Facebook Inc.'s (NASDAQ: FB) IPO faceplant last week was an interesting spectacle and an object lesson in the dangers of raising money in today’s minutely observed, hyper-regulated capital markets – at least in the U.S. But it didn’t have any lasting impact on the markets as a whole, as rising U.S. consumer sentiment in May helped buoy stocks to weekly gains, eclipsing for a time both the Facebook fiasco and the shambles that is the eurozone.
Canada’s S&P/TSX Composite Index overcame weakness in the banking sector, as materials, energy, and mining issues rallied from a steep slump on Tuesday, recovering handily from early losses in the week.
Still, Canada’s banking sector, with its dominant position in the S&P/TSX Composite took some of the wind out of the market’s sails, as U.S. ratings agency Fitch warned that high levels of household mortgage debt pose a threat to Canadian banks’ credit profiles. That took some of the glow off second-quarter earnings results from Toronto-Dominion Bank (TSX: TD), which reported a 21% year-over-year surge in quarterly earnings, and Bank of Montreal (TSX: BMO), whose earnings rose 27% year-over-year. Royal Bank of Canada (TSX: RY) posted a 7% decline in second-quarter profit, owing to a $202 million writedown on its buyout of RBC Dexia Investor Services in April. Absent the writedown, RBC’s earnings would have climbed 5%.
On the other hand, investors must be mighty pleased with activist shareholder Bill Ackman’s victory over the board of Canadian Pacific Railway Ltd. (TSX: CP). Ackman, the founder of U.S. hedge fund Pershing Square, waged a proxy fight to have CP’s CEO Fred Green and some board members removed from office, arguing that CP’s operating ratio of 83% is way too high. He won, but now faces a strike by unionized railway employees over, what else, wages and benefits. The government is preparing back-to-work legislation. And CP shares rose three bucks on the week.
Meanwhile, one of Canada’s largest food retail operations, Alimentation Couche-Tarde Inc. (TSX: ATD.B), is gambling that its bid for Norway’s Statoil Fuel & Retail will give it a foothold in Europe and pad out its earnings. Norwegian investors, however, remain cool to the idea, with only 67% of shares being tendered so far. Couche-Tarde needs 90% of shares to acquire control and may yet sweeten the pot to make it so. Share price dropped over a buck on the week, as investors wait to see whether Couche-Tarde’s appetite for this Scandinavian delicacy will be sated.
And in the Department of Stock Disasters, Conrad Black, erstwhile CEO of Hollinger Inc., has sensibly petitioned the Ontario Superior Court to finally allow creditors to vote on a proposed reorganization of the bankrupt company. Hollinger languishes in Canada’s bankruptcy hell as lawyers pick over its skeletal remains.
Speaking of remains, after a year-long investigation, the Ontario Securities Commission has finally agreed with short-seller Muddy Waters LLC, and accused Sino-Forest Corp. of perpetrating a mind-boggling fraud. Sino-Forest, once a stock market darling and beloved of mutual funds far and wide, serves as another object lesson – this one in the dangers of investing in companies doing business in jurisdictions where financial transparency, contract law, and basic double-entry bookkeeping are merely “suggestions.”
Ahead of the U.S. Memorial Day long weekend, traders pulled in their horns a bit and brought Friday’s session to a close on a downbeat. While ahead on the week overall, the major indexes continue to react nervously to any changes in the barometric macro pressure in the eurozone, while weighing the growing risk of a global economic slowdown.
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