Canadian Stocks Fall, Led by TD Bank, After Wells Downgrade

By Mary Childs

Oct. 21 (Bloomberg) -- Canadian stocks fell the most in two weeks, led by financial shares, after an analyst’s downgrade of Wells Fargo & Co. in the U.S. raised concerns that the credit crisis may linger.

Toronto-Dominion Bank dropped 1.7 percent, while Royal Bank of Canada slipped 0.7 percent. Insurer Manulife Financial Corp. lost 2.5 percent, after it got a “sector perform” rating from National Bank of Canada. Barrick Gold Corp. led gains among raw material producers, as bullion rallied on a weaker U.S. dollar.

The Standard & Poor’s/TSX Composite Index lost 96.10 points, or 0.8 percent, to 11,442.02. The index erased earlier gains of as much as 0.5 percent after analyst Dick Bove of Rochdale Securities cut the largest U.S. home lender to “sell” and said its earnings were boosted by mortgage-servicing fees rather than improving business trends. Financial companies are the biggest industry group in the S&P/TSX.

“U.S. banks are down today because of Wells Fargo,” said John Kinsey, who helps manage about C$730 million as a money manager at Caldwell Securities Ltd. in Toronto. When U.S. “financials go down, we sometimes follow in sympathy.”

Toronto-Dominion, the nation’s second-largest bank, fell 1.7 percent to C$64.20. Royal Bank, the country’s biggest lender, slipped 0.7 percent to C$56.11.

Manulife Financial, Canada’s biggest insurance company, fell 2.5 percent to C$21.80.

“While risk should continue to gradually decline as the markets improve and the variable annuity exposure lessens, we do not see a recovery to previous profitability levels in the foreseeable future,” National Bank analysts wrote, initiating coverage of the stock.

Gold Rallies

Barrick, the world’s largest bullion producer, climbed 0.4 percent to C$39.85. Gold for December delivery rose 0.6 percent to $1,064.50 an ounce in New York, as a decline in the U.S. currency boosted the appeal of precious metals as alternative assets.

Rogers Communications Inc. rose 1.5 percent to C$28.75. Canadian Internet providers including Rogers will be allowed to manage traffic on their networks by restricting some content or applications, the country’s telecommunications watchdog said.

First Quantum Minerals Ltd. had the biggest gain on the S&P/TSX, adding 5.1 percent to C$75.98. The Canadian mining company that had a $553 million copper project canceled by the Congolese government last month said it may seek international arbitration in its dispute.

Ivanhoe Mines Ltd., which explores for minerals and metals in the Pacific Rim, added 3 percent to C$12.77.

SXC Health Solutions Corp. was the biggest loser on the S&P/TSX, dropping 5.4 percent to C$50.16. The pharmacy-benefits manager was downgraded to “market-weight” from “overweight” at Thomas Weisel Partners.

To contact the reporters on this story: Mary Childs in New York at mchilds4@bloomberg.net.

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EBay, Robert Half, Switch & Data, TriQuint: U.S. Equity Preview

By Lu Wang

Oct. 22 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

EBay Inc. (EBAY US): The owner of the most visited U.S. e- commerce Web site forecast fourth-quarter profit that missed some analysts’ estimates after shifting into faster-growing but less-lucrative businesses.

F5 Networks Inc. (FFIV US): The maker of products that manage companies’ computer networks said it expects to earn at least 47 cents a share in the fiscal first quarter, beating the 42-cent average estimate from analysts in a Bloomberg survey.

Robert Half International Inc. (RHI US): The supplier of temporary workers reported profit of 60 cents a share in the third quarter, beating the average analyst estimate by 62 percent.

Switch & Data Facilities Co. (SDXC US): The provider of data centers and Internet services agreed to be bought by Equinix Inc. (EQIX US) in a transaction valued at about $689 million in cash and stock. Equinix slipped 4.9 percent to $93.

Terex Corp. (TEX US): The world’s third-largest maker of construction equipment reported a wider loss in the third quarter than some analysts estimated and said a return to profit is “unlikely” in the current period.

TriQuint Semiconductor Inc. (TQNT US): The provider of chips for mobile phones forecast fourth- quarter profit of 12 cents a share at most. That trailed the average analyst estimate of 13 cents in a Bloomberg survey.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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Japanese Stocks Fall on Concerns Over Bank Health, China Policy

By Patrick Rial

Oct. 22 (Bloomberg) -- Japanese stocks fell, led by financial companies on renewed concern banks will be slow to recover from the recession.

Sumitomo Mitsui Financial Group Inc., Japan’s second- largest lender by market value, lost 2.7 percent. Mitsubishi UFJ Financial Group Inc., the biggest, sank 3.1 percent. Dick Bove, an analyst at Rochdale Securities LLC, cut his rating on Wells Fargo & Co. yesterday on concern loan losses may be accelerating, sending U.S. bank shares tumbling. Mitsui O.S.K. Lines Ltd., the world’s largest merchant-fleet operator, slid 2.4 percent amid concern China will tighten monetary policy after economic growth accelerated to the highest level in a year.

“I’m sticking with my bearish stance -- investors have become too optimistic,” said Tomokatsu Mori, an equities manager at Fukoku Mutual Life Insurance Co., which manages about $61 billion in assets. “The financial system is broken and they’re trying to convince everyone that it’s not.”

The Nikkei 225 Stock Average dropped 0.6 percent to 10,267.17 at the close of trading in Tokyo. The broader Topix index declined 0.6 percent to 908.60, with about two shares retreating for each that advanced. Both indexes pared losses late in the day after quarterly earnings from Credit Suisse Group AG and Hyundai Motor Co. topped estimates.

Japanese exports dropped 30.7 percent from a year earlier, compared with a 36 percent decline in August, the Finance Ministry said today in Tokyo. The drop was larger than economists had forecast.

China Data

Data today from China, Japan’s largest export market, showed the nation’s economic expansion accelerated to an 8.9 percent pace in the third quarter, fueled by a boom in lending, while industrial production increased 13.9 percent in September. The fastest economic growth in a year spurred concern the government will tighten monetary policy.

“China looks like it’s the one economy that’s emerging from the recession and it’s due to the government throwing money around,” said Fukoku’s Mori.

In New York yesterday, the Standard & Poor’s 500 Index slumped in the final hour of trading, losing 0.9 percent. Wells Fargo reported a record quarterly profit yesterday, which Rochdale’s Bove said belies the company’s true condition.

“Most disturbing is that loan losses seem to be accelerating on the negative side,” Bove said in a report, cutting his investment rating on the shares to “sell.”

Sumitomo Mitsui lost 2.7 percent to 3,220 yen today. Nomura Holdings Inc., Japan’s largest brokerage, sank 2.9 percent to 664 yen. Mitsubishi UFJ lost 3.1 percent to 472 yen.

Shipping Companies

The Topix has advanced 5.7 percent this year, lagging gains of 20 percent by the S&P 500 and 26 percent for the Dow Jones Stoxx 600 Index in Europe, as a stronger yen and decreased global capital spending crimped profits at Japanese companies. Shares in the Japanese benchmark trade at 39 times estimated earnings, higher than shares in the U.S. and Europe.

Mitsui O.S.K. declined 2.4 percent to 565 yen. Nippon Yusen K.K., Japan’s No. 1 shipping line by sales, sank 3 percent to 359 yen. Shipping companies as a group had the steepest drop among the Topix’s 33 industries.

KDDI Corp., Japan’s second-largest mobile-phone operator, lost 4 percent to 484,000 yen, the biggest decline in the Nikkei. The shares were cut to “hold” from “buy” by Hiroshi Yamashina at Citigroup Inc. The company’s handsets aren’t becoming more competitive and it needs to improve profitability in its fixed-line business, he wrote in a report.

Sankyu Inc., a logistics and plant engineering company, jumped 5.4 percent after saying in a preliminary report yesterday first-half profit exceeded the company’s original estimate by 21 percent.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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U.K. Banks Face New Regulatory Proposals From FSA’s Turner

By Caroline Binham

Oct. 22 (Bloomberg) -- The U.K.’s largest banks will face a second wave of proposals that may lead to a “revolution” in their business with today’s publication of a Financial Services Authority report on firms deemed too big to fail.

FSA Chairman Adair Turner will publish his second report in seven months on changes that he said would revolutionize regulation following the worst financial crisis since World War II. His proposals may include higher taxes or tougher capital rules for big banks in an attempt to lessen the burden on taxpayers in any future bailouts, he has said.

“To what extent can banks have cross-border business in the same way that they used to -- that is bound to come up,” said Jonathan Herbst, a former FSA attorney who is now a regulatory lawyer at London-based Norton Rose LLP.

Policymakers worldwide agree on the need for oversight of firms whose failure might threaten the stability of the financial system. They differ on what to do. Bank of England Governor Mervyn King this week repeated his backing for a plan to split banks’ deposit-taking parts from their securities units. Turner, 54, has previously said that enforcing such a split would be difficult and impractical.

“In the end, the danger will be having too many divergent decisions or no decision at all,” said Tommaso Padoa-Schioppa, the former Italian finance minister who is now European chairman of Promontory Group. “I’m less opinionated on what formula should prevail.”

‘Tax on Size’

The FSA confirmed the report’s publication today. Turner’s March proposals to require banks to hold more capital and liquid assets were largely endorsed by the U.K. government and the Group of 20 Nations. Turner also heads a committee of the Financial Stability Board, a group of finance ministers, central bankers and regulators that guides G20 policy.

Turner said last month that the FSA was considering whether a “tax on size” for systemically important firms would be appropriate, citing proposals by U.S. Treasury Secretary Timothy Geithner.

Turner also backed King’s call for lenders to formulate a “living will” that would set out how they could be split up in the event of failure. Since then, Chancellor of the Exchequer Alistair Darling has said he will introduce legislation on the issue.

The FSA is fighting for its political survival after opposition Conservatives said they would scrap the agency and return lender supervision to the Bank of England should they win the next election, which must be held by mid-2010.

“What will be interesting is if he references U.K. political change,’ Herbst said of Turner.

‘Force for Good’

Since his March report, Turner has attracted criticism for telling banks that they should put social usefulness above profitability and for suggesting a global tax on bank deals. He repeated those two themes this week.

Turner could propose a ban on so-called naked trading of credit-default swaps, the British Broadcasting Corporation reported, without saying where it got the information. The swaps, a form of credit derivative, allow buyers to guard against a borrower’s missed debt payments.

The BBC said Turner may look at limiting CDS to only those who hold the debt of a particular company or institution. Turner said last month that some products were so complex in the $592 trillion over-the-counter derivatives market that it was unclear how they benefited society.

“I’m predicting activist regulation,” said Simon Gleeson, a regulatory lawyer at London-based Clifford Chance LLP. “Turner sees financial regulation as a force for good for society.”

To contact the reporters on this story: Caroline Binham in London at cbinham@bloomberg.net

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