Finance topics

The federal government signalled today that it would be the final judge of whether Canada's conventional broadcasters would be allowed to charge cable and satellite companies a fee to carry their signals.

Heritage Minister James Moore took the unusual step of inserting himself into the contentious fee-for-carriage debate by ordering the federal broadcast regulator to hold a separate set of hearings to consider consumer interests on the matter.

The Canadian Radio-television and Telecommunications Commission later confirmed that it would do so in December. Shortly thereafter, it must provide Ottawa with a wide-ranging report on what fee for carriage could mean to consumers' already-strained pocketbooks.

"Our government has a record of putting consumers first," said Moore in a press release. "When it comes to the broadcasting system, our stance is no different. That is why we've directed the CRTC to consider what fee-for-carriage would mean for Canadians, because this is an issue that affects them directly."

It is rare for the federal government to encroach on the CRTC's independence. And Moore's interjection was bound to fuel the simmering debate about the veracity of the agency's arms-length relationship with Ottawa.

Political posturing aside, Moore's decision to take the reins follows three ugly years of squabbling between broadcasters and television service providers.

Fee for carriage, already twice rejected by the CRTC, will be considered for a third time at a separate set of hearings in November. The December hearings, meanwhile, will mark its fourth go-around.

Broadcasters argue carriage fees are a “matter of fairness,” arguing the business model for over-the-air television is “broken.”

Cable and satellite companies, however, liken the proposal to a bailout for broadcasters that overspent on acquisitions and U.S. programming in recent years.

Those television service providers currently pay carriage fees to distribute specialty TV channels but not for conventional stations as those signals can be pulled in for free with an antenna.

Canadian consumers, meanwhile, have found themselves at the centre of the television industry's tug of war.

Both sides, each purporting to champion consumer interests, have ratcheted up public relations offensives in recent weeks bad credit personal loan lenders.

Broadcasters CTV, Global and CBC teamed up to launch a national advertising blitz called “Local TV Matters.”

Cable giant Rogers Communications Inc., meanwhile, sent a strongly-worded email to customers earlier this month warning them that fee-for-carriage could inflate their cable bills by up to $10 a month. Shaw Communications Inc. has also taken similar action. Bell, which owns Bell TV satellite service, is busy engaging journalists on the issue.

Both sides, however, managed to unanimously agree today that the federal government's decision to take charge of the file was a good idea.

CTV, Global and CBC issue a joint statement welcoming Ottawa's commitment to consumers.

“We are in agreement that consumer interests should be front and center when it comes to implementing a new negotiation for value model for local television across the country,” said Charlotte Bell, Global's senior vice-president of regulatory and government affairs.

Paul Sparkes, CTV's executive vice-president of corporate affairs, called the government's engagement a positive step forward. Consumers, he added, should not have to pay another cent for local television.

Steven Guiton, CBC's chief regulatory officer, said tens of thousands of Canadians have already voiced their support for local television.

Despite being diametrically opposed to broadcasters on fee for carriage, cable and satellite companies appeared to share their enthusiasm for the government's decision to put consumers first.

“The government says the CRTC must take into account the impact on consumers of a fee-for-carriage regime which is something we have consistently advocated,” said Phil Lind, vice-chairman of Rogers Communications.

Mirko Bibic, Bell's senior vice-president of regulatory and government affairs, echoed those sentiments.

"Minister Moore and the government have clearly recognized that an issue of such broad impact on consumers as potential new TV taxes should be considered a matter of government policy and therefore decided by government," he said.

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OTTAWA–Canada's auto warranty program designed to help out the troubled North American car industry ended today and it didn't cost taxpayers a dime, Industry Minister Tony Clement says.

"It was never activated because it was conditional upon either Chrysler or GM going into (bankruptcy protection) in Canada and neither of them happened," Clement told the Toronto Star today.

"Anytime we can save money for the taxpayers that's a good day," Clement said.

Back in April Clement announced a $185 million program to guarantee warranties for new cars purchased from either company, but since neither company had to seek the protection of the Companies' Creditors Arrangement Act, consumers didn't have to turn to the government program.

"It was necessary because there was some uncertainty at the time about whether these companies were going to go into bankruptcy protection and whether it was going to affect their car sales if people didn't think their warranties were going to be covered," Clement told the Star free credit report and score.

The Canadian warranty program paralleled the U.S. warranty program announced by President Barack Obama on March 30, 2009. The U.S., where the two companies did go into bankruptcy protection, has also since terminated its program.

Clement said the good news is that Canadian car sales are up 5.3 per cent year over year and North American built cars sales were up 6.3 per cent in the passenger category.

"I think it will be an industry that will be smaller but it will be sustainable," he said.

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MONTREAL – The airline industry says it will not turn a profit until after 2011, comparing its current woes to the economic devastation wreaked by the 9-11 terrorist attacks.

The International Air Transport Association, a Montreal-based association of airlines, painted a grim picture Tuesday of an industry in crisis caused by low demand and higher-than-expected fuel prices.

CEO Giovanni Bisignani told a Washington news conference that expected losses in 2009 would be $US2 billion worse than previously forecast, with total projected losses of $11 billion in 2009 and $3.8 billion next year.

One industry-watcher doesn't expect any real improvement for Canada's airlines until the economic recovery takes hold. Canadian aerospace analyst Cameron Doerksen says there do appear to be some signs of economic stability.

"That's not to say that things are rebounding for Canadian airlines – but they're not getting worse," he added.

"But at the end of the day, for the airlines in Canada, as is true for most airlines, it's really an economic recovery that's going to drive their results and drive a rebound."

IATA compares the current climate to 9-11.

Bisignani said the combined projected losses for this year and 2008 would be US$27.8 billion – bigger than for 2001 and 2002. Losses for 2001-02 were US$24.3 billion, as the Sept. 11, 2001, terrorist attacks triggered a precipitous drop in air travel.

"Combining last year and this year, losses are $27.8 billion and that is larger than . . . after Sept. 11," Bisignani said.

"This industry is in a massive crisis. . . The global economic storm may be abating, but airlines have not yet found safe harbor."

The formula used by IATA includes the full 2001 and 2002 calendar years, meaning it excludes the impact of the terrorist attacks from eight months out of the 24-month sample. The economy had already started slowing down earlier in 2001, causing some weakness in the airline sector before the attacks.

The market meltown of 2008, which sparked the worst period of the current recession, also arrived late in the year. Bisignani said revenues for 2009 will be US$80 billion below last year's levels.

Passenger and cargo revenues are expected to fall in 2009, led by a 20 per cent drop in demand for business travel. Passenger traffic is also expected to decline by four per cent, and cargo by 24 per cent, for 2009.

IATA says the situation is being made worse by the rising cost of fuel. Spot oil prices have been driven up sharply in anticipation of improved economic conditions.

The air association says the world's airlines, as a whole, last turned a profit of US$3.7 billion in 2000.

IATA, which represents 230 companies including Air Canada, doesn't expect profits until after 2011 – at the earliest.

"Revenues are not likely to return to 2008 levels until 2012 at the earliest," Bisignani added.

IATA warns of more bankruptcies among the world's 2,000 airlines in the coming months.

In an illustration of that risk, Japan Airlines Corp. announced drastic job cuts Tuesday as it faced severe financial difficulties. The carrier said it would slash its work force by 14 per cent.

Bisignani noted that 29 airlines have gone out of business since 2008 and that Air Canada went through a "very, very difficult moment" at the beginning of the year.

The Canadian carrier managed to negotiate concessions with its unions and got new financing.

Bisignani also slammed Toronto's Pearson International airport for its costly renovations, saying investments in infrastructure are welcome but they must be economically viable.

"Too many times we see cathedrals around in the world," he said.

"They have a massive investment to pay and that is making the (Toronto) airport less competitive."

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The first responsibility of the U.S. Securities and Exchange Commission is to protect long-term investors if their interests conflict with short-term traders, the head of the SEC said in a letter revealed on Monday.

“I firmly agree that the commission’s focus must be on the protection of long-term investors,” SEC Chairman Mary Schapiro said in a Sept 10 letter to Senator Ted Kaufman, Democrat of Delaware.

Kaufman had asked the SEC to review what he called “questionable” developments in the structure of capital markets such as so-called dark pools, flashes, and co-location.

Schapiro said that vigorous competition among short-term traders can lead to important benefits for long-term investors but that if their interests conflicted, the SEC had a “clear responsibility” to uphold the interests of long-term investors.

The SEC has been examining market structure issues and is probing aspects of trading and transparency at “dark pools,” where large block trades are done away from central exchanges.

It is also reviewing co-location, where firms rent space at exchanges like NYSE Euronext in an attempt to shave valuable microsecond from trading times.

On Thursday, the SEC is expected to consider a proposal that would ban the use of flashes, or when exchanges flash buy and sell orders to member firms before revealing them publicly.

Schapiro said the SEC must keep a careful watch on the rapid advancements in trading technology to ensure that sophisticated traders are not favored and that federal rules keep pace with market developments.

(Reporting by Rachelle Younglai, editing by Leslie Gevirtz)

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Arbitration in the brokerage industry is run by the Financial Industry Regulatory Authority, which regulates brokerage firms.

One investor who has been through securities arbitration said it wasn’t a consumer-friendly experience.

"It’s still overwhelming when you go through the process," said C.B. Lee, a banker from Sherman, Texas, who went to arbitration in 2007 over his claim that his stockbroker was churning his account.

Lee had more than $1 million in his brokerage account at one point and "was left with a fraction of that amount after the broker’s conduct," said Richard Lewins, Lee’s attorney in Dallas. Lee ultimately settled his claim.

Lewins, a former stockbroker, said everything about securities arbitration put investors at a disadvantage.

"The forum is run by the industry’s self-regulatory organization, FINRA," said Lewins.

"One-third of the people deciding your case come from the industry you are bringing your claim against, and the remaining two-thirds are business professionals who rarely look like the people they are asked to relate to, the claimant free credit report and score."

Through July, 45 percent of cases that went before FINRA arbitrators this year resulted in the customer’s being awarded damages, according to the agency.

FINRA’s officials defend their arbitration process as fair.

Cases involving more than $100,000 are heard by three arbitrators — two "public arbitrators" with no ties to the brokerage business and one who does.

"The industry arbitrator often can recognize bad conduct when he or she sees it and offer that expertise to the panel," said George Friedman, FINRA executive vice president and director of dispute resolution.

"We think the industry arbitrator has value, but we’re doing something to address the perception," he added.

Todd Saltzman, deputy director of case administration at FINRA, said the agency was conducting a two-year pilot program to see if there was a better way to appoint arbitration panels in investor cases.

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The Obama administration on Friday stepped up its efforts to curb environmental damage from surface coal mining, announcing plans to give 79 permit applications in four states additional scrutiny.

The U.S. Environmental Protection Agency said it wants to make certain the proposed mines won’t cause water pollution and violate the Clean Water Act before permits are issued by the Army Corps of Engineers.

Most of the permits are for mines in Kentucky, the nation’s No. 3 coal-producing state. Also on the list are operations in No. 2 coal producer West Virginia, Ohio and one mine in Tennessee.

The action targets a practice known as mountaintop removal mining. The highly efficient mining method involves blasting away mountaintops to expose multiple coal seams and, in most cases, burying intermittent streams with excess rock.

"Release of this preliminary list is the first step in a process to assure that the environmental concerns raised by the 79 permit applications are addressed," EPA Administrator Lisa Jackson stated.

Environmental groups cheered the administration, which they’ve criticized for not banning such mining altogether.

"We applaud this action," Sierra Club spokeswoman Mary Anne Hitt said.

The coal industry says the decision jeopardizes tens of thousands of jobs.

"By deciding to hold up for still further review coal mining permits pending in West Virginia, Kentucky, Ohio and Tennessee, the agency damages a weak economy struggling to recover in the worst recession in postwar history," National Mining Association President Hal Quinn said in a statement.

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The 700,000 cars sold in the cash-for-clunkers program prompted U.S. automakers to boost 2009 production after a long period of inventory cuts, spurring North American steelmakers to restart idled mills.

Now that the clunkers program has wound down, the steel industry is unsure whether demand will stay high enough to absorb the additional output. So far, analysts are not seeing a U.S. economic recovery robust enough to sustain the pick-up in steel demand.

“As a result of the cash-for-clunkers program as wells as some restocking throughout the automotive supply chain, there has been an increase in end-user demand. And there is very little steel inventory at present,” said Luke Folta, steel analyst at Longbow Research.

By late August, some steel producers had already closed order books for October and are now working to fill them. But analysts are waiting to see whether the increased production will still be needed after the next few months.

“Aside from automotive, and a few other smaller pockets, there hasn’t been a real pick up in end-user order activity. There’s a meaningful amount of capacity coming online and we’re somewhat concerned that it may have gone too far,” said Folta.

Europe-based ArcelorMittal, the world’s largest steelmaker, and U.S. Steel, said late last month they were restarting production at two blast furnaces each in the U.S. Midwest and Canada in response to improving demand.

Adding production capacity mostly to accommodate increased car output will boost U.S. steelmakers’ operating rate to 60 or 70 percent of capacity, analysts said.

“It doesn’t get you all the way back, but the industry is running at a 55 percent operating rate (up from about 45 percent) and it is justified by what we have seen in real consumption over the last several months,” said Charles Bradford, partner at Affiliated Research Group good credit score.

A major drawdown in steel service center inventories, a process that kept steel mill capacity near a 45 percent operating rate for the first seven months of 2009, has meant consumers now need to order steel just to maintain current levels of output even if the economy stays flat.

“The absence of inventory destocking has been the most significant driver of the increases in steel production and mill shipments over the past couple of months,” said Folta.

With inventories extremely low, it is unlikely steel output will fall again to this year’s low levels. But it is also unlikely to surge dramatically, said Anthony Young analyst on the Dahlman Rose metals team in New York.

Shipments from service centers, the middle men between raw steel producers and end users like manufacturers of appliances, cars or computer boxes, have stood fairly flat for months.

In July, steel mills saw a 15 percent increase in orders even though actual sales at service centers barely rose.

“I think it’s fair to say that the bulk of inventory destocking is behind us. If you look at stock inventory levels at the distribution level they are very low,” said Folta.

About 50 service centers indicated in the latest monthly Longbow survey that they are not carrying any excess stock. 

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The collapse of Lehman Brothers a year ago has been likened to the 1994 crash that killed Formula One star Ayrton Senna, in the way it has spurred calls for root-and-branch review of risk in the financial sector.

Senna’s tragedy led to regulatory changes in racing that have been effective; deaths on the track are now a rarity.

But governments are not finding it nearly as easy to make quick and comprehensive changes to financial regulation.

That means risks may remain for another collapse on the scale of Lehman in coming years, though authorities would probably be able to act more decisively next time to prevent a financial crisis from spreading around the globe.

The core lesson from Lehman for governments has been clear — regulating against all future crises is futile but there are ways to limit fallout and need for government bailouts.

Britain witnessed at first hand with Lehman the legal nightmare when a complex, global bank goes under. Its financial services minister, Paul Myners, wants banks to simplify their structures and make “living wills.”

“We need to move to implementation across the EU. The time has come to move from theorizing to action. Simple structures are an essential precondition for effective arrangements,” Myners said.

Patrick Buckingham, a partner at Herbert Smith law firm in London added: “The sheer complexity of the Lehman insolvency has inevitably triggered a desire for a plan for an orderly wind down in the form of a living will, and may also lead to regulators asking for current entity arrangements to be simplified.”

Bankers see the Lehman crash as a major turning point.

“Was Lehman the Senna of international banking? Yes. All the changes to regulation are going to add up to less systemic risk,” an investment banking industry official said.

“But are all the lessons learnt feeding through into policy changes? Only up to a point,” he added.

Leaders of the G20 group of major nations pledged in April this year to strengthen financial supervision.

In the U.S. city of Pittsburgh this month, almost exactly a year after Lehman went bust, they will meet again to reinforce the need for stronger bank capital and wind up arrangements.

But some of the leaders are openly complaining the reforms are too slow or timid. Talk of a new, commonly adopted framework for financial supervision around the world has fizzled out as governments struggle with the nitty gritty of reaching agreements on regulatory change.

CONSENSUS 

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McDonald’s Corp’s August sales at existing restaurants rose 2.2 percent globally, missing analysts’ target, as strength in Europe partly offset weakness in the United States and other parts of the world.

The No. 1 hamburger chain’s shares fell 1.6 percent to $55.33 in midday trading on the New York Stock Exchange and dragged down the stocks of rivals Yum Brands Inc and Burger King Holdings Inc.

Closely watched same-store sales rose 3.5 percent in Europe, helped by Britain and France, and were up 1.7 percent in the United States, where intense fast-food price competition weighed on results. Comparable sales slipped 0.5 percent in the company’s Asia Pacific, Middle East and Africa (APMEA) segment, McDonald’s said on Wednesday.

Analysts had expected U.S. same-store sales to rise 2.8 percent. On a global basis, some estimates called for a same-store sales increase of as much as 3 percent.

U.S. same-store sales are “mired in the low single-digit range,” Jefferies & Co analyst Jeff Farmer said in a client note.

Farmer expects McDonald’s U.S. same-store sales to remain below 4 percent for the balance of the year, “making a sustained move to $60 very difficult for the shares.”

The world’s largest hamburger chain said its U.S free credit report. sales were supported by the new premium Angus Third Pounder burger and new McCafe coffee drinks.

McDonald’s and some other fast-food restaurants have benefited as the global economic downturn has led diners to seek lower-priced fare, but long-term economic doldrums and a 9.7 percent U.S. unemployment rate have taken a bite out of profitable breakfast and beverage sales.

McDonald’s said systemwide sales rose 1.1 percent in August, but were up 4.1 percent excluding the impact of currency fluctuations.

Stifel Nicolaus analyst Steve West said he expects foreign exchange to have a “less negative” impact going forward.

Due to diners’ continued cautious spending, McDonald’s has turned its advertising focus to its core and value menus and away from higher-priced food items — with the exception of the new Angus burger, which is being introduced across the United States.

Shares in Yum, which owns the KFC, Taco Bell and Pizza Hut brands, were down 1.9 percent at $33.54, while Burger King’s stock was off less than 1 percent at $18.00.

(Additional reporting by Martinne Geller; editing by Gerald E. McCormick and Maureen Bavdek)

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Airbus on Tuesday rejected U.S. calls to renounce government loans for its next airliner after the WTO gave a preliminary ruling against earlier loans, while a Boeing executive hit out at unfair “subsidies.”

In an unpublished draft ruling on Friday, the World Trade Organization said government loans used to develop planes such as the A380 superjumbo were “actionable” subsidies harming rival Boeing, according to sources familiar with the case.

It also ruled that some of the loans, including part of the funds lent by governments to help build the A380, violated an even tougher ban on export aid, the sources said.

The findings, which came in a confidential 1,000-plus page ruling, are the latest chapter in a decades-old battle between Boeing and Airbus for dominance of the global aircraft market, a major source of jobs on both sides of the Atlantic.

The outcome of the case and a European Union counter-claim against alleged U.S. support for Boeing could determine the options for funding Airbus’s next airliner model, the A350.

Washington reacted angrily when Britain, which builds wings for Airbus aircraft, said last month it would provide $565 million in further loans to help develop the mid-sized jet. France, Germany and Spain are expected to follow suit.

Airbus has “absolutely no plans to change the funding for the A350 at the moment,” Christopher Buckley, executive vice-president for Europe and Asia Pacific, said on Tuesday easy payday loans.

“From the Airbus point of view, we strongly believe, as we’ve always done, that reimbursable launch aid is a very good way of launching aircraft programmes,” Buckley told Reuters in an interview at the Asian Aerospace exhibition in Hong Kong.

COMPLEX DISPUTE

Sources familiar with the WTO case said Washington failed in a bid to ensure its complaint applied to future models such as the A350 by describing the loans as one single pot of subsidies.

But a Boeing executive renewed pressure on Airbus to give up loans for the A350, which competes with Boeing’s 787 Dreamliner.

“I think the result of the trade case would determine whether or not that direct subsidies are allowed,” said Rob Laird, vice president of China, East and Southeast Asia sales.

“I assume it will have implications on any new programme that is not yet funded,” he told Reuters in an interview.

The 787 and A350 compete in the jet market’s most promising segment, covering long-range aircraft with 210-350 seats.

Analysts say that could generate thousands of orders worth hundreds of billions of dollars as prosperity returns in coming decades. Airlines have so far ordered 850 787s and 493 A350s . 

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