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TORONTO — Intact Financial Corp. has signed a deal to buy two specialty insurers in a move that gives it a foothold in the market for wealthy clients, part of a broader push among financial services firms toward high-net-worth customers.

The $1-billion agreement with Princeton Holdings Ltd. will see The Guarantee Co. of North America and Frank Cowan Co. Ltd. come under the umbrella of Intact, it said Thursday.

The acquisition “bolsters Intact’s position and adds new products for the high-net-worth customer segment,” the Toronto-based firm said.

For Intact, which provides property and casualty insurance in Canada and specialty insurance across the continent, The Guarantee opens the door to North Americans flush with assets — and who need them insured.

One-third of The Guarantee’s business comprises personal lines, including a high-net-worth home and auto insurance portfolio in Canada, Intact said.

A Canadian-owned company founded in Montreal in 1872, The Guarantee collects about $560 million in annual gross premiums, which would bring Intact’s direct premiums from specialty lines in North America to nearly $3 billion, according to Intact. Specialty lines insurers typically underwrite more difficult and unusual risks or higher-risk accounts, such as professional liability, marine and aviation.

The transaction is expected to close in the fourth quarter of this year, subject to regulatory approvals.

“We are delivering on our objectives to grow in Canada and build a leading North American specialty platform. I’m enthusiastic about what we will accomplish by leveraging the combined expertise of our teams and our expanded offering,” said chief executive Charles Brindamour.

To finance the transaction, Intact said it has access to its own capital resources and bank facilities and may evaluate capital markets alternatives.

The rush to attract rich clients in a world where the wealthiest one per cent are on track to hold nearly two-thirds of global wealth by 2030 — according to a U.K. House of Commons library study last year — was evident elsewhere Thursday.

Robo-adviser Wealthsimple Inc. announced it will team up with Grayhawk Investment Strategies Inc. to offer the Calgary-based company’s investment strategies to advisers who use a particular Wealthsimple platform and serve high-net-worth clients.

Grayhawk handles hundreds of millions of dollars for 30 of Canada’s wealthiest families.

The partnership folds into Toronto-based Wealthsimple’s strategy to expand beyond the 100,000 clients and $2.5 billion assets it managed at the end of 2018 into a broad-based financial services institution.

 

Companies in this story: (TSX:IFC)

The Canadian Press


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Canopy Growth Corp. shares fell to their lowest level this year on Thursday after quarterly results suggested the cannabis producer lost market share and an announcement that its interim chief executive plans to leave the company, just weeks after his co-CEO was pushed out.

The Smith Falls, Ont.-based company shares were down $6.35 or 15 per cent at $36.22 by late afternoon on the Toronto Stock Exchange after it released first-quarter financial results that missed analyst expectations after the markets closed Wednesday.

It reported a $1.28-billion loss or $3.70 per share for the three months ended June 30, compared with a loss of $91 million, or 40 cents a share, in the same quarter the previous year. Analysts had predicted the company would book a loss of 70 cents per share on $107.1 in revenue, according to financial data firm Refinitiv.

Quarterly revenues in what was the company’s fiscal first quarter of 2020, fell short of those expectations at $90.5 million, up from $25.9 million a year earlier, before recreational marijuana was legal in Canada. But compared with the quarter before, sales were down by about $4 million.

Medical cannabis revenues decreased five per cent year-over-year, with a 39 per cent drop in Canada offset by a large growth in international sales.

“It appears Canopy is losing market share,” John Chu, an analyst with Desjardins, wrote in a note. Canopy’s net sales of $90 million fell short of Desjardins’s $125-million estimate.

CEO Mark Zekulin said Thursday that Canopy was successful when recreational cannabis became legal in Canada in October and that allowed it to grab 25 per cent to 33 per cent of the market.

“Our competitors have now began to ramp up their own supply,” he said, adding that the company has had to retrofit some of its facilities.

“We are still within that one quarter to one-third market share,” though it’s now towards the lower end of that band, Zekulin said.

Still, he added, the company expects to maintain and increase its market share and as the market grows that will mean increasing revenues.

Zekulin announced on the call that he has decided to leave the company “once a suitable CEO is found.”

The news came just six weeks after co-CEO and board member Bruce Linton was abruptly ousted in the wake of a statement from shareholder Constellation Brands Inc., which invested $5 billion last November, that it was “not pleased” with Canopy’s year-end results.

At the time, Zekulin said he will work with the board to begin a search to find a new leader to guide the company in its next phase.

Canopy has hired a U.S. recruitment firm, Zekulin said, and the CEO search is well underway with “several exceptional candidates” already identified.

It expects to have the executive post transition completed within the next several months, said Zekulin, who did not disclose his future plans.

The Smith Falls, Ont.-based company reported a $1.28-billion loss or $3.70 per share for the three months ended June 30 compared with a $91-million loss or 40 cents a share in the same quarter the previous year.

It said the loss is mainly due to a non-cash loss of $1.18 billion on the extinguishment of warrants held by Constellation Brands.

 

Follow @AleksSagan on Twitter.

 

 

Companies in this story: (TSX:WEED)

Aleksandra Sagan, The Canadian Press


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WASHINGTON — How fragile is the global economy? The U.S.-China trade war is weakening businesses in both countries, Germany’s economy shrank in the second quarter, and Britain appears headed for a disruptive exit from the European Union this fall.

Those trends have hammered American manufacturers and caused global financial markets to plunge on fears that the world’s largest economy could slip into a recession.

Yet most analysts expect the U.S. economy to power through the rough patch, at least in the coming months, on the strength of solid consumer spending and a resilient job market.

The U.S. stock market plummeted earlier this week when the bond market, spooked by the global turmoil, sent a possible early warning sign of a recession ahead: The yield on the benchmark 10-year Treasury note slipped briefly below 2-year Treasury yields.

That is an unusual shift that indicates investors expect the U.S. economy to expand much more slowly in the coming months. The shift has preceded at least the last five U.S. recessions, though as much as two years can pass before a recession actually hits.

Still, most economists were buoyed by a robust retail sales report Thursday that suggested that American consumers aren’t fretting about bond yields. Sales at U.S. stores and restaurants jumped in July by the most in four months. Online sales soared to their best showing since January. Spending at restaurants is a sign of confidence, given that most people eat out when they feel they have money to spare.

“With the rest of the world sliding into the abyss, the July retail sales figures show a resurgent U.S. consumer riding to the rescue,” said Michael Pearce, senior U.S. economist at Capital Economics, a consulting firm.

If anything, it’s the Trump administration’s trade war that has been harming the world economy. President Donald Trump has imposed 25% tariffs on $250 billion of imports from China, along with duties on most steel and aluminum imports. He has also threatened to hit the remaining $300 billion worth of Chinese imports with 10% tariffs, though he has delayed that increase on about half of those items to avoid raising prices for U.S. holiday shoppers.

Still, the tariffs — and Beijing’s retaliatory duties on $110 billion of U.S. goods — have dragged down China’s growth to its slowest pace in 26 years. That slowdown in the world’s second-largest economy has, in turn, pummeled Germany’s economy, because Germans export industrial equipment to China. Germany’s economy actually shrank in the second quarter.

Other global headwinds remain a threat. Simon MacAdam, global economist at Capital Economics, said the chances of a “no-deal” Brexit have risen sharply since Boris Johnson replaced Theresa May as British prime minister last month. Johnson “is dead keen on leaving the EU” by Oct. 31, the deadline for any deal, MacAdam noted.

An abrupt exit would most likely lower the British pound, raising inflation and cutting into British consumer spending. Supply chains for British manufacturers and retailers would also probably be disrupted as the country reinstates its customs procedures.

One of the U.S. economy’s biggest weak spots is manufacturing, which is suffering from the trade war and global growth strains. Factory output has sunk over the past 12 months. Manufacturing job growth has tapered off during the past year. Surveys of manufacturers indicate that the uncertainty from tariffs is hurting their businesses.

American manufacturers appear to be either in a recession or on the verge of a downturn, said Joe Brusuelas, chief economist for the consultancy RSM. The best possible boost for U.S. factories would be if Trump pulled back on trade hostilities with China and achieved a trade deal, Brusuelas said.

“Right now, the recession risks are more policy-driven, and if policy does not change or the trade and finance war with China escalates, then the manufacturing recession will become a broader and deeper contraction that threatens to spill over into other areas of the economy,” he said.

Trump, who promised voters a manufacturing renaissance, has yet to acknowledge the sector’s bleak condition.

“We’re restoring the glory of American manufacturing,” the president said Tuesday in Pennsylvania, a state that has lost 5,600 factory jobs so far this year.

In fact, many economists say they’re nervous that the government has fewer options to juice the economy than it has in the past. The short-term interest rate that the Fed controls is barely above 2%, giving it far less room to stimulate growth in the event of a downturn. Before the Great Recession in 2007, the Fed’s rate was more than twice that level.

And the widening budget deficit, on track to hit $1 trillion by 2022, also leaves the government with little room to manoeuvr.

“It is very uncharacteristic — very unusual — to be running larger budget deficits every year,” Quinlan said. “The federal government is not in a very strong position to offer a fiscal response in the event that it’s needed.”

Consumers could also pull back on spending later this year if hiring slows and wage gains slow. Employers have already reduced, on average, the number of hours worked for employees in the second quarter, which cuts into paychecks.

And if Trump imposes tariffs on all $300 billion of Chinese goods by mid-December, as he says he plans to do, American consumers will pay more for such things as laptops, cellphones, video game consoles and clothing.

At the same time, many economists say they think consumers can withstand the headwinds. Household debt, as a percentage of income, is much lower than it was before the Great Recession. And lower interest rates make it easier to pay off debts.

That’s likely to sustain U.S. growth, though at a slower pace.

“Consumers’ financial health has improved, and even in the case of an employment and income shock, they’re going to remain resilient enough to withstand the shock,” said Alexander Lin, U.S. economist at Bank of America Merrill Lynch.

Christopher Rugaber, Josh Boak And Bani Sapra, The Associated Press

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NEW YORK — A whistleblower who warned regulators about Bernard Madoff’s Ponzi scheme is now accusing General Electric of misleading investors, sending the company’s stock on a downward spiral.

Investigator Harry Markopolos accused GE on Thursday of engaging in accounting fraud worth $38 billion, saying the company is hiding massive losses and heading for bankruptcy.

The issues he outlined lie primarily in GE’s troubled Capital unit, a financial services division often seen as a black hole in the company. The Capital unit holds commercial and personal loans, as well as insurance policies that include coverage of long-term care. In his report, Markopolos suggests that an accounting rule change for insurance liabilities and a significant lack of reserves to cover long-term care liabilities will push GE to take a $29 billion hit.

GE called Markopolos’s claims unsubstantiated and meritless, saying its reserves are well-supported and the company undergoes rigorous testing annually to ensure its reserves are adequate.

“GE operates at the highest level of integrity and stands behind its financial reporting,” the company said in a statement. “We remain focused on running our businesses every day, following the strategic path we have laid out.”

Markopolos disclosed that an unnamed hedge fund paid him for access to his GE report before it was released, revealing that he will be paid through a percentage of the trading profits. Asked about the potential conflict of interest, he told CNBC “I need to get paid. I have a family to support.”

Markopolos first became suspicious of GE’s accounting when he attended industry luncheons where portfolio managers and analysts said they didn’t believe GE’s numbers could be true because they met or beat earnings estimates every quarter, year after year.

He said the $15 billion hit GE took two years ago when it miscalculated the cost of caring for people who lived longer than expected was “a nasty market surprise and it’s about to get $29 billion worse.” He said GE should have taken action to boost its reserves years earlier to cover its unfunded long-term care liability, but instead waited until a new management team was in place.

GE is not alone in underestimating the reserves needed to cover long-term liabilities. Private companies and public pension funds alike have struggled to keep up with the growing cost of providing health care to an aging population that’s living longer than expected.

“You have to be really kind of smart about the way you write these policies to begin with,” said Joshua Aguilar, an equity analyst at Morningstar who follows GE. “Your hands are tied. You can’t go back and rewrite premiums.”

Morningstar has long believed that GE’s assumptions about how it would cover those liabilities were too aggressive, but that’s an industry-wide problem.

“Does it rise to the level of fraud? My answer to that is, ‘No,’” Aguilar said.

Markopolos also said GE misclassified its investment in Baker Hughes, an oil and gas business. He said that by misclassifying its ownership stake, GE hid a $9.1 billion loss last year. GE said it disclosed potential losses of $7.4 billion related to Baker Hughes in a recent federal filing and stood by how it classified the business.

Independent of Markopolos’ report, GE Capital was already facing investigations, including an inquiry by the Securities and Exchange Commission about the previous $15 billion hit.

Markopolos is known for his role as the whistleblower who warned the SEC about Madoff’s Ponzi scheme, but those claims were initially ignored by regulators.

GE’s stock was down 11% in afternoon trading.

Cathy Bussewitz, The Associated Press

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Hong Kong’s government announced tax cuts and higher social spending Thursday to reverse a deepening economic slump aggravated by anti-government protests and the U.S.-Chinese tariff war.

The territory’s financial secretary, Paul Chan, cut this year’s official growth forecast to 0 to 1%, which could be the worst performance since 2009 during the global financial crisis. The previous forecast was 2% to 3%.

Hurt by the plunge in U.S.-Chinese trade, growth already was declining before anti-government protests erupted this year over a proposed extradition law and other grievances.

“The recent social incidents have hit the retail trade, restaurants and tourism, adding a further blow to an already-weak economy,” said a statement issued by Chan’s agency.

It also cited the impact of slowing trade in Asia, global financial market volatility and the risk of disorder as Britain leaves the European Union.

The measures announced Thursday will “provide impetus for our economy” and “help cushion the enterprises and people of Hong Kong against challenges,” the statement said.

The changes will result in some 1.3 million taxpayers having their taxes waived, Chan said at a news conference. He said the government will increase payments for elderly and low-income residents and provide subsidies to small businesses and parents of schoolchildren.

The package will cost a total of 19.1 billion Hong Kong dollars ($2.4 billion), according to Chan.

Hong Kong’s economic growth held steady at 0.6% over a year earlier in the quarter ending in June but economists have cut forecasts as the U.S.-Chinese trade war and protests mounted.

Tourist arrivals fell 31% in the first week of August from a year ago, according to the territory’s secretary of economic development, Yau Tang-wah.

Business from mainland visitors, who account for 80% of Hong Kong’s tourists, fell 33%-50%, according to the Hong Kong Tourism Association. Hotel operators say revenue could decline 10%-20%.

Some 29 countries and regions including the United States and Australia have issued travel warnings about Hong Kong.

Retail sales slid 6.7% in June from a year earlier, according to the government. Retailers have told reporters they expect double-digit declines for July and August.

“There is a growing risk of an even worse outcome” if the confrontation between protesters and the government escalates, causing an outflow of capital, Julian Evans-Pritchard and Martin Lynge Rasmussen of Capital Economics said in a report.

The territory’s central bank has reserves to defend the Hong Kong dollar’s exchange rate, “but the city’s property market would be hit hard, resulting in a deep recession,” they said.

The Associated Press


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