Financial life in a big town

British oil major BP Plc (BP.L: Quote, Profile, Research) beat forecasts on Tuesday with a 48 percent leap in first-quarter profits to $6.6 billion, helped by record oil prices and strong profits from punting energy markets.

The results raised investor hopes Chief Executive Tony Hayward’s restructuring of the world’s third-largest non government-controlled oil company by market capitalization was working effect, pushing BP’s shares up over 4 percent.

“The figures are very good,” Tony Shepard, oil analyst at Charles Stanley said.

The results echo the forecast-beating profits also reported by Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research) on Tuesday. Double click on nL29466167 for more.

The main driver of BP’s earnings was its core oil and gas production unit, which benefited from oil prices which broke the $100/barrel barrier in the quarter, although output was flat at 3.913 million barrels of oil equivalent per day (boepd).

Output would have risen 5 percent, BP said, if it were not for the production sharing contracts it has with resource-holders, which reduce the amount of oil BP receives from projects when oil prices rise.

BP’s refining and marketing division turned in an unexpected $1.2 billion profit, despite lower crude processing margins and lower throughputs at its refineries.

Many analysts had expected a loss but a strong result from marketing aviation fuel and lubricants helped the company. 

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We noted some time ago that the annual national competitive rankings of the World Economic Forum (WEF), which placed Canada 13th in 2006, were in our view suspect since the survey is not a comparative exercise, but a survey of how business leaders in each country regard local business conditions.

We imagine, for instance, that many Alberta oil executives regard that jurisdiction as being less business-friendly after Premier Ed Stelmach’s increase in royalty rates, but that view, to be meaningful, has to be set against the much higher royalties – and outright expropriation – that is the norm in other oil-producing regions.

In a comparative study of 10 nations released last month, consulting firm KPMG International ranked Canada second only to Mexico in cost-effective places to do business. And last week, Britain’s Economist Intelligence Unit (EIU) put Canada fourth among the world’s most business-friendly nations, trailing Denmark, Finland and Singapore. Australia ranks sixth, the U.S. places 10th.

The WEF’s latest survey puts the U.S. first, 12 nations ahead of Canada, so it’s no surprise that it’s the WEF rankings that are cited by local policy mavens critical of real and perceived weaknesses in Canada’s competitive advantage. But again, all the WEF tells us is that American business leaders think more highly of U.S. business conditions than, say, Finns canvassed by the WEF think of theirs.

It would seem obvious the KPMG and EIU surveys are more accurate assessments of competitive assets and liabilities because they compare tax, labour, bureaucratic and other conditions among countries. But for local critics of Canadian business conditions, such surveys provide the wrong answer, so we expect the WEF survey will continue to be invoked by local critics, even though it isn’t what it’s purported to be.

Down in the depths

When the history of the current global credit crisis is written, it will be noted that relatively low-ranking traders and money managers were jeopardizing the future of immense financial institutions. While the damage from soured U.S. subprime mortgages is remarkably widespread, inflicting malaise worldwide and across investment agencies of all kinds, from banks to brokerages to hedge funds to government-managed pension funds, the three biggest losers have been Citigroup Inc., the U.S.’s largest bank, Merrill Lynch & Co., world’s No. 1 brokerage, and UBS AG, Europe’s largest bank.

In a chilling report released last week on what went wrong at UBS, analyst Peter Thorne of Swiss brokerage Helvea wrote: "The fixed income division [of UBS] was focused on revenue maximization regardless of risk with no limits on balance sheet usage, and bonuses were paid regardless of damage done to the UBS franchise long term."

In the last wave of catastrophic business mismanagement and criminality, we learned that chief financial officers at the likes of Enron Corp., WorldCom Inc. and Tyco International Inc. played a key role as enablers of sophisticated transactions that the CEOs of those firms endorsed but didn’t understand – except that the ploys were going to artificially inflate their stock holdings. So we learned that previously obscure chief financial officers bear watching.

In this new disaster – which got underway just three years after the massive stock-market collapse of 2000-02 – we learn that under-supervised junior staffers can bring near ruination to enormous enterprises such as UBS, which will write off an estimated $37.7 billion (U.S.) for 2007 and 2008. And that senior management, never mind the board of directors, often hadn’t a clue this ultra-risky activity was underway.

By his own admission, Robert Rubin, the Clinton-era U.S. treasury secretary and later vice-chairman of Citigroup, was not aware of the term "collateralized debt obligation," one of the innovative new devices at the centre of the banking meltdown.

Worth repeating

This from Henry Kaufman, the U.S. economist who called the onset of the 18-year bull market that began in 1982: "A longtime advocate of tougher financial regulations that would have prevented the current global credit crisis, tells the UK Financial Times that banks and other financial institutions need to become "too good to fail," rather than "too big to fail." Those now whinging about the U.S. Federal Reserve Board bailout of insolvent Bear Stearns Cos. should re-direct their energies from bashing central bankers trying to save the system after its latest departure from prudence to alchemists at the world’s largest banks and brokerages whose imperfect innovations for turning fool’s gold into the real thing brought the system to its knees."

Where’s our share?

A U.S. federal court has awarded the heirs of Jerome Siegel, who created the Superman character in the 1930s with Toronto native Joseph Shuster, a claim on a share of the U.S. copyright to the superhero from current owner DC Comics, a unit of Walt Disney Co. Shuster, a one-time Toronto Daily Star paperboy who emigrated to Cleveland at age 10, modeled the skyline of the comic strip’s Metropolis on that of Toronto, and the original Clark Kent was a Toronto Daily Star employee. When DC took Superman into international distribution, the Daily Star became the Daily Planet.

Signs of the times

Women with MBAs are twice as likely as their male peers to separate or divorce, according to a study by professor Robin Fretwell Wilson of Washington & Lee University, to appear in a book to which Wilson contributed, Rethinking Business Management. Based on a study of a National Science Foundation survey of more than 100,000 professionals, Wilson also reports that women professionals abstain from marriage at twice and sometimes almost three times the rate of men, depending on the profession … The lengthy Hollywood writers’ strike enabled writer/actress Tina Fey of "30 Rock" and her daughter to enjoy "the maternity leave I never got. She is now able to pick me out of a line-up of four or five women."

This date in history

Born this date in 1926 in Monroeville, Ala., she gained renown for her sole novel, To Kill A Mockingbird.

(Answer, reverse: Eel Reprah.)

Quotable tycoon

"An overburdened, over-stretched executive is the best executive, because he or she doesn’t have the time to meddle, to deal in trivia, to bother people."

–Jack Welch, CEO of General Electric Co. in the 1980s and 1990s

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The stars finally seem to be aligned for a Canadian launch of Apple’s popular iPhone nearly a year after it was first unveiled to lineups of gadget-crazed consumers in the United States.

There have been no official confirmations, but industry sources say that Rogers Communications Inc., the only Canadian carrier with a compatible GSM network, was hoping to include the iPhone as part of a campaign that focuses on "touch screen" phones, to be rolled out between May and July.

That would put one of the world’s most talked-about devices in the pockets of Canadians right around the time that Apple Inc. is expected to roll out an updated version of the iPhone that runs on so-called third generation, or "3G," networks.

It could also mean that the iPhone will be available in rival smartphone-maker Research In Motion Ltd.’s backyard before it is able to unveil its response: a 3G version of its popular BlackBerry email device for GSM carriers that is being dubbed "Meteor."

Shares of Waterloo-based RIM fell nearly 3 per cent or $3.52 to close at $122.25 on the Toronto Stock Exchange yesterday amid reports the anticipated June launch of a new BlackBerry has been pushed back to August.

"Reasons appear to be battery life, voice quality and other issues," said Mike Abramsky, an analyst at RBC Capital Markets, in a note to clients yesterday that cited sources "confirming" the rumours.

A RIM spokesperson declined to comment.

As for the iPhone’s arrival in Canada, a source said Rogers Wireless executives believed they were "close" to inking an agreement earlier this year with Apple, which has used its clout to force significant changes to the standard industry relationship between wireless carriers and handset makers.

That includes the way the iPhone is marketed and sold, as well as a sizeable cut of subscribers’ monthly bills.

However, it’s still unclear whether a deal has actually been reached because neither side is talking.

"We believe it is a phenomenal device and we look forward to being able to offer it to our customers if and when the device becomes available in Canada," said Elizabeth Hamilton, a Rogers spokesperson.

An Apple spokesperson declined to comment.

While Rogers initially said it planned to offer the iPhone in Canada, the carrier was later forced to backtrack after it admitted it didn’t actually have a deal with the Cupertino, Calif.-based maker of iPods and computers.

It has been widely speculated that the stumbling block was Rogers’ wireless data plans, which typically cost more than those offered by carriers in Europe and the United States – a disparity that critics blame on a lack of Canadian wireless competition.

As well, most of Rogers’ wireless data plans have usage caps, with users charged by the megabyte if they go over their allotment.

"We’re not fans of unlimited plans," Rob Bruce, president of Rogers’ wireless division, told analysts during a February conference call.

Apple, by contrast, emphasizes the consumer experience of its products and is said to be adamant that the iPhone be offered with unlimited data plans. That way, subscribers don’t have to worry their mobile Web browsing habits will put a crater in their wallets.

In return, carriers offering the iPhone can expect to woo new customers and coax more of their customer base onto higher-priced wireless data plans. AT&T Inc., which has an exclusive deal with Apple in the U.S., this week reported a 57 per cent year-over-year increase in its wireless data revenues, which was attributed in part to the iPhone and its focus on mobile email and Web browsing.

Apple also demands a portion of subscribers’ monthly bills. That’s bound to be a sticking point with Rogers, which has little incentive to bow to all of Apple’s demands since there’s little risk the iPhone will wind up in a competitor’s hands.

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Defense contractor General Dynamics Corp. said Wednesday that its first-quarter earnings rose nearly 32 percent.

The Falls Church, Va.-based firm said it earned $572 million, or $1.42 per share, up from $434 million, or $1.06. Sales totaled $7 billion, up 11 percent.

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Boeing Co (BA.N: Quote, Profile, Research) reported a greater-than-expected 38 percent jump in first-quarter profit on Wednesday as increased deliveries of its commercial planes offset a dip in military sales, and manufacturing operations became more efficient.

The Chicago-based company, which vies with EADS (EAD.PA: Quote, Profile, Research) unit Airbus in the lucrative jetliner market, kept its full-year profit target unchanged and forecast next year’s earnings in line with Wall Street estimates, despite problems getting its new 787 Dreamliner in the air.

Boeing, which is also the Pentagon’s No. 2 supplier, reported quarterly profit of $1.2 billion, or $1.62 per share, compared with $877 million, or $1.13 per share, a year earlier.

The results easily beat Wall Street’s average earnings forecast of $1.36 per share, according to Reuters Estimates.

Boeing shares rose 2.7 percent to $80.71 in early New York Stock Exchange trading. At Tuesday’s close, they had fallen 27 percent since last July, dogged by 787 delays.

“It’s pretty amazing they beat consensus by 20 percent,” said Paul Nisbet at aerospace specialists JSA Research. “The high rate of operating margin was a big jump — the volume is beginning to pay off. With the high demand for aircraft, they are getting good prices.”

Operating margin at the commercial plane unit jumped nearly 3 percentage points to 12 percent, as Boeing’s massive manufacturing operations became more efficient as the company works through a record order book. Its defense unit operating margin rose slightly to 11.4 percent.

Boeing now has an unprecedented $271 billion worth of commercial planes on its order book, pumped up by a three-year boom in aircraft sales. It also has $75 billion worth of defense orders. 

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You sign a long-term gas and electricity contract, hoping to save money, but promised savings have not materialized.

In the last two years, anyone who signed or renewed energy contracts has paid more than if they had stayed with their local utility.

But if they try to get out early, they’re hit with big penalties.

On Your Side has helped many people get out of contracts without fees because they were older, living on low income or obviously confused about what they signed.

Agata Falkowski-Ham: Her grandparents, both in their eighties with limited English, were paying 40 cents a cubic metre for gas – about one-third higher than the Enbridge Gas price (29 cents).

They were clients of Ontario Energy Savings Corp., which wanted $800 to cancel the contract.

I helped her grandparents get out penalty-free. Then, I went to work for her mother.

A 60-year-old widow, she had signed electricity contracts with two companies – Direct Energy and Universal Energy Corp. – at the same time.

Direct Energy released her, but Universal did not. Spokesperson Jonathan Drummond said the mother had consulted her daughter before reaffirming the contract.

Falkowski-Ham insisted she was out of town and had not discussed the deal with her mother.

Universal agreed to cancel without penalty after getting proof the widow’s only income was $639 a month from a survivor’s allowance.

Juan Molina: He had a contract for gas and electricity with Ontario Energy Savings Corp., but signed new contracts at the door with Superior Energy Management.

OESC asked him to come back and he agreed. That led Superior to impose cancellation charges for the two new contracts.

"I agreed to allow Juan out of his contract (reluctantly)," said Greg McCamus, president of Superior, after I appealed on his behalf. "He seems like he has a lot of financial issues and made a mistake by signing another contract when he had an existing contract in place."

Wendi Maroon: Her mother, 73, had a gas contract with Universal Energy. Later, she signed with OESC when offered lower rates.

Universal Energy charged cancellation fees, but relented.

"If the family provides documentation that Mrs. Maroon was over 70 at the time of signing the contract, UEC will cancel without fee," Drummond said.

The daughter had been told there was no policy of releasing seniors from contracts. She was relieved to hear her mother would no longer get letters from a collection agency.

Whitney Slattery: A first-year college student living in her own apartment, she signed a five-year electricity deal last fall with Superior Energy.

"When I got my hydro bill, it was double its normal cost of about $50," she said. "I called Superior Energy and was told that it would cost me $753 to cancel."

McCamus said the contract and reaffirmation call were done properly, but he would not hold her to the deal.

"She is so agitated and obviously confused and frustrated that I don’t know if she is capable of understanding our offer," he said after listening to her calls.

Remember you have a choice. You can say no to energy sellers at the door. If you can live with floating prices, you may pay less with your utility – and you won’t get penalized if you want to end the relationship.

Write to onyourside@thestar.ca or visit www.ellenroseman.com

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Stephen O’Hara, Angelica Corp.’s president and chief executive, was paid $461,966 in 2007, according to Post-Dispatch calculations.

O’Hara’s base salary was $425,000, and he received $36,966 in other compensation, such as 401(k) matching contributions and restricted stock, the Chesterfield-based company said in a regulatory filing.

Angelica provides linen management services to health care institutions. No executive received a performance-based incentive award, even though Angelica has an incentive compensation plan based on "the achievement of financial and strategic" performance goals for each officer and overall financial goals for the company.

Angelica put itself up for sale in 2007. If the company had been sold and O’Hara remained under a new owner, he would have received about $1.1 million. If he were fired after a change in control, he would have received more than $3.8 million.
Ronald Kruszewski, who replaced O’Hara as chairman of the board in September, earned $19,000, plus stock awards and dividend payments.

The Post-Dispatch excludes unvested stock awards and unexercised option grants so actual money received, not potential earnings, is reported.

— ANGELA TABLAC

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Health products maker Johnson & Johnson reported a 40 percent jump Tuesday in its first-quarter profit, due to higher sales of consumer products, favorable exchange rates and a research charge a year ago.

The New Brunswick, N.J.-based maker of contraceptives, medical devices, baby care items and prescription drugs reported net income of $3.6 billion, or $1.26 per share, for the first three months of the year, up from $2.57 billion, or 88 cents a share, a year ago.

Revenue rose 7.7 percent to $16.19 billion from $15.04 billion a year earlier.

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WASHINGTON — Rigorous airline maintenance audits recently ordered by federal regulators are likely to yield the most headaches for travelers flying Northwest, American and United airlines.

Those carriers have the oldest fleets, on average. The older the jet, the more likely it requires time-consuming, and potentially flight-grounding, government-ordered inspections, analysts and regulators agree.

"Older planes will usually have more (airworthiness directives) simply because they’ve been around longer," said Federal Aviation Administration spokesman Les Dorr.

Northwest Airlines Corp.’s fleet of roughly 350 planes has the oldest average age at nearly 18 years old, followed by AMR Corp.’s American Airlines at 15 years, and UAL Corp.’s United Airlines at 13, according to the companies’ most recent annual reports.

"We don’t have any concerns related to the age of the fleet," said Northwest spokeswoman Tammy Lee, adding that the carrier is retiring about 10 of its oldest aircraft this year.

Northwest is well positioned to pass the current review, having gone through a rigorous FAA maintenance oversight process after a mechanics strike in 2005, Lee said. Showing compliance with this FAA audit is "a voluminous process … (but) a procedural issue and record-keeping issue," she said.

Reports of shorted wires, evidence of worn-down power cables, and fuel system reviews conducted by the manufacturer, Boeing Co., led to the airworthiness directive on the MD-80 aircraft that were grounded last week by American, Alaska Airlines and other carriers, inconveniencing hundreds of thousands of travelers. That government order carried an effective date of Sept. 5, 2006, and airlines had 18 months to comply.

The first round of FAA audits over a two-week span last month _ prompted by revelations that Southwest Airlines Co. flew dozens of planes that had missed inspections — checked 10 airworthiness directives that apply to each carrier’s fleet. The second phase, which runs through June 30, will check 10 percent of the orders that apply to each airline’s fleet.

American, which operates many different aircraft, said it was working to comply with about 180 different directives, according to its annual report filed in February. Northwest and United did not specify the amount. The FAA does not have an accurate count of how many apply to each carrier’s fleet, Dorr said.

"We have no concerns about the age of our fleet in regards to maintenance," American spokesman Tim Wagner said in an e-mail Friday. "Our only concern about the age of our fleet, our MD-80s in particular, is that they are less fuel efficient than some of the more modern airplanes," which is why the carrier is taking delivery of some new Boeing 737-800s earlier than expected.

The nation’s largest carrier canceled another 200 flights Saturday morning before returning all of its 300 grounded jets to service, bringing the total number of cancellations last week to nearly 3,300. The average age of American’s MD-80s average 18 years old, Wagner said.

To be fair, flying on U.S. airlines has never been safer. The last U.S. crash of a jumbo jet was in November 2001, when an American Airlines flight plummeted into a New York City neighborhood, killing 265 people.

"We don’t have old planes in the air," said Harlan Platt, a finance professor at Northeastern University in Boston who follows corporate turnarounds. The age of plane refers to the fuselage, while most of the parts are replaced every three to seven years, he added.

But as government scrutiny of safety procedures rises, flight delays and cancellations could get worse, particularly for carriers with older fleets, said Bob Harrell of New York-based travel and aviation consulting firm Harrell Associates. About 35 percent of the U.S. fleet is more than 25 years old, according to the International Air Transport Association.

United last month said it will ground and sell back to lessors 15 to 20 older aircraft that are less fuel-efficient than others in its 460-plane fleet. Megan McCarthy, a spokeswoman for the nation’s second largest carrier, said Friday, "Our primary responsibility is the safety of our customers and our employees, and there is no obligation we take more seriously."

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So, you want to open a discount brokerage account and manage your own investments.

Which discount broker do you choose? How do you compare them all?

Luckily, you can find a wealth of Canadian information online.

You can start your virtual tour with Surviscor, a consulting firm that regularly reviews and ranks the discount brokerages.

Its winter 2008 survey, posted at www.surviscor.com, compares 16 online brokers operating in Canada.

As well as overall rankings, there are separate rankings for investors and traders. This recognizes they have different needs.

Credential Direct, owned by Canada’s credit unions, gets the top score for catering to investors (7.59 out of 10).

It’s followed by BMO InvestorLine (6.85), Qtrade (6.56), National Bank Direct Brokerage (6.42) and TD Waterhouse (6.37).

Your next stop is the Stingy Investor website. (Go to www.ndir.com and search for Canadian discount brokers). It’s run by Norm Rothery, chief investment strategist at Dan Hallett & Associates Inc.

Here you can find up-to-date comparisons of the fees and commissions charged by 15 Canadian online brokerages (as well as phone numbers and email addresses).

What you pay usually depends on how many trades you make per quarter or year, how many shares you buy at a time and how many dollars you have in assets at the firm.

In the past year, most discount brokers have introduced lower fees for active traders. That’s the good news.

But many brokers also charge penalties – called maintenance fees – for inactive traders, especially those with smaller accounts. So, watch out and ask questions.

The Stingy Investor doesn’t rank discount brokers. But when you read its listings, one firm stands out for simplicity and low fees.

Questrade charges one cent a share, $4.95 minimum to $9.95 maximum, and calls this "democratic pricing."

Maybe you want to hear about other investors’ online trading experiences.

You want to eavesdrop on their conversations.

Thanks to a proliferation of Canadian personal finance blogs, you can have access to other people’s experiences and opinions. But you do need to exercise judgment.

Start with CanadianCapitalist.com, one of the longest-running and active personal finance blogs. Scroll down the right hand side to Categories, then find Investing and Discount Brokers.

You’ll find out why this blogger went to Questrade for rock-bottom trading commissions and then returned to TD Waterhouse to consolidate all his accounts with one broker.

Another blog worth an investment of your time is Million Dollar Journey, which has a chart comparing eight Canadian discount brokers (www.milliondollarjourney.com).

Besides fees and commissions, he looks at such factors as: What is the margin rate? Can you get real-time quotes free? What is the minimum required to open an account? Is there a maintenance cost? How much interest is paid on cash? Can you use a dividend reinvestment plan? What is the foreign exchange fee or spread charged?

This blog also publishes reviews of individual brokers and critical comments from readers.

"It took a total of 5.5 weeks for my RRSP to get transferred from Tradefreedom to Questrade," says one investor. "I saw that my RRSP positions were incorrect. I’m pretty frustrated with the overall experience."

In case you think it’s all one-sided, you can find responses from Lynn Suderman, communications manager for Questrade, to some of this negative feedback.

Next week, we’ll look at how to put together a portfolio of exchange-traded funds that needs little oversight or supervision.

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