From trouble with securities regulators, to a failed high-stakes attempt to shake up the board at Wall Street giant JP Morgan Chase & Co. and a rising chorus of complaints they wield too much power — shareholder proxy firms appear to be under attack. Are these revered investor warriors losing their power to influence boardrooms and critical votes such as takeovers? Advisory firms meekly concede ‘maybe’, while the corporate community resoundingly says ‘no’. Securities watchdogs in the U.S. and Canada may be hovering, but predictions of the industry’s demise are premature.

True, JP Morgan held off two prominent proxy advisory firms Institutional Shareholder Services (ISS) and Glass, Lewis & Co. this week. The firms urged the investment bank’s shareholders to vote against the re-election of three board members linked to the questionable “London Whale” trades. More notably, the proxy firms demanded Jamie Dimon be stripped of his dual roles as chairman of  JP Morgan’s board of directors and as CEO. To the astonishment of many, the proxy firms failed to unseat Dimon and the directors at the firm’s annual meeting on May 21. After the high-profile beat down, a senior Glass Lewis official lamented to the Wall Street Journal that “our power is probably shrinking a little bit.”

Tongues were clucking again two days later when ISS settled civil charges with the U.S. Securities & Exchange Commission in connection with activities of a former employee. The person in question violated financial advisor rules by disclosing material information over a five-year period to a proxy solicitor about how more than 100 ISS clients were planning to vote on important issues, such as executive compensation and board appointments. It’s the first time enforcement action was taken against a proxy firm.

For many on Wall Street, that breach was a glaring example of the unfettered power of shareholder advisory firms, who have the ability to move at least 10% of corporate voting in the U.S., and yet operate with little supervision and oversight. “I would never describe their influence as waning,” says Andrew MacDougall, a partner at Toronto law firm Osler Hoskin & Harcourt LLP.

Since ISS was founded in 1995, proxy advisory firms have become a critical staple for shareholders, providing objective recommendations to help them assess corporate material. For large institutional investors, money managers and pension funds the research is a sober second thought typically used in conjunction with their own reviews. For smaller investors, such as mutual fund companies trying to keep expenses at a minimum to compete for clients, proxy research is a cost-effective way to avoid the huge expense of tracking hundreds, even thousands of proxies that land on their desks, usually at the same time.

Evidently, it’s a service that provides value. Consider that today ISS has 1,700 clients that manage about US$25-trillion in assets worldwide while Glass Lewis, founded in 2003 and owned by the Ontario Teachers Pension Plan, boasts more than 900 institutional investors overseeing more than US$15-trillion around the world. With that kind of clout, is it any wonder proxy battles are on the rise in Canada and the U.S.?

Ultimately, the goal of proxy advisory firms is to get expert information into as many hands as possible to ensure more shareholders have a voice at the corporate table. However, companies don’t see it that way. They see an industry with unrestricted power that needs to be reined in with greater oversight, more transparency, accuracy and fewer conflicts of interest.

Regulators have circled the industry before. In 2010, the SEC solicited comments from the public about possible new regulations, but nothing has happened since. The same is true in Canada. Last year, the Canadian Securities Administrators, the umbrella group of the country’s 13 provincial and territorial securities regulators, issued a consultation paper. The CSA asked for submissions on how to deal with concerns about potential conflicts of interest, a perceived lack of transparency regarding how proxy firms formulate their recommendations and potential inaccuracies in their reports. So far, no policy guidelines have emerged.

That may not be a bad thing. “Regulation is a clumsy solution and would probably work to blunt the influence of investors’ views on governance. We’d be better served by having investors more fully considered in the boardroom,” says Alexander Dyck, a professor of finance and business economics at the Joseph L. Rotman School of Management at the University of Toronto. “Let’s be careful about using a cudgel to resolve a small problem.”

Meanwhile, some companies are aggressively pushing back, dispatching top managers and board members to reach out and consult with investors in the hopes of offsetting the recommendations of the proxy firms. That’s what happened at JP Morgan. For now, that tactic is the exception, not the rule, especially in the U.S.

The proxy advisory industry may be imperfect, but the research is empowering. Besides, it’s not as if they are reflexively knee-jerk contrarians: proxy firms tend to side with companies 85% of the time. Furthermore, if the research is found wanting, no one will buy it. Obviously, the market has spoken.

OTTAWA — On the second day of his job in the Bank of Canada’s research department, a summer intern was surprised when his boss pulled a one-dollar bill out of his pocket and proclaimed: “I’ll be signing these things one day.”

That was in 1982.

Today, that former intern is well-ensconced in the Finance Department, and wishes to remain anonymous behind those institutional walls. Not so for his former boss — Stephen Poloz — who has remained in the public-private glare for much of the past 30-odd years, and who is about to fulfill his career-long dream.

Mr. Poloz, the governor-designate of Canada’s central bank, takes over from Mark Carney on June 3. It is only a matter of time — likely about a year — before another print run of the new polymer notes will, at last, feature his signature.

The brash style displayed by a younger Mr. Poloz that day in 1982 may have diminished somewhat with time, but colleagues along the path to his self-sworn destiny say he has never lost the drive.

Mr. Poloz — now 57 and currently head of Ottawa-based credit-agency Export Development Canada — has been uncharacteristically mum about the new job since his appointment was announced May 2 by Finance Minister Jim Flaherty.

But those who have worked with Mr. Poloz — directly or otherwise — make no secret of his determination, his abilities and his aspirations. Many use words like “smart” and “accessible” to describe him. Others say he is an “average guy” with above-average talents.

“Steve is very focused,” says Peter Hall, who inherited the EDC chief economist’s job from Mr. Poloz, and who has worked with him at the Crown agency for a dozen years.

“You could get a picture of somebody who is determined to meet their goals and is willing to crawl buck-naked over broken glass to achieve everything. And that’s just not Steve,” he says.

“You can’t be that kind of person and be as enabling of a boss or leader as he has been and achieve those kind types of things. Steve is very clear on what he wants and needs, but that’s not to the exclusion of the wants and needs of those around him as well.”

Phil Taylor, EDC’s corporate spokesman, who has been part of Mr. Poloz’s team for nearly 10 years, says: “I’m really happy for him because he has wanted this for a very long time. It’s a thrill to see him get there.”

Much of his time with Mr. Poloz has been spent on the road, meeting business leaders across Canada.

“I got to know him pretty well,” says Mr. Taylor. “I would say Steve is always the smartest guy in the room — and I mean any room. He covers off all the angles.”

On the work front, his focus “is definitely productivity, which isn’t longer [hours]. That has never been his thing. It’s just working smarter.”

Steve is always the smartest guy in the room — and I mean any room. He covers off all the angles.

Mr. Hall adds that the incoming BoC governor “has a unique ability to see potential in others that they don’t see even in themselves.”

“He’s an ideas machine, himself . . . and that forces people to think and to think about things in new ways,” he says. “It’s a trend that transcends the different levels of an organization.”

The Bank of Canada will take the public wraps off Mr. Poloz gradually over the coming weeks. Not surprisingly, he did not accompany outgoing governor Mr. Carney to the recent G7 finance leaders meeting in the U.K. Such high-profile events will come only after he is officially installed.

In the meantime, Mr. Poloz — who still needs to tie up loose ends at the EDC by May 31 — is already being prepped for his new job at BoC.

“It would be fair to say he’s putting in some serious time,” says EDC’s Mr. Taylor.

Mr. Carney, meanwhile, is still on a victory lap, of sorts, before leaving for London to take the reins at the Bank of England on July 1. There was one last speech Tuesday in Montreal, which was followed by a final news conference. He will oversee his farewell interest rate decision on May 29.

When Mr. Poloz does move to the central bank full time, speaking engagements will be limited at first. There will be a get-to-know-you appearance before the House of Commons finance committee, expected on June 6. That will be followed by an initial public address and news conference, set for June 19 in Oakville, Ont.

But the first big test for Mr. Poloz will come on July 17, when he and other BoC policy-makers announce the bank’s eight-times-a-year interest rate decision. There will be no surprises there, with the bank virtually guaranteed to keep its benchmark at the 32–month low level of 1%, although the wording of the statement’s forward guidance could be altered slightly, given the weakened global outlook.

More importantly, and on the same day, the bank issues its Monetary Policy Report — a quarterly analysis of domestic and global economic and monetary conditions, a document that Mr. Poloz was instrumental in launching during his early days at the bank.

Even more critical will be the news conference that follows the MPR release. This is where the new governor will need to earn his chops, having presented — understandably — a rather meek side of his character during his first encounter with reporters, alongside Mr. Flaherty and Mr. Carney, on the same day of his appointment.

The Bank of Canada has been an incubator for talent, often cross-fertilizing with the Finance Department. Many of Canada’s top financial figures, like Mr. Carney and senior deputy BoC governor Tiff Macklem, have done duty in both camps.

Douglas Porter, chief economist at BMO Capital Markets, worked at the Bank of Canada in his early years and often crossed paths with Mr. Poloz back then, and more recently in his current job.

“I’ve met him a number of times. I was always impressed,” says Mr. Porter.

“He does have a long history at the Bank of Canada,” he says. “It’s not as if he’s not familiar with the organization. And he’s got quite a bit of experience helping shape monetary policy and doing the background research.”

Also, he was at the EDC “during the tumultuous 2008-09 period and probably had some really good hands-on experience,” Mr. Porter says.

But few expect Mr. Poloz’s tenure at the Bank of Canada will be marked by any major changes to his predecessor’s monetary policies, initially at least.

“I’m sure his style will be very, very different from Mr. Carney’s but I think the substance will be quite similar,” adds Mr. Porter.

PARIS/NEW YORK — Most men might balk at spending US$600 on a pair of Dior sneakers but for U.S. shoppers like Ephraim, an upbeat 30-year-old, such indulgences are becoming increasingly commonplace.

Ephraim is the kind of man who gives luxury goods makers high hopes that the U.S. market can fuel future growth, as China runs out of steam and demand in Europe sags.

“There is a cultural shift,” Ephraim says while browsing at Saks Inc’s New York City flagship. “Men are becoming more fashion forward.”

The growing appeal of luxury goods to men and increased confidence among affluent spenders as the U.S. economy and asset prices recover have boosted sales and encouraged luxury brands to step up their investments in the United States.

More foreign shoppers are also thronging stores as the U.S. government eases visa restrictions to attract more tourists.

Luxury spending in the United States collapsed after the 2008 financial crisis but roared back to pre-crisis levels by 2012. Last year, the world’s No.1 and No.3 luxury groups LVMH and PPR saw higher growth rates in the United States than in China for the first time in years.

Sales in the Americas are expected to grow 5%-7% this year, compared to 6%-8% in mainland China and 0%-2% in Europe, according to consultancy Bain & Co.

Evidence is already showing through. Ralph Lauren this week forecast U.S. sales growth of 4%-7% while high-end department store Saks reported quarterly sales up 5.9%, almost double what analysts had forecast.

“[There is] renewed confidence, a genuine rebound in fashion and luxury consumption,” said Sidney Toledano, head of French fashion house Christian Dior, part of LVMH.

Major brands like Prada, Hermes, Burberry, and Hugo Boss are opening shops or expanding existing ones in the United States, and are stepping up their advertising spend.

In July, Alexander McQueen will open a 3,900-foot store on New York’s Madison Avenue. Next year, Burberry plans to launch a new flagship on Rodeo Drive in Beverly Hills.

LVMH and PPR, soon to be renamed Kering, are also expanding in the United States while putting the brakes on China, which had been the major driver for luxury sales until last year.

“I think the U.S. holds a lot more potential than people believe while the focus has very much been on the BRIC (Brazil, Russia, India, China) countries,” said Robert Chavez, head of U.S. operations at Hermes.

The French group, which opened its only shop dedicated to men on Madison Avenue in 2010, now makes about 15% of its sales in the United States, up from 10% five years ago.   China, Hong Kong, Taiwan and Macao account for 20%.

“We have noticed a rise in men’s purchases, particularly in the last two years,” said Chavez. Ties, shoes and $8,000 custom-made three-piece cashmere suits are all doing equally well.

In the 212 billion euro luxury as a whole, the United States outguns China, even before the new growth spurt. Bain & Co. values the U.S. market at 59 billion euros, Europe at 74.2 billion and China-Hong Kong around 22 billion.

PPR boss Francois-Henri Pinault reckons that rising numbers of tourists to the United States will enable it to narrow the gap with Europe, where visitors account for about half of luxury sales. That contrasts with 15-20% in the United States.

“We will never have as many tourists as in Europe but I think that ratio could reach 30% over the next few years,” said Milton Predaza, chief executive of Luxury Institute, a U.S. consultancy.

In 2010, 6 million tourists from Brazil, India and China flew to Western Europe compared to 2.6 million to the United States. Travel agents say U.S. visa approvals require more proof of employment history and finances than for France or Italy.

The United States would earn $20 billion more from luxury sales if it had as many tourists from emerging markets as Europe, New York-based brokerage International Strategy & Investment Group (ISI) estimates.

The U.S. State Department says it has cut the wait for a visa-related interview in Brazil, where most U.S. luxury shopping tourists come from, to two days. Clerks at Saks said they had noticed an increase in Brazilian tourists.

The State Department also plans to waive interviews for some visa applicants and is expanding or building new consulates in China and Brazil.

Tourism from China is expected to more than triple to 3.9 million people by 2017 from 2011. Tourism from Brazil is forecast to rise 83% to 2.8 million, according to the U.S. Department of Commerce.

“We have not had a major breakthrough yet. However, it is moving in the right direction,” said Omar Saad, senior managing director and head of the luxury team at ISI.

The appeal of America to Brazilians is twofold – it is closer than Europe and prices are much lower than at home. A Burberry man’s coat costs $3,100 in Sao Paulo against $995 at the New York flagship on 57th street.

Pam Danziger, president of marketing consulting firm Unity Marketing and author of studies on the U.S. luxury industry, believes growth is also being driven by what she calls HENRYs – “high earning, not rich yet” Americans making $100,000-$249,000 a year. She estimates about 24.2 million households are HENRYs.

To capture those buyers, brands are now expanding beyond New York, which accounts for a third of U.S. luxury sales, and the next two main cities of Los Angeles and Miami.

Last month, Hermes opened in Greenwich, Connecticut — an area popular with financial professionals and their families — and plans to expand in cities like LA, Miami, Houston, Dallas and Boston over the next two years.

PPR’s brands, which include Balenciaga, Gucci and Stella McCartney, are looking at Dallas, Atlanta, Chicago, Miami, Orlando and Philadelphia.

“The U.S. is an emerging country when it comes to luxury,” said Boston Consulting Group senior partner Jean-Marc Bellaiche.

MONTREAL – When SNC-Lavalin Group Inc. chief executive Jacques Lamarre met a hot-shot engineer named Sami Bebawi for dinner in mid-1998, he was looking for someone who could help turn around the company’s money-losing construction unit after years of losses.

Mr. Lamarre, who now works for Montreal law firm Heenan Blaikie, thought he’d found his man. Mr. Bebawi was a smart and aggressive water specialist, and his small 25-employee firm was snatching up major Quebec contracts from its much larger rivals.

Mr. Lamarre so badly wanted Mr. Bebawi that he offered to buy his entire company and make him a member of the office of the president, a small group of the most senior executives once likened to Jesus and his apostles. It was an unprecedented offer. No outsider had ever been named directly to the office. Mr. Bebawi accepted and delivered, leaving SNC in 2006 after fixing the business and winning millions worth of new work in places such as Libya and Algeria.

Today, that apostle is being cast as Judas. Mr. Bebawi is at the centre of new allegations by police claiming he defrauded SNC-Lavalin of $23-million and then transferred those proceeds of crime into four bank accounts and six real estate properties, including homes for two of his children and a 78-unit Montreal condo project. The RCMP has successfully frozen those assets through court order.

It’s all part of a major corporate corruption case that has engulfed SNC, one of the world’s largest engineering companies, for some 18 months. Company money has gone missing and police allege it has been laundered, to the detriment of investors, in a scheme also implicating former SNC executive Riadh Ben Aissa.

Mr. Ben Aissa is in jail in Switzerland, accused of using the nation’s banking system to funnel millions worth of bribes to win contracts for SNC in North Africa while keeping a small fortune for himself. Now police allege $23-million also went to accounts accessible by Mr. Bebawi, who acted in concert with Mr. Ben Aissa.

“I have reasonable grounds to believe that the public, including shareholders of SNC-Lavalin Group Inc., was victim of a fraud,” RCMP Cpl. Alexandre Beaulieu said in an affidavit unsealed this week as part of 10 judicial orders requesting the freeze on assets belonging to Mr. Bebawi and his children.

I have reasonable grounds to believe that the public, including shareholders of SNC-Lavalin Group Inc., was victim of a fraud

According to police, a scheme was set up by Mr. Ben Aissa in which a company called Duvel Securities billed SNC for some 120-million euros ($160-million) in commercial agent consulting fees in exchange for helping SNC win dozens of major project contracts in Libya during the 2000s. In truth, Swiss and Canadian police say Mr. Ben Aissa controlled Duvel, which was nothing more than a shell company based in the British Virgin Islands, and used it to send kickback money to then-Libyan dictator Muammar Gaddafi’s son Saadi as well as to bank accounts controlled by Mr. Ben Aissa and Mr. Bebawi. Another shell company, Dinova, was also used for the same purpose.

Mr. Bebawi has not been charged with any crime and none of the police allegations has been tested in court. Although some of his family resides in Montreal, he now lives in the Middle East and does not want to return to Canada “if his freedom is in jeopardy,” according to the police affidavit. Scott Hutchison, Mr. Bebawi’s Toronto-based lawyer, did not respond to a request for comment Friday.

How exactly did the two executives allegedly manage to siphon off so much money? One theory is that there simply weren’t enough internal controls in place and that no one questioned the funds because North Africa was pulling in sizable contract revenue.

How exactly did the two executives allegedly manage to siphon off so much money?

In fact, according to police, there were no measures at all to ensure the funds transferred to the consultants were not being used as bribes other than the “integrity check,” a document in which someone who knows the consultant signs an attestation of certain facts including that the person has no criminal record. It was Mr. Ben Aissa himself who signed the integrity check certification for Duvel, the affidavit states.

The signatures of other SNC executives were required to approve the mandates and fees paid to Duvel and Dinova. But those executives, including current head of government affairs Michael Novak, told police they never questioned the choice of the consultants because they were based on a recommendation by Mr. Ben Aissa.

Tunisan-born Mr. Ben Aissa took over as head of the construction unit when Mr. Bebawi retired. Police say Mr. Bebawi continued to receive money from Duvel even after he was no longer with the company.
“I’m shocked. I never thought anyone who worked for me, for us, could cheat us like this,” Mr. Lamarre said in an interview Friday, adding he does not believe there are other executives remaining to be identified who took part in the alleged wrongdoing.

“We were had. [As executives], we had a trust established between us. And we were had.”

SNC shares fell 1% to $40.79 in trading Friday on the Toronto Stock Exchange. They’ve dropped 18% since hitting a 52-week high of $49.85 on Feb. 12.

Four years after tapping the debt markets, The Empire Life Insurance Co. has returned with a similar structure but this time out will it enjoy the benefits of both lower interest rates and a lower spread relative to the benchmark, the yield on five-year bonds issued by the government of Canada.

In May 2009, the Kingston-based insurer that’s part of the E-L Financial Group, raised $200-million via an offering of subordinated unsecured 6.73% fixed/floating debentures. While those debentures had a maturity date of May 20, 2019, the expectation was that they would be called after five years.

The reason: After five years the securities convert to a floating rate set at the rather steep three-month CDOR plus 5.75%, a rate the issuer would be required to pay for the following five years. But overriding that possibility is the issuer’s ability to call the debentures. Indeed investors expect to be called, which is one reason why Deutsche Bank, which didn’t call an issue a few years back, is still in the penalty box.

Now in what is just the domestic market’s second fixed-floater offering for the year, Empire Life is raising $300-million from a security that has a nominal 10-year term but which can be called after five years before it switches to a floating-rate obligation. One key reason for the dearth of issues is the absence of the chartered banks, the traditional borrowers, because new rules don’t look favourably on this form of capital. The only deal in the sector this year is a $200-million offering, rated A high, by Manufacturers Life Insurance Co. That offering featured a yield of 2.817%.

From Empire’s perspective, the issue will not only raise regulatory capital but will do so on attractive terms: the deal comes with a coupon of 2.87%, a level that represents a spread of 147 basis points above comparable Canada bonds. As an indication of the demand for fixed-income securities, when the deal was launched the indicated spread was 152 basis points plus or minus 5bps. Accordingly, strong demand allowed the issuer to price the offering at the low end of the range.

How good a spread is 147 basis points? In 2009, or in the initial aftermath of the global financial crisis, Empire was required to pay a spread of 465 basis points.

A slightly altered syndicate is another difference between the two issues: On its May 2013 financing, TD Securities and RBC Capital Markets have the key roles — assisted by the other four bank-owned dealers.

On its earlier version, RBC and Scotia Capital Inc. occupied the top two slots with five bank owned dealers (the usual four plus HSBC Securities) having a distribution role.

As with the 2009 version, Empire Life is following the usual process: it recently updated investors (through a road show) and got an update on its credit rating. Last week DBRS confirmed its ratings: Empire Life has an issuer rating of A and a subordinated debt rating of A (low).

“The assigned ratings reflect the company’s smaller scale and focused product range. The company enjoys modest levels of profitability, but has yet to suffer a major loss despite the recent difficult market conditions,” noted the DBRS report.

On the positive side, according to DBRS, is Empire’s “unique market niche” its “effective risk management processes,” its “strong regulatory capital and the accompanying financial position and supportive upstream.”

TORONTO – Loblaw Cos. Ltd. filed a preliminary prospectus Friday for a planned $7-billion real estate investment trust for its sizable land portfolio under the name Choice Properties Real Estate.

The units of the REIT will be priced at $10, comprised of 425 properties and 35.3-million square feet of leasable space. It includes 415 retail properties, an office complex and nine warehouse properties.

The total number of units to be offered was not disclosed. A final prospectus will be released in July.

Loblaw says the value of the initial properties inside the REIT is between $7.25-billion and $7.4-billion and represents about 75% of its owned real estate portfolio.

Loblaw, Canada’s biggest grocery chain with more than $31-billion in annual revenue in Canada’s $74.6-billion sector, did not disclose in the document how much interest it would hold in the REIT upon closing.

When the retailer’s executives announced the intention to form a REIT last December, they said Loblaw would retain a majority interest of more than 80% of the REIT.

The company said its majority shareholder George Weston Ltd. would pay $200-million to acquire 20-million units from the REIT concurrent with the public offering.

Retail properties include 267 with a standalone Loblaw store, 143 with a Loblaw store and one or more third-party tenants and five properties with only third-party tenants, the company said.

Choice Properties named John Morrison, former chief executive of Primaris Retail REIT, as its CEO, and former Calloway REIT chief financial officer Bart Munn as its CFO. Choice’s chief operating officer is Jane Marshall, a 20-year veteran of Loblaw’s real estate department.

The country’s biggest grocer made the move to reflect the rising value of its portfolio in a hot retail real estate market in Canada.

In the prospectus Loblaw noted the national retail vacancy rate was 4.9% in 2012 and is expected to slide to 4.7% in 2013.

“With most markets in short supply of space, rents continued to move higher in 2012, at or near CPI levels,” Loblaw noted.

Canadian Tire said this month it intends to create a $3.5-billion REIT for its portfolio and Hudson’s Bay Co. is weighing a similar move for its real estate, according to its chief executive Richard Baker.

Loblaw will be Choice Properties’ biggest tenant and account for about 91.2% of rent and 88.3% of its gross leasable area, the document said. The lease terms will range from 10 to 18 years, with an average of 14 years.

The syndicate of joint bookrunners on the offering includes CIBC, RBC Capital Markets and TD Securities Inc.

OTTAWA — With the appointment of Stephen Poloz as governor of the Bank of Canada, the search is on for his replacement at Export Development Canada.

Mr. Poloz, currently president and CEO of the export credit agency, was chosen May 2 to replace bank governor Mark Carney, who is leaving June 1 to head the Bank of England.

Mr. Poloz begins his new job on June 3. The quick turn-around means Ottawa-based EDC will need to name an acting president and CEO as it looks for a permanent replacement for Mr. Poloz.

Mr. Poloz, who joined EDC in 1999, has held the top position since 2011. He is in the third year of his five-year term. EDC’s board of directors is in the process of selecting an acting CEO, and that person should be named soon.

The timing for a permanent CEO announcement has not been determined. Mr. Carney is leaving the Bank of Canada nearly two years short of his seven-year mandate. The Bank of England position is for five years.

Toronto Mayor Rob Ford’s alleged cocaine use, which has become material for U.S. late-night comedy sketches and prompted calls for his resignation, hasn’t impaired the city’s finances.

More than two years into Ford’s tenure, which has included reports he was video-taped inhaling crack cocaine, a conflict- of-interest lawsuit, and a photograph of him reading briefing notes while driving, Moody’s Investors Service has praised North America’s fourth-largest city for reducing spending and cutting debt.

“I don’t really think the political circus matters, I think it’s really the fact that the funding of Toronto seems to be on a more stable basis,” said John Braive, vice chairman at Canadian Imperial Bank of Commerce’s CIBC Global Asset Management, which oversees $50 billion of fixed-income assets including Toronto’s bonds. “The budget looks like it’s under better control than it’s been for a number of years.”

The Toronto Star newspaper said on May 16 two of its reporters watched a cellphone video allegedly showing Ford smoking from a crack cocaine pipe. U.S. website Gawker was the first to report on the video and is trying to raise $200,000 to buy it.

Bloomberg News hasn’t seen the video and can’t verify its authenticity. Ford spoke briefly to reporters on May 17, calling the video reports “ridiculous,” and has otherwise remained silent. George Christopoulos, press secretary for the mayor, didn’t respond to phone calls and emails seeking comment today and over the past week.

The Toronto Police say they are reviewing allegations against the mayor.

Leadership Credibility

“Certainly it’s undermining the credibility of his leadership,” said John Johnston, chief strategist at the Toronto-based investment-management firm Davis Rea Ltd., which doesn’t hold the city’s bonds. “From an investor’s perspective his leadership has been good in the sense that he has brought spending down.”

The controversy hasn’t affected the city’s $4.6-billion of bonds, which are beating Vancouver’s debt and an index of Canadian provincial issuers. Relative yields on Toronto’s $500-million of 3.5% bonds due in December 2021 are trading at their narrowest since they were issued. The spread to government debt has fallen to 115 basis points from 143.5 basis points in November 2011.

Toronto bonds overall are up 2.1% this year compared with 1.5% for Vancouver, according to a Bank of America Merrill Lynch index. Canadian cities and provinces returned an average 0.6%, the index shows.

Spending Cuts

As other provincial governments struggle to tame deficits amid slowing growth and shrinking revenues, Toronto in 2012 cut spending for the first time since it was amalgamated with five surrounding suburbs in 1998 while its debt burden is half the average of other Canadian cities, Moody’s said in a May 15 report.

“If you are a bondholder, there is lots going on out there in terms of the mayor, but in terms of what influences us, it’s really what is the underlying budget position of the city, and it’s improved,” Braive said by phone.

From an investor’s perspective his leadership has been good in the sense that he has brought spending down

The city’s net debt to total revenue is 37%, compared with an average of about 65% to 70% for Canadian cities, Moody’s said in its annual review on the city, a day before the video allegation broke. That compares with Montreal’s at 97% and Quebec City at 127%, according to the most recent data, Jennifer Wong, an analyst at Moody’s, said in a phone interview yesterday.

Building Boom

“The mayor is facing difficulties and controversies but it’s important to note the city possesses strengths that underpin the high investment-grade rating,” Wong said. “We expect the city will continue with the progress they’ve made over the last few years.”

Toronto is in the midst of a building boom with 112 high- rises under construction, more than any other city in the world, according to Emporis.com. It has overtaken Chicago as the fourth-largest North American city with a population of 2.79 million, according to a statement from the city in March. Home to the country’s five-largest banks, two of the biggest insurers and its largest wireless operator, Toronto’s economy is driven by financial services. Still, unemployment averaging 8.4% in the three months to April was higher than Ontario’s at 7.7%.

Ford, 43, was elected in October 2010 to lead Canada’s biggest city on a promise to “stop the gravy train.” He slashed council budgets by 42% and outsourced half the city’s residential waste collection to the private sector. He has halted bike lanes, eliminated a vehicle registration fee and waged a battle to expand the city’s transit through subways in a bid to turn back the “war on the car.”

Court Ruling

In January he won an appeal of a court ruling that had found him in conflict of interest over donations collected for his high school football charity. He has been photographed reading a briefing while driving on a city expressway and gave up on a public weight-loss campaign to trim his 330-pound frame which he dubbed “Cut the Waist.”

“There were initial successes at the beginning of his mandate, but then the personal behavior began to overshadow that,” said Richard Leblanc, associate professor of law, corporate governance and ethics at York University in Toronto. “It’s unfortunate because he had a trajectory there that’s now been diminished. It’s not sustainable or recoverable. His credibility has been so diminished, in a corporate context, that’s why a CEO is fired. They cannot operate.”

While the city’s debt has taken Ford’s controversies in stride, Toronto’s reputation has taken a beating that may slow investment, Leblanc said.

Field Day

“Jon Stewart, American comedians have had a field day with this,” he said. “From an investment and jobs point of view, people will refrain from investing and brokering deals because they believe the mayor can’t get the votes. You’re waiting for the next mayor with the authority and gravitas to make deals.”

Ford has remained largely silent on the video as packs of media have trailed him from City Hall to doughnut shops. He has been let go from coaching the Don Bosco Eagles football team, his chief of staff Mark Towhey left yesterday and calls are mounting for him to address the allegations head on and resign.

The Toronto Star, whom Ford has accused of having a vendetta against him, said yesterday in an editorial, it’s time for him to leave.

“A CEO would have been fired a long time ago,” Leblanc said.

Bloomberg.com

Royal Bank of Canada introduced on Friday a set of rules and restrictions on how its suppliers can use temporary foreign workers, a move that comes a month after a media firestorm which prompted a public apology from its chief executive.

RBC introduced a “Supplier Code of Conduct” on Friday, including a stipulation that its “suppliers will not hire foreign workers from outside of Canada when performing services on behalf of RBC, where a worker eligible to work in Canada is available and able to perform the service.”

The bank also said it would monitor its contractors’ compliance with this “code” and include their findings in its annual corporate reports.

In April, RBC became the target of public condemnation because its supplier, iGATE Corp., brought in 45 temporary foreign workers to replace staff in RBC’s Investor Services division in Canada. These jobs were to eventually be transferred abroad.

The controversy prompted RBC CEO Gord Nixon to issue a public apology in an open letter, and offer assurances that the 45 workers would get comparable jobs elsewhere in the bank. He also promised that no other jobs would be outsourced.

Ottawa is reviewing whether RBC violated the rules of the temporary foreign workers program — aimed at allowing companies to hire foreign workers when Canadians are not available, and alleviate labour shortages — by subcontracting work to the global outsourcing firm. iGATE has said it will “fully co-operate” with the investigation.

On Friday, RBC further stated in its new code, that it “will not offshore work where salary savings is the primary reason and will make every effort to source in Canada.”

“For example, RBC’s Canadian client call centres are located in Canada, supporting RBC’s domestic and U.S. business, and they will remain in Canada despite the trend in many industries to offshore them,” the bank said in a statement.

VALLENAR, Chile — Chile’s environmental regulator blocked Barrick Gold Corp.’s US$8.5-billion Pascua-Lama project on Friday and imposed its maximum fine on the world’s largest gold miner, citing “very serious” violations of its environmental permit as well as a failure by the company to accurately describe what it had done wrong.

After a four-month investigation, the Environmental Superintendent said all other construction work on Pascua-Lama must stop until Barrick builds the systems it promised to put in place beforehand for containing contaminated water.

The fines add up to eight billion pesos — about US$16-million — the highest possible under Chilean law.

Trading in the Canadian company’s shares was halted on the Toronto and New York stock exchanges as the ruling prompted a sell-off. Barrick’s stock has lost more than half its value in the last year, due mostly to setbacks with Pascua-Lama, which straddles the Chile-Argentine border amid glaciers and snow-capped peaks at a lunch-aching 16,400 feet (5,000 metres) above sea level.

Chile’s regulator noted that while Barrick itself reported failures, a separate and intensive investigation already begun by the agency’s own inspectors found that the company wasn’t telling the full truth.

“We found that the acts described weren’t correct, truthful or provable. And there were other failures of Pascua Lama’s environmental permit as well,” said the superintendent, Juan Carlos Monckeberg.

The company said it is reviewing the ruling. “Barrick is fully committed to complying with all aspects of the resolution and to operating at the highest environmental standards,” a company (TSX:ABX) statement said.

Argentine authorities have insisted that Lama, their side of the bi-national project, will proceed with or without Chile, taking advantage of the infrastructure already in place for its Veladero mine, which is already producing ore just downhill.

But most of Pascua-Lama’s 18 million ounces of gold and 676 million ounces of silver are in Chile, where Barrick warned shareholders earlier this year that it might abandon the project if production can’t begin in 2013.

Silver Wheaton (TSX:SLW), which has an agreement for a share of Pascua-Lama’s silver production, said Friday it remains confident in Barrick’s ability to develop the project.

Monckeberg said the sanctions, the first since his agency gained enforcement power in December, were based on a thorough investigation by agency inspectors as well as government experts in mining, farming, and water.

“This is what we have always been hoping for,” said Maglene Camillay, a Diaguita Indian leader whose community downstream from the mine alleges its river has been contaminated by the construction work. “Finally the state is showing its power. They never investigated this and now they’re doing their job.”

The regulator found 23 violations, and Barrick accepted all but one of them in a detailed response on April 29.

But the sanctions don’t mean the end of Pascua-Lama — far from it.

In its response, Barrick asked for permission to make US$30-million in urgent repairs, saying “they turn out to be fundamental to keeping the first ice melts of this year from causing events that trigger effects or environmental contingencies.” The environmental agency approved the remedial work on Friday, starting with temporary measures to contain any runoff while Barrick builds more permanent structures.

The violations include building some earthworks without prior approval, while failing to build others that were supposed to be in place before other construction began, so that rainfall wouldn’t increase the runoff from mineral acids naturally released when rocks are broken. Instead, Barrick’s bulldozers went ahead and moved mountaintops in preparation for a projected 25 years of gold and silver production.

The violations also include an “unjustified discharge coming from the acid treatment plant to the Estrecho river” that was “neither declared nor monitored,” Barrick acknowledged.

Still, the Diaguita Indians, who live in small towns along rivers that flow down from the mine through an otherwise completely barren Atacama Desert, were feeling powerful on Friday.

“Even though we seem so small, we could beat Barrick, which is a giant,” said Osvaldina Guzman Villegas, who lives in Diaguita community of Chipasse Tamaricunga. “And with the help of our ancestors, we’re going to beat them.”

President Sebastian Pinera’s spokeswoman, Cecilia Perez, said the government is “very much in agreement” with the sanctions.

“What should happen is that until they remedy all the requirements of the environmental permit, fix all the issues that the Environmental Superintendent is asking for, and finally until this is decided by the Supreme Court, they cannot keep operating,” she said.

The sanctions also were praised by independent mining experts, who noted that the containment structures Barrick failed to build were fundamental to obtaining environmental approval.

“Twenty years ago, maybe nobody would have required these fixes, and perhaps wouldn’t even have required the canal to divert rainwater, but today it’s necessary, more than anything because there’s agriculture down below,” said Gustavo Lagos, mining professor at Santiago’s Universidad Catolica.

The strong sanctions show the mining industry that Chile’s independent environmental regulator intends to use its new enforcement powers, he said: “This sets a tough example and I think it should show other companies, not just in mining but in all industries, that this is becoming serious.”

How the ruling might affect the bottom lines of many other international mining companies in Chile also wasn’t immediately clear, but Lagos said it sends a good message.

“It shouldn’t be forgotten that new environmental institutions were required of Chile as a condition for its entry into the OECD,” he said, referring to the Organization for Economic Co-operation and Development, which represents the world’s leading economies. “It’s a good signal to the world that in Chile there are controls, that there’s a new institutionality that is working.”

Environmentalists say regulators have been much less demanding on the Argentina side of the project, where mining is regulated at the provincial level. Barrick and other pro-mining groups obtained injunctions to block enforcement of a national glacier protection law passed in 2010 in response to the Pascua-Lama project.

“In Argentina, despite public statements that the house is in order, we are beginning to reveal serious environmental flaws regarding dozens and dozens of glaciers that have been unaccounted for in Barrick’s environmental impact studies. The Glacier Law further complicates Pascua-Lama,” said Jorge Daniel Taillant, director of the Center for Human Rights and the Environment, which tracks environmental compliance by mining companies.

Barrick shares closed down 43 cents at $19.69 on the Toronto Stock Exchange. Silver Wheaton was down 31 cents at $23.43.

The Associated Press

A generation ago, Japan was widely admired – and feared – as an economic paragon. Business best-sellers put samurai warriors on their covers, promising to teach you the secrets of Japanese management; thrillers by the likes of Michael Crichton portrayed Japanese corporations as unstoppable juggernauts rapidly consolidating their domination of world markets.

Then Japan fell into a seemingly endless slump, and most of the world lost interest. The main exceptions were a relative handful of economists, a group that happened to include Ben Bernanke, now the chairman of the Federal Reserve, and yours truly. These Japan-obsessed economists viewed the island nation’s economic troubles not as a demonstration of Japanese incompetence, but as an omen for all of us. If one big, wealthy, politically stable country could stumble so badly, they wondered, couldn’t much the same thing happen to other such countries?

Sure enough, it both could and did. These days we are, in economic terms, all Japanese — which is why the ongoing economic experiment in the country that started it all is so important, not just for Japan, but for the world.

In a sense, the really remarkable thing about “Abenomics” – the sharp turn toward monetary and fiscal stimulus adopted by the government of Prime Minster Shinzo Abe – is that nobody else in the advanced world is trying anything similar. In fact, the Western world seems overtaken by economic defeatism.

In the U.S., for example, there are still more than four times as many long-term unemployed workers as there were before the economic crisis, but Republicans only seem to want to talk about fake scandals. And, to be fair, it has also been a long time since President Barack Obama said anything forceful publicly about job creation.

Still, at least we’re growing. Europe’s economy is back in recession, and it has actually grown a bit less over the past six years than it did between 1929 and 1935; meanwhile, it keeps hitting new highs for unemployment. Yet there is no hint of a major change in policy. At best, we may be looking at a slight relaxation of the savage austerity programs Brussels and Berlin are imposing on debtor nations.

It would be easy for Japanese officials to make the same excuses for inaction that we hear all around the North Atlantic: They are hamstrung by a rapidly aging population; the economy is weighed down by structural problems (and Japan’s structural problems, especially its discrimination against women, are legendary); debt is too high (far higher, as a share of the economy, than that of Greece). And in the past Japanese officials have, indeed, been very fond of making such excuses.

The truth, however – a truth that the Abe government apparently gets – is that all of these problems are made worse by economic stagnation. A short-term boost to growth won’t cure all of Japan’s ills, but, if it can be achieved, it can be the first step toward a much brighter future.

So, how is Abenomics working? The safe answer is that it’s too soon to tell. But the early signs are good – and, no, Thursday’s sudden drop in Japanese stocks doesn’t change that story.

The good news starts with surprisingly rapid Japanese economic growth in the first quarter of this year – actually, substantially faster growth than that in the United States, while Europe’s economy continued to shrink. You never want to make too much of one quarter’s numbers, but that’s the kind of thing we want to see.

Meanwhile, Japanese stocks have soared, while the yen has fallen. And, in case you’re wondering, a weak yen is very good news for Japan because it makes the country’s export industries more competitive.

Some observers have raised the alarm over rising Japanese long-term interest rates, even though these rates are still less than 1%. But the combination of rising interest rates and rising stock prices suggests that both reflect an increase in optimism, not worries about Japanese solvency.

To be sure, Thursday’s sell-off in Japanese stocks put a small dent in that optimistic assessment. But stocks are still way up from last year, and I’m old enough to remember Black Monday in 1987, when U.S. stocks suddenly fell more than 20% for no obvious reason, and the ongoing economic recovery suffered not at all.

So the overall verdict on Japan’s effort to turn its economy around is so far, so good. And let’s hope that this verdict both stands and strengthens over time. For if Abenomics works, it will serve a dual purpose, giving Japan itself a much-needed boost and the rest of us an even more-needed antidote to policy lethargy.

As I said at the beginning, at this point the Western world has seemingly succumbed to a severe case of economic defeatism; we’re not even trying to solve our problems. That needs to change – and maybe, just maybe, Japan can be the instrument of that change.

The New York Times

Enbridge Inc. is moving ahead with plans to meet five conditions for the British Columbia government to support its proposed Northern Gateway oil pipeline, after a Liberal re-election made clear terms needed to satisfy officials in the Pacific Coast province.

Enbridge, the largest transporter of Canadian crude, plans to sit down with Premier Christy Clark’s government to discuss her support, Vern Yu, vice president of business development at Enbridge, told reporters today in Calgary. The $6-billion conduit would carry oil-sands crude to the Pacific Coast for export.

The May 14 re-election of Clark’s Liberals in British Columbia meant the defeat of the New Democratic Party under Adrian Dix that had vowed to block plans by Enbridge and Kinder Morgan Energy Partners LP to expand oil shipments from Alberta through Canada’s western-most province. Clark didn’t rule out oil shipments, while imposing five conditions on the projects.

“We’re well on our way to meeting three of those five conditions and we look forward to sitting down with her government to address the last two,” Yu said, after a panel talk about pipelines. “It does appear that her government has formed more of an opinion of what’s necessary to get the project across the finish line than perhaps the NDP did.”

The projects by Calgary-based Enbridge and Houston-based Kinder Morgan would together move more than 1 million barrels a day from Alberta, home to the third-largest oil reserves. Oil- sands output is poised to double last year’s production by 2022, according to energy regulators in Alberta. Kinder Morgan plans a $5.4-billion twinning of its Trans Mountain line that runs from Edmonton to a terminus near Vancouver.

Five Conditions

Among five conditions laid out by Clark to support oil pipeline expansions in British Columbia is what she’s labeled a “fair share” of economic benefits for her province.

Kinder Morgan is scheduling a meeting with the British Columbia government “in a couple of weeks,” Ian Anderson, the president of the company’s Canadian unit, said in Calgary today.

“I don’t think the certainty of the pipeline proposal has changed,” with the election, Anderson said in an interview. The review process is largely in the federal government’s hands and the company would have had “a clear path” for necessary provincial permits from the British Columbia government under either the Liberals or the NDP, Anderson said.

Kinder Morgan plans to apply to Canada’s National Energy Board for the expansion late this year, Anderson said.

Bloomberg News

CALGARY — A senior TransCanada Corp. executive says the resistance to the approval of the proposed Keystone XL oilsands pipeline has made the company more cautious about future cross-border endeavours.

Alex Pourbaix, president of energy and oil pipelines at the Calgary-based pipeline and utility company, said the long delays getting Keystone approved in the U.S. has been an education.

“When you’re involved in one of these cross-border projects you require a presidential permit. At any time in the process, especially one that goes four or five years, you get caught up in the election cycle,” Pourbaix said Thursday.

“I think it’s not a surprise to anybody that this project, to some degree, has been caught up in election politics and it’s added to the time. We just have to be careful in thinking about that as we go forward with these kind of projects.”

The future of Keystone is still fuelling battles in Washington, D.C.

The $7 billion Keystone XL pipeline would bring 700,000 barrels of oilsands crude a day from Alberta through six states and to Gulf Coast refineries.

Republicans in the House of Representatives made yet another attempt this week to take the decision out of U.S. President Barack Obama’s hands.

Legislators voted 241-175 in favour of the Northern Route Approval Act, which would give Congress the power to green-light the pipeline and nix the need for a presidential permit. The bill, however, faces a far less certain future in the Democrat-controlled U.S. Senate.

The White House has threatened to veto the bill, saying it “seeks to circumvent long-standing and proven processes for determining whether cross-border pipelines are in the national interest.”

Pourbaix, who speaking to business leaders about getting Alberta’s oil and natural gas to market, said he expected Keystone to be a challenge, but not to this degree.

“When we went into Keystone XL I think it would be fair to say we knew we were going to have challenges but I don’t think anybody could have foreseen the kind of opposition,” he said.

“In the first two phases of Keystone, we received our presidential permit in 21 months. We are now well into our fifth year of permitting Keystone.”

Pourbaix said TransCanada will work harder in the future to ensure that people and governments along routes are onside before moving forward. He said the opposition to pipelines such as Keystone XL isn’t about safety.

“This is about a fight over trying to stop the development of the oilsands by choking off the pipeline projects and I think we all have to remember that,” he said. “As we go forward on new projects we’re obviously going to take that into account.”

© Thomson Reuters 2013

July Ono had been buying used cars online for years without problems.

So she was stunned when she got a panicked phone call three years ago from a friend saying the Jeep Ms. Ono bought a month earlier was being towed away by a bailiff.

In hindsight, Ms. Ono says she had been suspicious of the tall, charming stranger who had posted his car for sale on Craigslist.

“I was sitting there going, July, there’s just something wrong with this person,” said the 50-year-old real estate investment adviser. “But I just couldn’t figure out what it was.”

She took the vehicle for a test drive and had it inspected at a dealership. Everything seemed to be in working order.

It was only when Ms. Ono got the late-night call while out of town on business that she discovered the seller had used it as collateral on a loan a month earlier.

Online car classifieds can offer convenience and bargain prices, but experts recommend taking precautions to protect yourself from scammers and “curbsiders,” full-time fraud artists pretending to be private sellers.

About one in five Canadians who buy or sell used cars online encounter scammers or fraud, according to a recent report by the Automobile Consumer Coalition.

Out of more than 1,000 people polled, 13% said they were contacted by fraudulent buyers who offered to overpay for their car with a phoney cheque, asking the seller to refund the difference.

Another 12% came across listings posted by suspected curbsiders.

Yet 76% of respondents said they weren’t worried about fraud.

Online surveys cannot be assigned a margin of error because they do not randomly sample the population, according to the polling industry’s professional body, the Marketing Research and Intelligence Association.

Approximately 600,000 of the three million used cars that Canadians buy and sell each year are sold on sites like Craigslist and Kijiji, according to research compiled by the coalition.

“This problem is going to get worse and worse,” said Mohamed Bouchama, director of the Toronto-based consumer advocacy group.

“More people are using the Internet because of the convenience. Lots of people don’t want to go visit five, six, seven dealerships.”

George Iny, director of the Automobile Protection Association, recommends looking for mid-priced cars rather than going for the cheapest one listed when you’re shopping for used vehicles.

“Don’t be a price junkie,” said Mr. Iny. “The seller always knows more than you. If the car is priced below market, it’s almost always for a reason.”

Buying junk will often cost you more in the long run, as you foot the bill for pricey repairs.

“The cost of taking something that’s in average condition and making it good condition is higher than the premium you’d pay just to buy the same vehicle in good condition,” said Mr. Iny.

When buying a used car, Mr. Iny and Mr. Bouchama both recommend getting it inspected before you fork over the cash. You can either take the vehicle to a garage, or look for a mobile inspector who will come to you.

Always ask to see the vehicle ownership and the seller’s driver’s licence to make sure the names match, said Mr. Bouchama.

Check the car’s history, which will show you how many times the car transferred ownership, if it was a write-off or if it’s been in a major accident.

Mr. Bouchama suggests buying from a dealer because of the added level of accountability. But if you’re going to do so, Mr. Iny recommends keeping a sharp eye out for hidden fees.

Provincial laws in Ontario, Quebec, B.C. and Alberta require all-in pricing, but violations do occur.

“The advantage of the dealers is that if there is a problem, there’s somebody you can sue,” said Mr. Iny.

“A private seller may not be around, or you won’t find them if they’re a curber.”

If you’re selling your car online, be very cautious any time someone offers more than the car is worth, said Mr. Bouchama.

He also recommends taking a bank draft or cash — never certified cheques because they’re easily forged.

Consider setting up a temporary email and phone number to conduct the sale, and always bring someone with you when meeting a potential buyer.

“You never know who you’re dealing with,” said Mr. Bouchama. “There are some scary people out there, especially if you have a very nice car to sell.”

An extreme example is the recent death of a 32-year-old Ontario man who was killed after he took two men for a test drive in the Dodge Ram truck he was selling.

Despite the fact that the Internet is an accessible platform for scammers and fraud artists, it also provides consumers with a wealth of information.

“If you want to know how much to pay, the Internet has really empowered buyers,” said Mr. Iny. “It’s made experts out of amateurs.”

The U.S. State Department says it received 1.2 million letters during its 45-day public comment period after releasing the draft of Supplemental Environmental Impact Statement (SEIS) on the Keystone XL pipeline.

On March 1, the Department issued a largely favourable draft assessment of the project, and sought public opinion over a 45-day period to help make its mind up whether to approve the US$5.3-billion Alberta-to-Gulf-Coast project.

TransCanada Corp. proposed the 830,000-bpd project five years ago, but the project remains entangled in a web of U.S. state and federal regulations with green groups labeling the project as “game over” for the climate. Pipeline proponents dismiss the claims, citing energy security and jobs as key reasons for the approval.

And now their public fight appears to muddy the public comment portion of the process. The first batch of comments on the State Department website reveals the same green groups and oil and gas advocates, recycling their arguments and finding another avenue to get their well-rehearsed points across.

“Please send your State Department back to the drawing board,” Sandy C. of the Natural Resources Defense Council — a vociferous defender of the climate — said in her comment posted on the Department’s website.

Members of Sierra Club, another group opposing the pipeline, also noted that environmental momentum in Canada means that new oil sands infrastructure is “no longer a guarantee.” “I demand climate leadership from this administration, and that has to begin with the rejection of Keystone XL.”

Meanwhile, Energy Citizens, supported by the powerful American Petroleum Institute, wrote: “Approving the Keystone XL pipeline would directly enhance America’s security, diminishing our dependence on unfriendly foreign oil states and strengthening our relationship with our next‐door neighbor and longtime ally, Canada.”

The Institute for Energy Research, a proponent of free markets in the energy sector, highlighted that Americans have waited over four years for the federal government to decide whether the pipeline is in the national interest.

“After all the delays, it is time to act. Please approve the Keystone XL pipeline.”

The State Department said that “where appropriate” it will revise its final document to include public comments. A decision is expected in the second half of the year. Daniel Kessler, a spokesman for 350.org, a pipeline opponent, told Bloomberg News the group expects a final decision by October.

“After release of the Final SEIS, the Department will seek the views of other agencies… and make a determination as to whether issuance of a Presidential Permit for the Keystone XL pipeline would serve the national interest,” a State Department official told the Financial Post.

The 1.2 million comments underline the polarized debate on the pipeline. A Gallup Poll on April 10 revealed Americans are evenly divided when asked whether the U.S. should prioritize energy production (46%) or environmental protection (45%) when the two goals are in conflict.

Meanwhile, the Keystone XL project delay has taken its toll on the Canadian energy sector, weakening Canadian crude prices, slowing oil sands plans and making oil sands assets less attractive due to market uncertainty.

A TransCanada official admitted the delays has made the company cautious on future cross-border projects.

“When you’re involved in one of these cross-border projects you require a presidential permit. At any time in the process, especially one that goes four or five years, you get caught up in the election cycle,” Alex Pourbaix, TransCanada’s president of energy and oil pipelines, told Reuters. “I think it’s not a surprise to anybody that this project, to some degree, has been caught up in election politics and it’s added to the time. We just have to be careful in thinking about that as we go forward with these kind of projects.”

The State Department plans to release all the comments in batches over the next few weeks.

Here are excerpts from some of the letters published on the State Department website:

“Please send your State Department back to the drawing board.” – Sandy C, Natural Resources Defense Council.

The Supplemental Environmental Impact Statement (SEIS) fails to…. “account for the full life‐cycle carbon pollution impacts of developing, transporting, refining, and burning tar sands oil.” – Various, National Audubon Society

“Americans have waited over four years for the federal government to decide whether the pipeline is in the national interest. After all the delays, it is time to act. Please approve the Keystone XL pipeline.” Various, Institute for Energy Research

Dear Secretary Kerry,
…”As a military veteran and a well‐known supporter of military personnel, veterans and their families, you understand the importance of protecting our national security. Approving the Keystone XL pipeline would directly enhance America’s security, diminishing our dependence on unfriendly foreign oil states and strengthening our relationship with our next‐door neighbor and longtime ally, Canada.” Various, Energy Citizens.

“The proposed Nebraska Re-Route does not avoid fragile soils or ecosystems. Under the best of ideal conditions, aboriginal native tall and mixed grass prairie grassland and sod once broken requires more time to be fully restored than any of those living today have time left to live. Breaking aboriginal prairie sod is basically a one-time event, and, will require centuries, if not millennia, to be completely restored to the original unbroken condition.” — Stu Luttich

“This project should not be delayed further. Nebraska families, small businesses and ag producers are struggling with record‐high gasoline and diesel prices and this expanded energy infrastructure can provide relief and long‐term energy security. Thank you for the opportunity to comment and please finalize the draft SEIS now.” – Unidentified.

“We are asking the USA government ensure groundwater contamination, air pollution and soil contamination within the Alberta bitumen developments are considered before approving the construction of the Keystone pipeline designed to allow bitumen to enter the USA.” David Lainchbury, Zap Consulting Environmental & Engineering Services

“Fortunately, environmental momentum in Canada means that other new tar sands infrastructure is no longer a guarantee, and stopping Keystone XL will indeed be a big step against the tar sands. I demand climate leadership from this administration, and that has to begin with the rejection of Keystone XL.” Various, Sierra Club

“The SEIS is deficient as a document explaining the environmental impact if the President approves the permit.” – Stephen R. Knowlton

It’s like Tiffany’s falling down on quality

Wal-Mart Stores Inc. is turning up the pressure to keep its shelves adequately stocked by proposing to tie executive compensation to the issue — and has asked an outside auditor to alert workers which items to focus on by plastering U.S. stores with neon green dots.

Earlier this year, Bloomberg News reported that Wal-Mart had trouble keeping its stores stocked as it cut back on workers per store. That has cost sales and driven away frustrated shoppers. In April, Acosta Inc., a Jacksonville, Florida-based consulting firm, began the green-dot program in Wal-Mart’s U.S. stores after previously conducting shelf audits without telling workers what items would be monitored.

Getty ImagesOn May 16, Wal-Mart reported that same-store sales in the U.S. fell 1.4%, the first drop after six straight gains.

The effort Wal-Mart is expending to fix its stocking issues is notable for a chain that became the world’s largest retailer in part by gaining mastery over its supply chain and logistics.

“It’s like Tiffany’s falling down on quality,” said Wallace Hopp, associate dean of faculty and research at the Stephen M. Ross School of Business at the University of Michigan. “It’s the core of their essence. If you can’t manage inventory in retail, then you can’t manage retail.”

On May 16, Wal-Mart reported that same-store sales in the U.S. fell 1.4%, the first drop after six straight gains. The Bentonville, Arkansas-based company also said second-quarter earnings per share will be $1.22 to $1.27. Analysts projected $1.29, the average of 24 estimates compiled by Bloomberg.

The compensation proposal was submitted by Wal-Mart in April, to be voted on until the company’s annual meeting June 7. On-shelf availability — known as OSA — would be one of several new metrics by which managers and executives could be judged.

Calculation Mystery

While Wal-Mart regularly cites OSA figures to investors, the company has declined to say how it has calculated those rates in the past — although Acosta figures are at least part of them — or how it would do so in the future. The Acosta audits focus on about 700 important items, which makes it easier to achieve a higher percentage of in-stock merchandise than if the whole store were counted. Wal-Mart superstores carry about 142,000 items, according to the company’s website, so a typical Acosta audit represents about one half of 1% of a store.

Carol Schumacher, a Wal-Mart vice president of investor relations, said in an analysts’ call last week that on-shelf availability in the first quarter was in the 93% to 95% range.

“Management is focused on OSA to drive sales,” she said.

Dots Story

It’s not clear how Wal-Mart derived that figure — and that is where the story of the green dots comes in.

Wal-Mart audited its on-shelf availability in-house for years, said David Tovar, a company spokesman. In 2011, it hired Acosta to do the job.

Keeping shelves stocked can boost sales significantly, according to Acosta, whose clients have included Target Corp., Whole Foods Market Inc. and ConAgra Foods Inc.

“In a superstore, if we fix a void at the beginning of the month, one single SKU in oral care translates to about $360,000 in sales at the end of the month,” Erick Kritsky, Acosta’s director of application development, said in a 2012 study. He didn’t specify a particular item.

When Acosta began its Wal-Mart audits in 2011, it conducted them secretly, without telling store managers which items were being monitored or when. Each week, Acosta field auditors searched for a random list of 300 items out of 700 being monitored, according to a copy of Acosta’s rules at the time. They compiled data collected from most of the more than 4,000 Wal-Mart stores in the U.S.

Secrecy Commitment

Acosta was so committed to secrecy that when some Wal-Mart managers tried to influence the results by finding out what items were being monitored, Acosta managers told their employees to rebuff them and report such incidents, according to internal e-mails.

In an e-mail to auditors sent in May 2011, Ashley Dixon, an Acosta coordinator handling part of the project, said auditors should notify Acosta management if asked “to print or make a copy of the items you are checking so that they can prepare before your next visit” or “if anyone in the store attempts to adjust your audit information in any way.

‘‘This is extremely important,’’ she said. ‘‘We are taking management influence very seriously.’’

Kathy Caldwell, an Acosta executive vice president and Wal- Mart team leader, called the OSA auditing system ‘‘best-in-class.’’

‘‘Acosta has had an excellent partnership with Walmart for more than two years,’’ she said in an e-mail.

Third-Party Audits

Wal-Mart seemed pleased with the audits. On a February 2012 earnings call, Bill Simon, chief executive officer of Wal-Mart’s U.S. operations, told investors that the company’s use of weekly ‘‘third-party physical audits” allowed executives to “see what customers see in their store.”

He said the company had “made great progress throughout the year” in improving on-shelf availability and was achieving rates in the mid-90% range.

After a while, the Acosta audits stopped. Then, earlier this year, following Bloomberg News reports of stocking issues, Wal-Mart asked Acosta to start monitoring the shelves again.

“Due to Walmart receiving a lot of negative press regarding their empty shelves, we are reinstituting the On Shelf Availability project,” Dixon said in an e-mail to her employees on April 22.

Acosta’s standard secret audit was almost under way when plans changed suddenly. Tovar, the company spokesman, said Wal- Mart decided that, in this case, it would be better to have Acosta mark the items to be monitored with neon green stickers next to the prices on shelves.

‘Clearer Picture’

“We thought by not letting the stores know, that we would get a clearer picture, but that wasn’t the case,” Tovar said. “What we learned is it’s actually better to have transparency with stores so they know the key items that particular time of year.”

Wal-Mart prepared a spreadsheet of more than 800 items — merchandise that included peanut M&Ms, Hanes boxer briefs, Covergirl mascara and Crest toothpaste — that needed “stickering.” The circle stickers would indicate to Wal-Mart workers which items Acosta would be searching for during its audits.

Tovar said the most recent round of auditing was “the first time the green dots were in place.”

He added: “The reason we went to the green sticker process is because we think this is going to help the store associates do a better job of being in stock in key items. Those are the most important items to be in stock on.”

Counting just the key items generates an incomplete picture, Hopp said.

‘Short-Sighted’

“If they green-dotted for the purposes of the audit, that’s short-sighted,” he said. “They should be much more concerned about having stuff in stock in the whole store.”

The process of putting stickers on the shelves of hundreds of products in thousands of stores delayed the auditing project. To make sure all the stores were “dotted” before audits began, some Wal-Mart employees were enlisted to help.

Managers at a Wal-Mart supercenter in Sarasota, Florida, told several workers to start putting green stickers next to merchandise that needed to be in stock, said Stu Ruzbacki, who stocked shelves at the store until this month.

“The store manager just picks someone from each department to put them up,” said Ruzbacki, who was fired after a dispute with his boss. “They pulled one from my team. He could be putting stuff on shelves. Instead, he’s putting stickers up all day.”

In a telephone interview on May 17, Matt Davis, who works as a cashier at the Wal-Mart in Putnam, Connecticut, said most of the items that have green stickers “were in stock, or overstocked, while shelves were empty around them.”

Bloomberg.com

WASHINGTON — Orders for long-lasting U.S. manufactured goods rose more than expected in April, a sign of resilience in the factory sector despite belt-tightening in Washington and weakness in overseas markets.

Durable goods orders, which range from toasters to aircraft, increased 3.3% last month, the Commerce Department said on Friday. The department also revised prior readings for orders to show a smaller decline in March than previously estimated.

Economists polled by Reuters had expected orders to rise 1.5%. Excluding transportation, orders climbed 1.3%.

A measure of underlying demand in the factory sector, which strips out aircraft and military goods and is a closely watched proxy for business spending plans, advanced 1.2%, a faster clip than analysts had expected.

However, shipments of these core capital goods, which go into calculations of equipment and software spending in the gross domestic product report, fell 1.5%. That suggests business spending got off to a weak start in the second quarter, and could reinforce expectations that economic growth will slow during the period.

The U.S. economy has appeared to weather harsh fiscal austerity measures surprisingly well this year. Washington hiked taxes in January and enacted sweeping budget cuts in March.

At the same time, economists expect the austerity will sap strength from the economy as the year progresses. In April, shipments for capital goods in the defence sector fell 5.6%.

The strength in overall new orders was broad based, from transportation to machinery and electronics, running counter to recent signs of weakness in the factory sector.

Financial data firm Markit said on Thursday its preliminary factory purchasing managers’ index hit a seven-month low in May.

Demand for transportation equipment jumped 8.1%, boosted by sharp gains in the volatile aircraft segments.

This had been widely expected as plane-maker Boeing received orders for 51 aircraft, up from 39 in March, according to information posted on its website.

© Thomson Reuters 2013

National Bank of Canada announced a dividend increase and share buyback Friday along with financial results that beat analyst estimates. National Bank says its adjusted earnings hit a record $369 million — up 6% from the same time last year. The adjusted earnings equalled $2.08 per share, which was above a consensus estimate. Net income was down year-to-year, however, due to an unusual gain that National Bank recorded in the second quarter of its 2012 financial year. Its net income fell to $2.49 per share or $434 million in the three months ended April 30, but still came in ahead of analyst estimates. A year earlier, National Bank had $553 million of net income — including a $198-million gain from an asset sale — and $347 million of adjusted earnings. The bank says its quarterly dividend on common shares will rise by 5% to 87 cents per share, starting with the August payout.

Related: Going gets tougher for TD as mortgage lending slows — Financial Post

Manitoba sells Allstream to Egyptian billionaire

After a lengthy strategic review, Manitoba Telecom Services Inc. said Friday it has finally struck a deal to sell its enterprise telecommunications unit Allstream in a transaction that values the business at $520-million, reports the Financial Post‘s Christine Dobby. The Winnipeg-based company has signed an agreement with Accelero Capital Holdings, former Wind Mobile backer Naguib Sawiris’s investment vehicle. The Allstream unit provides IT and telecom services for businesses and has been the subject of a review since last September after the federal government liberalized the rules on foreign investment in telecoms with less than 10% of the Canadian market. Mr. Sawiris, the Egyptian billionaire who memorably told the Globe and Mail’s editorial board in November 2011 that he regretted his decision to invest in Canada, now has a different perspective it seems. “This investment reflects Accelero’s long-term commitment to the Canadian telecommunications market, and our belief in the opportunity that exists to provide capital to enhance the competitive landscape in Canada,” he said in a statement Friday.

A drastic proposal: OMERS ponders cutting retiree benefits

Faced with a $10-billion pension funding deficit, the Ontario Municipal Employees Retirement System (OMERS) is considering a drastic proposal that would reduce benefits paid to retiring workers – or force them to work years longer for the same retirement income, writes the Financial Post‘s Barbara Shecter. OMERS Sponsors Corporation, which determines benefits and contribution rates for one of the largest pension operators in the province of Ontario, is mulling a plan change that would reduce the key figure used to calculate how much money an employee will receive each year in retirement. A decision on the proposed change to the formula, which would take effect in 2015, is expected by the end of June. OMERS is an umbrella organization for more than 900 employers and their workers in the province, including paramedics, transit workers, firefighters, police and city workers. It represents almost 429,000 active and retired members. Changes to the pensions overseen by OMERS are considered annually, but this year’s proposal to reduce the “multiplier” rate at which workers rack up retirement payouts — to 1.85% from 2% — is “more drastic,” according to Simon Archer, a pension specialist at law firm Koskie Minsky LLP in Toronto. “This is the one that made my eyebrows go up,” he said after looking at the proposals. “Usually plans try not to touch that if they can avoid it.”

Related: No pension savings crisis in Canada – Financial Post

Tougher going for TD

Another quarter, another announcement of solid profit growth from Toronto Dominion Bank, setting the tone for Canada’s quarterly bank earnings announcements. But underneath the headline numbers lies a lesser-known figure called the net interest margin, which over the past two years has been steadily slipping, writes the Financial Post‘s John Greenwood. Right now, lenders are working harder than ever just to maintain profit levels, and TD, which Thursday kicked off the latest earnings season, is a case in point. At first blush the results suggest a bank in robust health, with near record profit of $1.72-billion, up from $1.69-billion in the same period last year. Loan volumes were higher both in Canada and the U.S. and return on equity was firmly in the mid-teens. But TD’s net interest margin tells a different story. Over the past two years the ratio has been sliding downward, from a high of 2.33% in the third quarter of 2011, to a low of 2.15% in the first quarter of this year. The only good news is that it appeared to perk up in the second quarter ended April 30 to 2.21%. Still razor thin, but it could have been worse.

Related: TD profit rises, plans share buyback – Bloomberg

A bitumen sticky situation

It could literally stop the bitumen from Alberta from flowing. Demand for diluent, industry slang for super-light oil called condensate and other natural gas liquids that is blended with bitumen so it can flow in pipelines, is poised to skyrocket as companies such as Imperial Oil Ltd. and Suncor Energy Inc. balk at building hugely expensive upgrading plants that convert raw production into a refinery-ready oil, writes the Financial Post‘s Jeff Lewis. The reluctance to invest in costly processing comes with oil sands output projected to double to 3.8 million barrels by 2022, according to Alberta’s energy regulator. That could push demand for diluent from about 330,000 barrels a day last year to roughly 935,000 barrels, data from the Energy Resources Conservation Board show, stoking concerns over condensate pricing and potential shortages as imports struggle to match blending needs. “You need a lot of diluent to meet the forecast,” said Ian MacGregor, chairman of North West Upgrading Inc., which is building a 50,000 barrel-a-day refinery with Canadian Natural Resources Ltd. north of Edmonton. The facility will produce a range of products including naphtha and diesel. “If the economics are right that diluent will get back here, but it’s not going to come back for free.”

Related: Oil boom will strain pipelines, may delay projects – Financial Post

Keystone in the House

The U.S. House of Representatives passed legislation to approve the Keystone XL oil pipeline, the eighth time congressional Republicans have advanced a measure promoting the project. Democrats called Wednesday’s vote in the Republican-controlled chamber a largely symbolic effort to score political points because the bill was unlikely to become law. The Senate, where Democrats have the majority, isn’t considering similar legislation, and President Barack Obama’s administration has threatened a veto should the bill emerge from Congress. Under the measure, Calgary-based TransCanada Corp. wouldn’t have to win approval from the U.S. State Department for the pipeline, which is supported by labor unions and the energy industry and opposed by environmental groups fighting climate change. In the 241-175 House vote approving the bill, 19 Democrats joined the 222 Republicans supporting it. Republicans said the administration has had enough time to review the project, which they said will create thousands of construction jobs and reduce U.S. reliance on unfriendly countries such as Venezuela as sources for energy needs.

Related: America’s Keystone XK double standard: A tale of two pipelines – Reuters

More privacy power, please

Canada’s privacy commissioner wants a little more fire-power at her disposal to deal with companies that play fast and loose with the personal information of Canadians, writes the Financial Post‘s Matthew Braga. In a paper released on Thursday outlining a roadmap for more modern policy reform that addresses the shifting challenges of the Internet, privacy commissioner Jennifer Stoddart said she believes that existing legislation no longer offers an appropriate balance between the privacy of individuals and the business needs of organizations, and those in violation of the law need to be held to account. The Case for Reforming the Personal Information Protection and Electronic Documents Act (PIPEDA) recommends that existing legislation be revamped to allow for stronger enforcement of privacy policy – with potential monetary penalties in the event of violation – and increased transparency regarding security breaches and the disclosure of personal information to law enforcement authorities. In a keynote speech delivered at the 2013 Canada Privacy Symposium, Ms. Stoddart remarked that privacy is too often treated as an “afterthought,” where improvement comes only after improper practices are called into question.

Related: Canada participating in first global Internet privacy sweep – Financial Post

Loonie takes a dive

The loonie briefly touched a one-year low on Thursday as stock and currency markets suffered a sudden bout of volatility overnight before recovering later in the day. Canada’s dollar fell to US96.21¢ at one point Thursday before recovering to close at just under US97¢. The loonie has weakened in the past week, after nearly reaching parity with the U.S. dollar earlier this month, as weak economic data from Canada, including disappointing job numbers, renewed fears about the health of the country’s economy. “Having nearly clambered back to parity at one stage, the Canadian dollar has lost altitude again, and is closing in faster than we anticipated on our [US95¢ target],” said CIBC economists in their monthly FX Outlook. Investors turned pessimistic on stocks Wednesday after U.S. Federal Reserve Chairman Ben Bernanke told Congress the central bank could pull back on some of its monetary stimulus if the U.S. economy continues to progress as it has recently. That, combined with weaker-than-expected manufacturing data out of China, also took out a big chunk from the loonie’s value during the Asian trading session. The loonie is down more than 3% since hitting its recent high of US99.86¢ on May 9.

Related: Warning signs for China as factory activity contracts – Financial Post

Super-cheap U.S. equities

The U.S. equity market is far too inexpensive given the backdrop of low inflation, ultra-easy global monetary policy, improving money availability, steady economic growth and record earnings. That’s the view of Tony Dwyer, U.S. equity strategist at Canaccord Genuity, who initiated a 2014 target of 1,955 on the S&P 500, , writes the Financial Post‘s Jonathan Ratner. Absent signs of increased systemic risk, he thinks there is no way the market should be trading at just 15x Canaccord’s 2013 S&P 500 operating EPS estimate of US$110. “Over the past 50 years, the equity market peaks just ahead of recession,” Mr. Dwyer told clients, noting that recessions take place a mean of 14 months after initial inversion of the yield curve. “Absent a sustainable increase in core inflation that causes aggressive rate hikes, or a belief the U.S. is no longer good on its debt – an inversion, and therefore economic recession should be years away,” he said. Mr. Dwyer also noted that the previous two non-recession periods of valuation expansion took valuations to more than 20x. In both instances, the S&P 500 rallied more than 100% from its low valuation point. The index is currently up roughly 55% from its low valuation date in 2011.

Related: TSX snaps winning streak as metals fall on China data – Bloomberg

Don’t frack with our beer

German brewers called on Chancellor Angela Merkel’s government to block the tapping of shale gas by means of hydraulic fracturing, citing industry concerns that fracking could taint the purity of the country’s beer. The Association of German Breweries, which represents companies including Anheuser-Busch InBev NV and Bitburger Braugruppe GmbH, rejected the government’s planned legislation on fracking until groundwater contamination can be safely excluded. They said the current proposals are inadequate to protect drinking water and hence risk infringing the country’s 500-year-old law on beer purity. “We are concerned that fracking endangers the brewing water that more than half of Germany’s breweries take from private wells,” Marc-Oliver Huhnholz, a spokesman for the group, said Thursday by phone from Berlin. “And that it threatens our absolutely pure beer.” Fracking, which is already politically and environmentally contentious in Germany as federal elections loom on Sept. 22, has attracted a powerful opponent in the country’s brewers, which together employ more than 25,000 people in an industry with sales of about 8 billion euros (US$10-billion) last year.

Related: Quebec proposes five-year fracking ban – Canadian Press

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Faced with a $10-billion pension-funding deficit, one of Canada’s largest pension funds is considering a drastic proposal that would reduce benefits paid to retiring workers — or force them to work years longer for the same retirement income.

The Ontario Municipal Employees Retirement System (OMERS) Sponsors Corporation, which determines benefits and contribution rates for one of the largest pension operators in the province of Ontario, is mulling a change that would reduce the key figure used to calculate how much money an employee will receive each year in retirement.

A decision on the proposed change to the formula, which would take effect in 2015, is expected by the end of June.

OMERS is an umbrella organization for more than 900 employers and their workers in the province, including paramedics, transit workers, firefighters, police and city workers. It represents almost 429,000 active and retired members.

Changes to the pensions overseen by OMERS are considered annually, but this year’s proposal to reduce the “multiplier” rate at which workers rack up retirement payouts — to 1.85% from 2% — is “more drastic,” according to Simon Archer, a pension specialist at law firm Koskie Minsky LLP in Toronto.

“This is the one that made my eyebrows go up,” he said after looking at the proposals. “Usually plans try not to touch that if they can avoid it.”

Mr. Archer said workers who are close to retirement would see little change, while new employees would be hit the hardest.

A sustained period of low interest rates has made pension promises more expensive for companies, forcing them to raise the amount of money both the employer and employees pay into pension plans, or reduce benefits.

OMERS had a deficit of $7.3-billion at the end of 2011, and already tried to remedy the growing problem by phasing in contribution rate increases over the past three years. At the same time, plan costs have been rising as members age.

There are legal impediments to reducing any benefits that have already been accrued by workers under a plan, but benefits based on future work — including by newly hired employees — are fair game, said Mr. Archer.

The new pension formula at OMERS would be applied to all earnings above a certain threshold beginning in 2015. In order to go into effect at all, it will require approval by two-thirds of the board of the OMERS Sponsors Corporation. The 14 members of the board include an equal number of employer and employee representatives.

This is the one that made my eyebrows go up

Three of the employer representatives proposed the formula change, according to documents posted on the OMERS Sponsors Corp. website. The “key rationale” behind the request for the plan change includes the funding deficit, and the fact that contribution rates are already at an all-time high, the documents say, adding that these factors are “putting a significant strain on members and their employers at a time when our economy is also under stress.”

If the proposal is accepted, it will not affect retirement benefits accrued for work done through the end of 2014. The documents note that the impact on lower-income earners would be reduced because the new formula would be applied only to earnings above the maximum earnings level calculated in the Canada Pension Plan.

In addition, the change would give workers more room for RRSP contributions and they could still receive 70% of their pre-retirement income if they were willing to work longer — 38 years instead of 35 — to build up the additional benefit.

Individual plan members do not get to vote on the proposal, but John Pierce, vice-president of public affairs at OMERS, said feedback or input from them can lead to amendments or even withdrawal of any suggested pension plan changes.

This year’s OMERS proposals, which also include curbs on indexing for inflation and a delay in early-retirement eligibility, appear to address some of the concerns raised in a recent survey by global human resources consultant AON Hewitt. It suggested that Canadian pension plan sponsors have been slow to react to changing demographics and other challenges to pension sustainability.

Awareness of the trends “does not seem to have spurred plan sponsors into addressing long-term sustainability strategies as they struggle with short-term financial pressures and regulatory requirements,” AON Hewitt said in the survey released in early May.

With files from Barry Critchley

Despite an aging population and a growing demand for medication, the biotech industry is facing a funding crunch as investors turn to “sexier” industries with quicker product turnarounds and better chances of payoff, a new report suggests.

Capital raised in the biotech industry in North America and Europe fell about 15% in 2012, to US$28.1-billion, the first drop since 2008, Ernst & Young said in their biotech report, released Thursday, while venture capital in particular slipped 5% to US$5.4-billion.

Companies are increasingly having make do with less financing, and are resorting to cost cutting and other measures, said Mario Piccinin, partner at Ernst & Young.

“We’ve just got less [venture capital] money in Canada and the U.S. because other sexier areas, for lack of a better term, have come up over the last number of years,” he said in an interview.

Biotech is increasingly seen as a “risky proposition” because of the long timeline involved in getting products to the market, he added.

“If you think about how long it takes to take a drug from a molecule or from a lab into commercialization, you’re talking about anywhere from 10 to 15 years, and hundreds of millions of dollars. And problem you have is, with the regulatory environment being so complex and so restrictive, there’s a lot of failures.”

In the early to mid-2000s, the biotech industry — including that in Canada — was booming with high-double digit revenue growth as the sector began to mature. But after the onset of the global financial crisis in 2008, that all changed. Companies turned to extensive cost-cutting measures to stay afloat.

By 2011, some semblance of normalcy set in, Ernst & Young says. In 2012, revenues across established biotechnology centres — the U.S., Canada, Europe and Australia — revenues rose 8% to US$89.8-billion and net income rose a staggering 37% to US$5.2 billion, according to the report.

However, most of this growth is driven by the big U.S. biopharma giants such as Amgen, or similar size-equivalents in Europe.

In Canada, where there are just over 60 biotech companies, many of them with small to mid-size capitalization, the industry is far from faring as well.

The revenues of Canadian public biotech companies totalled US$619-million in 2012, up slightly from US$612-million from 68 public companies the year prior. Losses improved, to $303-million dollar in 2012 from a loss of $368-million the year before.

The effect of the funding crunch is much more dire north of the border as well.

There was just $733-million raised in capital in 2012, just slightly below the $739-million raised in 2011. The bulk of that, $349-million, was debt, while venture funding dropped by 60% from 2011 to just $68-million.

“[In Canada] the companies are much smaller, and much riskier many times, because the companies have maybe one or two molecules or one or two products or platforms, as opposed to larger companies in the U.S. with multiple products being developed,” said Mr. Piccinin.

Meanwhile, 53% of Canadian biotech companies were holding less than a year of cash on hand last year, Ernst&Young says. By comparison, about one-third of biotech companies in both the U.S. and Europe held less than a year of cash on hand in 2012.

And for the fifth year in a row, there were no IPOs in Canada’s biotech sector in 2012. While IPOs overall are at record lows, US$765-million and and US$40-million were raised in public offerings in the U.S. and Europe, respectively.

Still, total capital raised by IPOs across the board slipped 6% to US$805-million last year.

Meanwhile, research and development spending — the lifeblood of the industry which spurs innovation — by public companies has been lagging, said Mr. Piccinin.

While globally, R&D spending is up 5%, even in the U.S. where it is has risen 7%, smaller early-stage companies are cutting back. Of companies with less than US$500-million in revenues, about 41% have dropped their research and development spending.

In Canada, that innovation spending dropped by 12% last year, Ernst&Young added.

Although there is a looming opportunity as the population gets older and needs long-term care and medicine, it isn’t a pressing demand for biotech companies, he added.

“There’s definitely a lot of good science in Canada, and a lot of good science done worldwide. Obviously, they want innovation, but a lot of the pharma companies are also selling a lot of ‘gold’ medicines to developing countries. There’s a lot less need for some of this innovation,” Mr. Piccinin said.