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Blue Christmas for lawyers, investment bankers in U.S.?

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Lawyers, bankers under the gun To borrow from Elvis, it may very well be a Blue Christmas for lawyers and investment bankers in the United States, according to The Wall Street Journal.

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The newspaper reported today that the New York firm of Cravath, Swaine & Moore LLP told its associate lawyers that this year's bonuses will largely be held to last year's versions, which, while above the 2009 level, are down markedly from the heady year that was 2007.

Traditionally, the Journal said, Cravath sets the tone for other major firms.

Yesterday, the newspaper reported on the latest study by Options Group, which found that those at the major Wall Street banks could find their annual pay sinking by up to 30 per cent from last year. That would see pay levels at their lowest since the financial crisis.

Bonuses alone could sink by up to 40 per cent, the study showed. Now, before you go crying, consider that a top bond trader will probably earn up to $1.8-million (U.S.) this year.

AMR in bankruptcy protection AMR Corp. and American Airlines have filed for Chapter 11 bankruptcy protection, a move to "achieve a cost and debt structure that is industry competitive." Its shares collapsed after the announcement.

The huge American carrier, along among its peers in not being profitable last year, said its flights are running normally today. American has a code-sharing deal with WestJet Airlines Ltd. .

"After years of avoiding filing for bankruptcy, AMR decided that Chapter 11 was the best alternative to improving its cost and debt structure in order to increase its competitiveness," said Desjardins analyst Benoit Poirier.

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AMR said it filed for a voluntary Chapter 11 restructuring in the U.S. Bankruptcy Court for the Southern District of New York, and hinted to its workers what is to come.

"As we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labour costs, to enable us to capitalize on these foundational strengths and secure our future," said chief executive officer Thomas Horton.

"Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges."

AMR won't hit Bombardier While AMR's Chapter 11 filing is far from good news, there's not expected to be a hit to Bombardier Inc. , Mr. Poirier of Desjardins said today.

"In our view, American Airlines' bankruptcy is not an indication of airline profitability in general, but a reflection of company-specific factors," he said in a research note.

"Recall that IATA forecasts that North American airlines will make a profit of $1.2-billion in 2012 (down from $1.5-billion in 2011). North American load factor stood at 82.3 per cent in October - although down slightly from 83 per cent last year, it remains the highest load factor in the world."

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Where Bombardier is concerned, he sees no direct impact.

"American Eagle, AMR's regional subsidiary, has an active fleet of 245 aircraft that includes 47 CRJ700s (22 of which were delivered in 2010 and 2011), 198 Embraer regional jets and 36 ATR turboprop aircraft. Of note, Bombardier does not have backlog exposure to AMR."

BHP reviews diamond business BHP Billiton is reviewing its diamond operations in Canada, warning it could pull out.

BHP has interests in the Ekati diamond mine - it holds 80 per cent - about 200 kilometres south of the Arctic Circle - and also has the Chidliak exploration project in Nunavut. Over the past three years, the Ekati mine has produced an average of more than 3 million carats of rough diamonds annually. That represents about 10 per cent of the global supply when measured by value, BHP said.

But the mining giant said today it's trying to determine whether it's worth it, given that "many years of extensive exploration suggest there are few options to develop new diamond mines" consistent with its strategy of investing in big projects with long lives.

"This review will, therefore, examine whether a continued presence in the diamonds industry is consistent with BHP Billiton's strategy and evaluate the potential sale of all or part of the diamonds business."

Auto investment loses steam Canada's auto industry is losing steam in the global race for investment as the car industry rebounds from its crisis, a new report suggests.

Though the Canadian industry continues to recover from the financial crisis and recession, investment will shrink to just $1.2-billion this year, warns the report from senior economist Carlos Gomes. That's the lowest since the mid-1980s, and more than 60 per cent below the annual average of $3.1-billion over the past 10 years.

The industry is strong in Canada in terms of ratings, and will hold on to its traditional 16 per cent of North American production, but "current investment plans are less positive for Canadian plants, suggesting that it will be difficult for Canada to increase its share of North American output going forward."

The auto industry has long been a manufacturing powerhouse for Ontario, and today's report by Mr. Gomes suggests the province's factory sector will still struggle to keep pace with other industries. It comes as Ottawa studies what to do about the auto sector.

On a per-vehicle basis, investment in Canada's auto industry this year will shrink to 43 per cent below that of the United States.

That's a dramatic turnaround given that the trend over the past 10 years was that it ran 3 per cent above the levels in the United States and Mexico.

And a note for the Canadian auto workers union: Mr. Gomes says that U.S. investment is gaining partly because U.S. workers won more investment for their plants in the lates round of labour talks.

Mortgage debt eases Canadians are slowing down when it comes to mortgage debt, a good sign for the country's real estate market.

The growth of mortgage debt has significantly decelerated since March, particularly in recent months, Canada Mortgage and Housing Corp. said today, The Globe and Mail's Tara Perkins reports.

At the same time, CMHC said its analysis suggests house prices are in line with demographic changes and economic growth.

Nexen in shale deal Canada's Nexen Inc. has struck a $700-million deal to develop its northwestern B.C. shale gas properties with a major Japanese player in the industry.

Nexen is selling a 40-per-cent working stake to INPEX Corp. in a deal that would also see a liquefied natural gas export terminal on the west coast, The Globe and Mail's Shawn McCarthy reports.

This is the latest among several agreements to bring Asian investors into Canada's oil and gas industry.

Nexen also unveiled a 2012 plan that raised some eyebrows in the investment community.

"While we see the transaction as positive, with the dual benefits of recouping sunk capital and providing a capital investment carry, the range of production expectations from Buzzard is greater than we were expecting," said analyst George Toriola of UBS Securities Canada. "We also see higher than expected expenditures at Long Lake in ramping up the production volumes."

German firm to proceed with potash project Germany's K+S AG, Europe's largest potash producer, said today it will move forward with construction of its $3.2-billion Legacy project in Saskatchewan, The Globe and Mail's Brenda Bouw reports.

K+S, which obtained the project a year ago in the $434-million purchase of Canada's Potash One, said production is expected to begin in 2015.

Britain warns of tough times The pain overseas is by no means limited to the euro zone.

Britain's Chancellor George Osborne said today that he doesn't expect another recession, but that's not to say the economy won't slide back again if Europe's debt crisis continues to rage.

Presenting his autumn economic and fiscal forecast in parliament, Mr. Osborne said the economy will expand 0.9 per cent this year, fall to 0.7 per cent next year, and then rebound to 2.1 per cent in 2013, The Globe and Mail's Eric Reguly reports.

He admitted that the growth slowdown means Britain will be unable to reach its target of eliminating the structural deficit by 2015.

Italy pays high cost Setting the stage for a meeting of EU finance ministers today, Italy pulled off a debt auction, but at a steep price.

Rome sold almost €8-billion in paper, but yields were closing in on 8 per cent.

"European debt auctions went reasonably well this morning, but at least in Italy's case, the yield being demanded is punishingly high enough to push the country further in the direction of unsustainable pressures," said Derek Holt and Karen Cordes Woods of Scotia Capital.

Business ticker

In Economy Lab The next time a political party vows to defend the interests of the producers in a certain industry, you should ask why it isn't choosing to defend the interests of consumers instead, Stephen Gordon writes.

In International Business A Canadian-Chilean mining consortium involving Barrick Gold Corp. has filed for arbitration in a dispute over one of the world's richest deposits of gold and copper in the remote hills along Pakistan's western border, Graeme Smith reports from Istanbul.

In Globe Careers Employees routinely claim that any perceived mistreatment at work amounts to a legal claim. They are often mistaken, says Daniel Lublin.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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