalidade para internet (0,67% para -0,08%) e tarifa postal (6,40% para 4,37%), respectivamente.

Em contrapartida, apenas o grupo Vestuário (0,47% para 0,50%) apresentou acréscimo em sua taxa de variação. Nesta classe de despesa, a maior contribuição partiu do item roupas, que passou de 0,35% para 0,51%.


CNI. 23/06/2017. Confiança do consumidor está 7,4% abaixo da média histórica, informa pesquisa da CNI. INEC mostra que o endividamento aumentou e os brasileiros estão mais cautelosos com as compras de bens de maior valor


Depois da queda de 2,5% em maio, o Índice Nacional de Expectativa do Consumidor (INEC) ficou estável  em 100,5 pontos em junho. O indicador está 0,5% abaixo do registrado em junho do ano passado e 7,4% menor do que a média histórica. As informações são da pesquisa divulgada pela Confederação Nacional da Indústria (CNI), nesta sexta-feira (23).

"A confiança do consumidor se mantém estável em patamar baixo, sendo incapaz de estimular uma recuperação do consumo suficientemente forte para impulsionar a atividade econômica", avalia a CNI. De acordo com a pesquisa, as expectativas dos brasileiros para os próximos seis meses em relação à inflação, ao desemprego ao endividamento e à situação financeira ficaram estáveis em junho frente a maio.

"Há uma preocupação acima da média com os preços, o emprego e a situação financeira. Com isso, a confiança continua muito baixa", afirma o economista da CNI Marcelo Azevedo. Ele destaca que consumidores preocupados com a renda, com os preços e com o emprego tendem a reduzir as compras. "A recuperação da confiança é importante para aquecer o consumo e reativar a atividade industrial", afirma o economista.

Conforme a pesquisa, só a perspectiva sobre a renda pessoal teve uma melhora significativa em junho. O indicador de expectativas da renda pessoal aumentou 2,1% na comparação com maio. Mesmo assim continua 0,8% abaixo do registrado em junho do ano passado. O indicador de expectativas de compras de bens de maior valor, como móveis e eletrodomésticos, recuou 1% e o de endividamento caiu 0,9% em relação a maio. Isso significa que aumentou a cautela com o consumo e as pessoas estão mais endividadas.

Esta edição do INEC, feita em parceria com o IBOPE Inteligência, ouviu 2.002 pessoas em 143 municípios entre os dias 8 e 12 de junho.

INEC - Índice Nacional de Expectativa do Consumidor. Confiança do consumidor fica estável

O INEC de junho de 2017 registra 100,5 pontos, praticamente o mesmo valor do mês anterior (100,6 pontos) e de junho de 2016 (101 pontos). Este índice é também 7,4% inferior à média histórica. Desde junho de 2016 o INEC oscila entre 100 e 105 pontos.

Índice Nacional de Expectativa do Consumidor (INEC):

BACEN. PORTAL G1. Jornal Valor Econômico. 23/06/2017. Ilan diz que BC 'quebrou a espinha dorsal' da inflação
Por Claudia Safatle

A pronunciada queda da inflação, de 6,29% em 2016 para 3,8% neste ano, abaixo da meta de 4,5% segundo projeções do Banco Central, encorajou o presidente do BC, Ilan Goldfajn, a assegurar: "Quebramos a espinha dorsal da inflação". Ele conversou ontem com o Valor, após a divulgação do relatório trimestral de inflação com as novas projeções para o IPCA.

No fim do terceiro trimestre, a inflação deve cair para 2,9% em 12 meses. O BC, porém, avalia que haverá, no último trimestre do ano, recuperação nos preços de alimentos, os grandes responsáveis pela rápida desinflação. Não espera, portanto, que se reproduza, entre outubro e dezembro, os baixos índices registrados em igual período de 2016, quando o IPCA foi de 0,74%.

1. A inflação está 'domada'

Após cinco semanas da hecatombe produzida pela delação do empresário Joesley Batista, da JBS, no dia 17 de maio, que atingiram duramente a Presidência da República, Ilan avalia que as consequências da crise política podem não ser inflacionárias nem desinflacionárias, mas neutras, levando ao cenário que o Comitê de Política Monetária (Copom) concebia até aquela data.

Da Suíça, onde está, Ilan acompanhou a queda dos juros futuros no Brasil após a divulgação do relatório de inflação. Isso significa, disse, que a maioria prevê redução de 1 ponto percentual na Selic, para 9,25% ao ano, na reunião do Copom, dias 25 e 26 de julho, e não mais corte de 0,75 ponto percentual.

Ele não conta com a hipótese de a inflação ficar abaixo de 3% neste ano ­ que é o piso do intervalo de tolerância dentro do qual pode variar a taxa de inflação e, quando rompido, obriga o BC a se explicar em carta aberta ao ministro da Fazenda. "Isso não faz parte das nossas projeções", disse. Entre setembro de 2016 e maio deste ano, a inflação ficou 1,68 ponto percentual abaixo das projeções mensais dos relatórios de inflação. "Foi uma surpresa positiva" para todos, inclusive para o mercado, observou.

BACEN. PORTAL G1. Jornal Valor Econômico. 23/06/2017. A inflação está 'domada'
Por Claudia Safatle, Claudia Safatle é diretora adjunta de Redação

"Quebramos a espinha dorsal da inflação nos últimos 12 meses", disse o presidente do Banco Central, Ilan Goldfajn, logo após a divulgação do relatório trimestral de inflação, ontem, que trouxe a projeção de 3,8% para o IPCA deste ano, abaixo da meta de 4,5%.

Depois do dia 17 de maio, quando o presidente Michel Temer foi abalado pela delação premiada de Joesley Batista, da JBS, o BC e os economistas do setor privado passaram a discutir se o cenário futuro seria mais inflacionário ­ pelas incertezas que a nova turbulência política gera na formação dos preços ­ ou mais desinflacionário ­ pela interrupção da recuperação da atividade que a crise pode provocar.

Ilan adicionou uma terceira possibilidade, a de o resultado final ser neutro, com os dois movimentos (o inflacionário e o desinflacionário) se anulando. Nesse caso, volta­se para as condições com as quais o BC trabalhava antes da crise produzida pelas delações que envolveram diretamente o presidente da República em supostos atos de corrupção.

"Os dados até agora corroboram o cenário anterior e mantivemos a projeção de crescimento de 0,5% este ano", disse. Vista pela estimativa de queda de 0,6% no consumo do governo, conforme o relatório de inflação, a política fiscal este ano será contracionista. A recuperação da economia, na visão do BC, será bem gradual. Isso, porém, não significa que o Copom volta a considerar a trajetória de queda dos juros anterior ao dia 17 do mes passado. "Temos mais um mês para observar", ponderou.

A mensagem do relatório de inflação, segundo Ilan, é de que os próximos passos do Copom para o corte da Selic estão indefinidos. "Minha visão é condicional", explicou ele a esta coluna. Ou seja, vai depender do balanço de riscos, das projeções de inflação, da probabilidade de aprovação das reformas, da evolução da taxa de juros estrutural, dentre outros.

Ilan falou por telefone da Suíça, onde chegou ontem pela manhã para participar da reunião do BIS (Banco de Compensações Internacionais).

Pelo comportamento dos juros futuros, que estavam em queda, ele ressaltou que a maioria do mercado estava apostando em uma queda da taxa Selic de 1 ponto percentual na próxima reunião do Copom, nos dias 25 e 26 de julho. Poucos ainda operavam com corte de 0,75 pontos percentuais. Se isso se confirmar, a taxa básica cairá de 10,25% para 9,25% ao ano, voltando a um dígito.

A chance de a inflação ficar abaixo do intervalo da meta este ano ­ que vai de um piso de 3% a um teto de 6% ­ é de 20%. Ou seja, essa é a probabilidade de o IPCA ficar abaixo de 3% e de o BC, portanto, ter que escrever uma carta aberta ao ministro da Fazenda explicando porque com a inflação tão baixa o Comitê de Política Monetária foi conservador na queda dos juros. Se isso ocorrer, terá sido a primeira vez na história do regime de metas para a inflação, em vigor desde 1999. A carta escrita até hoje decorreu da inflação ter superado o intervalo superior.

Ao contrário de alguns economistas do mercado que já consideram factível uma inflação de 2,9% para este ano, Ilan não vê chance de isso acontecer porque os preços dos alimentos ­ que foram os grandes responsáveis pela rápida desinflação ­ devem aumentar, devolvendo parte da queda ocorrida até agora. Soma­se a isso o fato de a inflação no último trimestre do ano passado ter sido muito baixa, o que dificilmente se repetirá este ano.

Dessa forma, o IPCA que cai para 2,9% no terceiro trimestre, volta para 3,8% no ultimo período do ano, segundo o relatório do BC.

Os prognósticos do relatório de inflação para o IPCA deste e do próximo ano (4,5% considerando a taxa de câmbio e de juros do Focus) estão maiores do que os da mediana do mercado que na pesquisa Focus projetam inflação de 3,64% para 2017 e 4,33% para 2018. E bem maiores do que as expectativas do Top 5 ­ as cinco instituições que mais acertam a pesquisa ­ de 3,16% para este ano e de 4% para o próximo.

A inflação projetada pelo Banco Central de setembro de 2016 a maio deste ano ficou 1,68 ponto percentual a mais do que a taxa efetiva. Ilan explica que não foi só o BC que errou, mas todo o mercado. A inflação que vinha alta até setembro do ano passado, teve queda abrupta a partir de outubro. "Foi uma surpresa positiva dada pela queda dos preços dos alimentos e de bens industriais", comentou.

A extensão do ciclo de queda da Selic vai depender da taxa de juros estrutural e esta poderá ser menor ou maior conforme o avanço ou não das reformas (da Previdência e trabalhista).

Ilan explicou que os países desenvolvidos calculam os juros neutros com base na média das taxas reais dos ultimos dez anos. No Brasil, chega­se a um número com base em dez anos e a um outro, muito diferente, se o período cair para cinco anos.

Os juros reais, aqui, eram de 20% ao ano nos anos 1980, caíram para faixa de 10% entre os anos 1990 e 2000 e de 2010 em diante estão na casa dos 5%, considerando na conta o curto período em que a taxa real caiu para 2% ao ano, na gestão Dilma Rousseff, quando a Selic ficou em 7,25% ao ano entre outubro de 2012 e abril de 2013. Por essa razão Ilan costuma olhar para três indicadores diferentes: os que são apurados pela pesquisa Focus, os do mercado (swap DI de um ano e a inflação projetada) e os juros das NTN­Bs. Nestes o intervalo vai de 4,2% a 5,2%, taxas reais ainda altas, distantes das praticadas no mercado internacional para onde se pretende convergir.

A desinflação de 2016 para cá é, para ele, "a prova do pudim" de que os juros derrubam os preços. O país passou por um longo ciclo de aperto monetário, com alta da taxa de juros, patrocinado pelo então presidente do BC, Alexandre Tombini, que quase duplicou a Selic, de 7,25% em março de 2013 para 14,25% até outubro de 2016. Junto com a restrição monetária e com a deterioração fiscal no governo anterior veio uma recessão cavalar. Mas as expectativas de inflação só começaram a ficar ancoradas com a mudança no comando do BC.

"O BC trabalha para que a queda da inflação e da taxa de juros sejam sustentáveis", disse o presidente do BC. Ilan afirmou, ainda, que o esforço do BC é para colocar a inflação "na meta" e que uma taxa abaixo de 3% este ano não faz parte das suas projeções.