'Real value' for execs taking up social media

Exclusive online communities like INmobile.org gaining traction with those who are connected

By Jamie Sturgeon | June, 20, 2009

Matthew Corbett was travelling home to Boston from New York in 2005 when the idea struck.

The long-time executive headhunter for the wireless industry had finished reading The Wisdom of Crowds, a new book by New Yorker columnist James Surowiecki that was capturing the imagination of many at the time, Mr. Corbett included.

What if the book's thesis — that aggregated group knowledge was more accurate than individual — could be brought to bear on the top minds of global telecommunications, he thought.

"Wouldn't it be amazing if we could capture the collective intelligence inside this community?" he asks almost five years later. Within a year, he launched INMobile.org, an exclusive online social-media site that has been nurturing the concept ever since.

Starting out with about 200 carefully screened members, INmobile membership has grown by more than ten fold. Mr. Corbett says the site is subscribed to by the chief executives of some of the world's fastest growing digital startups and tier-one carriers and handset makers.

INmobile is not alone in providing a platform for business leaders and corporate influencers. There is a growing number of exclusive, velvet-roped sites that are facilitating deals and advancing ideas. Groups like A Small World and Decayenne boast memberships of several thousand of the world's most successful entrepreneurs and business leaders.

In short, social media is gaining credibility with those above the din of Facebook, MySpace and Twitter.

As an example, Mr. Corbett points toward a discussion unfolding on INmobile right now on the rise of Web-equipped smartphones that is being moderated by a former senior vice-president of marketing for Finnish wireless giant Nokia, still the No.1 maker of the devices globally.

"Social networks are of value to senior executives as well as teenagers," Mr. Corbett says. "The fundamental values are still important; they get access to their peer group; they still want to appear smart in their peer group and they still want to give and take information."

"There's real value in that," says Kenneth Hardy, professor of marketing at the Richard Ivey School of Business at the University of Western Ontario. "You get value when you get people at similar levels somewhere where they can share the good stuff — the real stories — in trust."

Yet INmobile is more than a platform for broad discussion, Mr. Corbett says — INmobile is producing what he calls "genuine predictive data" on the direction that the wireless industry is heading in.

The organization just wrapped up its first surveying exercise that asked 100 hand-picked senior executives from Canada and the U.S. what industries will be most affected by the shift to mobile Internet now taking place.

"When you talk to a hundred experts, and 60 per cent of them say one thing, the likelihood of that happening is so high," Mr. Corbett says. He plans to conduct a similar exercise with European executives this year, marry the two sets of data and release it to industry players for free.

The largesses may not last long though, Mr. Corbett says. "You come back to me in six months and I might say there is a business there."

Real value, indeed.

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New direction for Rogers: slow and steady, new CEO says

By Jamie Sturgeon | Financial Post | 05. 30. 2009

It's a not an easy position to be in, but it is an enviable one. Nadir Mohamed was elevated to the corner office of Rogers Communications Inc., the largest wireless and cable company in Canada, in March. His job since has been to keep it there.

The challenges are tall for the new chief executive, who succeeded company figurehead and founder, Ted Rogers after his passing in early December.

They loom largest in wireless, a division that has become a formidable earnings engine, but is now threatened by structural shifts taking place across the industry. To start, he must maintain Rogers' edge over national rivals Bell Canada and Telus Corp., who are quickly catching up in a range of areas.

He must also guard the company's current share of the wireless-subscriber pie from new entrants eager to syphon off customers looking for better products and services for less money. All the while, he must ensure Rogers' other lines of business in cable and media remain profitable.

Most importantly, though, the 52-year-old telecom veteran must ready the company -- and shareholder expectations -- for a period of slower growth.

"The world is changing," Mr. Mohamed said in an interview. "How we won the last five years is going to be different from how we win going forward."

For more than half a decade, Rogers has been the unequivocal market leader in pushing consumer adoption for wireless and cable services. It has become No. 1 because it has built out the most advanced networks and offered the latest devices. But now, the company is at risk of being a victim of its own success as nearly seven in 10 Canadians own a mobile phone and about the same amount subscribe to digital or cable TV.

The company has reached an inflection point, Mr. Mohamed says. To be sure, there's room to grow, just not as quickly.

"No question that when I look ahead toward the next five years, growth is going to be much more modest."

Gone are the days of debt-leveraged blistering growth. Protecting market share, returning value to shareholders and a keen eye on controlling costs are Mr. Mohamed's intentions. In short, they're the hallmarks of a company that is maturing.

The new direction Mr. Mohamed is taking has already been felt. The company nearly doubled its quarterly dividend to 58¢ last quarter. More telling was the ballooning of the company's share-buyback program to $1.5-billion -- or about 10% of common stock -- from an initial $300-million, announced this month.

"The move toward a share buyback has been very positive. They're saying we want to return value to stockholders," said Dvai Ghose, equity analyst at Genuity Capital Markets.

"The problem with being a mature company is that you tend to be fat and lazy. What the company has to do is show it hasn't lost that entrepreneurial spirit. It's a delicate balance."

Despite commanding the biggest share of wireless and cable subscriptions in the country, Rogers can hardly afford to grow complacent now. Alongside slowing penetration among consumers, there is increasing competition to pick up the slack, most pressingly in wireless.

Revenue in the unit, which accounted for over half of $11-billion Rogers took in last year, faces new pressure on multiple fronts.

Declining prices on voice plans from discount brands is driving down average revenue per subscriber for all three major wireless operators. Rogers, Telus and Bell all operate their own so-called "flanker" brands in Fido, Koodo, Solo and Virgin.

The larger threat, however, comes from a clutch of soon-to-be rivals in Globalive Communications, DAVE Wireless and Public Mobile who are readying to launch later this year or early next with widely anticipated cheaper plans.

"That's going to create pressure, no doubt," Mr. Mohamed said. "But there really are two games being played out. At the higher end is the core of what we're trying to do at Rogers."

With limited network capacity, the smaller entrants will likely be focused on voice and text plans, analysts say.

Rogers is aiming for the much more lucrative data-heavy users, which represent the future of the industry, the CEO says. "It's all about mobile Internet and data, the iPhone and BlackBerry and now Android."

Mr. Mohamed must also keep an eye on what the other incumbents have planned. Both Bell Canada and Telus are introducing new networks early next year that will rival Rogers' own. The rollout will enable the two to offer advanced devices such as Apple Inc.'s iPhone or the HTC Dream and Magic powered by Google Inc.'s vaunted Android platform. Rogers is the exclusive carrier of the iPhone currently and is introducing the Google handsets this week.

"The question is, who has the best network quality in terms of reliability and speed? I think it will be a while before the others get there," he said "And we're not sitting still either."

Investment in network technology will remain a chief concern. However, as growth slows the focus will be on retaining customers, Mr. Mohamed said. Long derided for its inattention to customer service and opaque billing structure, the new CEO said yesterday Rogers is investing heavily in a new integrated system subscribers will clearly understand.

"We think the next battle will be fought closer to the customer," he said. "The network is our strength and we'll continue to build on that. But there is a layer on top of that, which is the interaction with the customer."

For a slowing company, that will be crucial if it hopes to continue to win.

jasturgeon@nationalpost.com

Feature: Nortel employees caught in tax trap

By J. Sturgeon | Financial Post | 05. 25. 2009

Richard Smith gave the biggest part of his working life to Nortel Networks Corp.' s telecommunications services unit.

As division director, he witnessed and contributed to the Canadian technology company's rapid growth into a global titan in the 1980s and 1990s. Like other employees of the firm, which filed for bankruptcy protection in January, Mr. Smith was compensated in part with company-granted options on stock.

For many, it was a dream. They exercised their options and sold the shares for a handsome profit at the height of the dot-com boom, when Nortel was the toast of the Toronto Stock Exchange with a share price well above $100.

Yet for an untold number, emotional turmoil has been their only return, and now, as the enervated telecom firm faces a possible dissolution, those optioned shares threaten them with financial ruin.

The reason is a little-known amendment to federal income-tax laws made at the beginning of the decade on options allotted as part of employees' pay that allows for a tax deferral on optioned stock until it is disposed of.

The effect has left current and former Nortel workers such as Mr. Smith saddled with colossal tax liabilities on paper profit they never realized.

"It's been a nightmare," says Mr. Smith, who's name has been changed at his request. "I have to come up with $200,000."

The 68-year-old retiree's ordeal began in the mid-1990s when he was awarded the right to purchase Nortel shares at a discount set by the company.

Times were never better for Nortel. It was selling fibre-optic cable and other network components in spades as the Internet mania was in full flight. The stock was soaring, eventually inflating to occupy a full third of the market value of the entire Toronto exchange.

Mr. Smith retired in 1999 with options on about 13,000 shares, which he exercised in the fall of 2000. He spent about $90,000 of his savings to acquire shares worth $900,000. He could have sold, paid his tax obligation on the profit and still had enough to live in relative comfort for the rest of his life.

But he didn't.

Instead, he thought the stock would go higher still, so he held on. He also deferred the taxes owed to the Canada Revenue Agency (CRA), which were assessed at the time he optioned.

The deferral amendment had just been written into the Income Tax Act through that spring's federal budget. Wary of losing top tech talent (among other sectors) to U. S. companies then offering lucrative stock-option plans, Canadian legislators passed measures allowing for the payment delay on exercised options until the point of disposal.

What was not amended was when the tax assessment is made, which remained -- and still does -- at the point of exercise.

"It created a tax risk," says Ken Snider, a senior tax lawyer at Toronto-based Cassels, Brock & Blackwell LLP. Like a capital gain on an investment, taxes charged on optioned shares are punishing. The CRA applies the same policy it does on capital gains to shares awarded through options to employees -- 50% of the profits at the individual's tax rate.

What no one seemingly saw at the time was a scenario in which a stock collapses, obliterating employees' equity stakes while leaving them with a tax burden from an assessment made when a company's share price was through the roof.

"That is the trap," Mr. Snider says. "If the value of the shares dropped significantly, the proceeds of the sale would be insufficient to pay the tax liability."

Mr. Smith assumed his shares at $104 apiece. After nearly a decade of watching with dread as Nortel's stock price crumbled, his shares are now worth about 2¢ each, accounting for reverse stock splits. His tax liability is about $204,000, he says.

"This is my all-encompassing issue. It's been nine years and it's grinding me down."

Nortel, which declined comment for this story, filed for creditor protection on Jan. 14, succumbing after years of distracting accounting scandals and poor operating results. The filing has bought Nortel -- still North America's largest telecom-equipment maker -- time to restructure into a viable company.

That is clearly the most agreeable outcome for Mr. Smith and others in his position. If Nortel survives, he'll simply keep his shares and defer the tax perpetually.

Failing that lies some "horrific" scenarios. If Nortel sells itself, the acquirer could take it private, cancelling the public float and trigger his tax liability. If Nortel cannot find a suitor, liquidates and ceases to exist as a corporation, the tax will again come due.

The financial recourse for Mr. Smith, who lives with his wife on a $30,000 annual pension (which is also at risk because of Nortel's misfortunes) and old-age security, is to sell his home or empty out his retirement savings.

Nortel employees are not alone. A group called Canadians For Equitable Taxation (CFET) estimates thousands of Canadians share Mr. Smith's misfortune. Many are unwilling to come forward out of embarassment or fear they'll draw the eye of the CRA, says Gary Hawe, a spokesman.

In a rare instance that cast light on the issue, 35 former Canadian employees of California tech giant JDS Uniphase Corp. received a federal reprieve or "remission order" on their obligations in 2006 after lobbying their local Member of Parliament, Gary Lunn, then the natural resources minister.

Since then, awareness has grown. In late April, CFET, a group of several hundred, met with the federal finance committee to ask for a change to the rules. How far did discussions go? In short, nowhere.

The CRA argued its bound to administer the law so long as it is in place, says committee member John McKay, Liberal MP for Scarborough-Guildwood. Meanwhile, Jim Flaherty, the Minister of Finance, is "refusing to take on the issue."

Each side is "blaming the other for this problem and in between the crossfire there are a lot of dead taxpayers," Mr. McKay says.

Mr. McKay says the rules have created unintended consequences and need to be corrected. "It is an anomaly and it's wrong. You shouldn't tax people on phantom income."

"The best thing that could happen to me," Mr. Smith says, "is that the shares remain worthless and that's it. Then I can sleep at night."

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News: Courts OK US$7.3M in Nortel bonus payments

By J. Sturgeon | Financial Post | 03. 21. 2009

Nortel Networks Corp. has won approval to pay senior executives millions in retention bonuses as part of a plan to keep key personnel from fleeing the company as it undergoes court-protected restructuring. However, a legal battle is looming.

Courts in Canada and the United States granted the company the right to pay a combined US$7.3-million to top-level managers yesterday --even as thousands of former employees are being denied severance payments.

"You need to keep the good people to make sure this restructuring is successful in order to preserve as many jobs as you can and in order to preserve as much value as you can in this enterprise," said Derrick Tay, Nortel's chief counsel, during a break in proceedings at the Ontario Superior Court of Justice in Toronto.

In total, three unnamed executives in Canada and five in the United States will share in the bonus pool.

Another 26 employees in Canada were approved earlier this month to receive a portion of a US$23-million program designed to retain 92 senior managers across the globe.

The identities of the eight executives were filed in confidential court materials but not made public for competitive reasons, said Mr. Tay.

"If you disclose that information, it's very easy for competitors to come along and say, 'Well, you're getting X dollars, I'll give you X plus Y.' You're drawing a road map for competitors to come pick your key people."

It is thought that Mike Zafirovski, chief executive, is not among the senior leadership being awarded bonuses.

About 880 additional staff could also be paid US$22-million in bonus payments while Nortel restructures.

Faced with mounting debt and dwindling revenue, Nortel-- once the largest telecommunications-equipment maker in North America--filed for creditor protection in January. The Toronto-based company, which has lost at least US$6-billion since Mr. Zafirovski took over in 2005, is labouring under a complex restructuring plan that will have eliminated a total of 5,000 employees by year-end.

Yesterday's ruling in Canada was objected to by a group of about 60 former employees who have been denied severance pay since Nortel entered bankruptcy protection.

"[Nortel] is saying they can't pay because they don't have the money and the creditors would never allow it, but yet they seem to find enough money to pay some other group of employees about US$45-million," Eli Karp, the lawyer representing the group, said in an interview. "That's our grievance."

Mr. Karp, who works for Toronto-based Juroviesky & Ricci LLP, said the number of former employees joining the 60 or so he represents is growing "daily."

Mr. Karp plans to appeal to the Canadian court on April 20 for a representation order granting the right to represent the estimated 1,100 former employees in Canada that are owed about $100-million, or about $90,900 each, in unpaid severance from the company.

"Ultimately we hope to achieve that our [clients] get 100 cents on the dollar of what they're owed," he said.

The company reported at the end of 2008 that it had more than US$2-billion in cash on hand but said in January's filing the funds were needed to continue operations during its restructuring.

The timing of the latest developments could hardly be worse for Nortel.

Public and political outrage has greeted a scheme in recent weeks at beleaguered U. S. insurer American International Group Inc., which agreed to pay US$165-million in bonuses to the very executives blamed for financially crippling the company.

Nortel said yesterday that the "vast majority" of its remaining employees are on some kind of quarterly incentive plan "aligned to the short-term goals" of the company.

Reached for comment regarding the negative public sentiment that could threaten to engulf the company, spokesman Mohammed Nakhooda said, "It is critical we move through the restructuring process and all of its elements as quickly as possible."

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News: No need for wage cuts, CAW says

J. Sturgeon | Financial Post | 03. 06. 2009

Auditors of General Motors Corp. say North America's largest automaker may be forced to seek bankruptcy protection as it fights for financial survival, raising the odds that workers in Canada will be compelled to accept reduced wages and substantial clawbacks to legacy benefits.

If the Canadian Auto Workers union does not agree to concessions, it could spell the end of GM manufacturing in Canada, experts say.

The auditors' warning, filed in GM's annual report last week but acknowledged by the company yesterday, also raised concern among federal and provincial lawmakers over the "sustainability" of the U. S. automaker -- and the billions in Canadian taxpayer-backed loans being extended to it.

Part of GM's path toward returning to profitability lies in labour-cost reductions both in Canada and the United States. Union officials for the CAW began yesterday the unenviable task of renegotiating a collective bargaining agreement for the roughly 10,000 workers the automaker employs here.

"The auto workers are in a desperate situation going in," said Dennis DesRosiers, a senior Canadian auto analyst and president of DesRosiers Automotive Consultants Inc. in Richmond Hill.

CAW officials said they have reviewed a tentative agreement that union workers in the United States have reached with the company and plan to amend the Canadian union's terms to maintain the same level of investment and production that GM dedicates to Canada now, which is about 20% of North American operations.

GM's mounting losses, a negative net worth and massive cash-burn rate may mean the Canadian union will have to absorb heavy concessions in the coming days just to keep the automaker in Canada, Mr. DesRosiers said.

"[The CAW would] be fortunate to get a term sheet that says, 'Here's what it is going to take for us to stay in Canada, take it or leave it.' "

Ken Lewenza, the CAW president, told reporters in Toronto yesterday the terms reached between GM and the United Auto Workers, the U. S. union, did not cut wages or "core" benefits. There is no reason why the CAW could not draft a similar agreement, he said. "We believe we can maintain our existing wage and benefits package."

New bargaining agreements with workers in Canada and the United States may be for naught, though, if North American lawmakers lose faith in GM's ability to revive its fortunes. Yesterday, the grim auditor assessment created fresh uncertainty among lawmakers whether taxpayer money should go toward a company that may well fail anyway.

Ontario's minister responsible for the auto sector acknowledged there is the possibility that money from the province may not be forthcoming.

"If it is not a viable company, we will not make a deal," said Michael Bryant, Ontario's Economic Development Minister, which is partnering with Ottawa in providing potential financial aid to the Detroit automakers. "If it is a company that doesn't have a profitable future, haven't addressed their legacy costs, don't have a business plan that makes sense to us, we will not make that investment -- because it would be a bad investment."

Speaking from Washington where he is consulting with U. S. officials, Jim Flaherty, the federal Minister of Finance, reiterated in a television interview that "viable" plans must be demonstrated by GM and Chrysler if loan support is to remain in place. That includes potential wage concessions and benefit clawbacks, the Minister said.

"There are the costs of labour, the overall costs of benefit packages -- are they competitive between the Detroit Three and the other automobile companies in Canada?" Mr. Flaherty said. "Those are some of the variables that need to be looked at in order to come to some sensible determination on the sustain-ability of these enterprises."

GM reported a US$30.9-billion loss in its 2008 annual report, which also contained an auditor assessment that stated "substantial doubt" existed that the automaker could make good on certain looming debt payments, forcing it into bankruptcy protection.

GM said yesterday it has received waivers from its lenders to have loan recalls deferred.

A spokesperson for GM told The Wall Street Journal GM's main concern at present was attaining the lender waivers, which will buy more time for the company to restructure.

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News: Jobs drought hits Ontario and Alberta

By J. Sturgeon | Financial Post | 03. 14. 2009

Once considered Canada's twin economic engines, Ontario and Alberta continued to lose steam in February, taking the lion's share of job losses and led by a notable decline in construction employment.

The Canadian economy shed a worse-than-expected 82,600 jobs last month, with more than half coming from Ontario, where the construction sector replaced manufacturing as the main industry to be sideswiped by a deepening U. S. recession.

Last month's reading pushed the province's unemployment rate to 8.7%, a full percentage point over the current national jobless rate and the highest level since April, 1997.

"There's no question that Ontario is bearing the brunt of the weakness," said Douglas Porter, deputy chief economist at BMO Capital Markets, in an interview.

About 28,000 construction jobs were purged from payrolls as housing starts continued to moderate in Ontario amid slumping real-estate demand.

"February finally saw building activity catch up with labour-market realities," said Meny Grauman, senior economist at CIBC World Markets.

Other sectors felt the bite as well, with finance, insurance and real estate combining to shed 19,000 jobs.

In contrast, manufacturers -- the source of much of the blood-letting in recent months --added 14,000 positions.

The additions were a surprising development given the grim export environment for goods bound for a recession-plagued United States. However, it was "literally a dead-cat bounce," said Mr. Porter, given "the steep drop in U. S. auto sales and the massive decline in auto production and other manufacturing sectors around the turn of the year."

February's purge mirrors Ontario's experience since Canada's labour market first began to buckle last October. The province has now absorbed just over half of the country's total job losses in the period, or 160,000 positions.

"That's one interesting feature of this report -- just how far Ontario's unemployment rate has risen above the national average," Mr. Porter said. "It's unheard of."

In particular, Mr. Porter noted that Ontario's unemployment rate remained higher than Quebec's for the second month in a row.

Ontario's unemployment rate eclipsed Quebec's for the first time on record in January.

"This is an important development," he said. "It really plays up how much Ontario's economy has suffered in the past year, in particular as manufacturing has struggled."

Since October, Ontario's unemployment rate has risen two full percentage points, with increases concentrated in southwestern Ontario, where the Canadian auto industry is centred, said CIBC's Mr. Grauman.

Unemployment in Quebec edged up 0.2 percentage points in February to 7.9% as 18,000 jobs were lost, led by 11,000 health-care positions.

"Ontario getting above Quebec is unusual in its own right and to be that much above speaks volumes," Mr. Porter said.

Yet the most-populous province in the country wasn't alone, as plunging commodity prices finally spilled over into the construction and manufacturing sectors of Alberta, resulting in a steep rise in unemployment in that province.

"We are seeing job losses move out [west]," Mr. Grauman said. Alberta shed 24,000 jobs last month, pushing the unemployment rate to 5.4%.

Oil's plunge has chilled construction in the oil sands as well as Alberta's once-torrid housing market, eliminating 9,000 construction jobs in February. Another 10,000 jobs were lost in the province's manufacturing sector. The remaining 13,000 were culled from the education sector.

Alberta unemployment now sits at its highest level in six years. As commodity prices remain depressed, the province is expected to lose more jobs in the months ahead, Mr. Grauman said.

"The weakness in the labour market started later there but it's definitely going to continue."

jasturgeon@nationalpost.com

Magna Entertainment's race may be run

By J. Sturgeon | Financial Post | Feb. 19

Frank Stronach's debt-plagued Magna Entertainment Corp. appears on the verge of financial collapse after the money-losing horse racetrack business said it may not be able to repay looming obligations, adding to the Canadian entrepreneur's woes as his car-parts company struggles to weather the crisis hammering the auto industry.

The Toronto Stock Exchange placed MEC under review on Thursday for a possible delisting on an "expedited basis" signalling the company is at or nearing insolvency, according to the bourse's listing rules.

The review comes in the wake of a collapsed plan that would have seen MEC's controlling shareholder, MI Developments Inc. (MID), spin off its majority stake in exchange for additional capital support in the form of temporary loans.

That plan disintegrated this week after MID said new debt financing for the deal was "unlikely" to be found, given "current global economic conditions [and] the continued disruptions in the financial markets."

As a result, US$274-million in outstanding loans that MEC owes MID will be called in next month, potentially triggering a feeding frenzy among MEC's other creditors.

If it is unable to repay that sum alongside an outstanding balance on a US$40-million credit facility to an unnamed Canadian chartered bank, "substantially all of its other current and long-term debt will also become due on demand," the company said.

MEC reported in its latest quarterly results it has more than US$600-million in debt sitting on its balance sheet. MEC has been attempting to sell assets including several racetracks for months to service debt.

MEC, the largest owner of horse racetracks in North America including Santa Anita in California, said negotiations with MID are continuing, which may include an extension on the repayment date of Mar. 20.

The possibility of a reprieve does exist.

"Look who the lender is and look at what the lender has done in the past," said an analyst that follows the company on Thursday. "Payment dates have come and gone."

MID has pumped hundreds of millions into MEC, which has lost at least US$500-million since 2003, and routinely granted extensions on loan repayments.

The latest came in October when MEC's board approved an extension on a $125-million bridge loan.

"The question you have to ask is, is the lender going to continue to?" the analyst said.

Minority shareholders in MID have grown intensely hostile toward the seemingly unbridled financial support it has given the gambling and horse-racing business.

The collapsed deal was designed to rid MID of its interests in MEC and place stringent rules on any future transactions between the two firms.

Shares in MEC plummeted more than 24% to an even 50¢ on the TSX on Thursday. MID's stock price fell 6% to $7.87. Calls to MEC and MID were not returned. Mr. Stronach is the chairman of both companies.

MEC's precarious situation is compounding the magnate's difficulties as Magna International Inc. faces off against the worst crisis to hit the auto industry in the post-war period.

The company, which he founded, reported its first quarterly loss in 17 years in November and said it was braced for a lengthy auto-sales slump in North America and Europe.

Magna, which has shuttered plants and initiated layoffs to combat the crisis, is set to report fourth-quarter results next week.

Card-card issuers told to tighten up lending as defaults rise

By J. Sturgeon | Financial Post | Feb. 4, 2009

Credit-card issuers are being advised to run regular credit checks, reduce limits on certain cardholders and even close inactive accounts after a report yesterday said delinquencies are on the rise.

Unpaid credit-card bills have been piling up since the financial crisis morphed into recession in the fall, a new report from accounting giant Deloitte says, putting as much at $800-million in jeopardy of being written off.

Households have glutted themselves on debt for the past half-decade, increasing total credit-card liabilities by 40% to $80-billion. As the jobless rate climbed and income generation began to grind to a halt late last year, delinquent accounts jumped by 5% to 10%, said the report's authors.

Now, the spectre of a wave of delinquencies hangs over issuers' balance sheets.

"Canadian consumer debt levels are higher then they were in previous cycles," said banking analyst Robert Sedran of National Bank Financial, adding that he has forecast loss rates to climb higher in 2009.

Historically, Canadian credit-card issuers which include the chartered banks, credit unions, U. S. subsidiaries such as Amex Bank of Canada and big retailers, absorb losses of about 4% annually, the report said.

Yet the delinquency rate has increased by between 50 and 100 basis points since October, with the likelihood that losses will grow, said Mr. Sedran.

Canadian Imperial Bank of Commerce, for example, has already witnessed its loss rate climb above 5% last quarter, the analyst said.

"Where they get to, that's the big question for the year."

The advice Deloitte gives issuers looking to preserve their balance sheets include more credit checks, the ending of automatic account increases and, in some cases, reducing limits or eliminating accounts "where there has been a deterioration in the credit score."

The report also advises institutions to establish a "watch-list" on accounts with "unusually high" use of cash advances.

"Circumstances for cardholders are changing quickly," said Pat Daley, partner at Deloitte and one of the report's authors. "Customers who had impeccable credit scores six months ago may be in trouble today."

Some of the more than 23 issuers in Canada have already moved to tighten standards.

Canadian Tire Corp. said this week it was raising the general interest rate on late payments from its retail cardholders

to 19.5% from 18.99%, annualized. Toronto-Dominion Bank changed agreement terms at the beginning of December, raising rates to almost 25% on overdue accounts.

The report follows measures outlined in last week's federal budget to kick-start the flow of credit back to cash-strapped consumers, including easing pressure on indebted cardholders. Jim Flaherty, the Minister of Finance, said the budget would enhance disclosure requirements on banks and institutions that offer credit cards to help determine costs, revenues and profit margins on services, information institutions are not compelled to divulge under current legislation.

Critics have charged that the proposals specific to credit-card issuers are just too vague.

National Bank's Mr. Sedran said he has not received any tangible guidance that banks are implementing more stringent measures yet, but said he expects them to in the near future.

"You tend to relax some of your lending standards when the economy is performing well and you tend to tighten them when the economy isn't performing well because obviously the risks are rising."

Review: Modern economics for disaffected investors

By J. Sturgeon | Financial Post | Jan. 31, 2009

Markets have crashed, savings have been wrecked for many and the spectre of a deep recession looms large. It's little wonder that modern capitalism is drawing ire in certain corners.

The system, it seems, has spun out of control.

Timely, then, that David Serber, an author who doubles as portfolio manager with one of Canada's largest financial institutions, has offered up a refreshing primer on the machinations of modern economics for disaffected investors.

Best of all, Inflation, China and Oil:How to Protect and Enhance Your Wealth in the Early 21st Century manages to do it in just 85 pages.

In about an hour and a half, one can take up the history of capitalism from Smith to Keynes to Reagan and Thatcher, as well as grasp the primary economic movers of the coming decades: China, oil and the threat of inflation.

The ultimate aim is to arm potential investors with an understanding of the broader processes shaping the global economy and provide a long-term strategy to manage accordingly. It's a task Mr. Serber does effectively.

The crux of the book is straightforward: China's economic ascent will continue to fundamentally change the global economy. Its growth will keep global thirst for energy high, meaning oil will remain a sought-after resource --even as its price rises.

As the building blocks of economic activity, commodities, too, will remain in demand by ever-hungrier economies, driving up costs on everything from food to consumer goods.

These intertwined processes will, of course, fan inflation, dragging down the value of currencies, especially in the West, where soaring public debt is adding to inflationary forces.

However, the book has a subtext: The market works best unimpeded. Government tampering, Mr. Serber says, distorts the ebb and flow of supply and demand and encumbers economic progress.

Mr. Serber even advances the argument that, much like the church was separated from the state in the West long ago, global economies should be separated from government, too.

Overall, though, the book is balanced between Mr. Serber's own faith in the free market and some acknowledgement of ideas favouring a degree of government guidance in the economy.

Page by page, he advocates the former but leaves readers some room to think for themselves, ending each of the four chapters with advice on how they might construct a balanced portfolio that can withstand bumps in the road while tapping into longer-range opportunities.

jasturgeon@nationalpost.com

GM loosening consumer credit as bailout funds flow

By Jamie Sturgeon | Financial Post | Dec. 30, 2008

General Motors Corp.'s lending arm, GMAC Financial Services LLC, said Tuesday it has immediately loosened consumer access to credit in the U.S. after Washington bought US$5-billion worth of preferred equity in the company.

The U.S. Treasury waded further into the waters in which the American automotive industry is treading late Monday, using cash originally set aside to aid failing banks to buy the 8%-dividend paying stake in GMAC "as part of a broader program to assist the domestic automotive industry in becoming financially viable."

"The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers," said Bill Muir, president of GMAC, in a statement. "We will continue to employ responsible credit standards, but will be able to relax constraints we put in place a few months ago due to the credit crisis."

General Motors Crop. said in a conference call it would begin offering 0% financing up to 60 months on certain 2008 and 2009 models in an attempt to turn plummeting U.S. sales around. The company also signalled it could resume leasing.

"It is something we are looking at," said Mark LaNeve, chief executive of North American sales.

The implications for Canada, where governments have already extended $4-billion in taxpayer-backed loans to GM and Chrysler, are uncertain.

"This is a positive situation, but I don't know how positive it is," said Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. in Richmond Hill, Ont. "U.S. consumers aren't buying, fixing GMAC should help them come back to the marketplace."

It is another sign though that Washington is unwilling to let GM, Chrysler LLC or Ford Motor Co. fail.

Treasury officials said money for the equity purchase in GMAC has come from a new, separate fund within its Troubled Asset Relief Program dedicated wholly to the auto industry.

More than US$17-billion has already been made available to the Detroit Three from TARP funds as they restructure, a move that received proportionate backing for their Canadian operations from Ottawa and the province of Ontario on Dec. 20.

Most analysts say it likely isn't enough to see the companies through their restructuring as market conditions continue to slump, meaning more capital will be needed from Washington, and in turn, Ottawa.

Still, Himanshu Patel, auto analyst at J.P. Morgan said the GMAC bailout reduces the chances of a bankruptcy filing at GM.

"While an eventual GM Chapter 11 cannot be entirely dismissed if various stakeholders fail to meet required concessions, federal aid to GMAC suggests the government is probably now so entangled ... a Chapter 7 liquidation seems highly unlikely," he wrote in a note to clients.

Financial difficulties at GMAC as well as Chrysler Financial have directly hit GM and Chrysler sales, Michael J. Jackson, chief executive of AutoNation Inc., told the Wall Street Journal.

GMAC, which engaged in pushing riskier adjustable-rate mortgages that fueled the U.S. subprime housing boom, has restricted credit and raised lending standards in recent months as its own finances have deteriorated.

The lender, which was approved by the U.S. Federal Reserve last week to become a bank-holding company therefore qualifying for TARP, is the traditional source for many GM buyers.

GM of Canada sales were down 23% in November. Sales were off more than 40% year-over-year in the U.S.

"Consumer credit is the jet fuel of the auto business," Mr. Jackson said in a recent interview. "The majority of consumers can't buy a car without getting a loan."

The U.S. Treasury said it would also give an additional US$1-billion to GM to allowing it to participate in an equity offering by GMAC as it tries to raise more capital. The loan adds to the US$9.4-billion the U.S. Treasury is lending GM, the largest automaker in North America.

Feature: No jolly season for Ontario manufacturing workers

By Jamie Sturgeon | Financial Post | 11. 28. 08

Scores of manufacturing workers in Ontario won't be pried from family gatherings because of work this holiday season but not for a reason they're likely happy about.

In what may well be remembered as the Christmas Ontario's factories went silent, manufacturers from cars to steel are shutting down operations to clear bulging inventories and save cash, forcing an unpaid vacation upon thousands of their employees.

Thursday, Hamilton's rusting steelworks were caught in a mounting economic downdraft that has already resulted in a series of unusually prolonged production freezes at auto-manufacturing plants in the province.

ArcelorMittel, the biggest steel producer in the world, said it will be shuttering its Dofasco plant for a two-week period beginning Dec. 21 in an effort to slash $1-billion in company-wide spending.

Some 5,000 workers will go without pay during that time.

The stoppage is also designed to alleviate rising inventory levels, said company spokesman Larry Meyer.

Steadily falling demand across the economy has hit virtually every manufacturer regardless of industry. Steel, a building block in countless products, is no exception.

"It's not a surprise," said Wayne Fraser, president of the United Steelworkers Canada. Production has be slowing for months at Canadian smelters, he said, adding that member workers are braced for similar announcements from others.

"Companies are preparing for the worst. We have to be patient and hope this thing turns around."

Limited Christmas shutdowns are normal for Ontario's auto assembly factories, but this year is different.

U.S. auto sales have plunged 12 straight months through October to lows not seen since 1991 as consumers defer spending. And Canadian plants, which ship almost every vehicle they produce to the United States, are cranking down output far more than in previous years.

General Motors Corp., the largest vehicle producer in Canada and the U.S., is extending the typical Christmas shutdown of its Oshawa, Ont. car plant and the CAMI Automotive Inc. plant it shares with Suzuki Motor well into January.

The automaker is also idling its Oshawa pickup plant, which makes the Chevrolet Silverado and GMC Sierra trucks, for four weeks starting Dec.15, said company spokesperson Patty Faith.

"We don't typically take [inventory adjustments] in December," Ms. Faith said. "Of course, nothing about this year is typical."

GM's U.S. sales last month plunged 45% while Chrysler LLC's dropped 35% and Ford's fell 30%. All three automakers are readying "viability" plans due to Congress by Dec. 2 as part of their bid to win US$25-billion in emergency aid.

The companies are also asking the Canadian and Ontario governments for financial help.

Ford's assembly plant in Oakville, Ont. will be idled four weeks starting Dec.15 to adjust inventory, said company official Lauren More. Ford's St. Thomas, Ont. factory will suspend production for four weeks starting Dec. 8, she said.

Privately-held Chrysler confirmed only that its Brampton, Ont. factory would be shut down next week.

Tighter credit markets are serving to exacerbate the downturn, as companies are forced to stockpile cash for common functions they would normally be able to borrow for, like payroll, said Michael Gregory, a senior economist at BMO Capital Markets.

As a result, temporary production halts in industries traditionally unaccustomed to using the tactic are beginning to look long and hard at the option.

"Manufacturers across the board are looking at ways to pare back," he said.

"Will this become more of a norm going forward? Well, that will depend on what happens in the U.S. economy."

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News: Auto bailout tip of iceberg: JP Morgan

By Jamie Sturgeon Financial Post 11.25.08

The tens of billions of U.S. taxpayer dollars being asked for by Detroit could be the tip of the iceberg, analysts at JP Morgan said Tuesday.

With Congress preparing to hand struggling automakers General Motors Corp., Ford Motor Co. and Chrysler LLC US$25-billion in loans, JP Morgan analysts said any emergency cash would just be a lifeline until Barack Obama's administration takes over in January.

Mr. Obama's economic team would be put to work quickly, tasked with crafting a second, more comprehensive bailout package involving concessions from creditors and labour in what would amount to a sweeping restructuring of the Big Three.

Structural costs would be a primary target under any Washington-brokered overhaul, JP Morgan said, with concession from creditors and the United Auto Workers "inevitable."

The so-called "shared sacrifice scenario" would take months to negotiate, analysts said, likely equating to further injections of operating capital for Detroit.

What all of this means for Canada, which has already shed more than 10,700 auto-manufacturing jobs this year, is uncertain.

Ottawa, too, is mulling a co-ordinated effort to prop up the North American industry, as GM, Ford and Chrysler's Canadian operations pine for up to $6.5-billion in loan guarantees here.

What is certain is that a significant turnaround is of paramount importance. Reeling from a maelstrom of economic headwinds, Canadian auto manufacturers are expected to collectively lose $1.7-billion this year, according to a report by the Conference Board of Canada, also published Tuesday. The loss will be the third in as many years.

Moreover, as demand crashes in the United States, where 90% of Canadian automotive production heads to, 2009 is shaping up to be equally as bleak. New vehicle sales are expected to fall to their lowest point since 1992, leading to another loss of more than $1-billion.

The decline in the Canadian dollar will provide little support, the Ottawa-based independent research association said, adding it expects the loonie to recover to US85¢.

"At this level, the dollar dampens prospects for vehicle exporters, who are being forced to contend with competitive headwinds from low-cost foreign suppliers and more competitive U.S. labour settlements."

Another certainty is that the lines of communication between the federal Conservatives and the Canadian Auto Workers union are quiet for the time being.

Industry Minister Tony Clement said on Monday any restructuring effort would require concessions from the union, but has yet to begin in earnest any dialog with CAW officials.

"He's not talked to me. I've sent him a letter asking for a meeting," said Ken Lewenza, CAW president. "He has not followed up in terms of talking to us about what role the labour movement can play. And until I hear from [the Minister], I prefer to continue to do what we've been doing, and that's building cars."

-30-

Feature: Flip shows feeling the flop

Jamie Sturgeon | Financial Post | 11.22.08

"Big profits! Quick turnovers! Everyone's getting into the act! Live the dream of working for yourself while raking in the cash."

House flipping -- the act of buying, renovating and selling a property for profit -- was a seduction that tempted many during the real-estate market's near decade-long boom that's now sputtering.

Nowhere was that dream more enticing than on television, where networks in Canada, the United States and Europe crafted dozens of entertaining shows making the whole process look just so damn easy.

"How hard can it be to successfully flip a house?" the shows on HGTV, TLC and elsewhere, all seem to say.

As it happens, very hard, says Sam Kamoutsis, a veteran property flipper from Toronto.

"It's not easy," the 42-year-old says. "All these shows rarely show the hard work and knowledge that goes into it. You can't renovate a property in one week."

Mr. Kamoutsis, a former information technology consultant, rode the market between 1998 and 2006, when price wars were the norm across Toronto's red-hot housing sector.

In all, it took eight years to flip eight houses before he exited the market to focus on his real-estate business finding distressed properties for other, mostly commercial, flippers.

With falling home prices and credit more difficult to get, the ranks of speculative flippers are thinning by the day.

"It's becoming more and more difficult now," confirms Mr. Kamoutsis. "Even our regular deals are failing due to financing."

The Canadian housing index fell for a fifth straight month in October due to slumping home sales, Statistics Canada said this week. And last week, the Canadian Real Estate Association (CREA) said that nationally, the average price of a resale home last month suffered its steepest decline in 26 years, down 10% from a year ago, to $281,133.

Hardly the stuff of quick turnovers and big profits.

"We're seeing a lot of the homes that were renovated and are on the market now unfortunately sitting there," Mr. Kamoutsis says.

Not surprisingly, it's precisely at the market's peak that popular interest is highest, says Lawrence Smith, a professor on housing in the University of Toronto's economics department.

The boom in flip-style television programming since 2005, when U. S. network A&E first aired the seminal Flip This House, is a natural extension of this.

"You've got to view them in the context of the cycle," says Prof. Smith. "The programs start coming in the period when the market has been showing great increase for a few years. In that kind of environment, there's nothing really wrong with it in the sense that it's going to work. But it's going to work because of the basic market fundamentals."

Between 2002 and the end of 2007, home prices in Canada soared 78%, to $315,800 from $177,100, according to CREA figures.

Clearly, there was room to flip.

But there's an inevitable time lag that comes when a trend is identified by a network, a series is commissioned and is finally aired.

By the time Canadian shows, such as HGTV's The Big Flip (first aired in October, 2006) launched, there was little growth left in the market, Prof. Smith says.

"Now you're bringing people into the market and enticing them to go buy a house, renovate and think they're going to flip," he says. "And they're going to lose."

Home To Flip, another of the network's four flip-themed programs just debuted in October.

"All these kinds of shows have fueled this sense that flipping houses is a great way to make money," says Anna Gecan, vice-president of content at the lifestyle network. "And up until recently it probably has been."

It was also a great way for the network to rake in viewers. Through 2005 until August, 2007, viewer numbers grew by 40% on the strength of its real estate and renovation programming.

It was at the beginning of this year that numbers began to slip, Ms. Gecan says. Focus groups in March resulted in altering programming "to reflect the changing market."

That means cheaper renovation options explored by its shows, and "loving the home you're in," she says.

As for the future of flipping on HGTV, after two seasons, The Big Flip won't be returning for a third. The other three remain on the bubble.

"I do think we're going to have to look long and hard at whether this is really the right kind of programming for the moment," Ms. Gecan says about renewing the network's other flip-based shows.

"My sense is that we won't."

News: Deflation threat still distant in October

By Jamie Sturgeon | Financial Post | 11. 23. 08

The rate of inflation cooled to 2.6% in October as a slowing economy put the brakes on gasoline and other consumer prices, Statistics Canada reported on Friday.

Economists had expected a slowdown from September's clip of 3.4% as the financial crisis moved into the broader economy, however, the drop is sharper than expected, with notable slowing in a variety of core components.

Price declines for vehicles, clothing and computer equipment as well as a slowdown in transportation costs all contributed to an actual fall of 0.5% in consumer prices last month on a seasonally adjusted basis.

Prices at the pumps, however, were the biggest drag on inflation, "easing" to just 13% higher than a year ago, compared with a 27% rise in the cost of gas in September, the federal agency said.

Excluding gasoline, consumer prices rose 2% year-over-year in October. Excluding all energy components in the index, prices advanced 1.8%.

The core inflation rate, which excludes consumer segments subject to erratic price behaviour such as energy and is the metric used by the Bank of Canada to help determine the overnight interest rate, advanced 1.7%, identical to September. On a seasonally adjusted basis, core inflation posted no growth last month.

The lower-than-expected report "gives the all-clear signal to the Bank of Canada to continue cutting rate," said Douglas Porter, deputy chief economist at BMO Capital Markets in a morning commentary.

The Bank of Canada, which has stated it would cut interest rates further to boost the flow of credit, is set to review the key rate, currently at 2.25%, on Dec. 9.

Beyond falling energy prices, the cost of buying or leasing a vehicle fell by 9% for the second straight month. The clothing and footwear component declined 2.8% from a year ago, led by a sharp decline in women's clothing prices, Statscan said.

Food prices continued to exert upward pressure on inflation though, as the average price for groceries was 7.3% more expensive than last October, marking the eighth straight month food prices have gained. Mortgage interest costs also increased.

By province, Manitoba and Saskatchewan were the only two provinces to not report a slowdown. P.E.I. experiencing the biggest decline, to 3.9% from 5.5% in September.

October's results could mark a pivotal point. As the national economy braces for recession and demand for energy abates, some say inflation will continue to fall sharply in the remaining two months of the year.

"Inflation is poised to plunge again next month, as gasoline prices have dropped in the double-digits again this month - probably down about 18% - which alone could take the annual inflation rate well below 2%," said Mr. Porter.

The central bank's targeted inflation rate is 2%.

Some have even warned of a period of deflation in the coming months as developed economies slow rapidly. However, the threat of deflation, or a self-reinforcing period of falling prices combined with limited consumer spending, here in Canada is distant at best, said Avery Shenfield, economist at CIBC World Markets.

"It’s hard to even think about a wage [and] price tumble when average hourly earnings have still been rising at a 4% clip, the employment rate is still close to record highs, and when a weaker [Canadian dollar] promises to offset some of the drop in global prices for goods set in U.S. dollars."

News: Investors yank even more from mutual funds

Jamie Sturgeon | Financial Post | 11.05.08

September's record rush for the exits by Canadian mutual fund investors grew to a full-on stampede last month as they pulled more than $8.2-billion of their savings out of volatile financial markets, preliminary data showed Tuesday.

Net redemptions from mutual funds for October are estimated to total between $8.2-billion to $8.7-billion, the Investment Funds Institute of Canada said, far exceeding the $4.5-billion redeemed in September.

IFIC estimated that net assets across the mutual fund industry fell 10% to $633.6-billion.

The news Tuesday came just hours after new data from mutual fund research firm Morningstar Canada showed virtually every mutual-fund category suffered sharp declines of 10% or more in October.

"These are some of the ugliest numbers," said Philip Lee, a fund analyst for Morningstar, who said most fund categories suffered their worst drops since the Russian financial crisis in 1998 and market crash of 1987.

"Some of the funds could have been uglier if we didn't get that big currency move."

All but four of 43 fund indexes -- a basket of mutual funds within one category such as U.S. equity or real estate-based funds, for example -- tracked by Morningstar suffered losses, as markets tumbled and credit circulation "came to a grinding halt," Morningstar said in a report measuring the change in funds' net asset values per share.

Twenty fund categories in all declined more than 10% over the 31-day period.

Indeed, a rally to the U.S. greenback followed by some respite on American equity markets in the last four trading sessions of the month staved off even deeper declines in some categories, Mr. Lee said.

The historic run-up in the interbank lending rate, or Libor, through the first half of October exacerbated investor anxiety, Mr. Lee said, triggering massive sell-offs among mutual funds. "Credit essentially came to a grinding halt in the middle of the month," he said.

Indexes that tracked financial funds - once the definition of stability in equities - as well as other blue chip stocks absorbed declines between 13-18%, Morningstar's data showed. The domestic financial services index fell 15.1% led by an almost identical fall in the category's biggest fund, the iShares CDN Financial Sector Index.

Precious metals and other commodity-laden fund indexes witnessed declines of 30% or more in October as investors fretted that demand in energy and base materials was evaporating. "[The declines] certainly didn't play out well for the Canadian equity market, which is heavily influenced by energy and materials stocks," Mr. Lee said.

Not surprisingly, the four fund indices that did not lose ground were global fixed-income, which actually earned 4.5% "primarily on currency moves" in the month, Mr. Lee said; Canadian short-term fixed-income, advancing 0.6%; and Canadian and U.S. money market funds, with almost negligible returns of 0.04% and 0.02%, respectively.

The 12.9% rise in the greenback against the Canadian dollar in October benefited "any fund that owned a U.S. bond," Mr. Lee said. "You're getting that currency kick."

Feature: Helping get small business around big rules

By Jamie Sturgeon | Financial Post | 10.27.2008

If necessity is the mother of invention, regulation must surely be its unwanted sibling.

It was mid-September in a small boardroom on Bay Street when the thought occurred. Oscar Jofre (pictured, above),the 43-year-old chief executive of BoardSuite, had just run down a laundry list of requirements that new legislation introduced last spring had imposed on business.

In June, Bill C-25, a federally-mandated expansion of The Proceeds of Crime, Money Laundering and Terrorist Act, came into force, requiring banks to collect information on virtually every stakeholder, financial interest and transaction for every incorporated account holder.

"That touches six and a half million commercial accounts currently open with all major banks in Canada," Mr. Jofre said. "It doesn't matter if it's private or not-for-profit; every single one of these entities will have to adhere to the new banking laws."

The expansion was built on rules erected in the wake of the Sept. 11, terrorist attacks in the United States, as well as the accounting scandals of Enron in the United States and Nortel Networks Corp., to keep tabs on illicit bookkeeping.

It has become the latest regulatory cross all businesses big and small must bear.

That was in mid-September, when the towers a few blocks south were just beginning to feel the bite from the biggest failure in regulation in living memory. What will the fallout be from the current financial crisis? Even more rules, said Mr. Jofre, whose firm, BoardSuite (www.boardsuite.ca) aims to make corporate record-keeping more transparent and cheaper than ever before.

Through an easily navigable Web site, the firm has streamlined that process from the smallest tasks like tracking events on a calendar and maintaining the minute book, to mandatory obligations such as insurance reapplications and annual return filings.

Some company data must still be manually inputted into the system; however, once it's there, it stays on the record.

Concerned about complying with Bill C-25 at the risk of having an account frozen? "[BoardSuite] has all the data organized and sent to the bank rep without encumbering your business operations," said Dean Peloso, a former Toronto Stock Exchange regulator. "It's the institutional repository for all this information.

"All the elements you normally rely on your professionals to tell you to do, it's now telling you," said the 50-year-old career regulator who helped design Sedar, the electronic filing system for Canadian public companies.

Mr. Peloso's involvement with BoardSuite, where he's a director, is a testament to the rigorous planning that went into the product early on, Mr. Jofre said.

It was in 2003 when Mr. Jofre, an entrepreneur from Edmonton, learned his lesson in the regulatory pitfalls small businesses can stumble into.

A routine offering memorandum transferring assets from his company to another filed with the Alberta Securities Commission failed to disclose a bankruptcy of one of its officers.

The commission returned the filing and fined each director and Mr. Jofre $3,500, he said.

"It was in the minute book, the shareholders knew ... that wasn't the issue. Guess what the issue was -- one little line in the first page ... indicated no director or officer had filed for bankruptcy in the last 10 years. "The lawyer's backing away saying, 'It's not my responsibility,' but yet he's got the book. At the end of the day, I have to know exactly what I'm signing," he said. "The only way you can do that is by having access to information. That's the reason Board-Suite got started."

Of course, having the information on an encrypted Web site is another caveat of the service.

It's accessible around the clock anywhere there's an Internet connection. But perhaps best of all, BoardSuite is absolutely free. At least, it is to the company using it.

Through partnering with major service providers such as Aon Corp., the largest insurance broker in the world, BoardSuite can offer itself for free to clients. It generates income through service fees from Aon and other partners every time a company uses a partner's service.

Not that clients are compelled to use BoardSuite's sponsors, Mr. Peloso said, but "we think they will. It's easier, it's going to save them [time] and money and it's going to be that much more convenient."

"By helping your organization, we help the partners and everybody wins," Mr. Jofre said. Since mid-September, the financial crisis has deepened with the possibility of a recession looming. The talk of increased regulation has begun in earnest.

While it may be good news for BoardSuite, it likely means more red tape for businesses of all sizes.

"This will only impose more regulations," Mr. Peloso said. "Just like last time, the really big mistakes are made by the really big corporations, but the rules are made for all. The small guys end up having to live with the new rules. So you have to organize yourself better."

jasturgeon@nationalpost.com

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TSX erases almost four years' worth of gains

The carnage across global stock markets continued into the second week of October. A bottom is at hand, some say, but then again, we've been saying this for awhile

By Jamie Sturgeon, Financial Post | 10. 10. 2008

Toronto stocks slipped below 9,000 Friday afternoon as North American markets continued their week-long freefall despite a pledge from the Department of Finance in Canada of more capital injections and an address from U.S. President George W. Bush intended to calm markets.

At 2 p.m. EST, Toronto's S&P/TSX composite index was down 743.1 points at 8,863.1, virtually erasing the gains of the previous four years. Canadian stocks were last closed below 9,000 in December, 2004.

U.S. stocks also declined steeply on Friday. The Dow Jones industrial average had lost more than 7% by early afternoon after having sunk as low as 8% earlier. The benchmark Standard & Poor's 500 Index had fallen by 7.4%.

"Fear is essentially gripping the market today," said Benjamin Reitzes, economist at BMO Nesbitt Burns in an interview. "That has not gone away."

Stocks in Toronto were down despite the Ministry of Finance's pledge to buy up to $25-billion worth of assets from banks in an effort to increase liquidity in the Canadian financial system.

Jim Flaherty, the Finance Minister, said the government would begin buying assets as early as next week to keep the flow of credit to consumers from tightening further.

The declines follow a deep sell-off across world markets on Friday.

In London, the FTSE 100 index of top European shares shed nearly 9% earlier to hit its lowest level since June, 2003. The Dow Jones Stoxx 600 index tumbled to its worst week on record at the end European trading on Friday.

Japan's Nikkei plunged 9.6% as Japanese stocks ended the week 24% lower -- the steepest decline since records began in 1949.

"I would say that this is the day that's the transcending moment, where there's been no negative news -- you could even make a case that there's positive news," said Paul Gardner, portfolio manager at Toronto-based Avenue Investment Management. "This is what you call despondency and capitulation."

Investors are looking to the weekend's meeting of leaders from the Group of Seven major industrial nations in Washington for the latest attempt to salvage confidence in global markets.

Coordinated interest rate cuts by the Federal Reserve and other major central banks this week failed to relieve investor fears that the freeze in credit markets will damage banks further and provoke a deep recession around the world.

"It's a proper strategy," said Mr. Gardner in Toronto. "But no one's listening."

"Essentially we're flying blind. No one has a clue what's going on," DZ Bank currency strategist Sonja Marten said. "The uncertainty is too great and volatility is incredible. It's a question of market confidence and somehow we're going to have to get it back."

U.S. President George W. Bush said on Friday the government would move aggressively to address the financial markets crisis, but he acknowledged that anxiety was feeding on itself which was sending stocks plummeting.

"The United States government is acting; we will continue to act to resolve this crisis and restore stability to our markets," Mr. Bush said in the White House Rose Garden. "We can solve this crisis and we will."

He also said the Treasury Department would work quickly to implement the US$700-billion financial sector rescue plan approved a week ago and that the Securities and Exchange Commission was stepping up its efforts to fight manipulation in the stock market.

The U.S. Treasury plans to start injecting capital into U.S. banks as soon as this month, according to a financial policy source familiar with Treasury Secretary Henry Paulson's thinking.

"You have to say we're at capitulation and despondency ... which technically, you're supposed to buy [into] aggressively," said Mr. Gardner in Toronto. "We're at the conditions for a bottom."

With files from Reuters