TSX posts 93-point loss, drops 17% in scary October

TSX posts 93-point loss, drops 17% in scary
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TSX posts 93-point loss, drops 17% in scary October

November 01, 2008

The Toronto stock market ended one of the worst months in its history with a fizzle yesterday, after swinging wildly most of the week amid upheaval in the world's stock, currency and commodity markets.

The main Toronto index fell 17 per cent in October and is now down more than 4,000 points since the beginning of 2008, or about 30 per cent.

Toronto's S&P/TSX composite index fell 93.45 points to 9,762.76 after mounting a brief surge into positive territory late in the afternoon, motivated by rising oil prices.

But the upward momentum was short-lived.

The energy sector wrapped the day lower even though the December crude oil contract ended ahead $1.85 to $67.81 (U.S.) on the New York Mercantile Exchange.

Crude oil has dropped 32.6 per cent since the start of October, its biggest drop in value since it began trading on the Nymex in 1983.

Although Toronto has had a horrific month, it had risen more than 1,300 points in the middle three sessions, or about 5 per cent for the week.

After such a dismal showing in October some industry observers are looking to November for some signs of direction.

John Johnston, chief strategist at The Harbour Group at RBC Dominion Securities, said markets will start to get a taste of October's bad economic data, but overall market reaction could still look comparatively good, albeit not exactly fantastic.

The Canadian dollar rose 0.92 cents to close at 83.02 cents as the American currency lost momentum. The loonie hit its lowest level in four years early in the week.

The TSX gold sector was the biggest loser, shedding 6.8 per cent as the bullion contract dropped $20.30 to $718.20 an ounce.

The Dow Jones industrial average ditched morning losses to climb 144.32 points to 9,325.01.

New York's Nasdaq composite index rose 22.43 points to 1,720.95 while the S&P 500 increased 14.66 points to 968.75.

The TSX Venture Exchange moved up 35.55 points to 915.30.

SNC-Lavalin Group Inc. shares were up five cents to $31.67 (Canadian) after third-quarter profit rose to $91.3 million from $63.2 million, although the global engineering firm's revenue slipped to $1.69 billion from $1.79 billion.

The Canadian Press

Evergreen Capital Partners closed its doors

Boutique investment dealer Evergreen Capital Partners closed its doors after losing $25-million (U.S.), a loss that could translate into major pain for Penson Financial Services Canada, the company that cleared Evergreen's trades.

Evergreen shut down on Wednesday, and regulators at the Investment Industry Regulatory Organization of Canada are now helping wind down the firm. Evergreen was a tiny dealer, with 16 employees and a focus on financing and trading small-cap energy, mining and technology companies. Sources say the investment dealer had less than $4-million in shareholder equity.

Employee-owned Evergreen lost money on a number of positions held by its trading desk, according to sources, and Penson appears to have confirmed the amount of the loss, saying in a press release Friday that it holds “an unsecured receivable from Evergreen Capital, a correspondent firm of Penson Canada, in the approximate amount of $25 million.”

Penson has opened an investigation into the loss and is working with Canadian regulators. Publicly-traded Penson's stock is down 38 per cent Friday on Nasdaq, at $7.30.

“The receivable is the result of a number of transactions involving listed Canadian equity securities by Evergreen on behalf of itself and/or its customers, for which Evergreen and/or its customers have been unable to post requested margin,” said Penson. The company said if it “is unsuccessful in reducing the exposure associated with this receivable, the Company would likely incur an after tax loss in the amount of approximately U.S.$15.5 million, equal to approximately U.S.$0.59 per share."

"We deeply regret this development, which is unprecedented in our history," said Pension chief executive officer Philip A. Pendergraft. "We are doing everything possible to learn all the facts surrounding this issue, in order to maximize the possibility of recovery, and to prevent any such issue from ever again happening."

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Evergreen Capital loss pounds Penson
Andrew Willis, 31/10/08 at 11:01 AM EDT

Boutique investment dealer Evergreen Capital Partners closed its doors after losing $25-million (U.S.), a loss that could translate into major pain for Penson Financial Services Canada, the company that cleared Evergreen's trades.

Evergreen shut down on Wednesday, and regulators at the Investment Industry Regulatory Organization of Canada are now helping wind down the firm. Evergreen was a tiny dealer, with 16 employees and a focus on financing and trading small-cap energy, mining and technology companies. Sources say the investment dealer had less than $4-million in shareholder equity.

Employee-owned Evergreen lost money on a number of positions held by its trading desk, according to sources, and Penson appears to have confirmed the amount of the loss, saying in a press release Friday that it holds “an unsecured receivable from Evergreen Capital, a correspondent firm of Penson Canada, in the approximate amount of $25 million.”

Penson has opened an investigation into the loss and is working with Canadian regulators. Publicly-traded Penson's stock is down 38 per cent Friday on Nasdaq, at $7.30.

“The receivable is the result of a number of transactions involving listed Canadian equity securities by Evergreen on behalf of itself and/or its customers, for which Evergreen and/or its customers have been unable to post requested margin,” said Penson. The company said if it “is unsuccessful in reducing the exposure associated with this receivable, the Company would likely incur an after tax loss in the amount of approximately U.S.$15.5 million, equal to approximately U.S.$0.59 per share."

"We deeply regret this development, which is unprecedented in our history," said Pension chief executive officer Philip A. Pendergraft. "We are doing everything possible to learn all the facts surrounding this issue, in order to maximize the possibility of recovery, and to prevent any such issue from ever again happening."

Oppenheimer shows CIBC escaped just in time

Boyd Erman, 31/10/08 at 9:28 AM EDT

Canadian Imperial Bank of Commerce made some mistakes on Wall Street, where it spent big and paid dearly in a bid to run with the big dogs. The bank got one thing very right, however, and that's the timing on its exit from New York, announced almost exactly a year ago.

CIBC CEO Gerry McCaughey doesn't look much like an action star, but his nick-of-time escape from the crumbling caverns of American finance, with banks tumbling around him in ruins, brings to mind the final scene of some thriller where everything collapses but the hero manages to just make it out.

Results from Oppenheimer Holdings Inc., which bought CIBC's New York investment banking operations, show just what the Canadian bank would have been in for had it stuck around. It's not a pretty sight.

There's nary an encouraging word in the Oppenheimer review of the recent quarter. (The third-quarter earnings release is available here.)

"The investment environment during the third quarter was as hostile to investors as anything seen in decades," said Oppenheimer CEO Albert Lowenthal, whose firm went on to detail a life of cost cutting that's outpaced by revenue declines and an environment that's unlikely to get better any time soon.

"We continue to believe that the long-term benefit of our January acquisition will be substantial; however we do not foresee a quick return to profitability for the enlarged capital markets business segment, given the present state of the markets and of the U.S. econonomy," Oppenheimer said.

Knowing that Mr. McCaughey is a movie buff, it's unlikely he'll head back to New York anytime soon. After all, anyone who's seen an action movie sequel knows they're rarely any good.

What's next for Compton Petroleum?

Andrew Willis, 31/10/08 at 3:50 PM EDT

Investors are taking a deeply pessimistic view of Compton Petroleum's prospects after the debt-heavy natural gas play failed to find buyer.

After a three-month formal auction, and a far longer period of being open to offers, Compton announced late Thursday that it couldn't attract a buyer at an acceptable price. EnCana was seen as a natural suitor, and there was also talk of Enerplus Resources Fund kicking tires.
News that Compton was off the auction block knocked the stock down 21 per cent to $2.45 on the TSX. The company also said Thursday that president and CEO Ernie Sapieha will retire once a successor is choosen.

Looking ahead, Compton now must deal with $903-million of debt, against an equity market capitalization of $320-million. At the moment, Compton is maintaining that it wants to keep its reserve base intact, despite numerous offers for specific properties. If natural gas prices continue to be weak, and debts come due, that resolve may fade.