MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING WEDNESDAY, APRIL 15, 1998 (1)
MARKET WATCH
Street Extends Win Streak
Bay Street and Wall Street each stretched their winning streaks, despite a decline in financial services stocks. Weakness in Canadian banks was nullified by a surge in telecommunication issues
The Toronto Stock Exchange 300 composite index rose 37.12 points, or 0.5%, to 7817.65 - its 14th record close this year. About 134.6 million shares were traded on the TSE, up from 132.2 million shares traded Tuesday. Trading value amounted to shares worth $2.8 billion. Advancers outnumbered decliners 583 to 508 with 280 unchanged
The TSE 100 rose 1.69 points to 475.28.
Of the TSE's 14 index groups, the financial services sector was one of only two losers, down 1.05 per cent; the transportation group slipped 0.20 per cent.
"We had a real nice day on the TSE without the participation of the banks, which I found very interesting," said Pat Blandford, senior vice-president with Midland Walwyn Capital.
"To me, this is quite heartening, that the growth in the market is more widespread than just the bank stocks."
While the technology-heavy U.S. Nasdaq market reached its first new high since April 3, several Canadian high-tech companies posted impressive gains.
Northern Telecom closed up $3.15 at $90.80 and Newbridge Networks was up $2.65 at $40.10.
But Canada's big high-tech winner was Fonorola Corp., which gained $22.20 to $66.40 on TSE-leading volume of 4.8 million shares after Call-Net Enterprises made a $1.6-billion bid for the Montreal-based telecommunications carrier.
Fonorola (fon/tse) soared $22.20 to a record $66.40 after Call-Net said it will buy the long-distance telephone rival for $1.6 billion. Call-Net shares (cn/tse) rose $1 to $26.
Among other telephone companies, Telesystem International Wireless Inc. (tiw/tse) rose $2.40 to $33.50, BC Telecom Inc. (bct/tse) gained $1.55 to $57.25 and Teleglobe Inc. (tgo/tse) jumped $1 to $66. BCE Inc. (bce/tse), the country's largest telecommunications company, rose 50› to $59.10.
Losses by financial services stocks like Fairfax Financial Holdings Ltd. and Canadian Imperial Bank of Commerce limited the advance.
Banks suffered modest losses amid fears the Bank of Canada will increase interest rates to shore up the loonie, which closed down 0.26 cent at 69.51 cents US.
Bank of Montreal was the biggest loser among the banks, slipping 70 cents to $85.40, while Toronto-Dominion Bank lost $0.60 to $71.40. Fairfax Financial lost $50 to $550.00
Shareholders were cashing in after strong gains in the sector thanks to merger mania in the U.S., Blandford said.
"There's still a discipline in the market," Blandford added. "People are savvy enough to take their profits if they think things are getting ahead of themselves."
Base-metals producers benefited from a shift out of some bank stocks. Another boost for the metals and minerals index, which climbed 1.8%, came from higher commodity prices. Noranda Inc. (nor/tse) rose $1.35 to $28.50 while Alcan Aluminium Ltd. (al/tse) rose 55› to $46.40.
Merchandising issues gained 2.26 per cent. George Weston Ltd. gained $5.10 to $154.10, Hudson's Bay Co. $1.30 to $33.70 and Sears Canada $1.45 to $26.80.
Utilities stocks rose 1.61 per cent.
Other Canadian markets finished mixed.
The Montreal Exchange portfolio rose 8.37 points, or 0.2%, to 3947.87. The Vancouver Stock Exchange fell 1.86 points, or 0.3%, to 634.22.
U.S. stocks rose to records after Treasury Secretary Robert Rubin said the Group of Seven nations' policy is unchanged, easing concern that a push to strengthen the Japanese yen would cut overseas demand for U.S. assets.
The Dow Jones industrial average rose 52.07 points, or 0.6%, to a record 9162.27.
About 683.4 million shares changed hands on the Big Board, up from 617.4 million shares traded on Tuesday.
The Standard & Poor's 500 index rose 3.57 points, or 0.3%, to 1119.32.
The Nasdaq composite index gained 20.23 points, or 1.1%, to an record high of 1863.26.
Computer-related companies rallied on optimism that profit growth will pick up in the coming months.
International Business Machines Corp. (ibm/nyse), up US$3 9/16 to US$109 11/16., led the Dow's advance.
Compaq Computer Corp. (cpq/nyse) gained 15/16 to US$26 3/4 after its first-quarter net income fell to US$16 million, or US1› a diluted share, matching the average estimate of analysts polled by First Call Corp.
The world's largest personal computer maker had earlier warned that weaker than expected demand would hurt first-quarter profit.
Microsoft Corp. (msft/nasdaq) rose US$2 15/16 to US$91 3/8, Computer Associates International Inc. (ca/nyse) gained 15/16 to US$55 7/16, BMC Software Inc. (bmcs/nasdaq) rose US$3 1/8 to US$90 and Adobe Systems Inc. (adbe/nasdaq) rose US$1 9/16 to US$48 1/4.
Coca-Cola Co. (ko/nyse), one of the 30 Dow components, fell US$1 1/8 to US$76 11/16 after it reported profit that matched estimates, while AMR Corp. (amr/nyse) surged US$6 5/8 to US$153 7/8 after the parent of American Airlines said earnings rose 91%, beating forecasts.
Major international markets were also mixed.
London: British shares finished lower after a promising start gave way to an uninspiring opening on Wall Street. The FT-SE 100 index fell 30 points, or 0.5%, to 6074.1,
Frankfurt: German shares surrendered early gains to close slightly higher as dealers looked for further consolidation today. The Dax index rose 13.69 points, or 0.3%, to 5388.47.
Tokyo: Stocks closed lower, pulled down by blue-chip property sales. The Hang Seng index lost 49.28 points, or 0.4%, to close at 11,371.06.
Hong Kong: Japanese stocks edged higher ahead of a meeting of the Group of Seven industrialized nations due to buying of high-tech and blue-chip issues. The 225-share Nikkei average closed at 16,299.30, up 21.98 points.
Sydney: Overseas buying, aimed mainly at banks, catapulted Australian stocks to a record finish for a second straight day. The all ordinaries index closed at 2870.5, up 29.6 points or 1%.
Pressure Mounts On Canadian Dollar
The Financial Post
The C$ renewed its decline yesterday, losing almost a third of a cent amid speculation the Bank of Canada may once again be forced to raise interest rates.
Analysts said the currency market is increasingly coming to the conclusion the C$ will only strengthen if interest rates are raised to parity with U.S. rates.
"There is the view that the Bank of Canada is going to come in and tighten [rates] to eliminate the spread," said Sherry Cooper, chief economist at Nesbitt Burns Inc.
Rate parity would attract more international investment to Canada and send the C$ higher, she said. It closed yesterday at US69.51›, down US0.31›.
While the gap in rates might be a drag on the C$, the speed of the recent slide, which came on the heels of a half-cent tumble on Monday, had analysts baffled.
"There is nothing I can see that has happened in the past few days that would have pushed it lower," said Avery Shenfeld, senior economist at CIBC Wood Gundy Securities Inc.
Bank governor Gordon Thiessen told the media in Washington yesterday the C$'s economic fundamentals remained strong. He would not comment on its recent tumble.
The bank has raised its key overnight lending rate to 5% from 3.5% last fall, largely in response to C$ weakness related to plunging commodity prices after a near collapse in many Asian economies.
Another 50-basis-point rise in the bank rate to 5.5% would lift short-term interest rates to equal those in the U.S.
The central bank raised the bank rate 50 basis points in late January after the C$ hit a record low of US69.10›. The currency rebounded to pass US71› last month, aided by excitement that a Jean Charest-led Quebec Liberal party could remove the separatist threat from the province.
In the absence of new positive developments, Shenfeld said, traders may be testing technical levels of support.
The currency fell into weaker territory when the US$ passed $1.4250 (a C$ at US70.15›).
Yesterday's midday low was US69.46›, just above another technical point of support of US69.44› ($1.44).
Shenfeld said the bank may raise rates if the C$ falls below US68.97› (a US$ above $1.45).
TRADING PLACES
Gordon Capital was legendary - its innovative style, singular leadership and machismo, the bane of Bay Street. But those days are gone. Its secretaries are no longer offered breast enlargements as bonuses. Its profits are no longer windfall. There's a new team at Gordon now, where sharing power is the belief du jour.
The question is, is anyone a believer?
The memo fluttered through the corporate finance department in the downtown Toronto offices of Gordon Capital Corp. It was Monday, November 17. A meeting had been called. Tuesday. Four p.m. Board room. Be there.
A sense of unease had been growing within the group, even before this missive, the mood beset by the arrival two weeks earlier of three people: Brad Cameron, decamped from Lehman Brothers Canada; Chris Burley, from Smith Barney Canada; and Rod Baker, who had moved to Gordon from his family's private firm. This team had been anointed a triumvirate of seers who would remake corporate finance, part of a remake of Gordon writ large, which we will get to.
The new boys had conducted interviews with their charges the first week of November. There had been prognostications, out there on the street, where there are no secrets, that Gordon's corporate finance was about to be eviscerated. There were rumours, too, that Cameron, Burley and Baker had negotiated fat compensation packages - as high as $1.8 million for two years in Cameron's case. This was not at all in keeping with the old Gordon, where compensation was predicated on deal flow.
The Gordon insiders looked at one another, attempting the uncertain calculation of who in this new iteration - and there had been many - was a keeper and who would be blown out. Would such decisions be made on the basis of deals landed in the past year or two? Or, perhaps, relationships with corporate titans going forward was the key? Neither of the above? Who knew?
On November 18, 17 people were fired. When the group in Toronto returned to their desks, their computers had been disconnected
The big moment was mere hours away. But there was a twist: Not everyone had received the memo. Whatever did that mean? Were the recipients the in-group or the out-group? The uninvited had received quiet asides. Do not come to the meeting, said the voice. Where was Dilbert when you needed him?
As the appointed hour approached, the uninvited headed up to Canoe, the sleek restaurant that serves as a favourite Gordon boŒte. The invited marched into the board room. Two outplacement experts were there from KPMG, not an encouraging sign. The news was swift, and it came from Brad Cameron, the words now ringing disjointed in peoples' memories. "Spending a lot of time." "Strategic options." "Going forward." There would be a smaller, more focused team at Gordon, Cameron told the gathered, and you're not on it. Good luck with your respective futures.
By the time the old guard, some of whom were very young and had not been at Gordon for very long, got back to their desks, their computers had been disconnected. Perhaps a touch zealous.
Earlier in the day, Cameron had flown to Montreal and put a pistol to the forehead of Gordon's corporate finance department there. In Vancouver, Ted Cape, shipped to British Columbia mere months before to begin building a corporate financepresence on the coast, was fired over the phone. Stephen Jakob, a member of the mining group in Toronto, was tracked to the R‚lais Christine in Paris, a small select hotel that Jakob and his bride had chosen for their honeymoon. Jakob had arrived in Paris feeling relatively secure about his future at Gordon. The mining group had led on the SouthernEra issue (diamonds, private placement, $17 million) and was co-lead on Greenstone (gold, bought deal, $54 million). As a result, Gordon had beat the street in the mining business just the previous month. In most years, mining contributed close to 20% of Gordon's corporate finance business. Just before leaving Gordon's offices on Thursday, Jakob had met with Cameron and Baker. The new rulers sought Jakob's views on redesigning the department. The tˆte-…-tˆte certainly felt inclusive.
It was just before dinner, Paris time, when Cameron spoke to Jakob again. The strategy of the firm had changed. There was no room for him at Gordon. Jakob had not expected to be tested on the "for richer, for poorer" part quite so swiftly. He drank a little more than he should have that evening. "Gordon is an empty shell," he says now of corporate finance. "They're starting from, if not zero, close to ground zero." In all, 17 people were let go.
The firm lived and died by the legendary Connacher, who was slapped with a 90-day trading ban in 1993. He was never the same again
Brad Cameron does not have the cast of a carpet bomber. Boyish-looking at 40, blond, affable, a father of five, Cameron has been through these doors before. In November, 1994, he left RBC Dominion Securities' virgin mergers and acquisitions department to join Gordon's corporate finance group. He lasted precisely 12 months. There had been the odd highlight: Advising Gerry Schwartz on his failed attempt to take over Labatt was one. But Gordon became progressively destabilized, the debates between the partners increasingly antagonistic, the outlook grim.
Gordon had had a legendary past, and that was part of what originally lured Cameron to the firm. Built in the image of Jimmy (The Piranha) Connacher, Gordon was a boutique brokerage that crafted its reputation on its trading prowess in the 80s - particularly its mastery of the so-called block trade, in which a minimum of 100,000 shares change hands. Connacher also introduced the bought deal, in which the firm bet its own capital by taking entire share issues for its own account. Gordon's client base was institutional, meaning that its focus was pension funds, mutual funds and corporations. Retail investing - pushing money for regular folk - was for sissies.
Those are merely the mechanics. The Gordon power, its great strength, was its ability to make quick decisions and act. That was a product of Connacher, who for a time was the greatest practitioner of brokering in the country. He forged close alliances with the likes of Edper, the Toronto Bronfman empire, and much business went Connacher's way as a result. It was from this time that stories of breast augmentation offered up to secretaries as a form of year-end bonus grew and grew and grew. The firm's machismo aroma was legendary, and many bright, young people offered themselves up to it.
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