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(June 29, 2006) Citing inflation risks, the U.S. Federal Reserve has raised its key overnight lending rate to 5.25%, the 17th consecutive increase over the past two years.

The Fed indicated that economic growth is moderating from its quite strong pace earlier this year. The change is partly reflecting a gradual cooling of the housing market as high energy prices and previous rate increases take hold. The market reacted positively to the news, adding to early morning gains.

While the Fed said core inflation has been contained, it warned that some inflation risks remain. It noted that higher levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures, hinting at future rate hikes.

“The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information,” the Fed said in a statement.

Canada’s central bank will meet on July 11 to set its interest rate, currently at 4.25%.

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Sentry Select to short

(June 29, 2006) In an ominous sign that the current volatility on the markets could continue, Sentry Select Capital has announced that it plans to include short selling as part of its investment strategy this fall.

The release indicates that the practice is meant to augment, not replace, the funds’ current investment strategy. The release adds the manager will “engage in short selling transactions from time to time,” beginning sometime around Sept. 1.

The change will impact Sentry Select Balanced Fund, Sentry Select Canadian Energy Growth Fund, Sentry Select Canadian Income Fund, Sentry Select Diversified Total Return Fund, Sentry Select Precious Metals Growth Fund, Sentry Select REIT Fund, Sentry Select Small Cap Income Fund and Sentry Select Canadian Resource Class and Sentry Select Mining Opportunities Class of Sentry Select Corporate Class Ltd.

All of these funds have a heavy presence in Canada, particularly in the manufacturing energy sectors.

As of May 30, 2006, the firm had approximately $8 billion in assets under management.

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Ottawa seeks input on double taxation of corporate dividends

(June 29, 2006) The federal government has opened a consultation process on proposed measures to lower the income tax rate the dividends paid by large corporations.

The language of the legislation, which was reintroduced by the Tories in the 2006 federal budget, is unchanged from the Liberal’s original proposal. While the Liberals cut short a consultation process before the original legislation was introduced, this process is not meant to re-open the debate on income trusts.

A spokesperson for the ministry of finance says this consultation process, open until September 15, will focus on the specifics of the legislation before it is tabled in the fall.

As announced earlier, once the legislation is adopted the new measures will apply to eligible dividends paid after 2005.

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CMHC offers homebuyers more flexibility

(June 29, 2006) The Canada Mortgage and Housing Corporation is eliminating application fees on high-ratio homeowner mortgage loan insurance and allowing borrowers the option of making interest-only mortgage payments on their homes for the first 10 years.

The changes, which are effective immediately, mean that borrowers will no longer have to pay the typical fee of $165.

At the same time, borrowers with a proven history of managing their credit will be allowed to make interest-only payments for the first 10 years when they buy or refinance their home. The option is intended to give borrowers greater flexibility to manage their cash flow and build equity. After 10 years, the balance will be repaid like any other mortgage, with the principal and interest payments set to ensure the balance is paid in full within 25 years of the start date.

“These innovative financial solutions will allow more Canadians to buy homes, and to do so sooner,” said Karen Kinsley, President of CMHC.

In addition, the CMHC is also introducing an extended amortization period to up to 25 years. For a 35-year amortization product, the premium surcharge will be 0.40%.

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CIBC acquires majority stake in FirstCaribbean

(June 29, 2006) CIBC has agreed to acquire Barclays Bank’s 43.7% stake in FirstCaribbean International Bank for $1.08 billion US.

CIBC has the option of paying for the transaction in cash, common shares or a combination of cash and shares. When completed CIBC will own 87.4% of FirstCaribbean, with the remaining shares owned by regional investors.

Immediately after the close of the deal, CIBC will be required to make an offer to buy out the remaining shareholders, which is expected to match the $1.62 US a share it paid for Barclay’s stake in the bank.

FirstCaribbean is the largest regionally-listed bank in the English-speaking Caribbean, with assets of over $9.6 billion US and a market capitalization of over $3.3 billion US.

The transaction, which is subject to regulatory approvals, is expected to close at the end of 2006.

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Desjardins Financial Security names new president, COO

(June 29, 2006) Richard Fortier has been appointed as president and chief operating officer of Desjardins Financial Security.

Fortier has been with the bank since 1994 and currently holds the title of senior vice-president, actuarial, finance and corporate services. He will replace Francois Joly, who is retiring after 10 years with the corporation.

In his new role, Fortier will be responsible for overseeing the cross-Canadian development of Desjardins Group’s life and health insurance subsidiary. Fortier will assume his new position on September 1.

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