Canada Stocks Fall on Royal Bank Share Sale, BCE; Barrick Gains

By John Kipphoff

Dec. 9 (Bloomberg) -- Canadian stocks fell the first time in three days, led by financial companies, after Royal Bank of Canada said it will sell stock at a discount to shore up capital reduced by writedowns related to U.S. debt investments.

Royal Bank paced finance shares’ biggest drop since Dec. 1 after announcing the sale of as much as C$2.3 billion ($1.84 billion) of stock. The move overshadowed a deeper-than-forecast interest rate cut by the Bank of Canada, which said that the nation’s economy is “now entering a recession” as the global slump deepens.

“Royal’s issue has shaken market confidence a bit,” said Michael Sprung, president of Sprung & Co. Investment Counsel, which manages $50 million in Toronto. “The public’s constantly told how strong the banks are, and yet they have to come to market at depressed prices. It’s not good for shareholders.”

Mining shares advanced, led by Barrick Gold Corp., as bullion prices gained. The Standard & Poor’s/TSX Composite Index fell 2 percent to 8,397.56 in Toronto as more than three stocks declined for every two that rose advanced.

Canada’s main stocks benchmark rose 5.6 percent yesterday, led by energy, mining and financial shares, on speculation that President-elect Barack Obama’s plan to implement the largest spending plan for public works since the 1950s may revive the U.S. economy, and demand for commodities. The S&P/TSX is down 39 percent in 2008, poised for its worst year ever.

Royal Bank, the country’s biggest lender, slid 5.9 percent to C$35.29. It’s selling 56.8 million shares at C$35.25 apiece in a transaction scheduled to close Dec. 22. The banks managing the sale have an option for another 8.51 million shares.

Target Rate

Bank of Canada Governor Mark Carney and his rate-setting panel cut the target rate for overnight loans between commercial banks by 75 basis points to 1.5 percent, the lowest since 1958. The move was predicted by only two of 23 economists surveyed by Bloomberg, with 20 calling for a half-point cut.

“The fact that they’re cutting this much is making people wonder if things are even worse than thought,” said Sprung. “The hopes of an Obama stimulus are dissipating to some extent. People are realizing there’s no quick fix.”

Toronto-Dominion Bank fell 7.5 percent to C$42.10. The nation’s second-largest bank sold said it will sell as much as C$1.38 billion in stock this month after posting a 7.3 percent drop in profit to C$1.01 billion on credit trading losses.

Reluctant Lenders

Canadian Imperial Bank of Commerce, Bank of Montreal, Bank of Nova Scotia and National Bank of Canada joined Toronto- Dominion and Royal Bank in not immediately matching the Bank of Canada’s interest-rate cut today, lowering their prime lending rates by 50 basis points to 3.5 percent.

Banks have been reluctant to lend since October after mounting credit losses at institutions worldwide sent the cost of interbank borrowing in Canadian dollars to the highest in at least 18 years. CIBC fell 5.6 percent to C$50.31. Bank of Montreal dropped 4.4 percent to C$34.65. Scotiabank slid 7 percent to C$32.34. National Bank fell 7.1 percent to C$34.87.

A measure of financial stocks in the S&P/TSX, the biggest by value in the index, fell 4.9 percent. A gauge of phone companies fell 3.2 percent, led lower by BCE Inc.

BCE dropped 8.7 percent to C$22.50, the most since Nov. 26. Canada’s biggest phone company hired PricewaterhouseCoopers LLP in an effort to salvage its C$52 billion ($41.5 billion) takeover by a group led by Ontario Teachers’ Pension Plan.

BCE’s leveraged buyout was put in doubt last month when KPMG LLC auditors told BCE the deal would push it into insolvency. PwC was hired to help persuade KPMG to reverse its opinion, Montreal-based BCE said yesterday. If KPMG holds its ground, the deal, set to close by Dec. 11, probably will fail.

Gold rose a second day on speculation the U.S. dollar’s rally will stall, boosting the investment appeal of the metal.

Barrick Gold, the biggest bullion mining company in the world, rose 3.8 percent to C$35.10. Rival Goldcorp Inc., which traded today without the right to its 1 cent-a-share dividend, climbed 2.8 percent to C$30.94.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.