Oil plunges 5% on disappointment with OPEC cuts

Oil prices fell nearly 5 per cent on Thursday as OPEC’s decision to extend production curbs fell short of expectations of deeper or longer cuts.

As expected, the Organization of the Petroleum Exporting Countries, along with other non-OPEC members, agreed to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 to reduce a glut of supply.

However, in the days prior to the meeting, talk of a possible extension for 12 months, or deeper cuts than the current agreement, helped buoy prices on optimism of a faster drawdown in supply.

In Vienna on Thursday, Saudi Arabia’s energy minister, Khalid al-Falih, said ministers did not see a need to reduce oil output further.

“Maybe they’re disappointed that there wasn’t anything additional,” said Adam Rozencwajg, managing partner at Goehring & Rozencwajg Associates in New York.

Brent crude oil was down US$2.38 a barrel at US$51.58 a barrel by 12:15 p.m.
U.S. West Texas intermediate crude futures fell US$2.43 a barrel to US$48.93, a 4.8 per cent drop, breaking through US$50 for the first time all week as volumes rose sharply.

The global glut of supply has proved difficult to draw down even after OPEC agreed to cut production in the first half of the year.

That was in part because of large volumes of floating storage, weaker-than-expected demand in places like India, and increased U.S. production.

U.S. oil production has already risen by more than 10 per cent since mid-2016 to more than 9.3 million bpd, and OPEC’s contribution to the cuts – 1.2 million bpd – could be completely eaten up by rising U.S. production by year-end, according to RBN Energy.

Rising U.S. production may continue to offset OPEC’s cuts, even though refining runs have touched record levels in the United States in recent weeks.

“Everyone is watching (the price of oil) with trepidation, not jubilance,” said David Arrington, president of shale oil producer Arrington Oil & Gas in Midland, Texas.

How shale producers respond in coming months will have as much of an effect on pricing as OPEC’s cuts, he said.

“If U.S. shale producers exceeded our projected increases, it’ll drive the price down again,” Arrington said.

© Thomson Reuters 2017

GM latest carmaker to be accused of cheating on emissions testing since Volkswagen scandal

General Motors Co. was accused of putting defeat devices in its trucks to beat emissions tests, the sixth carmaker linked to diesel cheating scandal since 2015, when Volkswagen AG admitted to installing software to bypass pollution rules.

People who own or lease more than 705,000 GM Duramax diesel trucks filed a class-action lawsuit Thursday, claiming GM installed multiple such devices in two models of heavy-duty trucks from 2011 to 2016. The 190-page complaint is littered with 83 references to VW, and asserts that the environmental damage caused by each truck could surpass that of the German automaker’s vehicles.

GM’s cheating allowed its trucks to pass U.S. inspections, even while they spewed emissions two to five times the legal limit under regular driving conditions, according to the complaint filed in Detroit federal court.

The lawsuit underscores questions about the credibility of clean-diesel technology. This week, the U.S. Justice Department sued Fiat Chrysler Automobiles NV, alleging violations of clean-air rules. Daimler AG is the target of a German probe related to diesel emissions, and French carmakers Renault SA and PSA Group are both being investigated in their home country.

The case is Fenner v. General Motors LLC, 17-cv-11661, U.S. District Court, Eastern District of Michigan (Detroit).

Bloomberg.com

Aimia shares soar 20% after CEO says Aeroplan operator can make it without Air Canada

Aimia Inc., the loyalty-program operator whose value has plunged 72 per cent this month after Air Canada announced a split, is confident it can survive without its most important partner.

“The market has overreacted,” Chief Executive Officer David Johnston said in a phone interview on Wednesday, adding that Aimia’s 5 million members hold about 200 billion miles and the company’s buying C$700-million worth of seats a year.

“That’s a lot of purchasing power that’s going to be of great interest to other airlines and other partners. So put all that together, I’m very confident in the future of the Aeroplan business.”

Aimia shares rose 20 per cent by midday in Toronto on Thursday, after falling for seven consecutive days.

Air Canada said May 10 it will withdraw from Aimia’s Aeroplan program and start its own rewards plan in 2020. The key date for Aimia comes four years later — 2024 — when contracts with Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are due to expire.

TD and CIBC offer Aeroplan-branded credit cards which channel about 10 per cent of Canadian credit-card purchase volume, according to Johnston. He’s “very confident” they’ll still be partners in 2024. TD said in a May 11 press release that there are no changes to its credit card program “at this time.” CIBC said in an emailed reply Wednesday that it divested a large portion of its Aerogold portfolio in 2013 but for the remaining clients, “it’s currently business as usual.”

“If I’m booking a family holiday, I care about where I’m going to go and who’s got the flight scheduled to get me there,” said Johnston, who was named CEO on May 10 as Rupert Duchesne retired from the post. “I’m not as choosy about the airline.”
Not everyone’s so confident.

“We expect Aimia to reposition Aeroplan as a third-party loyalty program in Canada,” Industrial Alliance Securities analyst Neil Linsdell wrote in a note. “It will need to act quickly, however, to maintain the loyalty of its 5 million members and provide compelling value as its credit-card partners already offer competing loyalty programs.”

Vital Business

Air Canada accounted for 11 per cent of Aimia’s gross billings in 2016. But 80 per cent of Aeroplan rewards are used for flights, either with Air Canada or on members of the Star Alliance airline coalition, of which Air Canada is a founding member. Nearly 59 per cent of Aimia’s revenue and more than 72 per cent of its operating income came from Aeroplan in 2016, according to Bloomberg data.

Aimia has other business lines, including international coalitions like the Nectar loyalty program in the U.K. and Air Miles Middle East. It also operates loyalty programs for third parties like Nordstrom Inc. in Canada and the U.S. Those businesses will continue to grow but aren’t an offset for finding new Aeroplan partners, which is “job number one,” Johnston said.

He declined to name potential partners he’s in talks with, except to say they include “a wide range of alternatives.” WestJet Airlines Ltd., Canada’s second-biggest airline, said in an emailed response Thursday it will be keeping its loyalty plan in-house. Porter Airlines Inc., Transat AT Inc. and Sunwing Airlines Inc. didn’t immediately reply to requests for comment.

Aeroplan members will still be able to redeem points with Air Canada after 2020, though analysts say this will probably be at a less appealing rate.

“We’re going to generate some really creative alternatives,” Johnston said, “that are going to keep our members happy up to 2020 and beyond.”

Bloomberg.com

Manulife Financial chief executive Donald Guloien to retire in September, Roy Gori to take the helm

Don Guloien, who took over as chief executive of Manulife Financial Corp. at a turbulent time in the insurer’s history, is retiring at the end of September.

He will be replaced by Roy Gori, who was tapped in March to become president in early June. Gori is currently vice president and general manager of Manulife’s Asia division, and his appointment as CEO is subject to immigration approvals, Manulife said in a statement Thursday.

Guloien took over from longtime Manulife CEO Dominic D’Alessandro in 2009 as the company dealt with its exposure to equity markets, which declined steeply during the financial crisis of 2008, and the potential impact on the company’s book of guaranteed variable annuities.

“Donald’s eight-year tenure as CEO began in the aftermath of the most serious financial crisis in modern history, and at a moment when Manulife faced a number of difficult internal and external challenges,” Richard DeWolfe, chairman of the board, said in a statement.

“Today, the company has a strong, global footprint positioned for growth, with more than $1 trillion in assets under management and administration and $4 billion in core earnings in 2016 alone.”

Gori, who joined Manulife from Citi in early 2015, is to become responsible for leadership of Manulife’s Canadian, U.S., and Investment operations on June 5, in addition to Asia. He is to take over as CEO and join the board on Oct. 1.

The CEO transition is not the only executive shake-up at the insurer. Manulife also announced the departure of Craig Bromley, who was senior executive vice president and general manager of the company’s U.S. Division (John Hancock). He is to be replaced on an interim basis by Michael Doughty, president and general manager of John Hancock Insurance.

John Aiken, an analyst at Barclays Capital Inc., said Guloien’s departure after a 36-year career is “disappointing.” But, in a note to clients, Aiken called Gori a “strong” replacement, and said the ample transition period suggests there won’t be any change to Manulife’s business or strategy in the near term.
The analyst said the departure of Bromley in the U.S. was “unexpected.”

Quebec forestry company Tembec to be bought by Florida cellulose supplier Rayonier in $807 million friendly deal

MONTREAL — A Florida-based company is moving to buy Tembec Inc. in a friendly takeover deal that values the Quebec-based forestry company at US$807 million, including assumed debt.

Rayonier Advanced Materials Inc. of Jacksonville, Fla., says the proposed deal announced this morning would create a more diversified company with a Canadian headquarters in Montreal.

Tembec shareholders are being offered $4.05 in cash or 0.2302 of a Rayonier share, subject to a cap on the total amount of cash or shares that will be issued.

The purchase price is 37 per cent above Wednesday’s closing price for Tembec on the Toronto Stock Exchange.

Tembec is a diversified forestry company that produces lumber, paper, pulp for paper and specialty cellulose pulp that is used to make certain types of fabrics and other products.

Rayonier Advanced Materials is primarily a supplier of high purity cellulose, used in applications such as cell phones, computer screens, filters, textiles and pharmaceuticals. Its plants are in Florida and Georgia.

The proposed takeover requires approvals from courts, regulators and shareholders and is expected to close in the second half of 2017.

“This transaction advances our growth objective to pursue strategic acquisitions where we can leverage our core competencies to provide significant long-term shareholder return,” said Paul Boynton, Rayonier’s chairman, president and CEO.

“By joining forces, we are diversifying our product offering in high purity cellulose and expanding into the adjacent packaging and forest products markets with significant scale.”

Tembec CEO James Lopez said Rayonier is an ideal partner, given the complementary nature of their products, expertise and resources.

“They are committed to our operations and employees in Canada and France and — above all — to the values we share,” Lopez said in a joint statement issued by the companies before North American stock markets opened Thursday.

Rayonier shares closed Wednesday at US$13.25 on the New York Stock Exchange. Tembec shares closed at $2.95 in Toronto.

RBC, CIBC and TD all beat market forecasts in big day for bank earnings

Royal Bank of Canada’s acquisition of City National Bank is paying dividends.

The Los Angeles-based lender contributed $77 million in profit for the fiscal second quarter, helping fuel a 12 per cent jump in earnings for Royal Bank’s wealth-management division. This marks the fifth quarter of results since the Canadian lender bought Hollywood’s “bank to the stars” in November 2015.

The $5 billion City National purchase allowed Royal Bank to diversify into U.S. private and commercial banking at a time when consumer lending in Canada was slowing. Founded in 1954, City National was long known for its show-business connections, funding movies and catering to Hollywood VIPs including actor Kirk Douglas, director Steven Spielberg and celebrity chef Wolfgang Puck. Chief Executive Officer David McKay said in January that expanding City National is a priority.

A 15 per cent jump in earnings from its RBC Capital Markets business and a drop in loan-loss provisions also helped drive results at Canada’s second-largest lender by assets.

Net income for the period ended April 30 rose 9.2 per cent to $2.81 billion, or $1.85 a share, from $2.57 billion, or $1.66, a year earlier, the Toronto-based lender said Thursday in a statement. Royal Bank said adjusted profit, which excludes some items, was $1.89 a share, beating the $1.81 average estimate of 14 analysts surveyed by Bloomberg.

TD and CIBC Beats

Toronto-Dominion Bank, Canada’s largest lender, also posted higher profit that beat analysts’ estimates, led by gains in U.S. retail banking and lower loan-loss provisions. Second-quarter net income rose 22 per cent to $2.5 billion, or $1.31 a share, from $2.05 billion, or $1.07 from the year earlier, the Toronto-based lender said in a statement. Adjusted earnings were $1.34 a share, compared with the $1.25 average estimate of 14 analysts surveyed by Bloomberg.

“All of our business segments performed very well, reflecting strong revenue growth, reduced credit losses and good expense management,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in a phone interview.

Canadian Imperial Bank of Commerce earlier reported that net income rose 12 per cent to $1.05 billion, or $2.59 a share, on wealth management and lower provisions. Adjusted profit of $2.64 a share exceeded analysts’ $2.58 estimated.

Bloomberg.com

TD Bank boosts profit by 22 per cent to $2.5 billion

TORONTO — Toronto-Dominion Bank on Thursday reported second quarter results which were ahead of market expectations helped by a strong performance at its retail and investment banking businesses.

Canada’s second-biggest bank said earnings per share, excluding one-off items, rose to $1.34 in the quarter to April 30, from $1.20 in the same period the previous year. Analysts had on average forecast earnings of $1.24, according to Thomson Reuters I/B/E/S data.

The bank also said that it had largely completed a review of its sales practices that it initiated after CBC News, Canada’s national broadcaster, reported in March that TD branch staffers had said they moved customers to higher fee accounts and raised their overdraft and credit card limits without their knowledge.

“We continue to believe that we do not have a widespread problem with people acting unethically in order to achieve sales goals,” Chief Executive Bharat Masrani said.

Net income rose to $2.5 billion in the quarter from $2.1 billion the previous year.
Net income at the bank’s Canadian retail business grew by 7 per cent to $1.6 billion, benefiting from record account balances in personal chequing accounts and strong growth in commercial loans and deposits.

© Thomson Reuters 2017

CIBC profit beats estimates on growth across units

Canadian Imperial Bank of Commerce , Canada’s fifth-biggest lender, reported a better-than-expected second-quarter profit, helped by growth across its businesses.

The company, which is in the process of buying U.S.-based PrivateBancorp for US$4.9 billion, said adjusted net income in retail and business banking – its biggest unit – grew 4 per cent to $648 million, helped by volume growth and higher fees.

However, on a reported basis net income fell 1 per cent to $647 million.
Net income at CIBC’s capital markets unit rose 16 per cent to $292 million, while its smaller wealth management business surged 36 per cent.

Overall net income, excluding one-off items and attributable to common shareholders, for the quarter ended April 30, rose to $1.06 billion compared with $947 million, a year earlier.

On a per share basis, the company earned $2.64 compared with analysts’ estimate of $2.57, according to Thomson Reuters.

© Thomson Reuters 2017