Financial life in a big town

NEW YORK – Oil prices hit a six-month high today, climbing above US$62 a barrel after a government report showed a drop in U.S. oil supplies for the second straight week.

Benchmark crude for July delivery rose $1.94 to settle at $62.04 a barrel on the New York Mercantile Exchange. Crude prices jumped to $62.14 earlier in the day, the highest price for crude since Nov. 11.

In London, Brent prices increased $1.67 settle at $60.59 a barrel on the ICE Futures exchange.

Crude stockpiles dropped by 2.1 million barrels for the week ended May 15, according to the U.S. Energy Department’s Energy Information Administration. Gasoline inventories dropped by 4.3 million barrels.

That was a bigger decline than analysts had expected, especially for gasoline.

One of the main drivers this year for energy prices has been the enormous amount of crude and gasoline in storage. Recently, benchmark crude prices also have been heavily influenced by the stock market and the strength of the U.S. dollar.

A number of other issues, from fires at refineries, to falling inventories, to the first big driving holiday of the year, are sending gas prices upward.

Retail gasoline prices have risen every day this month.

"If you mix that with fires at refineries this week, and the optimism that’s in the equities markets right now, you have the ingredients for a rally" in energy prices, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service cheap business cards.

Still, oil supplies remain at 19-year highs as Americans cut back on spending. For weeks, government data has shown that the country’s consumption of petroleum products has dropped to its lowest levels in a decade.

At the pump, gas prices added two cents overnight to a new national average of over $2.334 a gallon today, according to AAA and the Oil Price Information Service. Gas is 27.6 cents a gallon more expensive than a month ago, but it’s $1.466 a gallon cheaper than last year.

Kloza said he expects gas prices to continue to climb near $2.40 just before Memorial Day weekend as a drop in refinery activity forces pump prices higher.

In Canada, the price at the pump averaged 97.2 cents Canadian per litre, up from 90 cents a month ago, but down from $1.30 a litre last year.

In other Nymex trading, gasoline for June delivery fell less than a penny to settle at US$1.8095 a gallon and heating oil rose 5.45 cents to settle at $1.5411 a gallon. Natural gas for June delivery added 6.8 cents to settle at $4.098 per 1,000 cubic feet.

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The Toronto stock market came back from last week's steep loss to surge more than 300 points Tuesday on growing conviction that the spring rally still has momentum.

The main index was helped upward by oil prices topping US$60 a barrel for the first time since November.

New York equity markets were subdued after big gains Monday. A disappointment in housing construction numbers cancelled out a positive earnings report from Home Depot.

Toronto's S&P/TSX composite index gained 338.10 points to 10,100.95. That erased a good chunk of last week's 4.6 per cent decline, which had come as traders took profits from a rally that boosted the composite index by more than 30 per cent.

"We're into the third month of a very powerful rally – this could go on for months," observed Paul Thornton, investment adviser at Global Maxfin Capital.

"This is going to be driven higher by the enormous amounts of cash that have been on the sidelines – people are afraid of missing this rally and the institutions have been big buyers."

The TSX energy sector advanced 5.5 per cent as the June crude oil contract gained 58 cents to US$56.61 a barrel on the New York Mercantile Exchange, after surging up US$2.69 on Monday. With the June contract expiring Tuesday, most traders focused on the July contract, which rose 51 cents to $60.10.

The TSX Venture Exchange rose 13.4 points to 1,076.49 while the strong performance on equity and commodity markets energized the Canadian dollar, which ran up 1.67 cents to 86.48 cents US.

"As a result of the reduced risk aversion that's present in the markets, the Canadian dollar has been one of the primary beneficiaries, and that's been the main catalyst for this move," said George Davis, chief technical analyst at RBC Capital Markets.

New York's Dow Jones industrial average finished 29.23 points lower to 8,474.85 after charging ahead 235 points Monday, while the Toronto market was closed for Victoria Day.

The Nasdaq composite index was ahead 2.18 points at 1,734.54 while the S&P 500 index slipped 1.58 to 908.13.

U.S. markets had charged ahead Monday on word of strengthening confidence among homebuilders, but on Tuesday the Commerce Department said residential construction plunged 12 paydayloans.8 per cent in April to a record low, as a steep drop in apartment activity offset a rebound in single-family construction. Permits for new projects also hit a new low.

Economists had expected modest increases, and say the housing market has to stop its slide before America can recover from the recession.

"With the U.S. labour market continuing to weaken at a fairly dramatic pace and the inventory of unsold homes continuing to weigh heavily on new residential construction activity, a sustained recovery in this segment of the U.S. housing market is unlikely to come for some time," commented TD Securities strategist Millan Mulraine.

Meanwhile, Canada Mortgage and Housing Corp. predicted housing starts will decline to 141,900 this year but increase to 150,300 in 2010 as the economy recovers, bringing housing starts more in line with demographics.

On the TSX, the base metals sector ran ahead 7.25 per cent with Teck Cominco Ltd. (TSX: TCK.B) ahead $1.32 to $15.60 and Lundin Mining Corp. (TSX: LUN) advanced 36 cents to $2.70.

The day's 5.5 per cent gain in the oil sector came as EnCana Corp. (TSX: ECA) rose $2.38 to $61.61 and Suncor Inc. (TSX: SU) gained $1.41 to $35.08.

The financial sector rose 3.7 per cent. Royal Bank (TSX: RY) climbed $1.52 to $43.46 and Scotiabank (TSX: BNS) advanced $1.26 to $36.26.

The Toronto gold group was ahead almost one per cent as the June bullion contract in New York rose $5 to US$926.70 an ounce. Goldcorp Inc. (TSX: G) improved 64 cents to $39.65.

"We're seeing a runup now that is both a technical response from the bottom and also the expectation of recovery towards the end of the year or early next year in the economy overall, especially out of China," said Global Maxfin's Thornton.

In New York, Home Depot Inc. fell $1.39 to US$24.63 even as the No. 1 home improvement chain posted stronger-than-expected results. Its first-quarter earnings rose 44 per cent as the company booked fewer charges, and management reiterated its profit forecast for the year. A solid report from rival Lowe's had propped up American markets Monday.

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Back when the U.S. economy was humming, hip American teens would happily fork over chunks of their allowance money to sport their Abercrombie & Fitch Co and Hollister logos.

How times change. In recent quarters, stubbornly high price tags have scared off recession-weary customers. Sales have spiraled downward as executives have staunchly defended pricing to safeguard Abercrombie’s cachet.

Now, after revealing a wider-than-expected loss Friday, the retailer is finally caving in to pressure from a Wall Street investment community impatient for sales to rebound.

Chief Executive Mike Jeffries acknowledged a consumer price-consciousness “unlike anything I have ever seen.”

Abercrombie also signaled it may be open to shedding its underperforming Ruehl chain of stores catering to twentysomethings.

Such a rethink on price and the viability of its Ruehl arm — the company also operates the surf-inspired Hollister chain and the abercrombie chain for children — is welcome and long overdue, analysts say.

Wall Street would have to wait until 2009’s latter half for confirmation that the changes would drive sales, but some analysts said turnover had hit a trough in the first quarter.

“The company is taking steps in the right direction to fix the ship,” said Jefferies analyst Randal Konik, who rates the stock a “buy.” “That will likely have a beneficial impact for back-to-school” sales.

But shares were down more than 4 percent on Friday as first-quarter cost-cutting efforts, including a sharp inventory reduction, could not offset sales that tumbled by nearly a quarter bad credit pay day loans. A net loss of 31 cents per share was below the Wall Street consensus view of 12 cents.

Despite the lower-price pledge, Abercrombie will not embrace hefty discounts showcased by many rivals. Whereas shoppers at Aeropostale Inc and American Eagle Outfitters Inc stores are greeted by signs for 2-for-1 offers or other specials, Abercrombie plans to simply lower the initial ticket price on some of its offerings with little fanfare.

“It’s important they are going to accomplish that (lower prices) by ticket price versus being promotional,” said Needham and Co analyst Christine Chen, adding that lower vendor costs will offset the hit to profit margins.

Konik sees a buying opportunity. Abercrombie stock is valued at 18 times estimated 2010 earnings, in line with American Eagle, though at a premium to Aeropostale’s 12.

WHEN NAKED ISN’T ENOUGH

Changes will be most apparent at Hollister and Abercrombie chains, which compete with lower-priced rivals.

“Management sent a strong statement that they are reacting to the current pricing environment and are willing to take the necessary steps to drive the top-line,” wrote Credit Suisse analyst Paul Lejuez, who rates shares “outperform.” 

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There are 62 low-rate credit cards on the market but Canadians are having a difficult time weighing their options, critics say.

Consumers interested in doing some comparison shopping are often encouraged to consult the website of the Financial Consumer Agency of Canada. The agency was set up in 2001 by the federal government to bolster financial literacy.

And while the FCAC offers reams of data, some key pieces of information are missing from its comparison tables on low-rate credit cards. For instance, not all financial institutions disclose the minimum personal income required to qualify for their product.

"There’s definitely problems with that process," Liberal Senator Pierrette Ringuette said.

FCAC spokesperson Sylviane Desparois concedes gaps exist because the agency relies on voluntary disclosure from lenders. It’s a "starting point" for consumer research, she said.

The agency does offer consumers some advice. It notes there are different types of low-rate cards. Some are specifically designed for students but there are also many low-rate versions of standard, gold and platinum cards.

"These cards usually have an annual fee, but they could be beneficial considering that their annual interest rate is around 12 per cent," says the FCAC. "Other credit cards have interest rates ranging from 16 to 28.8 per cent."

Above all, consumers should ensure the potential interest savings outweigh the annual fee, Desparois said instant payday loan.

The Consumers’ Association of Canada, however, points out one other caveat. Consumers who are late on paying their bills may suddenly find their rate jumps, said spokesperson Mel Fruitman.

"My impression is that the low-rate cards are more of a marketing come-on than they are a reality," he said. "Yeah, they do exist. But the rules attached to them are such that if you are tight one month and can’t make your full payment, you’re finished."

Critics also suggest that low-rate cards are likely limited to higher-income earners or the most-creditworthy clients. That’s because banks do not release data about the number of low-rate cards they issue, versus the number of applications they receive in any given year.

The Canadian Bankers Association has no statistics on the number of Canadians with low-rate cards. In 1997, they represented about 7 per cent of the active cards issued by participating banks, according to federal government transcripts. The average interest rate at that time was about 9.35 per cent.

Those records – from the Standing Committee on Industry’s study of credit-card interest rates – also suggest that some banks turned down about 50 per cent of their low-rate applicants at that time. Banks began offering the products in the early 1990s.

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Miner Rio Tinto remains committed to a planned $19.5 billion tie-up with Chinese metals firm Chinalco, it said, responding to talk that the deal may be revised to let more shareholders take part in a rights issue.

The latest endorsement of Chinalco, already Rio’s largest shareholder, also comes amid speculation the Australian government could demand revisions, or kill the deal under foreign investment guidelines because Chinalco is state-owned.

Rio Tinto shares closed 7.4 percent higher at A$61.88 in Sydney Friday, recouping some of a previous heavy slide on market talk it might renegotiate the most controversial part of the deal — a $7.2 billion issue of convertible bonds to Chinalco.

London shares, which have surged 77 percent this year, gained 2.78 percent to 2,666 pence by 4:21 a.m., in line with the UK mining index.

Speculation had focused on whether Rio would tweak the bonds issue to make it available to all Rio shareholders, not just Chinalco, or on whether the deal could be scrapped and another strategic investor brought in, perhaps rival miner BHP Billiton

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“The company remains committed to delivering this strategic partnership,” Rio Tinto said in response to a query from the Australian stock market over the movements in its share price.

The deal as it stands would double Chinalco’s Rio stake to 19 percent poor credit personal loans.

POSSIBLE REVISED DEAL

The Australian Financial Review newspaper said Friday Chinalco would consider changing the terms of the convertible bonds, but was adamant the other major element of the tie-up — $12.3 billion in direct investments in key Rio mining assets — should remain as agreed in February.

Citing no sources, the business daily said Rio Tinto’s director of strategy, Doug Ritchie, was believed to have visited Chinalco officials last week to discuss investors’ opposition to the deal and possibly to revise the terms of the bond issue.

Chinalco President Wang Wenfu was believed to be pragmatic over the price of the notes, the newspaper added.

Analyst Michael Rawlinson at Liberum Capital in London said Australia’s Foreign Investment Review Board (FIRB) might provide the opening for a rejigged deal.

“If Chinalco can renegotiate, how to do so without losing all important face? One renegotiation driver could be the FIRB,” a note said.

“Waiting until the FIRB has put in some conditions on a deal could allow the two sides to re-cast a deal that addresses both shareholder and FIRB issues.” 

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NEW YORK — Advanta Corp., a credit card lender to nearly 1 million small businesses, will close all its cardholders’ accounts next month in a last-ditch effort to stem losses.

Analysts said the move adds to already growing concerns that the company might not be able to survive. And while other card issuers won’t likely fall into Advanta’s situation, analysts said, worries remain that they might decide to cut credit lines further on small businesses.

"Advanta’s problems call into question the business model at the end of the day," said Keefe, Bruyette & Woods card industry analyst Sameer Gokhale. "Are these really small-business cards, or just consumer cards with really high credit lines?"

As of late March, Advanta wrote off about a fifth of its credit card debt as unrecoverable.

In anticipation of losses escalating further, Advanta said late Monday that on June 10 it will shut down all accounts. June 10 is when Advanta will offer to pay off investors who hold securities backed by its cards — a type of payout known as an "early amortization" of a trust. This way, Advanta said, the company can "maximize its capital and its liquidity measures."

It is the first early amortization of a trust since First Consumers National Bank’s in 2003, said JPMorgan structured finance analyst Christopher Flanagan cheap car insurance.

Advanta is offering holders of its card-backed securities between 65 cents and 75 cents on the dollar. Flanagan said it is unlikely investors will accept the deal, which could put Advanta in an even more precarious position.

Advanta’s business relied on this trust as a means of funding, he said. "The question now is, do they want to fund it, say, through deposits? Or are they just not going to stay in business?"

The company, based in Spring House, Pa., started out as a lender to teachers in 1951 and by 2001 was concentrating solely on credit cards to small businesses. It became the largest card issuer focused on small-business customers.

When the economy began sliding in late 2007, missed payments started climbing. Not only was Advanta’s customer base mostly small businesses, which tend to have much higher credit lines than the average consumer, but a quarter of its receivables came from California and Florida. In those two states, popular among small businesses, real estate values fell sharply.

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ABINGDON, Va. — Alpha Natural Resources will buy Foundation Coal for about $1.4 billion, the companies announced Tuesday, creating one of the nation’s largest coal producers.

Foundation shares jumped 27 percent in premarket trading, or $6.26, to $29.50. Alpha shares fell 34 cents to $28.52.

A number of large coal companies have said that they are scouting for acquisitions, including Alpha, as the industry wrestles with weak demand.

The all-stock buyout of Foundation, assuming $530 million in debt, is valued at about $2 billion by the companies. The combined company would have had pro forma revenue of $4.2 billion last year.

The companies would control 59 coal mines and 14 preparation plants and have combined reserves of more than 2.3 billion tons of coal, making the combined entity the nation’s third largest producer.

Alpha, based in Abingdon, Va., was itself the target of a takeover last year, but the proposed $2.7 billion offer by Cliffs Natural Resources was scuttled in November as the recession worsened.

Not even a month later, Alpha warned that the slowing economy could shave as much as $95 million from 2009 profits.

Nearly all the major coal companies, from St online instant cash advance. Louis-based Peabody Energy Corp. to Massey Energy, have cut production estimates for this year.

Alpha is attempting to expand operations and potentially cut costs.

Shareholders of Foundation Coal Holdings Inc. will receive 1.084 shares of the new company for each share held, or about $32.73 per share. That price is a premium of 41 percent over Foundation Coal’s closing price Monday.

Alpha shareholders will own about 59 percent of the new business, which will be based in Abingdon. Foundation is currently based in Linthicum Heights, Md., just outside of Baltimore.

Michael Quillen, Alpha’s chairman and CEO, would become chairman and Alpha’s president, Kevin Crutchfield, would be chief executive officer. Kurt Kost, Foundation’s president and chief operating officer, would become president of the combined company. James Roberts, Foundation’s chairman and CEO, would be a member of the combined company’s board of directors, which will consist of six directors from Alpha Natural Resources Inc. and four directors from Foundation.

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Your boss summons you to her office, informs you your services are no longer needed and hands you a severance package.

That’s the stomach-churning situation many Canadians are suddenly facing as struggling companies slash their workforces to ride out the recession.

Net job losses across the country have totalled 321,000 since October, pushing the unemployment rate up to 8 per cent, a seven-year high. Even though employment increased in April, most economists think the carnage isn’t over.

That’s why it’s more important than ever that workers who lose their jobs make sure they get the best severance package they can. After all, there is no guarantee of finding a new position quickly in a weak labour market, so the money may have to last a while.

The first thing to remember is not to argue with your boss about letting you go. "By that time, the company has made the decision. There’s really no point in trying to convince them to let you keep your job," said Stuart Rudner, a partner in the labour and employment group at Miller Thomson LLP.

Even more important, don’t sign anything right away, Rudner said. Take the proposed severance package home with you and ask a lawyer who specializes in employment law to review it.

"I can’t stress that enough. I know too many people who have gone to their cousin who practices family law, or their good friend who does tax law," said Rudner.

"You really should see someone who specializes in this area and will be able to look at a package and in five minutes tell you if it’s fair or not."

What is fair depends on a whole range of factors.

The provincial Employment Standards Act sets out minimum standards for termination notice or pay in lieu of notice, and severance pay. But under the common law, many workers are entitled to more than the statutory minimums. The amount will depend on your circumstances, including your length of service, age, the nature of your job and whether you were induced to leave a previous position, Rudner said.

That’s assuming you didn’t sign an employment agreement when you were hired that set out your severance entitlements cash advance. Those entitlements cannot be less than the statutory minimum, but such an agreement may stipulate that the minimum is all you can collect, Rudner said.

Details about the Employment Standards Act can be found at the Ontario Ministry of Labour’s website: labour.gov.on.ca.

If an employment lawyer tells you the package you have been offered is inadequate, the next step is probably to go back and try to negotiate a better one.

"It is very rare that employers offer what they think is their best offer in their first severance offer," said Lior Samfiru, an employment lawyer with Samfiru Tumarkin.

"It is almost expected that employees will try to negotiate a better package, and if employees don’t do that, they often leave on the table some significant entitlements."

Samfiru sees several people a day who want him to look over their severance packages. At least 75 per cent of the packages he reviews are inadequate, he said.

If asking for more doesn’t get you anywhere, your lawyer can send a letter to the company to try to negotiate a better offer on your behalf.

And don’t worry if you go past an employer-imposed deadline.

"I invariably have people calling me Thursday afternoon, saying, `Can I meet you right away? My package expires tomorrow,’" said Samfiru. "What I always tell them is `Don’t worry, your legal rights don’t expire Friday at 5. Your legal rights are what they are. You’re either entitled to something or you’re not entitled to something.’"

Employees who are let go have a duty to mitigate their damages, Rudner said. In other words, be prepared to start looking for another job and document your efforts just in case you can’t negotiate an acceptable severance package with your employer and you wind up in court.

And remember to request a letter of reference. You’ll need all the help you can get to compete for scarce jobs in one of the toughest markets in years.

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New applications for jobless benefits plunged to the lowest level in 14 weeks, a possible sign that the massive wave of layoffs has peaked. Still, the number of unemployed workers getting benefits climbed to a record.

Retail results also improved as discounter Wal-Mart Stores Inc. and other stores reported April sales figures that beat expectations. Analysts acknowledged the positive economic signals but cautioned that any recovery will be subdued as long as unemployment stays high.

The Labor Department reported Thursday that the number of newly laid-off workers applying for benefits dropped to 601,000 last week. That was far better than the rise to 635,000 economists expected.

But the total number of people receiving jobless benefits climbed to 6.35 million, a 14th straight record.
The four-week moving average of initial jobless claims, which smooths out volatility, totaled 623,500 last week, a decrease of more than 30,000 from the high in early April americashadvance. Goldman Sachs economists have said a decline of 30,000 to 40,000 in the four-week average is needed to signal a peak.

Meanwhile, retailers’ business last month was helped by warmer weather, tax refunds and a shift in the Easter holiday, helping Wal-Mart and many mall clothing chains post better-than-expected results.

But analysts expect a drawn-out recovery as unemployment remains high.

In a separate report, the government said productivity, the key to rising living standards, grew at a 0.8 percent annual rate in the quarter, better than expected.

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U.S. car maker General Motors Corp is eyeing a stake in Fiat SpA’s car business in exchange for its European and Latin American operations, the New York Times reported on its website.

As part of a massive restructuring to stay in business, GM is in talks with the Italian company about the sale of the U.S. car maker’s German unit, Opel, which could eventually lead to plants being shrunk across Europe, according to a German newspaper.

GM wants at least 30 percent of Fiat’s car business, known as Fiat Group Automobiles, the New York Times said, citing people close to the negotiations.

Fiat Chief Executive Sergio Marchionne, meanwhile, is willing to give up less than 10 percent, the people said.

GM sees its Latin American business as a bargaining chip because it is profitable. The biggest market in the region, Brazil, is also important for Fiat because it is responsible for nearly all of the profit earned at its car business.

A Fiat spokesman declined comment, while GM could not be immediately reached for comment by Reuters.

Fiat shares were off 0.76 percent at 7.825 euros in Milan.

Fiat is also trying to survive an industry crisis by building up scale rather than selling assets. It entered talks to take over Opel soon after agreeing to form a partnership with Chrysler LLC free credit report.

Marchionne told Bloomberg on Wednesday he would become chief executive of Chrysler if the U.S. car maker manages to come out of bankruptcy.

If he reaches a deal with GM to take over Opel, it might eventually spin off the combined car group and list it on a stock exchange.

The latest newspaper report on Fiat’s plans for a combined group in Europe said it would shrink plants across the region.

Citing a 46-page proposal codenamed Project Phoenix, Germany’s Handelsblatt said on Thursday Fiat would shrink factories in Britain, Italy and Germany.

In addition to GM’s Latin American business, Fiat was interested in the one it had in South Africa, it added.

GM is running due diligence on about 10 bidders for Saab, after the first round of bids for the Swedish brand attracted Chinese automakers, European investor groups and private equity firms, a source familiar with the matter told Reuters on Wednesday.

Although Fiat did not figure in the first round, it has expressed interest in the brand.

(Reporting by Ajay Kamalakaran in Bangalore; writing by Gilles Castonguay; editing by Karen Foster and Rupert Winchester)

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