French rail giant Alstom SA is warning that problems at Bombardier’s train division may affect negotiations to buy it, but says it still plans to go ahead with the takeover deal.
Alstom says that “negative developments” around the train unit’s operations and finances revealed in Bombardier’s quarterly earnings report last week have prompted the would-be buyer to “take into account the consequences” during upcoming discussions.
On Thursday, Bombardier reported an additional charge of $435 million US at its rail business, largely related to costs at late-stage projects in the U.K. and Germany.
Late last month the European Commission gave the green light to Alstom’s US$8.2-billion purchase of the Bombardier train unit following an investigation that found the transaction raised serious competition issues, prompting “significantly improved” commitments from Alstom, according to European competition authorities.
A Bombardier spokesperson says it is complying with all the conditions of the deal and that it will continue to work toward signing the final agreement as soon as possible.
The sale, which would help ease Bombardier’s US$9.3-billion debt, was initially slated to close in the first half of 2021.
A strong surge in the price of Canada’s most desirable houses seems to fly in the face of an economy facing a record wave of bankruptcies and a sharp loss in jobs.
But as we try to disentangle the complexities of the COVID-19 pandemic’s impact, we may be observing a powerful economic force exacerbated by the promise of a long stretch of low-interest loans.
Effectively what we are seeing is that while parts of the economy weaken, the weakness is not shared equally. A similar process applies to people who have kept their jobs — and thus their incomes — flowing and to businesses, both able to profit from their short-term budgetary advantage.
While many smaller corporations and even more small businesses, such as corner stores and restaurants, go under, companies and individuals with a solid base and a strong cash flow can borrow at historically low rates — allowing them to stock up on assets they expect will keep their value once the crisis is over.
House prices not falling
National figures on house prices from the Canadian Real Estate Association are out a week from today. But early speculation that property prices would fall has certainly not been borne out in Canada’s hottest markets.
And that comes despite new figures on Friday that show 1.3 million Canadian jobs have disappeared since the pandemic struck.
Even while rental properties face a glut, sales and prices for homes in Vancouver and Toronto are both up sharply. In Toronto, real estate board figures show detached home prices in July rose more than 25 per cent year over year — increases similar to the biggest boom years, from 2010 to the spring of 2017, of what many described then as a growing real estate bubble.
“We’re seeing the results today of pent-up activity, from both homebuyers and sellers, that had been accumulating in our market throughout the year,” Colette Gerber, chair of the Real Estate Board of Greater Vancouver, said last week. “Low interest rates and limited overall supply are also increasing competition across our market.”
Mortgage brokers report that banks have tightened their requirements for who can get a loan, but for those eligible, five-year fixed mortgages can be two per cent or lower.
And of course that’s the trouble with cheap money, especially at times when people are in danger of losing their jobs and businesses: It tends to go to those who need it the least — in other words, those most certain to pay it back.
Research in the United States shows that while small businesses owned by Black people failed at an astounding rate of 41 per cent — almost double the still very large decline of 22 per cent for all small businesses — there is evidence that government support did not go to the areas of greatest need. The smallest businesses received less support, as did businesses owned by people of colour.
In those cases, poorly designed aid programs that were rushed out the door to stave off a crisis may have been part of the problem, wrote Gillian Tett in the Financial Times.
“The more the pandemic spreads, the more it risks exacerbating inequity in unexpected ways, particularly, but not exclusively, in the U.S.,” Tett suggested.
There are increasing signs the same thing is happening in the corporate world. There were reports that mergers-and-acquisition activity, as company takeovers are called in the business world, slumped early in the pandemic when fears for the economy were highest.
“COVID-19 could further exacerbate concentration, with many larger incumbents able to purchase distressed companies cheaply — as we’ve seen with the U.S. tech giants, which continue with their mergers-and-acquisition activity, even while under investigation for antitrust violations,” said Denise Hearn, co-author of The Myth of Capitalism, writing in Canada’s Hill Times last week.
When businesses whose finances have been stretched too far go broke during a downturn, some die and disappear. But other companies with stronger cash flow or deeper pockets step in to pick off the companies or portions of companies they think will be worthwhile following the crisis — effectively preserving value to the economy created by the previous owner.
Just as in the housing market, low interest rates matter because stable companies with cash flow and deep pockets have access to all that cheap money created by central banks. Quite reasonably, for lenders, bankrupt companies already deep in debt are not such good prospects.
While this capital concentration may be natural, fulfilling the proverb “them that has, gets” — which traces its origins at least as far back as the New Testament (Matthew 25:29) — making the rich richer and big companies bigger is not necessarily politically desirable.
There was speculation early in the pandemic that the crisis might be the catalyst for a move away from wealth polarization. But just as they did after the 2008 crisis, lower-for-longer interest rates have once again flowed straight into the pockets of the wealthiest.
As governments brainstorm on how to phase out support for the financial victims of the coronavirus, it appears they may not be able to depend on low rates alone to solve the long-term trends toward greater inequality and capital concentration.
Most consumers want to buy local, but it’s tough to resist deals during a pandemic
Many of us are being urged to shop local and support small businesses struggling to survive in the wake of COVID-19. But while polls show that most Canadians support this idea, experts say it’s hard to get consumers to prioritize shopping locally when they can often secure better deals online from big-box stores. And with more and more people facing financial insecurity, it can be difficult to make decisions based on things other than price. Read more about the challenges facing small businesses.
Everything you need to know about using face masks properly
Now that wearing a mask is an everyday activity for most Canadians, it’s a good time to make sure we’re using them effectively. For example, pulling a mask down to your chin in between uses might be convenient, but experts say that’s not a good idea. Get answers to your burning questions about masks here.
It doesn’t look likely that the Canada-US border will open any time soon.
With COVID-19 cases still rising in many American states, the border closure is set to continue. “There’s really no reason why the Canadian government, at this point, would want to open it up and subject Canadians to an increased rate of COVID infections,” says U.S. immigration lawyer Len Saunders. Canadians can still fly to the U.S., but that rule isn’t reciprocal. U.S. visitors remain prohibited from entering Canada via any mode of transport unless they’re visiting immediate family members, including dependent children, spouses, and common-law partners. Read more about where the status of the border here.
Many of us are looking to get our driveways freshly paved this summer, but not all contractors are created equal. Have you had a challenging experience with a paving contractor? Or has a door-to-door contractor taken your money and not finished the job? Tell us your story at email@example.com.
Do you have a buzzworthy product that you think is bogus? Whether you’ve seen products that seem too good to be true on Instagram, trendy items on TikTok, or fishy ones on Facebook, we want to hear about it. Email us at firstname.lastname@example.org.
Catch up on past episodes of Marketplace any time on CBC Gem.
U.S. employment growth slowed considerably in July amid a resurgence in new COVID-19 infections, offering the clearest evidence yet that the economy’s recovery from the recession caused by the pandemic was faltering.
Non-farm payrolls increased by 1.763 million jobs last month after a record 4.791 million in June, the Labour Department said on Friday. Economists polled by Reuters had forecast 1.6 million jobs would be added in July.
The unemployment rate fell to 10.2 per cent, from 11.1 per cent in June, but it has been biased downward by people misclassifying themselves as being “employed but absent from work.” At least 31.3 million people were receiving unemployment checks in mid-July.
“The steam has gone out of the engine and the economy is beginning to slow,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The loss of momentum will continue and my concern is that the combination of the virus resurgence and lack of action by Congress could really push employment into negative territory.”
The labour market step-back is more bad news for President Donald Trump, who is lagging in opinion polls behind former vice-president Joe Biden, the presumptive Democratic Party nominee for the Nov. 3 election.
It also piles up pressure on the White House and Congress to speed up negotiations on a second aid package, which have been dragging over differences on major issues including the size of a government benefit for tens of millions of unemployed workers.
Infections of the respiratory illness soared across the country last month, forcing authorities in some of the worst affected areas in the West and South to either shut down businesses again or pause reopenings, sending workers back home. Demand for goods and services has suffered.
The slowdown in hiring challenges the U.S. stock market’s expectation of a V-shaped recovery. The S&P 500 index is up nearly 50 per cent from its March trough. As COVID-19 cases spiral, and Republicans and Democrats bicker over another stimulus package, economists see a W-shaped recovery.
Economists estimate the Paycheck Protection Program, which gave businesses loans that can be partially forgiven if used for employee pay, saved around 1.3 million jobs at its peak. The extra $600 US weekly unemployment checks made up 20 per cent of personal income and helped to boost consumer spending in May and June.
Our weekend business panel discuses the unprecedented economic crisis in Lebanon following this week’s deadly explosion in Beirut. Plus, Ottawa is imposing retaliatory tariffs on U.S. goods in response to President Donald Trump’s decision to restore a 10 per cent tariff on Canadian aluminum imports. Is Canada headed for another trade war with the U.S.?
Walmart Canada will require all customers and staff to wear a mask or other type of face covering in its stores nationwide, starting Aug. 12.
The company says the move is the latest safety measure it is taking in response to the COVID-19 pandemic.
“Health Canada has identified that, when worn properly, a person wearing a mask/face covering can reduce the spread of his or her own infectious respiratory droplets,” corporate affairs manager Felicia Fefer said in an email to CBC News.
Walmart has more than 400 stores in Canada.
Fefer said local government mandates already require face coverings in more than 60 per cent of those stores, but the company wanted to go further and “help bring more consistency across our store network.”
“Safety continues to be Walmart’s No. 1 priority and we will continue to take measures necessary to ensure the well-being of our customers and associates,” she said.
“We trust that customers in the rest of our stores where we are initiating this policy will respect and follow it and will bring their own face coverings when they shop.”
Canadian customers likely won’t start frequenting stores for items not on their shopping list until there’s a vaccine for COVID-19, Indigo Books & Music Inc. founder and chief executive said Friday.
“I think our own view is that customers will continue well, well into the months ahead to make shopping an activity they do when they have something specific to buy,” Heather Reisman said during a conference call with analysts. The company released its first-quarter financial results after markets closed Thursday.
Foot traffic is “still way down” for the book retailer, which shuttered all its stores to help stop the spread of the coronavirus and only reopened nearly all 182 of its locations by the end of its most recent quarter.
The Toronto-based company’s revenue for the 13 weeks ended June 27 fell to $135.1 million from $192.6 million due to store closures. It recorded a net loss of about $31.6 million or $1.15 per common share compared with a loss of about $19.1 million or 69 cents per share in the same quarter last year.
Since reopening, retail store sales have tracked at about 72 per cent of sales at the same time last year, said chief financial officer Craig Loudon.
However conversion and average transaction size are both “way up,” noted Reisman.
“So, that’s saying that you’ve got a deliberate customer and we think that that’s going to remain, frankly, until there’s a vaccine.”
In Canada, people watch the news and are afraid of the virus, she said.
“So, all in all, we predict that the retail consumer will remain a cautious consumer,” she said.
The company is working to make the shopping experience easy and safe and is planning for the important holiday shopping season although it remains to be seen how consumers behave during a usually busy period.
The company accelerated efforts during the first quarter to help serve customers safely during the holiday season, including “a robust click-and-collect capability and Instacart service,” said Reisman. These efforts should be implemented in the current quarter.
The company’s e-commerce revenue grew threefold, jumping up 214 per cent for the quarter compared with last year. That demand “has moderated, but remained strong” as stores reopened, said Loudon.
Indigo’s shares, which have plunged from a high of $8.06 last August, surged 19 per cent or 20 cents at $1.25 in afternoon trading on the Toronto Stock Exchange.
Enerplus Corp. says it has restored North Dakota crude oil production halted during the pandemic-linked oil price crash in May despite a court ruling last month that the Dakota Access Pipeline must be shut down.
The Calgary-based company says it is confident that crude-by-rail shipping from the state can be ramped up if the decision, stayed by an appeal court earlier this week, is restored and the pipeline that moves oil out of the state is out of commission for a longer term.
Last month, a U.S. District Court judge ruled the three-year-old pipeline must be closed down and emptied while the U.S. Army Corps of Engineers conducts a more extensive environmental review. The stay by the U.S. Court of Appeals this week is only a temporary reprieve.
Getting barrels out of the North Dakota Bakken oil basin won’t be a problem because up to 800,000 barrels per day moved by rail before the 570,000-bpd pipeline began operating, pointed out Enerplus chief financial officer Jodine Jenson Labrie on a conference call on Friday.
The higher cost of rail, however, would likely result in lower profit margins for oil producers, she said.
“There remains a lot of rail infrastructure in the Bakken,” she said, noting that discount pricing in relation to benchmark U.S. crude would likely widen from about $5 US per barrel to between $6 and $8 US with rail transport.
“In terms of impact to Enerplus, if we were to assume the pipeline could not operate for all of 2021, we estimate the wider Bakken differential would impact our corporate netback by approximately 80 cents per boe (barrel of oil equivalent),” she said.
The company “hit the brakes” on oilfield activity in North Dakota in May as oil prices plummeted due to a global glut of barrels from OPEC-plus overproduction as demand fell thanks to the COVID-19 lockdowns, said CEO Ian Dundas.
“As we entered May, with the weakness in the oil market, our teams began curtailing volumes rather than risk negative margins,” he said.
“We ended up curtailing approximately 25 per cent of our corporate liquids volumes and, as the market continued to improve in June, we began restoring curtailed volumes.”
Enerplus reported a second-quarter net loss in Canadian funds of $609 million or $2.74 per share due to non-cash impairments of $630 million on assets and goodwill as a result of market volatility and low commodity prices.
That compares with a net profit of $85 million or 36 cents in the same period of 2019.
Excluding those impairments and other non-cash or non-recurring items, its adjusted second quarter net loss was $41.2 million, versus adjusted net income of $74.4 million a year earlier.
Analysts said the company’s financial results beat consensus estimates, as did second-quarter production of 87,360 barrels of oil equivalent per day, down 11 per cent from the first quarter.
Enerplus reinstated its 2020 guidance cancelled earlier this year, calling for an unchanged capital budget of $300 million and average production of between 88,000 and 90,000 boe/d.
The parent of Bell Canada saw its net profit fall nearly 70 per cent from the same period last year due to the pandemic’s impact on economic activity and customer demand but said Thursday that it’s well-positioned to withstand the headwinds.
Mirko Bibic, president and CEO of Bell and its parent BCE Inc., told analysts that the companies have generated substantial cash flow with no near-term debt payments — giving it the financial flexibility to maintain its dividend and capital spending.
“Although we don’t expect to return to pre-COVID operating performance in the near term, Q3 is anticipated to show a marked improvement. We remain very confident in the underlying long-term fundamentals and performance of BCE,” Bibic said.
“In the midst of COVID, we’ve made meaningful progress in advancing our strategic priorities so as to generate continued operating momentum in the near-term and ultimately emerge from the crisis in an even stronger competitive position.”
BCE Inc. reported earlier Thursday that its net income attributable to common shareholders dropped to $237 million for the three months ended June 30, from $761 million a year earlier.
That amounted to 26 cents per share of net earnings, down from 85 cents per share in last year’s second quarter.
The decline included a $452 million non-cash impairment charge to reflect the current value of Bell Media’s television and radio assets.
Adjusted earnings per share, which exclude some expenses, fell 32.3 per cent to 63 cents year over year — below analyst estimates compiled by financial markets data firm Refinitiv.
Revenue was also slightly below analyst estimates at $5.35 billion, down 9.1 per cent from $5.89 billion a year earlier.
Analysts had estimated BCE Inc. would have 69 cents per share of adjusted earnings with nearly $5.37 billion of revenue, according to Refinitiv.
Montreal-based BCE — owner of Canada’s largest telecommunications and media businesses — does business under a vast array of brands including Bell, Bell Mobility, Virgin Mobile, Lucky Mobile, CTV, TSN, and The Source retail chain.
Its national competitors in wireless are Rogers Communications Inc. (owner of the Rogers, Fido and Chatr brand) and Telus (Telus, Koodo, Public Mobile).
On the wireless front, Bell and its publicly traded competitors all say they’d faced severe COVID-ralated challenges during March, April and May — when many parts of Canada restricted or closed retail outlets to limit the spread of COVID-19.
The retail closures limited the carriers’ ability to sell new phones and services but, because the problem was so widespread, consumers generally weren’t changing providers either. That resulted in record low churn rates in many cases.
Analyst Drew McReynolds of RBC Dominion Securities said in a research note Thursday ahead of BCE’s conference call that Bell’s wireless revenue and EBITDA (earnings before interest, taxes and other expenses) were down less than he expected.
Canaccord Genuity analyst Aravinda Galappatthige noted Bell’s wireless service revenue were down 6.3 per cent, which was more than his estimate, but post-paid subscriber additions were ahead of estimates at 21,600.
In terms of residential and business telecom services delivered by land lines — including internet, television and phone — there was also very low customer turnover reported even though some customers fell behind of their payments due to COVID’s economic impact.
BCE chief financial officer Glenn Leblanc told analysts Thursday that the company’s COVID-related expenses during the quarter included $36 million of provisions for bad customer debts.
The relocation of call-centre agents to work from home, the purchase of personal protective equipment and increased sanitation and cleaning expenses brought total COVID direct costs to $85 million, including the incremental bad debt provisions, he said..
Apart from BCE’s reduced earnings from its own operations, it received reduced income from its part ownership in Maple Leaf Sports and Entertainment (owner of Toronto’s major league hockey and basketball teams).
Despite these declines, Leblanc said BCE’s free cash flow — which is after servicing current debt — increased by 50 per cent compared with a year earlier to $1.6 billion, in part because of reduced capital spending during the initial stages of COVID.
“Construction activity has now ramped up considerably,” Leblanc said.
The administration of U.S. President Donald Trump has implemented a tariff of 10 per cent on aluminum imported from Canada.
Trump made the announcement of an executive order imposing the tariffs on Thursday in a campaign speech at a Whirlpool factory in Ohio.
The United States slapped import tariffs on Canadian steel and aluminum in 2018 citing national security concerns, before removing them last year as part of a broad free trade deal now in force.
“I have determined that the measures agreed upon with Canada are not providing an effective alternative means to address the threatened impairment to our national security from imports of aluminum from Canada,” the presidential proclamation reads. “Thus, I have determined that it is necessary and appropriate to re-impose the 10 per cent ad valorem tariff … on imports of non-alloyed unwrought aluminum articles from Canada.”
The tariff will be in effect as of Aug. 16.
A subset of American metals companies have complained that Canadian aluminum has recently been dumped on the U.S. market.
Canadian aluminum-makers have said they switched production during the COVID-19 pandemic as demand for higher-end products crashed, and the resulting aluminum has been sent to the U.S. primarily for storage.
The Aluminum Association of Canada (AAC) said last week those exports fell 16 per cent in June and 40 per cent in July as the system was starting to rebalance.
Jean Simard, president of the AAC, said the decision will destabilize Canada’s industry and supply chains in an economy that is already struggling under the weight of the COVID-19 pandemic.
“It’s the wrong thing for the wrong reason at the wrong time for the wrong people,” he said.
Simard said Canada is not flooding the U.S, market and needs “to hit back, dollar for dollar,” at the very least, on U.S. products containing aluminum. He said that could also extend beyond aluminum.
“I think we’re going to ponder the possibilities in the coming weeks and see what is on the one hand reasonable and on the other hand can be painful,” he said.
‘A step in the wrong direction’
American business groups largely oppose the plan, since it will raise costs of the metal for U.S. manufacturers, who will have little option but to pay the tariff and import the metal anyway because the U.S. does not produce enough of the metal to satisfy domestic demand.
Canada supplied about three-quarters of all the aluminum imported into the U.S. between January and May of 2020, said the executive order implementing the tariff on “non-alloyed unwrought aluminum.”
“The administration’s move to reimpose tariffs on aluminum from Canada is a step in the wrong direction,” said Myron Brilliant, head of international affairs for business lobby group U.S. Chamber of Commerce.
“These tariffs will raise costs for American manufacturers, are opposed by most U.S. aluminum producers and will draw retaliation against U.S. exports.”
The president of the industry association that represents U.S. aluminum producers said he is disappointed that Trump did not listen to domestic producers, who have been lobbying against imposing the Section 232 tariffs.
“After years of complex negotiations and hard work by government, industry and other leaders across North America to make the U.S.-Mexico-Canada Agreement a reality, this ill-advised action on a key trading partner undermines the deal’s benefits at a time when U.S. businesses and consumers can least afford it,” said Tom Dobbins, president and CEO of the Aluminum Association.
Dobbins said reports of a surge of aluminum imports from Canada are grossly exaggerated.
Shades of NAFTA
Chris Sands, director of the Canada Institute at the Woodrow Wilson International Centre for Scholars in Washington, D.C., says aluminum is being used as a cudgel in a trade dispute is reminiscent of the role softwood lumber played in the lead up to the first Canada-U.S. free trade deal a generation ago.
Disputes over softwood lumber threatened to derail that deal at the time, which is why both sides agreed to carve out the issue from a broader agreement, a decision which caused the issue to fester for years since it wasn’t included in the agreed-upon rules.
“We temporarily resolve the dispute, we got our big trade deal [but] we then went back to the trade war,” Sands said in an interview with CBC News.
Similarly here, the aluminum tariffs were excluded from the comprehensive trade deal that the U.S. and Canada and Mexico agreed to in 2019. “As soon as Canada’s parliament, the U.S. Congress and the Mexican Congress approved the [USMCA] deal he’s gone back to the trade war that he interrupted in order to get a deal.”
Opposition blames Liberal government
Opposition politicians moved quickly to blame the Liberal government for not standing up to the U.S. president.
“Justin Trudeau has once again let down Canada’s aluminum workers,” read a joint statement from four Conservative MPs, including international trade critic Randy Hoback and Canada-U.S. relations critic Colin Carrie.
“The US administration has been foreshadowing new tariffs on Canadian aluminum for weeks, so why didn’t the Trudeau government take action to protect Canadian workers?”
The Conservatives said Ottawa should immediately retaliate to send a clear message to the U.S.
“Unfortunately, the Trudeau government has put Canada in a weaker position to combat these tariffs, after the concessions they made during the last round of American trade action,” the statement said. “Canada can only retaliate on like products, putting our country at a strategic disadvantage.”
NDP critic for international trade, Daniel Blaikie, said it’s Canadian aluminum workers who will be hurt by what he called Trump’s “electioneering” and the Trudeau government’s “lack of action.”
“The federal government has known for weeks that this was in the works,” said Blaikie. “Now they owe it to Canadian aluminum workers to release a plan for how they’ll help protect their livelihoods until we have a more reliable partner in the White House.”