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(February 13, 2007) A report by CIBC World Markets predicts legislation to curb greenhouse gas emissions will have a significant effect on the TSX, since 40% of its market value is tied up in firms that will be adversely impacted by new regulations.

“Investors will soon have to recognize carbon liabilities as part of a firm’s balance sheet,” said Jeff Rubin, chief economist at CIBC World Markets. “The full extent to which corporate valuations will be impacted by carbon risk will depend on the distribution of permits, the initial severity of the emissions caps and the rate at which they are lowered over time. At the end of the day, legislators will determine those parameters. But investors beware: carbon emissions are very soon going to carry a price in the Canadian economy.”

CIBC expects Canada to follow in the footsteps of California, which has taken the lead in reducing GHG-causing carbon emissions by establishing a statewide cap and trade system. Efforts to cap emissions in 2009 are already under way in the states of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont, and a bipartisan bill seeking to establish a nationwide system for GHG emissions is currently before the U.S. Congress.

The report states that the ability of firms to reduce their emissions through better carbon practices will become increasingly important as the cost of emission allowances rise.

In order to obtain an understanding of this risk, CIBC World Markets said, it has devised a Carbon Cap Composite Vulnerability Index based on a weighted average of four measures of carbon vulnerability.

The index finds that coal-fired utilities represent the sector of the economy most vulnerable to carbon risk, reflecting extremely high emission intensity per megawatt of power produced. After coal-fired utilities, oil sands producers rank the highest on the index.

CIBC said that, the oil sands made up only 3.5% of Canada’s GHG emissions in 2004, but estimates suggest production will double to two million barrels per day, which could account for over 40% of the growth in national GHG emissions over the next decade.

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IDA fines Thomas Clarke $55,000

(February 13, 2007) A hearing panel of the Investment Dealers Association of Canada has imposed discipline penalties on Thomas Clarke, who was affiliated with the Toronto office of Caldwell Securities Ltd.

On January 24, 2007, the hearing panel accepted a settlement agreement negotiated between staff of the IDA’s enforcement department and Clarke. Clarke admitted that he had conducted unauthorized trading in two client accounts by issuing false and misleading account documents, forging clients’ signatures and filing false hold-mail authorizations without their knowledge or consent.

The IDA has fined Clarke $55,000 for his misconduct. In addition, he must pay $10,000 in costs and is prohibited to act in any registered capacity with an IDA member firm for a period of one year.

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CIBC: Investing done at branches despite increase in online banking

(February 13, 2007) Canadians are conducting more of their day-to-day transactions at self-service banking machines and over the Internet, according to an annual tracking study by TNS Canadian Facts, a Toronto-based marketing research firm.

Conducted in the fall of 2006, TNS’ How Canadians Bank study found that 53% of Canadian adults reported visiting a branch in the month prior to the survey, the lowest level of branch banking reported since the study began in 1994.

Meanwhile, six out of 10 Canadians with Internet access have signed up for online banking and 37% of all Canadians reported using an online banking service in the month prior to the survey, compared to 34% in 2005.

TNS also found a modest growth in the use of ABMs over the past year. In fall 2006, 81% of Canadian adults had used a bank machine in the month preceding the survey, up from 78% in 2005.

Rhonda Grunier, a vice-president at TNS, said while automatic banking usage continues to increase, the personal interaction at the branch level remains important.

“While Canadians are interacting with staff at branches less often for routine banking activities, this does not mean that the branch is becoming irrelevant or obsolete. Canadians continue to prefer to go to their branch to make RSP contributions and to acquire financial products, such as new accounts and mortgages, than to do so by phone or online,” Grunier said. “Furthermore, Canadians are still most likely to visit their branch when they want information about the products and services that their financial institution offers.”

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Increase in imports offsets record year for Canadian exports

(February 13, 2007) Last year was a record year for Canadian exports, according to Statistics Canada, which released its international merchandise trade figures for 2006 on Tuesday. Canadian companies exported nearly $458.2 billion worth of merchandise, a 1.1% gain from 2005. However, this increase was undermined by imports, which rose nearly four times as much, to $404.5 billion, a record high.

StatsCan reports that as a result of the high number of imports, Canada’s trade balance fell to its lowest level since 1999, decreasing by $11.2 billion to $53.6 billion.

This decline in trade balance coincides with a decrease in trade with the U.S. The U.S. remains Canada’s largest trading partner, accounting for 79% of Canada’s exports, 2.0% lower than last year, which StatsCan said is primarily due to weakness in the automobile and forestry industries. Auto exports to the United States slumped 6.0% from 2005, while forestry exports were down 8.6%. All of this led to a trade surplus with the U.S. of $96.5 billion, a three-year low.

The decline in U.S. trade is being quickly replaced by increased trade with other nations. StatsCan found that exports to other countries amounted to $96.9 billion, up 15% from the record high in 2005. Imports from these countries also rose a strong 8.8%. The net difference resulted in a trade deficit with non-U.S. nations that shrank to $43 billion.

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(02/13/07)