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Manulife shares tank on earnings Manulife Financial Corp. shares slumped today after Canada's biggest life insurer posted a huge second-quarter loss, stung by lower stock markets and interest rates. Manulife lost $2.4-billion, or $1.36 a share, compared to a profit of $1.78-billion, or $1.09, a year earlier. The company took pains to stress that much of the trouble relates to the reserves it has to set aside, which will be funnelled back into earnings in the future when rates and markets rise enough, The Globe and Mail's Tara Perkins reports.
"We expect the initial negative reaction to persist until visibility of a market recovery and higher interest rates are firmer, and until [Manulife] has adjusted its products to adapt to this volatility," said Desjardins analyst Michael Goldberg. "In the meantime, we expect the stock to go sideways at best in the near to medium term. The negative market reaction may create a buying opportunity for patient investors, but that opportunity is likely to persist and could get bigger."
Chief executive officer Don Guloien acknowledged that the loss was disappointing, but he cited the impact of accounting rules as well. Under U.S. rules, he said, Manulife expects to report a small profit for the quarter. "We are taking difficult decisions over the course of this year to better position the company for the future," he added.
In a report titled "How could it be worse than we thought?," Barclays Capital analyst John Aiken noted that "while many of these negatives were anticipated by the market, we believe that the magnitude will be a surprise, particularly the decline in its capital ratios. Much of this should be recovered in the future, should market conditions improve, however, [Manulife's]second-quarter earnings stand to highlight the significant volatility inherent in its earnings, which investors will more than likely need to contend with for some time."
- Markets drive Manulife to hefty loss
- Boyd Erman in Streetwise: Can Manulife get the money back?
- David Berman's Markets Blog: Manulife hits TSX
RIM in talks with Saudis Research In Motion Ltd. are reported to be making progress toward settling a dispute over the tight security of the BlackBerry amid threats by the country's telecommunications regulator to ban the BlackBerry Messenger service tomorrow. "RIM showed on Thursday a degree of flexibility that has not been there over the past three months," a source told Reuters. "Progress is being made. We started debating the technicalities of new setups."
Saudi Arabia and other countries, such as the United Arab Emirates and India, have concerns over their lack of access to encrypted data, and have threatened to shut down services. Lebanon today joined the chorus, saying it, too, is looking at security issues.
Both the Canadian and U.S. governments said today they are discussing the concerns with the countries at issue. "We are taking time to consult and analyze the full array of interests and issues at stake because we know that there is a legitimate security concern, but there is also a legitimate right of free use and access," U.S. Secretary of State Hillary Clinton said.
In an Interview with the Wall Street Journal, RIM co-CEO Michael Lazaridis warned the governments in question risk damaging e-commerce with their demands for access to encrypted data.
"This is about the Internet," Mr. Lazaridis told the newspaper. "Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can't deal with the Internet, they should shut it off."
He added the issue will be resolved "if there is a chance for rational discussion."
Android to surge, report forecasts A new report projects that the Android operating system for smart phones will surpass the iPhone iOS in 2012. The report from iSuppli, a global research firm, says the Android system, from Google Inc. , will be used in 75 million smart phones by 2012, compared to just 5 million last year. The iOS from Apple Inc. will reach 62 million, compared to 25 million in 2009. "Google and Apple are engaged in a fierce battle for control of the wireless market, which represents the most lucrative growth opportunity in the technology world today," iSuppli said. "Both companies have their eyes on the huge revenue growth expected in wireless data."
The Android system will command 19.4 per cent of the market for smart phone operating systems in 2012, it said, and 22.8 per cent two years later, compared to the 15.9 per cent and 15.3 per cent for Apple. "Android is taking the smart phone market by storm," Tina Teng, senior analyst, wireless communications, for iSuppli, said in the report. "The OS started with entry level models in 2008, but the flexibility Android offers for hardware designs and its appealing business model in terms of revenue sharing have attracted vigorous support from all nodes in the value chain, including makers of high-end smart phone models."
Russia bans grain exports Struck by its worst drought in some 50 years, Russia today slapped a temporary ban on grain exports, a move that pushed wheat prices even higher. The ban on grain and related products will be in place from Aug. 15 until the end of the year. Russia's government has already declared a state of emergency in almost 30 gain areas. Prime Minister Vladimir Putin reportedly told a government meeting that while the country has enough reserves, the government "must prevent domestic prices from rising, preserve cattle herds and build up reserves for next year."
The move will take its toll. "As of today, Russia has no grain market," Kirill Podolsky, the CEO of Russia's third-largest grain trader, Valars Group, told Bloomberg News. "This will be a catastrophe for farmers and exporters alike."
Loonie: How high is too high? The Canadian dollar toward 99 cents U.S. before pulling back somewhat, driven higher by a generally weaker U.S. currency, stronger commodities prices and market speculation - based on 'questionable' reasoning - that Royal Dutch Shell PLC is eyeing EnCana Corp. The loonie closed today at 98.37 cents U.S., up just a shade.
"[The Canadian dollar]was top of G10 overnight, boosted by M&A talk of Shell interest in EnCana," said Elsa Lignos, currency strategist at Royal Bank of Canada Europe, citing speculation that such a bid by Shell would lead to buying the loonie against the pound or the euro. "But with Shell's cash holdings and balance sheet in [U.S. dollars] that reasoning is questionable."
Scotia Capital currency strategist Camilla Sutton noted that surging wheat prices are helping to drive up major commodities readings while growth in emerging markets is supporting those prices in general. "However, many of the other drivers of [the Canadian dollar]have not kept pace," she said. "... This hints that there is also some flow helping to boost the currency - this morning's rumours that there are new energy M&A transactions brewing could also be helping to support [the Canadian dollar]
Finance Minister Jim Flaherty, noting the rise in the dollar makes sense given Canada's economic prospects, told Reuters the loonie would have to move well beyond current levels to be a worry. "It would have to go significantly above parity. And that would be a concern for Canadian business, and therefore a concern of mine," he told the news agency "... The concern of business generally in Canada has been to try to avoid having rapid fluctuations."
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Nothing normal, Rosenberg says David Rosenberg is unsettled by the talk of normalcy in this post-recession period. Indeed, there's nothing to suggest that anything in the "post-bubble credit collapse" is normal, the bearish chief executive of Gluskin Sheff + Associates says. "There is excitement in the air over the view that all we have on our hands is a pause that refreshes," he said in a research report today. "Interesting, however, as to how the bond market isn't buying it, and why should it when MasterCard processed transactions are flat from where they were a year ago."
Here's why it's not normal, according to Mr. Rosenberg:
- In the context of a post-WWII recovery, real GDP expands at an annual pace of more than 6 per cent four quarters into the rebound. That puts the 2.4 per cent growth in the U.S. in the second quarter in perspective, he said, and "when you look back at 55 years' worth of post-war data, what is normal two-and-one-half years after a recession begins is that by now we are at a new peak (on average, breaking above the prior high in GDP by 8 per cent)."
- Normally, real final sales expand by close to an annual rate of 4 per cent in the year after a recession is declared over. In the last quarter, real final sales in the U.S. were 1.3 per cent.
- Traditionally, employment payrolls are 721,000 above the peak, or 1.8 per cent, 30 months after a recession begins. The U.S. is down 7.5 million jobs, or 5.4 per cent, from the peak in late 2007.
- Confidence is lagging. The U.S. Conference Board's consumer confidence survey showed sentiment at a five-month low of 50.4 in July. The average in recessions is 70.4, and in expansions 102. "In other words, it is still 20 points below the recession averages."
"Wall Street economists and strategists are so busy telling us how normal things are, which is very unsettling," Mr. Rosenberg said.
U.S. jobless claims jump America's jobs crisis shows no signs of easing. Initial claims for jobless benefits in the United States rose by 19,000 last week to 479,000, the highest since April. Even the four-week moving average, which is a seen as a better measure compared to the volatile nature of weekly readings, jumped to 458,000 from 453,250. This morning's report knocked U.S. stock futures, pointing to a softer opening in New York.
"This is disappointing but not a disaster; claims are still subject to seasonal adjustment distortion following the auto retooling shutdowns," said Ian Shepherdson, chief U.S. economist at High Frenquency Economics. "Even without the seasonal problems, remember that claims are very noisy on a week-to-week basis, and sometimes unexpected results come from nowhere and then reverse just as quickly. That said, markets are nervous right now about the state of the economy and are likely to give more weight to this number than we think is justified."
Central banks hold the line The European Central Bank, the Bank of England and the Czech National Bank all held their benchmark interest rates steady today amid expectations they will continue to stand pat for some time yet. "A number of factors are playing a role, including the ongoing lack of consumer confidence, still cautious businesses, a general sense of uncertainty about future economic outlook and tough fiscal repair," said Scotia Capital economists Gorica Djeric and Derek Holt.
As he held his benchmark rate at a record low 1 per cent today, European Central Bank chief Jean-Claude Trichet said the euro zone is rebounding faster than projected.
BCE posts strong quarter BCE Inc. posted a 70-per-cent jump in second-quarter profit today and boosted its annual dividend by 5 per cent, topping analysts' estimates and raising its full-year outlook. Profit jumped to $590-million or 78 cents a share from $346-million or 45 cents as the country's biggest telecommunications company added almost 98,460 new wireless customers. Bell said growth in wireless data revenue surged 45 per cent and now represents 22 per cent of wireless network sales. It hiked its annual dividend to $1.83.
"Overall, we continue to view the company's performance positively, with good traction in wireless, stronger overall margins, a focus on broadband deployment and a shareholder-friendly dividend policy," said Desjardins analyst Maher Yaghi. "However, the bulk of BCE's business (i.e. wireline) remains in a state of organic decline and we reiterate our view that investors should be cognizant of potential pricing pressures in [the second half of 2010]within Quebec when Vidéotron launches its wireless service, as BCE's major competitor may become aggressive on product bundling promotions in order to gain market share."
Canadian Natural Resources sees strong quarter Canadian Natural Resources Ltd. posted a strong second quarter today as its profit surged to $667-million or 61 cents a share from $162-million or 15 cents a year earlier. Factoring out hedging and foreign exchange gains or losses, per-share earnings were 63 cents, well above the estimates of analysts compiled by Bloomberg.
"The variance from our estimates appears to be due to a combination of higher than expected production volumes from CNQ's North American liquids division ... and lower than expected royalties and operating costs in North America as well," said UBS Securities Canada analysts Matt Donohue and George Toriola, calling the results a "strong beat."
Canadian Natural profit sharply higher
Airlines gear up for fight Canada's two major airlines, rebounding from the slump, are poised to step up their fight against Porter Airlines Inc. in central Canada. Air Canada said today it's keen to resume service at Toronto's island airport, where Porter has held a monopoly on commercial flights. WestJet Airlines Ltd. has transferred an executive to Toronto to oversee the Calgary-based carrier's service from Toronto's Pearson International Airport.
From today's Report on Business
- Eric Reguly: BP nightmare could be just beginning
- Canadian housing market cools
- Billionaires accept charitable challenge
- Fertilizer sector buoyed by strong results, outlook
And, read our Streetwise blog and Your Business section