CANADA ECONOMICS

CANADA - CHINA

The Globe and Mail. 22 Jun 2017. U.S. criticizes Ottawa’s oversight of Chinese high-tech takeovers. Congressmen’s warning to be more vigilant in national security process is second in week from Washington
ROBERT FIFE
STEVEN CHASE

The head of the House Armed Services Committee in Washington is urging Ottawa to be “more vigilant” in its nationalsecurity process when Chinese investors want to buy Canadian high-tech firms that specialize in sophisticated military hardware.
Representative Mac Thornberry was responding to The Globe and Mail reports on a bid by Hytera Communications Corp. of Shenzhen, China, to take over Vancouver-based Norsat International Inc., which sells satellite technology to the U.S. military and NATO. The government approved the sale without a formal national security review.
Mr. Thornberry, chair of the House of Representatives committee, warned that China is taking advantage of weaknesses in Western oversight of foreign investment to buy cutting-edge technology that may help its military.
“I have growing concern that countries like China are investing in various projects, exploiting the seams of regulatory structures, and using other methods to obtain key defence technologies,” Mr. Thornberry said in a statement to The Globe when asked to comment.
“The public and private sectors of the U.S. and key friends and allies must be more vigilant and must take steps to prevent this sort of exploitation,” he added.
Representative Walter Jones, who also is on the committee, joined in the criticism and called for the U.S. military to review its contracts and relationships with Norsat.
“The United States cannot stop Canada from allowing the Chinese takeover of Norsat,” Mr. Jones told The Globe. » “We can and should, however, re-evaluate any business dealing that potentially affects our defence initiatives.” This is the second warning from the U.S. capital that Ottawa is taking a laissez-faire approach to investment from China and jeopardizing U.S. national-security interests.
Last week, a key member of a U.S. congressional watchdog agency urged the U.S. Defence department to “immediately review” its business arrangements with Norsat.
In early June, the Trudeau cabinet approved the sale of Norsat to Hytera, a Chinese telecom giant that has been accused of stealing U.S. technology.
Hytera is facing a lawsuit from U.S. rival Motorola, which accuses the firm of massive intellectual property theft.
Michael Wessel, a member of the U.S.-China Economic and Security Review Commission, which reports to Congress, said “the sale of Norsat to a Chinese entity raises significant nationalsecurity concerns for the United States as the company is a supplier to our military.”
He said the Liberals appear willing to sacrifice nationalsecurity interests of Canada’s most important ally in exchange for a bilateral free-trade deal with China.
Two former directors of the Canadian Security Intelligence Service – Richard Fadden and Ward Elcock – have said the transaction should have been subjected to a full-scale security review.
The office of Innovation, Science and Economic Development Minister Navdeep Bains is refusing to say whether Canada will subject the Hytera deal to further scrutiny. His director of communications, Pauline Tam, and his press secretary, Karl Sasseville, did not respond to repeated requests from The Globe to say whether Ottawa will re-examine the deal.
Norsat is the second case in a matter of months in which the Liberals have approved a controversial sale of sensitive technology to Chinese investors. In March, the government approved the sale of a Montreal high-tech firm, ITF Technologies Inc., to O-Net Communications of Hong Kong, a firm partly owned by Beijing.
The former Conservative government had blocked the deal on the grounds that it would undermine Western armed forces’ technological edge over China. At the time, security officials had recommended against the takeover, saying the ITF technology transfer would give China access to advanced military laser technology and would diminish “Canadian and allied military advantages.”
Prime Minister Justin Trudeau has defended the Liberals’ decision to forgo a national-security review in the Norsat sale, saying Canada consulted Washington before concluding Hytera’s takeover would not pose any national-security risks.
Mr. Trudeau has refused to answer repeated questions in Parliament on who the government talked to in the Trump administration and whether they expressed any concerns. The U.S. embassy in Ottawa has refused to comment on whether Washington was consulted and whether it raised any nationalsecurity issues.
Security experts fear China’s private-sector companies are subject to influence from Beijing.
The Chinese Embassy in Ottawa said the purchase is a normal business transaction and should not become politicized.
“From Canadian media’s relative reports, in these commercial merger cases China is often regarded as an enemy that jeopardizes Canada’s national security,” spokesman Yundong Yang said in a statement. “Absurd thoughts like this totally go against the mutually beneficial co-operation between China and Canada.”
Hytera’s bid to buy Norsat triggered a requirement under the Investment Canada Act that Ottawa examine foreign-owned firms’ attempts to take over Canadian companies for nationalsecurity concerns.
Earlier this month, Norsat officials said they were told a preliminary review determined a full national-security review was not needed, paving the way for the takeover.
The purchase was delayed when a U.S. hedge fund made an unsolicited offer last week, which Norsat rejected.
The Vancouver company entered into a definitive agreement on Tuesday to be bought by Hytera for $70.6-million (U.S.) after it turned down a $67.3-million bid from Privet Fund Management.
Privet said it was surprised by Norsat’s decision, given the security concerns raised in the U.S. capital and in Parliament by the opposition parties.
“We find it incredible that the Norsat board believes an identical offer from Hytera represents the best interests of all stakeholders in light of the mounting political scrutiny and regulatory uncertainty surrounding a transaction with Hytera,” said Ryan Levenson, managing member of Privet.
The Liberals have made closer ties to China – including a potential free-trade deal – a cornerstone of their government’s foreign policy. China has publicly deplored Canada’s national security reviews as protectionism and demanded the process be on the table in free-trade talks.
Since the Liberals came to power, they have been more open than the previous government to investment from China in a number of key sectors.
In February, Ottawa approved the sale of one of British Columbia’s biggest retirement-home chains to Beijing-based Anbang Insurance Group, which has a murky ownership structure, in a deal that gave China a foothold in Canada’s health-care sector. Last week, Chinese security authorities arrested Anbang chair Wu Xiaohui.
Michael Byers, Canada Research Chair in Global Politics and International Law at the University of British Columbia, said the Norsat purchase should proceed to a full review.
“A review by CSIS would have warned that investments by the same Chinese company have raised security concerns in other countries,” Dr. Byers said. “In Britain, Hytera’s takeover of a mobile digital-radio equipment maker was only approved after strict security protections were imposed.”
He said the former Harper government added the nationalsecurity review process to the Investment Canada Act “precisely to avoid ad hoc approaches of the kind the minister took here.”

NAFTA

The Globe and Mail. 22 Jun 2017. Canada vows to defend dairy in NAFTA talks
ERIC ATKINS

Lawrence MacAulay, the federal Agriculture Minister, vows Canada will defend its controversial support for dairy farmers ahead of North American trade talks slated to start in August.
“We’re the government that put supply management in place and we’re the government that’s going to defend it,” Mr. MacAulay said, without elaborating, by phone from Savannah, Ga., where he held talks with his counterparts from the United States and Mexico in advance of new negotiations over the North American freetrade agreement. Supply management was created by the Liberal government in the 1970s to stabilize farmers’ incomes.
Mr. MacAulay said he is not a trade negotiator and that there were no discussions with Sonny Perdue of the United States and Jose Calzada of Mexico over what would be on the table in the new talks. Rather, the goal of the meeting was to build “rapport” and co-operation.
He predicted the agreement covering Canada’s $31-billion in agriculture and food trade with Mexico and the United States would get a mere “tweak.”
“It’s certainly obvious that NAFTA has been a very valuable asset to the three countries and we have to make sure it continues in that manner,” he said.
However, there are numerous signs Canada’s dairy system of set prices, production quotas and 270-per-cent import tariffs will be at the heart of new trade talks.
U.S. President Donald Trump called for the renewal of the 1994 pact, saying it was a bad deal for the United States and cost the country jobs.
The U.S. dairy industry – and Mr. Trump himself – has singled out supply management as unfair to U.S. producers.
Mr. Perdue has said he does not object to the supply-managed dairy regime, but said Canada’s production of a new class of dairy product not covered in NAFTA, ultrafiltered protein concentrates used in food production, was unfairly shutting out U.S. producers.
“If you want to manage your dairy supply with supply management, that’s fine,” he said in a statement after visiting Toronto this month. “You just need to manage it and not overproduce to create a glut of milk solids on the world market that’s being dumped at unfair prices.”
Bobby Seeber, a former trade adviser to the Ontario government, noted Canada made concessions to allow more dairy imports in free-trade talks with Europe and the TransPacific Partnership. The dairy industry’s protections are no longer “sacrosanct,” he said in a recent speech to members of Ontario’s food and beverage industry.
“There is going to be a concession” in NAFTA on dairy products, Mr. Seeber predicted, adding drug patents, cars and softwood lumber would also be the focus of talks.
Domestic critics of the dairy regime say it artificially inflates prices paid by consumers and food processors. And the push to sign new trade deals and a glut of milk products have undercut the system’s desirability. Still, governments seeking to unwind it would face a complicated – and expensive – battle to placate the farmers that rely on it.

INTERNATIONAL TRADE

The Globe and Mail. 22 Jun 2017. Inclusive trade should be a top priority for Canadian negotiators
ANDREA STAIRS, Managing director of eBay Canada

Prime Minister Justin Trudeau will be in Toronto on Thursday to speak at the Rotman School of Management on Canada-U.S. trade relations.
The renegotiation of the North American free-trade agreement might be the most attentiongrabbing trade headline right now, but it is not the only item on the government’s trade agenda. Unlocking the economic benefits of the Comprehensive Economic and Trade Agreement (CETA), salvaging the TransPacific Partnership (TPP) and facilitating exploratory conversations with China are just a few of the other top “to dos” currently within its double-downed trade portfolio.
However, success for the Canadian economy is not about how many trade deals the government is able to secure or salvage; real success is about the quality of such deals, and particularly their ability to meaningfully affect all parts of the Canadian economy. Global trade agreements have the potential to play a critical role in bringing “inclusive trade” to life.
Leading part of a global online marketplace that exemplifies inclusive trade – where businesses of any size, from anywhere, can reach buyers around the world – I see first-hand the benefits of exporting for small and medium-sized businesses (SMBs).
On eBay, Canadian exporting SMBs derive more than 50 per cent of their sales from foreign markets. And, eBay Canada’s Small Business Optimism Index, which surveyed retail SMBs across the country, found a direct correlation between exporting and entrepreneurs’ assessment of their business prospects: Leaders of SMBs that exported were more favourable about all business performance indicators versus their non-exporting peers, including future business growth.
Further, exporters reported an average of nearly 60 per cent more in sales. It is encouraging to see how many small Canadian businesses are ardently embracing global trade and reaping the benefits. These “micro-multinationals” are going beyond borders to tap into new markets, which is imperative for any Canadian business looking to scale up, given the size of Canada’s market.
On the flip side, I also see key barriers that are holding these micro-multinationals from reaching their full potential. Virtually all Canadian SMBs who sell on eBay (99.9 per cent) export, and to an average of nearly 20 countries. When I connect with these sellers, the top issue they consistently raise is the border frictions that impede their business performance. Canada’s low de minimis threshold is a particular area of concern. This threshold, which sets the level above which duties and taxes are assessed, puts Canadian sellers at a competitive disadvantage to their global peers, as it adds considerable costs to importing business inputs or accepting international returns, for example.
At $20, Canada’s threshold is out of step with global peers – the U.S. equivalent is set at $800 (U.S.). Not only does the Canadian threshold dampen SMB trade, it also costs taxpayers: In his latest report, the auditor-general confirmed concerns that the threshold costs more to enforce than it generates in revenue.
The Liberal government is rightly focused on including SMBs in its trade policy as a way of unlocking their potential and supporting their growth; after all, these businesses represent 90 per cent of private-sector employment and are key in diversifying our economy.
International Trade Minister François-Philippe Champagne has stated that our future success depends on more Canadian companies, especially SMBs, making bold moves and engaging in the global economy. His engagement in the issue was clear last month, when he participated in a roundtable event with Canadian eBay small businesses. After hearing how these companies are using the Internet to reach customers in foreign markets, Mr. Champagne agreed that there is no better mechanism for first-time exporters than e-commerce.
Truly, e-commerce is the modern form of trade. It is both highly democratic and effective, but it looks very different from traditional trade – it uses public infrastructure (e.g., Canada Post), and many commercial trading programs simply do not apply. As such, Internet-enabled trade needs to be specifically considered by modern trade agreements. The TPP was the first trade deal to address e-commerce as we know it today, and it promised to improve access to global markets for small and medium-sized businesses. However, it could have gone further in terms of clear, direct policies that would remove de minimis barriers – including here at home – to Canadian SMB’s participation in the global economy.
According to the Department of Global Affairs, Canada lags on small-business exports and we need to build more of a global entrepreneurial mindset. Meaningfully inclusive trade agreements are critical to this effort. So as Canadian trade officials engage in negotiations, measures that directly support inclusive trade for Canadian SMBs should be at the top of their list of objectives.

The Globe and Mail. 22 Jun 2017. Exporters upbeat despite threats hovering over international trade. 
GREG KEENAN

The cloud of uncertainty hanging over global trade should have Canadian exporters running scared, but they’re upbeat about selling to foreign markets.
That’s the conclusion Export Development Canada (EDC) is drawing from its trade confidence index, which increased in a spring 2017 survey from where it sat last fall, just before Donald Trump was elected U.S. President. The index, scheduled to be released on Thursday, measures exporters’ expectations of international-trade opportunities during the next six months and their level of confidence.
The No. 1 and No. 2 worries among exporters are the rise of Fortress America and increasing global protectionism, EDC chief economist Peter Hall said in an interview. The threats to trade include Mr. Trump’s cancellation of U.S. participation in the TransPacific Partnership, his rhetoric about tearing up the North American free-trade agreement and the pending departure of Britain from the European Union. More specifically, the U.S. administration has targeted Canadian softwood lumber and the dairy industry while Boeing Co. has launched a trade case against Bombardier Inc. over the sale of single-aisle commercial jets.

AVIATION

REUTERS. Jun 22, 2017. Bombardier to cut around 2,200 jobs in Germany - source

BERLIN (Reuters) - Canada's Bombardier plans to cut around 2,200 jobs in Germany, or around a quarter of its workforce in the country, as part of a sweeping savings plan, a company source told Reuters.

Most of the jobs would be cut at the company's plants in Henningsdorf near Berlin and Goerlitz on the German border with Poland, the person said.

Bombardier Inc said in October it would cut 7,500 jobs worldwide, mostly in its train-making division, in a second round of layoffs announced last year, following extended delays and budget overruns in its aerospace business.

German weekly magazine WirtschaftsWoche reported earlier on Thursday that around 2,700 of those jobs would be at the train-making business in Germany and that plant closures were on the cards.

Bombardier denied it could shut down factories, saying no such move was on the agenda, but declined to comment on how many jobs may go in Germany. A spokesman said talks with worker representatives were ongoing.

(Reporting by Markus Wacket; Writing by Maria Sheahan; Editing by Kathrin Jones and Adrian Croft)

REUTERS. Jun 22, 2017. Boeing wins hot Paris order race
By Victoria Bryan and Tim Hepher

PARIS (Reuters) - Boeing (BA.N: Quote) won a red hot race for new business at the Paris Airshow, rolling out a new model of its best-selling 737 airliner that helped it claim back the order crown from rival Airbus (AIR.PA: Quote)

After a show in which both manufacturers did brisk business under a sweltering sun, the European planemaker said on Thursday it won 326 net new orders and commitments while U.S. rival Boeing said its total was 571.

That included 147 new orders and commitments for the 737 MAX 10, plus 214 conversions to the MAX 10 from other models to support the launch of the new plane.

"The MAX stole the show," Ihssane Mounir, vice president of sales and marketing at Boeing's commercial aircraft division, told journalists. "This is probably one of our busiest air shows."

Asked if Airbus had lost momentum after years in which it often trounced Boeing at annual industry gatherings, sales chief John Leahy said the slowdown in orders had been expected.

"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," he told a news conference.

In a late flurry on Thursday morning, Airbus signed deals for almost 100 aircraft, with AirAsia and privately-owned Iranian carriers Zagros Airlines and Iran Airtour.

Boeing topped up its tally by announcing a firm order for 125 737 MAX 8 airplanes with an undisclosed customer and another deal with lessor AerCap (AER.N: Quote) to convert 15 of its MAX 8 orders into the larger MAX 10. It also added a memorandum of understanding from Chinese domestic Riuli Airlines for 20 737 MAX 8 aircraft.

Analyst Richard Aboulafia, of Virginia-based Teal Group, said commercial activity had been better than expected and was reminiscent of shows in 2009 and 2011, when the aircraft industry had bucked a retreating world economy.

"This time we've got instability and uncertainty in many regions of the world, but airline traffic is strong, and as we've seen at this show, airlines want jets and the finance people are certainly happy to help."

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, 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 previous member of the 737 family, a gap that the MAX 10 is intended to close.

(Reporting by Tim Hepher and Victoria Bryan; Additional reporting by Andrea Shalal and Mike Stone; editing by John Stonestreet)

RETAILS

StatCan. 2017-06-22. Retail trade, April 2017

Retail sales — Canada
$48.6 billion
April 2017
0.8% increase
(monthly change)
Source(s): CANSIM table 080-0020.

Retail sales rose 0.8% to $48.6 billion in April. Sales were up in 9 of 11 subsectors, representing 71% of total retail trade. Excluding sales at motor vehicle and parts dealers, retail sales climbed 1.5%.

After removing the effects of price changes, retail sales in volume terms were up 0.3%.

Chart 1   Chart 1: Retail sales increase in April
Retail sales increase in April



Most subsectors report higher sales

The largest increase in dollar terms was a 2.1% increase at general merchandise stores.

Sales at building material and garden equipment and supplies dealers (+3.5%) increased for the eighth consecutive month. This subsector has been trending upward on the strength of higher sales of home appliances, hardware and tools. This was the largest percentage increase since May 2015.

Receipts at gasoline stations (+1.7%) were up for the seventh time in nine months. This gain reflected higher prices at the pump. According to the Consumer Price Index, on an unadjusted basis, the price of gasoline rose 9.5% in April.

After decreasing 3.3% in March, sales bounced back at clothing and clothing accessories stores (+3.1%) in April. Gains were reported in all store types, led by clothing stores (+2.1%).

Receipts at food and beverage stores rose 0.6% in April. Higher sales were reported at all store types within the subsector. Sales at beer, wine and liquor stores (+1.6%) and specialty food stores (+3.3%) were the main contributors to the increase.

Following a 2.3% rise in March, sales at motor vehicle and parts dealers decreased 1.0% in April. The decrease stemmed from lower sales at new car dealers (-1.7%) and, to a much lesser extent, used car dealers (-1.7%). Sales at other motor vehicle dealers (+8.2%) rose for the first time in four months.

Retail sales up in seven provinces

Retail sales were up in seven provinces in April. Higher sales in Ontario and Quebec accounted for the majority of the increase.

Ontario (+1.1%) reported the largest growth in dollar terms, as gains were observed in 9 of 11 subsectors.

Following two months of declines, Quebec recorded a 1.6% increase on the strength of gains across most store types.

Alberta (+0.5%) reported higher sales in April, the eighth increase in nine months. The growth was largely attributable to higher sales at gasoline stations and other motor vehicle dealers.

In Manitoba, retail sales rose for the fifth time in six months (+1.9%).

After eight consecutive months of growth, sales in Saskatchewan registered a 4.1% decline, following an increase in the provincial sales tax at the end of March. Excluding lower sales at new car dealers, retail sales in Saskatchewan increased.

E-commerce sales by Canadian retailers

The figures in this section are based on unadjusted (that is, not seasonally adjusted) estimates.

Retail e-commerce sales were $1.2 billion in April, accounting for 2.5% of total retail trade. On a year-over-year basis, retail e-commerce increased 41.6%, while total unadjusted retail sales rose 4.7%.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170622/dq170622a-eng.pdf

REUTERS. Jun 22, 2017. Canada retail sales rise in April on home supplies, gas prices

OTTAWA (Reuters) - Canadian retail sales rose more than expected in April on higher gasoline prices and as consumers spent on home appliances and garden supplies, data from Statistics Canada showed on Thursday.

The value of retail sales rose 0.8 percent, exceeding forecasts for 0.2 percent. March was revised down slightly to a 0.5 percent increase from an initially reported gain of 0.7 percent.

Stripping out the effects of price changes, April's sales volumes were less robust, rising just 0.3 percent.

The building material, garden equipment and supplies sector rose 3.5 percent, its biggest increase in nearly two years. Increased sales of home appliances and hardware have helped the sector rise for eight months in a row.

Canada's housing market has been robust, with sales and starts rising in the first months of the year, though activity has begun to cool in the major city of Toronto since provincial measures put in place in late April.

Sales rose 2.1 percent at general merchandise stores, which include big-box and department stores. Sales at gasoline stations rose 1.7 percent, the seventh increase in nine months as Canadians paid higher prices at the pump.

Vehicle and parts dealer sales fell 1.0 percent following a solid increase in March as consumers bought fewer new cars. Excluding the auto sector, retail sales rose 1.5 percent.

(Reporting by Leah Schnurr; Editing by Chizu Nomiyama)

BLOOMBERG. 2017 M06 22. Canadian Retailers Are Off to Their Best Start Ever
By Theophilos Argitis

• January-to-April gain of 3.6% matches record YTD increase
• April’s 0.8% rise in retail sales exceeds all survey forecasts

Canada’s retailers have never had it better.

Consumers continued their free-spending ways in April, pushing retail sales to a 0.8 percent gain from the prior month and bringing the total increase since the beginning of the year to 3.6 percent, Statistics Canada reported Thursday. That matches the best start to a year in data back to 1991.

The figures highlight how much consumers -- buoyed by strong employment growth -- have powered the nation’s economy out of an oil crash, generating growth that is among the highest in the developed world. At the same time, that’s raising concern the increases may not be sustainable, with much of the spending fueled by the wealth effects from a soaring real estate market.

Economists surveyed by Bloomberg News anticipated a 0.3 percent gain, the median forecast.

Thursday’s data should bolster confidence in economist projections that the economy continued to expand at a pace of about 2 percent in the second quarter, after a 3.7 percent annualized gain in the first quarter.

Key Points

• The gain in retail sales in April was powered by the country’s two biggest provinces: Quebec (1.6 percent) and Ontario (1 percent).
• Excluding car and parts dealers, retail sales were up 1.5 percent in April and has gained 4 percent since the start of the year. That’s the best start on record.
• The gains so far this year have been driven by actual new sales rather than price increases. Volume sales were up 0.3 percent in April and the 3.3 percent year-to-date gain is also a record start.
• The year-to-date increase in total retail sales matches a record start also recorded in 1999 and again in 2006.

What Economists Say

• Benjamin Reitzes, Bank of Montreal: “The solid run of Canadian data continues. There’s nothing here to alter the Bank of Canada’s now more hawkish path.”
• Nick Exarhos, CIBC Economics: “Consumers continue to do their part in the Canadian outlook. Today’s figures point to a positive -- although modestly so -- result for monthly GDP in April, but that’s all we need after the strong hand off from a blistering March to reach the 2-2.5% Q2 that we’re expecting.”

FINANCE

StatCan. 2017-06-22. Government Finance Statistics, first quarter 2017

Quarterly data for Government Finance Statistics (GFS), a system that presents fiscal statistics using the international standard GFS developed by the International Monetary Fund, are now available. This standard allows consistent aggregation and analysis between participating countries.

Quarterly GFS data are available in CANSIM for overall government in Canada and for four sectors, from 1990 to the first quarter of 2017. These sectors are the federal government, provincial/territorial governments, local governments, and Canada and Quebec Pension Plans.

FULL DOCUMENT: http://www.statcan.gc.ca/daily-quotidien/170622/dq170622d-eng.pdf

BLOOMBERG. 2017 M06 22. Closed-Door Talks Have Bank of Canada Concerned About Trust
By Greg Quinn

• Staff outlined risks of social media leaks, privileged access
• Internal study made recommendations to boost transparency

The Bank of Canada’s top policy makers spoke almost twice as often behind closed doors as they did in public over a three year span, according to an internal review that also said private speeches could undermine public trust.

Of 229 Governing Council engagements between 2014 and 2016, 64 percent were to private audiences, according to the review, which was obtained by Bloomberg through a freedom of information request. The Dec. 12 report made several recommendations, some of which are already being implemented, a spokeswoman said.

“Fanned by a general lack of trust in the financial system in many advanced economies, and by the desire for increased transparency, private speeches by central banks are increasingly viewed with skepticism because of concerns about possible conflicts of interest, or access to privileged information for certain groups,” the bank’s communications department said in the report.

Global central banks face heightened scrutiny as they play an increasingly critical role in propping up economic growth, with interest rates at historical lows and the use of unconventional tools like asset purchases. Canada’s central bank has kept its benchmark rate at 0.5 percent since 2015.



The Ottawa-based bank “has taken action” including plans to revise guidelines and publish them for the first time, spokeswoman Louise Egan said by email. The way private speaking events are planned has also been reviewed and press officers are now traveling with policy makers to some private engagements, she said.

“Governing Council highly values the input and insights it receives from business, labor and academic groups in private settings, where members of those interest groups are able to share their views with candor and frankness,” Egan wrote. “Members also reiterated their strong commitment that remarks made in private settings must only reflect views we have already communicated publicly.”

There will have been 32 private speaking engagements by members of the governing council in the first six months of 2017, Egan said, including nine by Governor Stephen Poloz.

Shaun Osborne, chief foreign-exchange strategist in Toronto at Bank of Nova Scotia, said while the bank does a good job of “communicating appropriately,” it’s “quite surprising that they do engage in that level of off-the-record briefings.”

Privileged Access

The report highlights four main challenges associated with private speeches: the rise of social media, expectations of transparency, public mistrust and complaints from the media.

“Any perception that central banks are providing to a select group privileged access to the banks’ information or policy thinking risks damaging well-earned reputations and further exacerbating mistrust in the financial system as a whole,” it said.

Extraordinary measures implemented since the financial crisis are making it necessary for central bankers to explain the policies more frequently, fueling the need for more outreach of the sort the report is flagging and increasing the risks information will be inappropriately shared.

Recommendations in the eleven-page memo include publishing a set of guidelines for external communications and developing a “a more robust set of criteria to help define what constitutes an acceptable private speaking engagement.”

That would bring Canada more in line with changes made at the U.S. Federal Reserve, the European Central Bank and the Bank of England, the memo said. The report cited recent controversies, including when remarks from a 2015 closed door speech by European Central Bank Executive Board member Benoit Coeure “was viewed to have to have contained” market-moving information about ECB bond-buying plans.

Mistaken Tweet

Last year, private remarks by a bank official were tweeted out by an audience member “which many mistakenly interpreted as the Bank planning to launch a digital currency,” the memo said.

“Armed with smartphones and ready access to instant communication tools, attendees at our speaking events are capable of disclosing information for public consumption within seconds of it being delivered. This has become an ever-present risk that must be managed,” the memo said.

The most common private engagement is a 20- to 25-minute presentation to a professional association or a board of directors. Others include remarks at academic conferences or to university classes.

The Bank of Canada’s code of conduct already bars staff from disclosing confidential information when speaking at events, or from giving an unfair advantage. The existing approach still has “few hard restrictions” on accepting private speaking invitations, the report said. One guideline is the bank shouldn’t provide new information on the economic outlook at an event or venue that doesn’t provide instant public access to the information.

Publishing more speech texts could be overkill, said Andrew Kelvin, senior rates strategist at Toronto-Dominion Bank’s TD Securities unit.

“I don’t see what it adds truthfully, and if anything it might invite a whole bunch of unfounded speculation,” Kelvin said by phone. “From a perception standpoint I understand the appeal of tightening it up a bit, but I don’t think there’s a perception that there is a whole bunch of people getting information that other people aren’t.”

(A previous version of this story was corrected to remove an inaccurate attribution in the 14th paragraph.)

INDUSTRY

Global Affairs Canada. June 22, 2017. International Trade Minister announces $3.3 million for 34 industry associations to promote trade

Ottawa, Ontario - Industry associations play a key role in fostering international business development. They represent countless small and medium-sized enterprises that are the backbone of our economy and the engine for new job creation. Their activities also promote best practices among their members that benefit the entire economy.

In an effort to expand and support Canadian ingenuity and innovation, the Government of Canada encourages associations to look beyond Canada’s borders for new opportunities with Global Opportunities for Associations (GOA), a key pillar of Global Affairs Canada’s Global Markets Support Program (GMSP). Through the GMSP, Global Affairs Canada contributes to Canadian economic growth and prosperity by promoting greater Canadian participation in international markets.

The Honourable François-Philippe Champagne, Minister of International Trade, today announced that the Government of Canada is providing $3.3 million to 34 industry associations to share the costs and risks of 114 separate international business development initiatives.

GOA supports three types of international business development initiatives:

• direct contacts, such as trade shows, meetings, matchmaking, seminars, incoming visits and export training;
• marketing tools, such as website development targeting foreign customers and other materials that promote trade opportunities; and
• research tools, such as market research or market intelligence reports or the update of a multi-year international business development strategy for an industry.

Quotes

“I have witnessed the important role associations play in ensuring their members and the workers they employ benefit from new contacts, clients and market intelligence. With a little encouragement from Global Affairs Canada, these associations can expand their reach around the globe, creating more jobs and increased prosperity at home. This is another way in which we are supporting growth for the middle class.”

- François-Philippe Champagne, Minister of International Trade

Quick Facts

• GOA is supporting Marine Renewables Canada of Halifax, Nova Scotia, to attend the European Wave and Tidal Energy Conference in Ireland.
• GOA is supporting Groupe CTT of Saint-Hyacinthe, Quebec, to attend the textile trade show Texprocess in Germany.
• GOA is supporting the Royal Architectural Institute of Canada of Ottawa, Ontario, to bring foreign delegates to the International Indigenous Architecture and Design Symposium being held in Ottawa.
• GOA is supporting Aerospace Industries Association of Canada of Ottawa, Ontario, to assist 25 Canadian small and medium-sized enterprises to attend the Paris Air Show.
• GOA is supporting the Air Transport Association of Canada of Ottawa, Ontario, to attend the Maintenance, Repair and Overhaul (MRO) trade show in the United Kingdom.
• GOA is supporting Wavefront Wireless Commercialization Centre Society of Vancouver, British Columbia, to attend Carrier and Mobile Solutions conference in Finland.

Global Affairs Canada. June 22, 2017. Global Opportunities for Associations

Global Opportunities for Associations (GOA) provides contribution funding to support national associations undertaking new or expanded international business development activities, in strategic markets and sectors, for the benefit of an entire industry (member and non-member firms). GOA shares the risks and costs of activities, thereby providing an incentive for associations and their members to be more ambitious in entering global markets.

Annual non-repayable contributions range from a minimum of $20,000 to a maximum of $250,000, and the funding approvals are made for a one-year period for activities and related expenditures taking place between April 1 and March 31 of the following year. GOA provides matching funds of up to 50 percent of eligible expenses.

FY 2017-2018 Global Opportunities for Associations recipients

Aerospace - $255,279

• Aerospace Industries Association of Canada - $152,275
• Air Transport Association of Canada - $103,004

Automotive - $103,640

• Automotive Parts Manufacturers’ Association - $76,425
• Canadian Association of Moldmakers - $27,215

Clean technology - $394,005

• Canadian Geothermal Energy Association - $56,643
• Canadian Hydrogen and Fuel Cell Association - $204,562
• Energy Storage Canada - $21,325
• Marine Renewables Canada - $79,475
• WaterTAP - $32,000

Creative industries - $502,908

• Canadian Association for the Advancement of Music and the Arts - $127,521
• Canadian Independent Music Association - $150,950
• Canadian Media Producers Association - $136,120
• Canadian Music Publishers Association - $25,900
• Folk Music Canada - $62,417

Defence and security - $383,850

• Atlantic Canada Aerospace & Defence Association - $133,850
• Canadian Association of Defence and Security Industries - $250,000

Education - $490,035

• Association des collèges et universités de la francophonie canadienne - $44,150
• CALDO Consortium - $29,900
• Canadian Accredited Independent Schools - $216,595
• Canadian Association of Public Schools International - $67,115
• Languages Canada – Langues Canada - $132,275

Industrial machinery - $88,790

• Canadian Tooling & Machining Association - $20,565
• Groupe CTT - $68,225

Information and communication technology - $290,852

• Centre d’entreprises et d’innovation de Montréal - $106,680
• Wavefront Wireless Commercialization Centre Society - $184,172

Infrastructure - $237,438

• Canada Green Building Council - $63,658
• Canadian Dam Association - $73,650
• Interior Designers of Canada - $33,250
• Royal Architectural Institute of Canada - $66,880

Life sciences - $95,025

• BIOTECanada - $95,025

Mining - $233,474

• Canadian Association of Mining Equipment and Services for Export - $233,474

Nuclear - $75,000

• Organization of Canadian Nuclear Industries - $75,000

Transportation - $172,150

• Intelligent Transportation Systems Society of Canada - $78,900
• National Marine Manufacturers Association Canada - $93,250

ENERGY

The Globe and Mail. 22 Jun 2017. EDC to finance Canadian Solar project in Dubai
SHAWN MCCARTHY 

OTTAWA - Export Development Canada has committed $72-million (U.S.) in financing for Canadian Solar Inc.’s participation in Dubai’s massive Solar City project, as the federal corporation moves to expand its support for the country’s growing clean-technology sector.
In two releases issued on Thursday, EDC announced its financing for Guelph, Ont.-based Canadian Solar – one of the world’s largest solar-panel manufacturers – as well as a $6.5-million (Canadian) credit facility for
Corvus Energy Inc., a Richmond, B.C., startup that makes lithiumion batteries.
The Crown corporation issued a $500-million (U.S.) green bond this month, the proceeds of which are being used to finance a series of international transactions by Canadian clean-tech firms. The Liberal government has directed the EDC and the Business Development Bank of Canada to increase their efforts to support the sector, which is seen as critical to the country’s ability to capitalize on the global transition to a lower-carbon economy.
“Supporting clean technologies is a strategic priority for EDC,” Carl Burlock, an EDC senior vicepresident, said in the Canadian Solar release. He said the company’s participation in the Dubai project “is a testament to Canada’s leading expertise in the clean-energy space.”
Canadian Solar announced last month that it had supplied 268 megawatts of its Dymond solarpanel modules for the first phase of the 800-megawatt Mohammed bin Rashid Al Maktoum Solar Park, which, when completed, will be the world’s largest solarenergy facility. The consortium leading the project bid a record low price of 2.99 cents (U.S.) a kilowatt-hour for the electricity.
In the release, Canadian Solar chief executive Shawn Qu said the EDC financing would support the company’s global growth.
“As Dubai diversifies its energy portfolio, our partnership will serve as an excellent example for future utility-scale solar projects in the region, and we are eager to contribute further to the energymarket growth in the Middle East,” he said. Company officials were not available on Wednesday to comment on what portion of the project will be supplied by its Guelph facility.
While Canadian Solar is headquartered in Guelph and still has operations there, its top executives are based in China, where the company has its major manufacturing plants.
EDC’s director for clean tech, Mark Senn, said the Crown corporation has a mandate to support Canadian companies in the global marketplace, including companies that have overseas operations. He said the Canadian Solar financing will help maintain the company’s research, engineering and export-sales jobs at its Guelph facility. The solar panels themselves are produced elsewhere.
“There is employment in Guelph and our view – and what the company has been saying to us – is that the ability [of it] to get financing support from Canada as it relates to the Canadian benefits derived from the jobs in Canada is important to the company,” Mr. Senn said in an interview.
“We’re keen to do everything we can to add additional benefits to keep the employment here.”
Given Canadian Solar’s solid history, EDC did not consider that support to be a stretch, Mr. Senn said. But its financing of Corvus is part of the corporation’s more recent strategy of financing startups that need support to expand their commercial operations.
“Corvus is a transaction that we probably would have have done two years ago,” he said.
The B.C. firm develops and manufactures energy-storage systems, including lithium-ion batteries, for hybrid and electric marine applications to help reduce fuel consumption and emissions. In a release, the company said the EDC financing will allow it to fulfill various export contracts, primarily for hybrid ferries in Europe.
Canadian Solar (CSIQ) Close: $13.99 (U.S.), up 94¢

HOUSING BUBBLE

The Globe and Mail. 22 Jun 2017. Should you join the Home Capital rally?
DAVID BERMAN

Recent gains may suggest the worst is over for the alternative lender, and if the risk subsides, so too will the opportunity.



Something extraordinary has happened to Home Capital Group Inc. over the past nine weeks: It has become Canada’s hottest stock, and a number of analysts believe more gains are coming.
The share price has surged 150 per cent since April 26 – the day when the stock collapsed 65 per cent after the mortgage lender said it needed an emergency loan to offset fleeing deposits. That’s easily the best return among the 248 stocks in the S&P/TSX composite index.
While the stock remains highly speculative amid continuing concerns about the company’s future, the recent gains reflect rising confidence that the worst may be over.
“Since we last updated our estimates, the outlook has brightened considerably,” Dylan Steuart, an analyst at Industrial Alliance Securities, said in a note. He boosted his price target on the stock dramatically, to $19 from $10.50.
Other analysts are making similar changes. According to Bloomberg, the seven analysts who have updated their views on the stock over the past two days have an average target price of $17, up from an average of $12.50 just one week ago.
That marks an amazing turnaround in their assessment of Home Capital – but should latecomers join this rally?
The alternative lender, whose core business is underwriting mortgages to recent immigrants, self-employed Canadians and others who don’t qualify for loans from risk-averse financial institutions, fell on hard times nine weeks ago when depositors withdrew money from high-interest savings accounts.
The bank run coincided with allegations from the Ontario Securities Commission that management had been slow to reveal fraudulent underwriting practices among some brokers.
Add in executive and board departures, along with broader concerns about Home Capital’s potential impact on Canada’s housing market and contagion to other financial players, and this didn’t look like a good stock on which to bet your financial future.
The price closed at a low of $5.85 in early May, down from more than $31 at the start of the year.
What explains the subsequent rebound to $14.94?
Home Capital has made a flurry of moves that have improved the outlook for the company to the point where the debate has shifted from whether it will survive to what it is worth.
The company has attracted new board members, and last week settled its case with the OSC. It appears to have stabilized its funding after raising interest rates on guaranteed investment certificates. And on Tuesday, it agreed to sell $1.2billion in commercial mortgage assets to KingSett Capital, at 99.6 per cent of principal value.
“Everything they said they’d do, they’ve done,” said David Taylor of Taylor Asset Management, which bought Home Capital shares on the recent dip.
The asset sale means that Home Capital can repay a substantial portion of its expensive emergency loan from a Canadian pension fund. And the price it received implies that the rest of the company’s loan book could be worth something close to book value.
That’s far better than the gloomy scenarios that had assumed assets could be sold off at 80 cents on the dollar and leave the company essentially worthless. And it supports the argument that Home Capital’s share price should approach its book value.
Home Capital’s book value is $24 per share, according to Mr. Steuart. If the shares trade at 0.8-times book value, in line with peers, the share price would rise to $19.
But the bigger hope among investors is that Home Capital doesn’t have to continue to sell its loan book or run-off its mortgages as they mature, but can resume life as a mortgage lender.
“The best way to get full value for this company is not in a runoff. It is to re-establish this company and to build up the franchise value once again,” Mr. Taylor said.
He thinks the share price could rise to $25 under this scenario – up nearly 70 per cent from the current price – which is why he remains a significant shareholder.

Is it a risky bet? Definitely. But if the risk subsides, so too will the opportunity. Home Capital Group (HCG) Close: $14.94, down 48¢

The Globe and Mail. Jun. 22, 2017. Home Capital opts for ‘smart investor’ with Buffett rescue
CHRISTINA PELLEGRINI AND JACQUELINE NELSON

Warren Buffett is coming to the rescue of Home Capital Group Inc., but the Oracle of Omaha’s endorsement won’t come cheap for the Canadian alternative mortgage lender.

One of the world’s most famous investors is backing the Toronto-based company in a financing deal that is designed to shore up confidence in the beleaguered firm, which is trying to stabilize its cash position after suffering a run on the bank this spring.

Mr. Buffett’s Berkshire Hathaway Inc. has agreed to indirectly acquire $400-million of Home Capital’s common 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 it received in April from the Healthcare of Ontario Pension Plan (HOOPP).

Shares of Home Capital soared 12 per cent in late-morning trading to $16.85. It has been a wild ride for investors: the stock is up more than 180 per cent since May 5, but is still down almost 40 per cent over the past three months.

On a conference call with analysts Thursday, director Alan Hibben said that Home Capital considered a range of alternatives to the Buffett deal, including other equity and debt investments, asset sales and other credit replacement options. But the Berkshire deal was selected because it included a well-known sponsor in Buffett who would validate the company’s business model and its portfolios, as well as a lower cost of debt financing, Mr. Hibben added.

The company needed “someone who everybody out there could look at and say ‘that is a smart investor – if that smart investor is willing to put common [equity] in this company, then I should be willing to invest in the GICs,’” Mr. Hibben said.

This kind of bet is in keeping with Mr. Buffett’s history of investing in distressed financial institutions on favourable terms, most famously in the United States during the 2008 financial crisis, when he invested billions in Goldman Sachs Group Inc. and other firms.

Home Capital has been in financial distress since April, when the Ontario Securities Commission levelled allegations against the firm and three former high-level executives of violating securities rules by failing to disclose problems in its mortgage underwriting business in 2014-15.

Confidence in the company tumbled and depositors began withdrawing their funds parked at Home Capital – a run on the bank that nearly led to the firm’s collapse in early May. Since then, it has been selling off assets, making changes to the board of directors and advertising lucrative interest rates on deposits in an attempt to win back the confidence of depositors. It also agreed to a settlement with the Ontario Securities Commission on the allegations that, if approved, will see it pay more than $10-million in fines and costs.

The Berkshire investment is another step in the company’s attempt to regain the market’s favour. But it comes at a price.

The equity portion of the Home Capital deal is broken up into two chunks. Through a subsidiary, Columbia Insurance Co., Berkshire will make an initial investment of $153.2-million to acquire more than 16 million common 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 a 36-per-cent discount to Wednesday’s closing price of $14.94.

While such a deal would normally be subject to a shareholder vote, Home Capital is relying on infrequently-used clause in the Toronto Stock Exchange’s company manual that allows companies to bypass a shareholder vote at a time of “financial hardship.” Berkshire required that the first part of the deal be done without an investor vote for the sake of speed.

Mr. Hibben said on the call that “the board determined that, due to the significant uncertainty created, the company is in serious financial difficulty,” adding that this deal was still in the best interest of the company.

Home Capital expects the initial investment to close on June 29.

Then, Berkshire will make another investment – also through Columbia – of $246.8-million to acquire another 24-million shares of Home Capital at $10.30 per share. This deal, however, is subject to shareholder approval, which will be sought at a special meeting in September 2017, and Canadian Competition Act clearance.

Once both transactions are completed, Berkshire would own a total stake of almost 39 per cent in Home Capital at an average price of $10 per share.

When Home Capital struck its deal with Berkshire Hathaway, the company had not yet settled its disputes with the OSC or announced plans to sell $1.2-billion in commercial mortgages to real estate private equity funds KingSett Capital. Both of these moves caused Home Capital’s share price to rise.

That changed the value of the common shares Home Capital had agreed to award Berkshire Hathaway in the deal. The new discount rate is below what is allowable under Toronto Stock Exchange rules, and since Berkshire Hathaway mandated that the first part of the deal be done without initial shareholder approval, Home Capital was forced to seek a “financial hardship exemption” from the TSX.

Berkshire is also lending Home Capital $2-billion to repay its all amounts outstanding on its existing credit facility. The new credit agreement is also expected to be effective June 29, the news release said.

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 board also looked to protect Home Capital from other market changes that could have a negative impact on its business. That could include a future recession or unknown changes to regulations or government policies could have an impact on the company.

“The world is a dangerous place – we’ve already seen what happens to a company such as ourselves when there’s a crisis of confidence. We don’t know what’s going to happen in the future,” Mr. Hibben said.

The Globe and Mail. Jun. 22, 2017. Buffett’s Berkshire Hathaway comes to Home Capital's rescue
CHRISTINA PELLEGRINI - CAPITAL MARKETS REPORTER

Warren Buffett is coming to the rescue of Home Capital Group Inc.

One of the world’s most famous investors is backing the Toronto-based mortgage company in a financing deal that is designed to shore up confidence in the beleaguered firm as it tries to stabilize its deposit base.

Home Capital shares jumped more than 10 per cent in early trading Thursday.

Mr. Buffett’s Berkshire Hathaway Inc. has agreed to indirectly acquire $400-million of Home Capital’s common 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 it received in April from the Healthcare of Ontario Pension Plan (HOOPP).

This kind of bet is in keeping with Mr. Buffett’s history of investing in distressed financial institutions on favourable terms, most famously in the United States during the 2008 financial crisis, when he invested billions in Goldman Sachs Group Inc. and other firms.

Home Capital has been in financial distress since April, when the Ontario Securities Commission levelled allegations against the firm and three former high-level executives of violating securities rules by failing to disclose problems in its mortgage underwriting business in 2014-15.

Depositors began pulling money rapidly out of Home Capital savings accounts and guaranteed investment certificates – a run on the bank that nearly led to the firm’s collapse in early May. Since then, it has been selling off assets, making changes to the board of directors and advertising lucrative interest rates on deposits in an attempt to win back the confidence of depositors. It also agreed to a settlement with the OSC on the allegations that, if approved, will see it pay more than $10-million in fines and costs.

"Berkshire's investment in Home Capital is a strong vote of confidence in the fundamental, long-term value of our business," Home Capital’s new chair, Brenda Eprile, said in a news release. "We are pleased to partner with such a renowned institution in a transaction that we believe will reward all our investors for their patience and loyalty by enhancing the value of Home Capital over time."

The Berkshire Hathaway investment is another step in the company’s attempt to regain the market’s favour. But it comes at a price.

The equity portion of the Home Capital deal is broken up into two chunks. Through a subsidiary, Columbia Insurance Co., Berkshire will make an initial investment of $153.2-million to acquire more than 16 million common 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 a 36 per cent discount to Wednesday’s closing price of $14.94.

While such a deal would normally be subject to a shareholder vote, Home Capital is relying on infrequently-used clause in the Toronto Stock Exchange’s company manual that allows companies to bypass a shareholder vote at a time of “financial hardship.” The company expects the initial investment to close on June 29.

Then, Berkshire will make another investment – also through Columbia – of $246.8-million to acquire another 24-million shares of Home Capital at $10.30 per share. This deal, however, is subject to shareholder approval, which will be sought at a special meeting in September 2017, and Canadian Competition Act clearance.

Once both transactions are completed, Berkshire would own a total stake of almost 39 per cent in Home Capital at an average price of $10 per share.

Berkshire is also lending Home Capital $2-billion to repay its all amounts outstanding on its existing credit facility. The new credit agreement is also expected to be effective June 29, the news release said.

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, these amounts will drop to 9 per cent and 1 per cent, respectively.

Representatives for Berkshire Hathaway could not immediately be reached.

The Globe and Mail. Jun. 22, 2017. Two things we know about Buffett’s investment in Home Capital
SCOTT BARLOW

Warren Buffett is not infallible but history tells us two things about Berkshire’s investment in Home Capital Group. One, the research and analysis was methodical and in-depth, and included an estimate of potential risks arising from underwriting standards and future legal issues. Two, Mr. Buffett believes he is buying the Home Capital stake at a deep enough discount to fair value to offset these possible risks.

The investment is very small by Berkshire Hathaway standards and again, Mr. Buffett might be wrong and lose money. But, I’ve seen some “Buffett doesn’t know what he’s doing” reactions this morning and that’s not a reflexive position I’d like to take, personally. The staunchest housing finance bear should reassess their stance in light of Mr. Buffett’s investment, if only to reaffirm their conclusions.

REUTERS. Jun 22, 2017. Home Capital to get C$2 billion loan from Berkshire Hathaway

(Reuters) - Home Capital Group Inc said billionaire Warren Buffett's Berkshire Hathaway Inc will provide a new C$2 billion ($1.50 billion) line of credit to its unit Home Trust Co, ending the Canadian lender's strategic review process.

Berkshire will also indirectly buy C$400 million of Home Capital's common shares in a private placement through its unit Columbia Insurance Co, Home Capital said on Wednesday.

"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," said Warren Buffett, Berkshire chairman and CEO.Berkshire will hold an about 38.39 percent equity stake in Home Capital after buying 40 million shares at an average price of about C$10.00 per common share.

Berkshire will make an initial investment of C$153.2 million to buy 16 million common shares and an additional investment of C$246.8 million to purchase 24 million shares through a private placement.

The additional investment is subject to shareholder approval, while the initial investment will not require approval from shareholders.

Canada's biggest non-bank lender also said it will continue to explore further asset sales and financing deals over the next year, but has concluded its strategic review process that began in April.

"This investment from Berkshire not only addresses Home Capital's near-term requirements for additional liquidity and a lower-cost credit agreement, but also facilitates what the Board feels is the best available path to long-term success," Home Capital's Chair Brenda Eprile said.

Berkshire will not be granted any rights to nominate directors to Home Capital board or any governance rights as an equity holder, Home Capital said.

The C$2 billion loan facility, expected to be effective on June 29, will replace the existing one for a similar amount between Home Trust Company and a major institutional investor.

On Tuesday, the company said it would sell a portfolio of commercial mortgage assets valued at C$1.2 billion to bolster its liquidity and trim outstanding debt on a C$2 billion emergency facility it agreed with the Healthcare of Ontario Pension Plan in April.

Last week, Home Capital reached a C$30.5 million settlement with the Ontario Securities Commission, settled a class action lawsuit and accepted responsibility for misleading investors about problems with its mortgage underwriting procedures.

The settlement is expected to help secure long-term financing at sustainable interest rates, investors and analysts said.

(Reporting by Abinaya Vijayaraghavan in Bengaluru; Editing by Sunil Nair and Gopakumar Warrier)

BLOOMBERG. 2017 M06 22. Buffett Follows Goldman Model in Bailout for Home Capital
By Katia Dmitrieva  and David Scanlan

• Buffett’s firm to buy shares, supply C$2 billion credit line
• Alternative lender attempts comeback after regulatory woes
• Berkshire After Buffett

Warren Buffett has become the lender of last resort for Home Capital Group Inc. The billionaire investor agreed to buy shares at a deep discount and provide a fresh credit line for the Canadian mortgage company, tapping a formula he used to prop up lenders from Goldman Sachs Group Inc. to Bank of America Corp.

Buffett’s Berkshire Hathaway Inc. 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 embattled Toronto-based lender, Home Capital said late Wednesday in a statement. The interest on the one-year loan would net Berkshire at least C$180 million if it’s fully tapped.

“While the terms of the new credit line with Berkshire Hathaway remain harsh, we believe the purpose of this loan is to motivate Home Capital’s management to bolster their own funding sources," said Hugo Chan, chief investment officer at Kingsferry Capital in Shanghai, which owns shares in Home Capital. “This again shows Mr. Buffett’s masterful capital allocation skills," said Chan, citing his investment motto: “be greedy when others are fearful.”

The financial backing from Buffett sent the stock higher Thursday, though it comes at a cost, in keeping with his past bailouts of financial firms. Buffett has buoyed some of the biggest U.S. corporations in times of trouble, including a combined $8 billion injection to prop up Goldman Sachs and General Electric Co. when credit markets froze during the 2008 financial crisis.

Berkshire’s purchase of $5 billion of Goldman Sachs preferred stock paid Buffett’s company an annual dividend of 10 percent, and the billionaire also got warrants he later used to get more than $2 billion of the bank’s shares in a cashless transaction.

Deal Discount

In the Home Capital deal, Buffett’s firm agreed to pay an average price of C$10 a share, a 33 percent discount to Wednesday’s closing price of C$14.94. Berkshire would become the largest shareholder in Home Capital, which has a market value of about C$1 billion.

Home Capital surged 13 percent to C$16.90 at 10:46 a.m. in Toronto. That gives Buffett an almost 70 percent return on paper for the equity investment, assuming the deal goes through. The investment also sent the Canadian dollar higher and boosted shares in rival lenders including Equitable Group Inc.

“If you have the Warren Buffett seal of approval, people will take you more seriously than if you don’t,” said Meyer Shields, an analyst with Keefe, Bruyette and Woods. “So you sort of look beyond the settlement and say, ‘OK, what matters most now is that Warren Buffett trusts this company. And that in turn, allows Warren Buffett to get much better returns on capital than maybe some other lender would have been able to.”



The C$2 billion credit line is only marginally cheaper than the emergency credit provided by the Healthcare of Ontario Pension Plan, which company directors have termed as “costly.”

Under the new credit agreement, the interest rate on outstanding balances will fall to 9.5 percent, from 10 percent under the existing HOOPP line. The rate will drop to 9 percent after the initial investment is completed. The standby fee on undrawn funds will dip to 1.75 percent from the current 2.5 percent, then fall further to 1 percent. The credit line is for one year. Home Capital has drawn about C$1.65 billion from the HOOPP loan.

The investment “is a strong vote of confidence,” in the long-term value of the business, Brenda Eprile, Home Capital’s chairwoman, said in the statement.

New Terms

The move is the latest sign of a turnaround in the 30-year-old lender after a regulator in April accused it of misleading shareholders on mortgage fraud, which sent its shares tumbling, sparked deposit withdrawals and threatened to disrupt Canada’s real estate sector. Earlier this week, Home Capital agreed to sell a portfolio of commercial mortgages to affiliates of KingSett Capital Inc. for C$1.16 billion in cash.

“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 the statement.

The share purchase will be done in two parts: an initial investment of C$153 million for about a 20 percent equity stake, then an additional investment of C$247 million taking the stake to about 38 percent. The second phase requires extra approvals.

Berkshire will not be granted any rights to nominate directors and has agreed to only vote shares representing 25 percent of the company’s stock, Home Capital said.

Home Capital shares have tripled since bottoming in May when its troubles began to accelerate, though remain about 73 percent down from their peak in 2014. The company last week took full responsibility over allegations the lender misled shareholders about mortgage fraud and agreed with three former executives to pay more than C$30 million to reach settlements with regulators and investors.

More Confidence

Home Capital directors said on a conference call Thursday the focus on the deal with Berkshire was to restore investor and capital markets confidence. The lender chose Buffett’s firm because the name would help restore confidence, even with the high price paid. There were about 70 parties looking at the company and its assets, and the board had several options in front of them including a sale of the entire firm, they said on the conference call.

“It’s actually quite brilliant on the part of Home Capital to have secured this deal,” said Michael Sprung of Toronto-based Sprung Investment Management. “It would have been a long, hard struggle without bringing in the backing of someone like Warren Buffett to rebuild this company and to reestablish the confidence of not only shareholders but depositors and mortgage brokers.”

On the executive search, Home Capital said they were making progress and hoped to announce a new chief executive officer in July.

Buffett’s Berkshire Hathaway is wading into a tense Canadian housing market, with Toronto house prices cooling after being hit with a 15 percent tax on foreign buyers and tighter mortgage regulations, and confidence shaken by the Home Capital drama. Meanwhile, prices are surging in Vancouver again after being sideswiped by similar policy moves.

BLOOMBERG. 2017 M06 22. Berkshire Hathaway Invests in Embattled Lender Home Capital
By Sree Vidya Bhaktavatsalam  and Jacqueline Thorpe

• Buffett’s firm to buy shares, supply C$2 billion credit line
• Alternative lender attempts comeback after regulatory woes
• Berkshire After Buffett

Warren Buffett’s Berkshire Hathaway Inc. is providing a lifeline to Home Capital Group Inc., the embattled Canadian alternative lender whose near collapse sparked intense scrutiny of the country’s fraught housing market.

Berkshire agreed to indirectly acquire C$400 million ($300 million) of the firm’s shares for a 38.4 percent stake and provide a C$2 billion credit line to subsidiary Home Trust Co., Home Capital said late Wednesday in Toronto.

“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 the statement.

The move is the latest sign of a turnaround in the 30-year-old lender after a regulator in April accused it of misleading shareholders on mortgage fraud, which sent its shares tumbling, sparked withdrawals and threatened to disrupt Canada’s real estate sector. Earlier this week, Home Capital agreed to sell a clutch of commercial mortgages to affiliates of KingSett Capital Inc. for C$1.16 billion in cash.

Buffett’s firm is investing through its unit Columbia Insurance Co. and the average price per share will be about C$10, compared with yesterday’s closing price of C$14.94.

The investment “is a strong vote of confidence,” in the long-term value of the business, Brenda Eprile, Home Capital’s chairwoman, said in the statement.

Better Terms

The deal replaces an existing emergency credit facility on better terms, Home Capital said. The share purchase will be done in two parts: an initial investment of C$153 million for about a 20 percent equity stake, then an additional investment of C$247 million taking the stake to about 38 percent. The second phase requires extra approvals.

Berkshire will not be granted any rights to nominate directors and has agreed to only vote shares representing 25 percent of the company’s stock, Home Capital said.

Under the new credit agreement, the interest rate on outstanding balances will fall to 9.5 percent from 10 percent until the initial investment is completed, then it will fall to 9 percent. The standby fee will fall to 1.75 percent from 2.5 percent, then 1 percent.

Home Capital shares have more than doubled since bottoming in April when its troubles began to accelerate but remain about 73 percent down from their peak in 2014. The company last week took full responsibility over allegations the lender misled shareholders about mortgage fraud and agreed with three former executives to pay more than C$30 million to reach settlements with regulators and investors.

Buffett’s Berkshire Hathaway is wading into a tense Canadian housing market, with Toronto house prices cooling after being hit with a 15 percent tax on foreign buyers and tighter mortgage regulations, and confidence shake by the Home Capital drama. Meanwhile, prices are surging in Vancouver again after being sideswiped by similar policy moves.

________________

LGCJ.: