Justin Trudeau says he’ll work with provinces on Trans Mountain pipeline expansion

SURREY, B.C. — Prime Minister Justin Trudeau says he’ll work with British Columbia and Alberta to move ahead with his government’s agenda of building the economy while protecting the environment.

Trudeau was in Surrey today and was asked about the possibility that B.C. could wind up with a government that opposes the Trans Mountain pipeline expansion.

The final count from the recent provincial election, including absentee ballots, will be completed next week and the anti-pipeline Greens are poised to hold the balance of power if a minority government is confirmed.

Alberta Premier Rachel Notley has said that no province has the power to stop the expansion of the pipeline, which runs from the Edmonton area to Burnaby.

Trudeau did not directly answer a question about whether her statement was true, but he says he has a very positive relationship with the provinces and will work with them to ensure they are creating good jobs while moving toward a lower-carbon economy.

The federal government approved the expansion late last year.

The Canadian Press

HSBC saved a small Canadian bank once, but it won’t be coming to Home Capital’s rescue

One of the last times a Canadian bank ran into trouble, HSBC Holdings Plc came to the rescue. Don’t expect history to repeat itself in the case of Home Capital Group Inc.

HSBC Canada, which leapfrogged small Canadian competitors by acquiring failing Bank of British Columbia in 1986, wouldn’t be interested in Home Capital if the embattled mortgage lender put itself up for sale or sold off assets such as its mortgage portfolio.

“This isn’t something for us right now,” Sandra Stuart, chief executive officer of HSBC’s Canadian unit said Thursday in an interview in her Vancouver office. “We were in the subprime business and we had a subprime portfolio that performed very well, and we took a decision to exit it. We understand deeply what it takes to run a subprime book, and at this stage I would say we’re not interested.”

Home Capital has been seeking to stabilize itself after losing almost $1.9 billion in high-interest deposits since the end of March, forcing it to secure a costly $2 billion rescue loan from a pension fund. The company also hired investment banks to advise on financing and “strategic options” that may include a sale of the company or assets.

Other Canadian financial firms earlier this month ruled out an outright purchase of Home Capital, including Canadian Western Bank and alternative lender Equitable Group Inc. HSBC’s case is noteworthy because of the bank’s history in Canada.

Bank Fails

Stuart has first-hand experience with a bank failure. She was a teller of Bank of British Columbia in Vancouver’s suburb of Burnaby when the lender ran into trouble. She became a part of HSBC when the Bank of British Columbia was acquired by the London-based lender in November 1986.

“Reflecting on it, it happened so quickly,” Stuart said. “I remember when HSBC made the purchase and how exhilarating that was to have a foreign bank take over a little British Columbia bank and absolutely overnight the prospect for the whole business changed. It was really exiting.”

Bank of British Columbia’s woes followed the failures of Canadian Commercial Bank and Northland Bank of Canada in 1985, when rising interest rates and a slumping dollar caused their real estate and energy-heavy loan books to deteriorate, according to a Bank of Canada report. The failure of two small Western Canadian lenders eroded the confidence of other banks that relied on wholesale deposit funding, leaving Bank of British Columbia unable to weather the storm.

The B.C. bank was run at the time by Edgar Kaiser Jr., an industrialist whose holdings included Canada’s biggest coal company, and the Denver Broncos of the National Football League, according to a New York Times obituary published when he died in 2012.

Expansion Plan

The B.C. purchase bolstered HSBC’s Canadian presence five years after entering the country, and the deal became the first of a string of purchases over 22 years in the bank’s strategy to expand across the nation.

HSBC Canada hasn’t seen much impact from Home Capital’s woes, Stuart said.

“If anything, we’ve seen our deposits increase over the last little while,” Stuart said, adding that she doesn’t expect Home Capital’s troubles will spread to other financial firms. “It’s a $20 billion book, it’s going to play out as it’s going to play out. We don’t feel any contagion to us, so I’m suspecting it’s probably going to be isolated.”

Home Capital rose a second straight day, adding 5.9 per cent to $9.39 in Toronto. The stock is still down 70 per cent on the year.


Not ‘unlawful’: Unifor hopes more Canna Clinic employees will join union despite marijuana dispensary’s ‘grey market’ status

Canada’s largest private-sector union says it isn’t bothered that its first-ever group of medical marijuana union members work at an illegal pot dispensary.

Unifor spokeswoman Katha Fortier said Thursday it is in the process of negotiating a contract for all 40 employees at one of Toronto’s Canna Clinic marijuana dispensaries, which sells dried cannabis as well as oils and edibles, but does not have a Health Canada licence to do so. 

Licensed producers are currently the only legal sellers of marijuana in Canada and their operations are strictly regulated. They can only sign up patients with a medical authorization from a doctor and can deliver product only through a mail order system.

Many dispensaries claim they are for medical marijuana and charge customers a fee to get an authorization from their healthcare professionals before selling them marijuana over the counter without a licence. 

“As a union, our legal relationship is between the workers and their employer,” said Fortier, assistant to Unifor’s president. 

“Ultimately this is a group of workers, they receive pay from their employer, they pay normal deductions that everybody else pays when they go to work and the labour board, where the application goes to certify, says (the dispensary is) an employer.” 

Canna Clinic’s website claims it is “Canada’s leading provider of medical cannabis products and accessories.” It also lists a menu of products currently on hand at its locations in Toronto and Vancouver and offers daily deals such as 2 Toonie Tuesday’s “$4 pre-rolled joint.” 

Unifor president Jerry Dias said in a press release that every worker has a right to unionize regardless of the legal status of the industry in which they work. The union is actively trying to seek out new workplaces to join amid a dramatic decline in unionization rates. 

Fortier said she is unaware of whether local organizers knew of the clinic’s questionable legal standing, adding that it’s not the union’s job to investigate the legal status of an employer.

“Obviously the marijuana debate is raging in the country and I think we all know where it’s heading, but this is an industry that’s going to be growing.” 

Labour lawyer Peter Straszynski said there is nothing technically “unlawful about the union organizing the company’s employees.”

“The issue of the legality of the enterprise is between the authorities and the company (and maybe its owners or principals,” he said.

The industry is expected to rapidly expand with the advent of legalization for recreational use expected in July 2018. However, it’s unclear whether dispensaries will be able to play a role in retail distribution in a system that is expected to remain tightly regulated.

Retail distribution is up to the provinces and many have expressed selling it through provincially-owned outlets as some do with liquor. 

The workers at Canna Clinic on Broadview Ave. in Toronto reached out to the union with concerns focusing on safety and staff training, the union said. It is hoping the drive will encourage employees at Canna Clinic’s other locations in Toronto and Vancouver to organize as well.

Dispensaries, which continue to open despite their “grey market” status, have faced a series of police raids in the past year in Toronto. Most recently, police shut down all Cannabis Culture outlets in the city and charged owners and pot activists Marc and Jodie Emery with drug trafficking.


Home Capital sees rise in savings accounts as bleeding of funds eases

TORONTO — Canada’s biggest non-bank lender Home Capital Group Inc on Thursday published data showing that its high interest savings account balances had risen on Wednesday but its cashable guaranteed income certificate deposits (GICs) continued to fall.

Home Capital has been struggling to finance its assets as its high interest deposit accounts have fallen by more than 90 per cent since March 27, when the company terminated the employment of former Chief Executive Martin Reid.

The withdrawals accelerated after April 19, when Canada’s biggest securities regulator, the Ontario Securities Commission, accused Home Capital of making misleading statements to investors about its mortgage underwriting business. The company has said the accusations are without merit.

Home Capital said its high-interest rate savings deposit balances stood at $120.2 million on Thursday, compared with $116.8 million the day before.

Its cashable GIC deposits, which holders can redeem before their maturity date, fell to $146 million on Thursday, compared with $153 million on Wednesday.

The company last Friday said uncertainty around future funding had cast doubt about whether it could continue as a going concern.

Home Capital relies on deposits from savers and GICs to fund its lending to borrowers, such as self-employed workers or newcomers to Canada, who may not meet the strict criteria of the country’s biggest banks.

The company said it had access to $1.47 billion in available liquidity and credit capacity on Wednesday, compared with $1.48 billion a day earlier.

© Thomson Reuters 2017

Ottawa hints Boeing shouldn’t take military contracts for granted in trade spat with Bombardier

The federal government has hinted that Boeing should not take future military contracts with Canada for granted, a veiled threat that coincided with a spat between the aerospace giant and rival Bombardier.

Foreign Affairs Minister Chrystia Freeland’s comment that it’s “reviewing current military procurement that relates to Boeing” appeared to be a not-so-subtle hint that the government would revisit its purchase of Super Hornets.

The government has said it plans to sole-source 18 Super Hornets as a stop-gap measure before running a full competition to replace its aging CF-18 fleet.

The Liberals say the Super Hornets, which internal estimates suggest could cost as much as $2 billion, are urgently needed.

Military officials and defence industry representatives contacted by The Canadian Press on Thursday were united in assuming that Freeland’s warning related to the planned Super Hornet purchase.

Freeland’s comments came as the next potential Canada-U.S. trade dispute unfolded Thursday with the aerospace giants clashing at a Washington hearing.

“The U.S. market is the most open in the world, but we must take action if our rules are being broken,” U.S. Commerce Secretary Wilbur Ross said in a statement after the hearing began into Boeing’s claim that Bombardier received subsidies allowing it to sell its CSeries planes at below-market prices.

Aerospace analyst Richard Aboulafia of the Teal Group said the Canadian government’s move was inevitable, putting into question Boeing’s strategy in taking on Bombardier.

“If Boeing is smart it’ll press the do-over button and walk away,” he said in an interview, adding the aeronautics powerhouse has much more to risk from losing military contracts than the tiny gain from a successful trade complaint.

“Boeing values Canada as a customer and supplier-partner for both our commercial and defence businesses,” said company spokesman Dan Curran.

“Two of Canada’s most recent acquisitions of Boeing military products, the C-17 Globemaster and CH-47 Chinook, were delivered on-time and/or ahead of schedule.”

In an emailed statement Boeing also pointed out that it places substantial amounts of commercial and defence work in Canada and has a supply chain that “leverages the breadth and depth of the Canadian aerospace industry.”

Lobbyists, lawyers and aerospace executives crowded a room in Washington for a little battle playing out in the broader context of the day’s larger trade news: the U.S. announcement that NAFTA renegotiations will start in the next 90 days.

Bombardier has made it clear that its true goal is to grab half the international market share for 100-to-150-seat aircraft, according to Boeing, which argues its rival has received an unfair head start from Canadian taxpayers.

Boeing vice-president Raymond Conner said the sale of cheap, subsidized planes to Delta Air Lines helped build momentum for Bombardier to enter a new market. If Bombardier reaches its stated goal, he said, it would squeeze Boeing from that market and cost the company US$330 million a year in annual sales.

“Today we are at a critical moment,” Conner told the seven-member U.S. International Trade Commission. “If you don’t fix it now, it will be too late to do anything about it later.”

Boeing has petitioned the U.S. Commerce Department and the U.S. International Trade Commission to investigate subsidies of Bombardier’s CSeries aircraft that it says have allowed the company to export planes at well below cost. A preliminary determination on the petition is expected by June 12.

If the ITC determines there is a threat of injury to the U.S. industry, preliminary countervailing duties could be announced in July, followed in October by preliminary anti-dumping duties, unless the deadlines are extended. Final determinations are scheduled for October and December.

Boeing is calling for countervailing duties of 79.41 per cent and anti-dumping charges of 79.82 per cent.

It complains that Bombardier has received more than US$3 billion in government subsidies so far that have allowed it to engage in “predatory pricing.”

Lawyers for the U.S. aerospace giant argued Thursday that Bombardier’s own words prove it was rescued financially by multibillion-dollar assistance from the Quebec government, which last year invested US$1 billion in exchange for a 49.5 per cent stake in the CSeries. The company also shored up its finances by selling a 30 per cent stake in its railway division to pension fund manager Caisse de depot for US$1.5 billion.

Bombardier representatives countered that their planes never competed with Boeing in a sale to Delta — which the American rival describes as a seminal moment.

Bombardier lawyer Peter Lichtenbaum said the plaintiff is a global powerhouse that hasn’t lost any sales as a result of Bombardier, has an enviable order backlog and doesn’t even compete with Bombardier in the sales campaigns it has complained about because the CSeries is smaller than Boeing’s 737-800 and Max 8 planes.

“Boeing’s petition in this case is unprecedented in its overreach,” he said. “If this is a case of David vs. Goliath, Boeing has cast itself in the wrong role.”

Boeing’s annual sales were US$94.6 billion last year. That means the US$330 million Conner expressed concern about amounts to one-third of one per cent of its annual sales. Bombardier revenues last year were US$16.3 billion, including US$9.9 billion from aerospace activities.

Oil industry to get $235 million government loan to help clean up abandoned wells

CALGARY — The oil industry in Canada’s resource-rich Alberta will be on the hook for a $235 million government loan to clean up a rising number of oil wells abandoned by owners who have gone bankrupt, the province said on Thursday.

The loan, repayable over 10 years, will go to the government-run, industry-funded Orphan Well Association (OWA), which cleans up wells for which no party is legally responsible, Alberta Premier Rachel Notley said at a news conference.

The number of so-called orphan wells in Canada spiked after the 2014 oil price crash as layoffs swept the oil patch and companies went bankrupt. Alberta, which produces about 80 per cent of Canada’s crude, had more than 1,500 orphan wells in February, up from 26 in 2012.

The loan is lower than the $500 million an industry group asked for in 2016.

The OWA will double indefinitely its levies charged to all petroleum producers to a total of $60 million a year, starting in 2019, Notley said.

That, however, could be adjusted in the future based on how many orphan wells are left, said Brad Herald, OWA chairman and vice president of western Canadian operations for the Canadian Association of Petroleum Producers industry lobby group.

Notley said part of the loan, $30 million, comes from the federal government, which in this year’s budget allocated $30 million to Alberta to stimulate economic activity and employment in the resource sector.

Cleaning up the wells will create 1,650 jobs over three years, she said. 

© Thomson Reuters 2017

Home Capital adds fifth new director

Home Capital Group Inc. made a fifth addition to its board of directors Thursday, replacing one of the embattled alternative mortgage lender’s initial investors with veteran Bay Street Lawyer James Lisson.

Lisson, who was a partner and vice chair of the financial services group at Osler, Hoskin & Harcourt in Toronto, will take the spot being vacated by John Marsh, an early investor  in Home Capital who has served as a director since 1986 and who owns 2.46 per cent of the company’s shares.

“Jim Lisson is yet another excellent addition to the Home Capital Board of Directors as we move ahead with our governance renewal,” said Brenda Eprile, chair of the board of Home Capital in a statement. “He brings deep expertise in areas that are vital to our future success, and we look forward to his counsel.”

In addition to his 25 years at Osler, Hoskin & Harcourt, he also worked for two years with the Canadian Department of Justice as a consultant and senior advisor on commercial law, the company said. Lisson served as the executive chairman of Canadian commercial real estate giant Cadillac Fairview Corp. in 1993 and 1994, after serving as a director for several years, including providing leadership during a significant financial restructuring.

Lisson is the fifth new director to be named to Home Capital’s board this month as it seeks to restore its reputation. Home Capital has been facing a crisis of both confidence and liquidity after a series of executive departures and allegations of misleading disclosure by the company and some of its current and former executives.

The Toronto-based company has seen a partial run on the funding it uses for mortgage lending, with deposit holders withdrawing more than 90 per cent of the balances in its subsidiary’s high interest savings accounts since the end of March.

In turn, Home Capital was forced to obtain a $2 billion rescue credit line from a syndicate of lenders as a backstop, but at onerous terms that it says will limit future profitability.

Last week, Canada’s biggest non-bank lender said the recent reputational hit had impacted its future funding abilities and cast “significant doubt on the Company’s ability to continue as a going concern.”

Meanwhile, as the company seeks more cost-effective funding and mulls selling certain non-core assets to pay down the pricey credit line, it has made strides to beef up its board.

On May 5, Home Capital named former RBC Capital Markets managing director of mergers and acquisitions Alan Hibben to its board to replace founder and former chief executive Gerald Soloway. Soloway had stepped down from the board in April after the Ontario Securities Commission filed formal allegations against him, the company, former chief executive Martin Reid and chief financial officer Robert Morton, in connection with the discovery of falsified information in its broker channel and the subsequent termination of 45 brokers in 2014 and 2015. Home Capital has said the allegations are “without merit.”

And on May 8, the company named Eprile as chair to replace Kevin Smith, who remains as a director. Home Capital also named three new Canadian business heavyweights as directors: Claude Lamoureux, former chief executive officer of the Ontario Teachers’ Pension Plan; Paul Haggis, a risk consultant and former head of the Ontario Municipal Employees Retirement System (OMERS); and Sharon Sallow, a risk consultant, former director at Teachers and former Ontario Securities Commission staffer.

Meanwhile, Home Capital’s high-interest savings account balances saw a daily increase for the first time since March. The company’s high-interest savings account balances at subsidiary Home Trust stood at $120.2 million as of May 17, up from $116.8 million as of May 16, Home Capital said on Thursday. That’s compared to $1.991 billion before March 28.

Its guaranteed investment certificates (GICs), which make up a much larger portion of its funding for mortgages, stood at $12.347.9 billion as of May 17, compared to $12.363.2 billion a day earlier. That’s compared to $13.06 billion on March 28.

Prem Watsa talks to Bay Street about entrepreneurial culture and Donald Trump’s Twitter account

Prem Watsa, one of Canada’s most powerful investors, told a Bay Street crowd Thursday that he remains bullish on the U.S. economy under U.S. President Donald Trump, but urged Trump to pipe down.

“I think he’s got that advice from 100, 1000 people: stop using that Twitter account,” Watsa, founder and chief executive at Fairfax Financial Holdings Inc., told about 250 people gathered at a Canadian Club luncheon, in response to a question from the floor. Watsa held up his thumb to mimic the act of typing on a smartphone. “And just stay quiet.”

Watsa praised Trump’s economic team and their plans to cut corporate taxes from 35 per cent to 15 per cent, roll back regulation and invest in infrastructure. Watsa said that growth in the U.S. economy will benefit Canada.

“If they are able to do that, we are in for a long period of growth. When the United States does well, the rest of the world does well. We certainly do well here in Canada.”

But Watsa suggested that someone rein Trump in.

“The problem with Mr. Trump is he’s incorrigible,” said Watsa, the bulk of whose 22,000 employees live in the United States. “He doesn’t listen to anyone. Those Twitter messages — I know some of the people there — no one checks them. He gets up in the morning and he sends them.”

After his speech, Watsa, who made hundreds of millions of dollars on credit default swaps when the U.S. housing market crashed in 2008, repeated his warning that Canada’s housing market is overvalued.

Laura Pedersen/National Post

“Anything that goes up significantly and so quickly in the past has tended to come down,” he said. “I hope it doesn’t happen, but I’d be careful. Buy a home for your family, not an investment.”

Watsa spoke as part of the Canadian Club’s Global Leaders Series. Watsa, who immigrated from India to London, Ont., 44 years ago, said his company has succeeded through his kinder, gentler style of investment. Fairfax, which stands for “fair, friendly acquisitions,” has never done a hostile takeover, he said.

“We’ve got many people who want to join our company because of this culture: team-oriented, treating people well. That’s our competitive advantage, in a sense.”

No president has ever left Fairfax after the company came under the Fairfax umbrella, Watsa said. Fairfax is decentralized, with just 35 people in its Toronto head office, and gives the presidents of its divisions autonomy.

The Bank of Ireland restructuring succeeded, Watsa said, because he and other investors left in place Richie Boucher, the chief executive.

“House prices in Dublin went down 50 per cent,” he recalled. “Every bank went bankrupt. The only one that survived was the Bank of Ireland, and it was on its way to going bankrupt. We with three or four other investors saved it, but it was because of Richie.”

“Ireland is coming back in spades,” added Watsa. He has also invested in Greece, and noted, “Greece is yet to come. At the moment we are taking a big hit on it, but we think that will happen there too.”

Watsa, 66, father of three with five grandchildren, earned his loudest applause when he thanked his wife, Melanie, who attended the lunch. He said Fairfax is not for sale, and never will be.

“I have arranged my affairs so that even after my death Fairfax will not be subject to a takeover, and continue to be a Canadian company headquartered in Toronto, operating with our guiding principles,” he said. “Because the shares will not be sold.”

Financial Post