Activist investor wants Parkland to sell or spin off Burnaby refinery

Amanda Stephenson , The Canadian Press Mar 22, 2023

A U.S. activist investor has set its sights on Calgary-based Parkland Corp., urging the fuel retailer to consider selling or spinning off its Burnaby refinery.

New York-based Engine Capital LP., which owns about a two per cent stake in Parkland, sent a letter to the company's board on Wednesday. In the letter, Engine criticized Parkland for being "unable to translate its advantaged strategic position and quality assets into adequate returns for shareholders," and said the company could achieve better performance by becoming a pure play fuel and convenience retailer and getting rid of non-core assets.

"We are particularly troubled by Parkland’s staggering underperformance compared to Canadian convenience retailer champion, Alimentation Couche-Tard," Engine managing partner Arnaud Ajdler and partner Brad Favreau wrote, adding the investment fund proposes Parkland sell or spin off its Burnaby, B.C. refinery as well as its heating oil and propane distribution businesses.

"We aware of several parties interested in these different assets," they wrote.

Parkland purchased the Burnaby refinery — which refines 55,000 barrels per day of crude and synthetic oil into gasoline, diesel, jet fuels and more — from Chevron Canada for $1.5 billion in 2017.

On the retail side, Parkland is one of the fastest growing independent fuel suppliers and marketers in North America, with a network of retail service stations across Canada, the northern U.S., and the Caribbean. 

Its On the Run convenience store brand is expected to have more than 1,000 locations by 2024.

Engine is also calling for a refresh of Parkland's board. The activist investor criticized the company for the length of time some board members — including chair Jim Pantelidis — have served, as well as its approach to executive compensation. 

Engine, which is requesting a meeting with the board, said in its letter that if the board is unwilling to consider its proposals it should consider a sale of the entire company to either private equity or "strategic buyers."

On its website, Engine Capital says it launched in 2013 and often engages with management teams and boards of directors to create value for the benefit of all shareholders.

"We are looking for undervalued companies where we understand the reason for the mispricing and where change is occurring to close this value gap," the investment fund states.

In a note to clients Wednesday, RBC Capital Markets analyst Luke Davis said he believes that in general, Parkland's major shareholders are aligned with the company's current strategy and "tend to be passive, though the key concerns outlined have been points of contention for select investors and could gain some traction."

Engine said in its letter to the board that it believes Parkland's stock could be worth around $45 per share, a 55 per cent premium to its recent price. 

Parkland shares were up close to nine per cent as of mid-day Wednesday, at $31.82.

CALL IT WHAT IT IS; FRACKQUAKE

Largest recorded Alberta earthquake not natural, from oilsands wastewater: study

Bob Weber, The Canadian Press

Mar 23, 2023

The largest recorded earthquake in Alberta's history was not a natural event, but most likely caused by disposal of oilsands wastewater, new research has concluded. 

"This event was caused by wastewater disposal," said Ryan Schultz, a Canadian seismologist who helped conduct the research while at Stanford University in California.

In November, parts of Alberta near the northwestern town of Peace River were rocked by a series of quakes culminating in one that reached a 5.6 magnitude. 

Residents reported being knocked to their knees. The earth was pushed upward by more than three centimetres — enough to register on satellites.

Oilpatch techniques, such as deep disposal wells that inject wastewater kilometres underground, can induce earthquakes. One such well located near the earthquake site, used to dispose of water used in oilsands operations, has injected more than one million cubic metres of wastewater down about two kilometres. 

After the record-breaking quake occurred, the Alberta Geological Survey, a branch of the province's energy regulator, attributed it to natural causes. The centre of the quake, then estimated to be six kilometres underground, was thought too deep and too far away from oilpatch activity in time and space to have been generated by industry.  

Not so, said Schultz.

A closer and more thorough look at the data brought the centre of the quake up to about four kilometres beneath the surface. That figure is now reflected in the regulator's catalogue of Alberta quakes. 

Similarly, a look at previous research on so-called "induced seismicity" revealed long lag times between deep-well water injection and earthquakes. 

A previous disposal site in Alberta started quaking three years after pumping began, Schultz said. A Dutch disposal well didn't start causing earthquakes for decades. 

As well, history shows deep water disposal can cause earthquakes up to 20 kilometres away. Alberta's November earthquakes were nowhere near that distant.

"The clusters of earthquakes were right on top of a deep disposal well," Schultz said.

His paper, co-authored by scientists at the University of Alberta as well as Natural Resources Canada and published in Geophysical Research Letters, suggests that the injected water forced itself between the two sides of a fault deep in the earth. That water was enough to reduce the friction holding the two sides together and eventually resulted in a slippage that shook the surface. 

Statistical analysis of correlation between the quakes and the underground pumping was conclusive, Schultz said. 

"We had a confidence somewhere between 89 and 97 per cent just in the timing," he said. "There is enough information to start making these kinds of links."

Schultz said the findings could have big implications for Canada's and Alberta's climate change plans. 

Both jurisdictions favour reducing the climate impact of the province's energy industry by pumping vast amounts of waste carbon dioxide deep underground, much as wastewater is injected. So-called carbon capture and storage could have the same seismic effects as deep wastewater disposal, Schultz said.

"If carbon capture is going to be done at a scale that is going to combat climate change, then significant amounts of volume need to be put in the ground," he said. "You might expect then also getting these types of earthquakes the more volume that you store."

That doesn't necessarily mean carbon capture and storage is a bad idea, he said, but it means a lot more seismic monitoring needs to take place around the sites to keep track of what's happening deep in the earth. 

"This could be an issue," Schultz said. "Monitoring will tell.

"You need to be able to see what is going on."

This report by The Canadian Press was first published March 23, 2023.

Clean energy job growth would outpace fossil fuels losses in a net-zero 2050: Report

Holly McKenzie-Sutter, BNN Bloomberg

Mar 22, 2023

A new report projects that clean energy job gains would grow faster than fossil fuel-related losses if Canada were to reach net-zero emissions by 2050 – and oil-producing provinces would see the biggest boosts.

Clean Energy Canada, a think tank based at Simon Fraser University, published its report on energy jobs Wednesday.

It commissioned modelling from Navius Research on one scenario in which Canada reached net-zero emissions in 2050, a second scenario based on current federal policies and a third scenario in which the federal government’s climate plan was not implemented, and clean fuel and carbon pricing rules were cancelled.

In the net-zero scenario, the report found that clean energy jobs would grow seven per cent annually to employ 2.68 million people in a net-zero 2050, up from 509,000 in 2025.

The increase of about 2.2 million jobs would offset the projected 1.5 million decline in jobs in fossil fuels, the report said.

“While emissions will plunge in a net-zero Canada, energy jobs certainly will not,” the report said.

If a future government were to roll back climate measures like carbon pricing, the report said there would be 1.58 million clean energy jobs in Canada by 2050, and 100,000 fewer jobs across the combined fossil fuels and clean energy sectors. 

In the scenario under current policies, which would require more policy action to reach net zero, the report said clean energy jobs would grow to 2.44 million in 2050 from 484,000 in 2025.

Alberta was poised to see the fastest clean energy job growth under the net-zero scenario. Employment in the sector was projected to grow 10 per cent annually to 2050, the report said, adding 419,000 clean energy jobs to offset the projected 324,000 job decline in fossil fuels.

Many of the new Alberta jobs would be in clean transportation like the electric vehicle industry, and the renewable energy and carbon capture and storage industries are also set up for major booms.

“In fact, there will be more jobs in (Alberta’s) clean energy sector in 2050 than in fossil fuels in 2025,” the report said.

Clean energy jobs in Saskatchewan, another oil-producing Prairie province, were projected to grow nine per cent annually between 2025 and 2050. Jobs in biofuels led the projected growth, as did employment numbers in carbon capture and storage.

All provinces were projected to see annual clean energy job growth up to 2050 under the report’s net-zero scenario.

Clean transportation made up the biggest portion of the projected clean energy job growth, with 1.63 million people employed in roles like electric vehicle assembly and driving EV delivery trucks.

Clean energy was the second-biggest projected job generator, with 478,700 jobs expected by 2050 in wind farms, clean hydrogen facilities and other areas.

Jobs in clean buildings, including roles in heating, ventilation, and installing heat pumps were expected to grow to 391,000 by 2050, and clean industry jobs were also projected to grow.

The governments of Alberta and Saskatchewan responded to the report with skepticism and stressed the importance of oil and gas to their economies.

Saskatchewan’s government told BNNBloomberg.ca in a Wednesday statement that while it had not analyzed the report in detail, it had been briefed on “uneven impacts” of the energy transition across sectors, regions and occupations.

“The province will continue to stand up for its people and job-creators against policies that risk undermining Saskatchewan’s economy,” the province said in a statement.

Alberta, where the premier has been critical of federal energy transition plans, told BNNBloomberg.ca that the government considered the report “flawed” in how it looked at job creation and comparative wages, as it counted truck drivers as energy workers, and some of the new jobs might pay less than fossil fuels jobs currently do.

“Canadians need to have an educated conversation about the actual costs and benefits of the various pathways to net-zero, and this report does not serve that goal,” the office of the minister of jobs, economy, and northern development said.

The report also discussed how oil sands and oil production jobs are set to drop in Canada regardless of what domestic policies are in place, referencing a projected 93 per cent decline between 2025 and 2050.

“The reality is that, no matter what policy choices Canada makes domestically, a decarbonizing world wants more clean energy and fewer fossil fuels,” the report said.

IBM and Canada to unveil chips pact during Biden-Trudeau visit

Brian Platt, Bloomberg News

Canada and International Business Machines Corp. will seal a high-level agreement on expanding semiconductor cooperation on Friday, during U.S. President Joe Biden’s visit to Ottawa.

The memorandum of understanding will seek to capitalize on the U.S. push for semiconductor investment with its CHIPS Act, according to a government official familiar with the matter. The deal will likely be announced after Biden and Canadian Prime Minister Justin Trudeau hold their bilateral meeting Friday morning.

IBM already operates a large facility for testing and packaging semiconductors in Bromont, Quebec, less than an hour north of the U.S. border.

The agreement will lay out a plan to further build out the microchip ecosystem in the region, particularly when it comes to workforce development. It will also pledge to look at increasing Canada’s role in the semiconductor supply chain and integrating it with U.S. manufacturing.

Canada’s ultimate goal, the official said, is to develop a cross-border trade corridor for chip manufacturing, patterned on the extensive automotive sector cooperation between the two countries. Industry Minister François-Philippe Champagne has been meeting with IBM and other companies in the sector to push for more investment.

Trudeau also pledged to deepen North American cooperation on chips when he met with Biden and Mexican President Andrés Manuel López Obrador in January. That agreement included a promise to map out semiconductor supply chain gaps and opportunities across the continent, and to organize a trilateral forum this year with industry leaders and representatives from each government.

Squamish, B.C., LNG facility plans to achieve net-zero emissions at operation's start

The Canadian Press

Proponents of a British Columbia liquefied natural gas export facility have unveiled plans to achieve net-zero emissions commitments in the construction phase and for its future operations.

Woodfibre LNG says in a statement it plans to meet net-zero emissions by the time operations start at the south coast export facility in 2027.

Company president Christine Kennedy says emission reduction opportunities are a priority for the project as it implements a strategy that will result in the world's first net-zero facility.

She says Woodfibre LNG will be able to reach the goal with electrical compressors, using 14 times fewer emissions than a gas-burning LNG plant. 

Kennedy says Woodfibre LNG will also reduce emissions through carbon credits from the nearby Cheakamus Community Forest, a nature-based carbon offset project in Whistler, B.C., where the municipality and Squamish and Lil'wat nations are partners.

The B.C. government introduced a framework last week that will require new liquefied natural gas facilities to have credible plans for net-zero emissions by 2030.

“Alongside the leadership and vision set out by the province’s new Energy Action Framework, achieving net zero allows Woodfibre LNG to advance the global energy transition, furthering economic reconciliation and contributing to British Columbia’s standard of living," says Kennedy in a statement.

This report by The Canadian Press was first published March 23, 2023.

Canadians' wages kept growing in February: StatsCan

Holly McKenzie-Sutter, BNN Bloomberg

Canadians’ wages grew more than five per cent year-over-year in February, Statistics Canada reported on Friday, a bigger increase than those recorded in January and December.

The monthly Labour Force Survey said average hourly wages rose 5.4 per cent year-over-year to $33.16 in February.

Hourly wage growth was the same for men and women, but StatsCan reported that men still earned about $5 more per hour than women did last month.

Canadian men earned an average $35.63 per hour in February 2023 compared with a $30.67 average hourly wage for women.

Wage growth is one area of the economy that’s being watched closely by the Bank of Canada (BoC) as it aims to bring inflation back down to its target two per cent.

The central bank referenced the tight labour market in its Wednesday statement on the decision to leave the key interest rate unchanged at 4.5 per cent. It also pointed to wages that are continuing to grow at a rate of about four to five per cent, despite declining productivity in the economy.

The BoC said it expects projected weak economic growth for the next few quarters to “moderate wage growth” and ease pressures in the labour market.

Royce Mendes, head of macro strategy at Desjardins, said Friday’s strong jobs appears to be veering off course from the central bank’s expectations, and it has potential to force the BoC to change its stated plan to pause interest rate increases.

"We’re seeing wage growth pick up to levels that are going to make the Bank of Canada uncomfortable,” Mendes told BNN Bloomberg in a television interview Friday, calling the jobs report “unsustainable.”

“I worry that this is setting up the possibility for further rate hikes this year.”

Economists and the Bank of Canada have repeatedly raised concerns about the potential inflationary pressures of rising wages.

However, a recent report from CIBC economists Benjamin Tal and Karyne Charbonneau looked at how the composition of Canada’s labour market has changed during the COVID-19 pandemic, and suggested that wage pressures are “not as inflationary as perceived.”

“At any point, a change in average wage reflects not only a pure pay increase but also changes in the composition of labour. And during each one of the pandemic years, that change in composition was very pronounced. This has important implications for our understanding of the inflationary potential of the current wage trajectory,” they wrote in the Feb. 23 report.

The economists noted that job growth in high-paying industries has outpaced growth in low-paying sectors, which dropped in 2020 when the pandemic set in. They pointed to a pandemic drop in job creation at small employers, which pay lower wages on average, compared with larger employers that pay more, and a drop in self-employment people who tend to earn less – all factors they said are contributing to the wage growth figures.

“The Canadian labour market is tight, but the headline wage figures overstate its strength,” the authors said.

Inflation is easing but Ottawa faces 

pressure to help those who have fallen

behind

Nojoud Al Mallees, The Canadian Press

Canada's inflation rate likely took another dip last month, but with many Canadians still struggling with the cost of living, the federal government is facing pressure to deliver more help in the upcoming budget.

Statistics Canada is set to release its February consumer price index report on Tuesday, giving its most up-to-date reading on inflation ahead of the federal government's budget on March 28. 

Desjardins and RBC are both forecasting the inflation rate fell to 5.4 per cent last month, down from 5.9 per cent in January.

But even as inflation eases, the federal government has signalled the budget will include affordability measures to help Canadians still challenged by the cost-of-living.

Desjardins' chief economist Jimmy Jean said all eyes are on Ottawa to balance affordability priorities with fiscal restraint.

"One of the things we obviously are going to watch is what governments put forward to help with cost of living, all with the constraint that it must not add fuel to the fire (of inflation)," Jean said. 

The Bank of Canada has been laser-focused on bringing inflation back down to its two per cent target. Its aggressive rate hike cycle over the last year is starting to slow the economy by forcing people and businesses to pull back on spending. 

As the economy slows, economists worry excessive or untargeted measures by the federal government could work against the central bank's efforts and force it to raise interest rates even higher. 

Finance Minister Chrystia Freeland has said repeatedly that she's committed to fiscal restraint and ensuring the federal government doesn't make the Bank of Canada's job harder. 

But the Liberals are also facing pressure from New Democrats to continue providing support for low-income Canadians who are hardest hit by inflation. 

NDP Leader Jagmeet Singh said he wants to see the government extend the six-month boost to the GST rebate, introduced last fall, which temporarily doubled the amount people received.

At a news conference Wednesday, Prime Minister Justin Trudeau didn't weigh in on whether his government would extend the rebate, but said the budget will include affordability measures. 

"In our budget, we are going to be putting forward measures that will directly help Canadians," Trudeau said. 

Inflation has become a top political and economic concern in the country after a significant runup in prices last year, driven in part by the Russian invasion of Ukraine and mangled supply chains.

But since peaking at 8.1 per cent last summer, Canada's inflation rate has been steadily declining as global pressures on inflation ease and high interest rates weigh on the economy. 

Jean said lower gas prices last month likely drove the headline inflation rate down further. Other components of the CPI, like food prices, probably didn't ease by much.

Grocery prices in January were a staggering 11.4 per cent higher than they were a year ago. 

RBC economist Carrie Freestone said businesses, including grocers, have been able to pass on the extra costs they're facing from suppliers to consumers. But grocery prices are still expected to ease as lower agricultural commodity prices feed through the supply chain.

"It's just seems to be taking a bit of time," she said. 

The Bank of Canada is currently holding its key interest rate steady at 4.5 per cent, hoping inflation will ease without the need for more rate hikes. It's forecasting inflation will fall to about three per cent by mid-year. 

"As long as inflation continues to trend lower as we expect ... (the Bank of Canada) will probably stay on the sidelines," Freestone said.

For workers who haven't seen their wages keep up with inflation, the rapid rise has been especially punishing. But as inflation slows, the gap between the two is narrowing. 

In February, average hourly wages were up 5.4 per cent, matching forecasts for inflation.

The Bank of Canada has said persistently strong wage growth will make getting back to the two per cent inflation target difficult. 

For workers, Jean said the narrowing gap between inflation and wage growth is good news, but doesn't make up for what they've lost. 

"We're not talking about making up for the last two years of wage growth not keeping up with inflation," Jean said. "We're just stopping the hemorrhage here." 

This report by The Canadian Press was first published March 17, 2023.

Navigating the ESG space: Hot picks from Lenka Martinek

Iva Poshnjari, BNN Bloomberg    Mar 24, 2023

A growing number of investors have been positioning their portfolio to be conscious of the environmental, social and governance (ESG) movement and one financial expert says this trend will continue for a long time. 
 
In an interview with BNN Bloomberg’s John Erlichman on Friday, Lenka Martinek, managing partner at Sustainable Market Strategies and Nordis Capita, said she looks to go long in companies that are well positioned to sustain ESG trends, such as the energy transitions. She shorts the ones that she believes are not doing enough to be a part of the ESG future. 
 
“There are certain environmental, social and governance (ESG) challenges that will be on the landscape for investors for a very long period of time, and that these thematics are things we can be invested into and around, either form the long side or the short side,” she said. 
 
She recommended Commercial Metals Co. (CMC), Ecolab Inc.(ECL), Kurita Water Industries Ltd (TYO:6370) and Compagnie de Saint-Gobain S.A. (SGO)as her top picks in the ESG sector. 
 
Martinek and her family do not own any of the stocks mentioned above, however, her firm and her investment banking clients hold all three. 
 
Check out the full video 

​

Restaurants and bars brace for biggest alcohol tax jump in 40 years

Brett Bundale, The Canadian Press 

Canada's restaurant industry is bracing for the biggest jump in the country's alcohol excise duty in more than 40 years, spurring warnings the tax hike could force some bars and restaurants out of business.

"Any increase at this very vulnerable time for our industry is just another blow while we're down," said Brenda O’Reilly, the owner of multiple restaurants and a brewery in St. John's, N.L. 

"It's like death by a thousand cuts."

Bar and eatery operators across Canada have endured lockdowns, labour shortages, supply chain mayhem and soaring costs for everything from payroll to cooking oil. Rising inflation has also softened demand as some consumers stay home to save money. 

"Many of us haven't recovered from the pandemic and now they want to raise this tax," she said. "It's hard to get blood out of a turnip. We'll see more restaurant closures if this goes ahead."

The federal beverage alcohol duty is set to increase 6.3 per cent on April 1. 

Alcohol excise duties are imposed at the manufacturing level and adjusted annually based on inflation.

While the duty is separate from provincial liquor board fees and sales taxes, it ultimately filters down to higher prices for consumers, said CJ Hélie, the president of Beer Canada.

"It's imposed at the point of production and paid by the manufacturer, which means it's built into the price of the product and magnified as it goes through the supply chain from the distributor to the retailer," he said. 

The automatic annual tax increase is a long-standing irritant for the beverage industry, but was "digestible" when inflation was around two per cent, Hélie said. 

But this year's adjustment is more than triple the usual increase and should be reconsidered given the state of the industry, he said. 

"When inflation is through the roof, we need to rethink this automatic formula," Hélie said. "The industry is already in dire straits. Using a rigid formula in a time like this is unacceptable."

Some brewers may try to absorb the higher cost by delaying investment plans like new hiring but he said there's only so much they can do before passing the tax hike along. 

"They'll try to recoup what they can through the wholesale price but it could impact demand and end up costing them in lower sales volumes anyway," Hélie said.  

Alcohol excise duty rates are adjusted by law on an annual basis to account for inflation, Adrienne Vaupshas, press secretary of Finance Minister Chrystia Freeland, said in an email. 

The increase next month works out to less than a penny on a can of beer, she added. 

On a litre of wine, the excise duty rate is increasing to $0.731 from $0.688, or a little over four cents, according to figures provided by the Canada Revenue Agency. For a 750 ml bottle of wine, the increase would be closer to three cents. 

But industry group Restaurants Canada said it will cost Canada's food-service industry about $750 million a year, with the average casual dining restaurant expected to pay an extra $30,000 towards alcohol. 

At the retail level, the impact may be more subtle. Though added on top of other price increases, consumers may notice higher prices. 

The Liquor Control Board of Ontario said customers may experience a price increase on select products by the end of April if manufacturers pass along the federal excise tax increase. 

For example, a 750ml bottle of wine or an imported six-pack of beer may increase by five to 10 cents, while a 750ml spirit of 40 per cent alcohol may increase by 70 cents, the LCBO said in an email. 

A spokeswoman for the Nova Scotia Liquor Corp. said beverage alcohol prices are increasing by just over three per cent overall next month. 

But these increases are due to a number of factors, including higher excise taxes and the rising cost of raw goods such as bottles, cans, barley, and labels, NSLC spokeswoman Allison Himmelman said in an email. 

In British Columbia, a spokesperson for the BC Liquor Distribution Branch said it’s not possible to confirm what level of price increase consumers may or may not see.  

"Each liquor supplier will decide whether or not to increase its wholesale price to account for the increase it must pay in excise duty," Robin Fraser said in an email. 

"Then retailers will make the decision on whether to adjust the prices for consumers for those products," Fraser said. "It is up to each retailer to determine if, and by how much, to raise its prices."

Alcohol beverage prices rose 5.7 per cent in February compared with a year before, according to Statistics Canada. 

While that's only slightly higher than the overall inflation rate of 5.2 per cent last month, the tax hike in April along with other increases could see the alcohol inflation rate rise faster than general inflation later this spring. 

"Our industry is struggling and we can't absorb more increases," said Olivier Bourbeau, vice-president of federal affairs with Restaurants Canada. "Restaurant margins are always thin but right now they're around two to three per cent."

A recent Restaurants Canada survey found about half of Canadian licensed restaurants are operating just at or below profitability levels.

This is in part because restaurants are absorbing some of the higher costs due to inflation, Bourbeau said. 

Indeed, while grocery prices recorded a 10.6 per cent year-over-year increase in February, restaurant food prices only rose 7.7 per cent, Statistics Canada figures show. 

Also, alcohol beverages purchased from stores rose 6.0 per cent in February, while alcoholic beverages served in licensed establishments increased only 4.3 per cent, the agency said. 

"Restaurants can't absorb any more price increases," Bourbeau said. "But if they pass those costs to customers it could hurt their business." 

"At the end of the day, consumers will only pay so much before they start to cut back."

This report by The Canadian Press was first published March 24, 2023.

U.S. lenders plagued by 'irrational' liquidity crunch: Rosenberg

Daniel Johnson , BNN Bloomberg

Following widespread concern about the health of the U.S. banking industry, David Rosenberg, the founder and president of Rosenberg Research, said the current liquidity crunch is markedly different from the 2008 financial crisis. 

“We're obviously in a financial crisis and it's a liquidity crisis. It's not really one of gaping holes on bank balance sheets,” Rosenberg said in a television interview with BNN Bloomberg Friday. 

“It's a different crisis. It's not really about bank capital or bank balance sheets, per se. It's really about liquidity and…a run on deposits.” 

Rosenberg said the current problem is a “complete collapse in confidence” regarding the U.S. banking sector which is causing a run on bank deposits. He said the crisis of confidence is irrational, but “irrationality can cause these liquidity crises.” 

Weekly data from the U.S. Federal Reserve shows that bank deposits in the U.S. are at negative three per cent year-over-year, Rosenberg said, adding the outflow of deposits is unprecedented. 

If deposits in the U.S. banking system continue to contract, Rosenberg said banks could be forced to sell assets, which could spur a credit crunch where banks are less likely to lend.  

“The banks will be forced to curtail their lending and that's a big problem in the United States, which is a credit-driven economy. What happens is that you get knock-on effects…where this credit crunch reinforces the recession that was probably already coming our way,” he said.

1929 COMPARISONS 

Amid the current crisis of confidence in the U.S. banking system, Rosenberg said today’s situation is more comparable to 1929 than 2008. 

“Remember what happened in 1929. That was triggered by a stock market collapse. We haven't had a collapse but we have had a bear market in equities for the past 16 months,” he said. 

The 1929 collapse was caused by an irrational run on deposits that spurred a “fire sale of assets,” according to Rosenberg. 

“What we're seeing right now is a lack of confidence in the banking system, especially the regional banks, which is spreading the risk contagion. So when you feel that your deposits aren't safe, you're going to pull them out,” he said. 

LACK OF POLICY RESPONSE 

The failure of Silicon Valley Bank (SVB) has caused a ripple effect, that U.S. policymakers have failed to address, Rosenberg said. 

“This is basically a crisis of large deposits. You do have insured deposits up to a limit. So the question is, do we do blanket unlimited deposit insurance?” he said. 

Bank deposits in the U.S. are protected by the Federal Deposit Insurance Corporation (FDIC). Currently, the FDIC insures deposits up to US$250,000 per account ownership category for each depositor at an insured institution. 

The FDIC is a “construct of [U.S.] Congress,” Rosenberg said, noting that the last time deposit insurance was raised was in 2008-09. 

“I don't know why Congress is sitting on its hands,” Rosenberg said, adding that U.S. President Joe Biden and Congress do not want to be seen providing a bailout to banks.

“I don't quite understand why it's become political. And yes, I think you could have unlimited deposit insurance and [it] just has to be priced and the banks have to be willing to pay for it. It's not a bailout if you have insurance that's ultimately paid by the institutions.” 

WORKERS CAPITAL

Canada pension explores buying out ReNew Energy shareholders

Anto Antony, Bloomberg News

Mar 24, 2023

Canada Pension Plan Investment Board is exploring buying the shares of ReNew Energy Global Plc that it doesn’t already own and taking the Nasdaq-listed firm private, according to people with knowledge of the matter.

The asset manager is in talks with advisers to weigh a tender offer, according to the people, who asked not to be identified discussing confidential information. CPPIB holds a majority stake in ReNew Energy, the people said, adding that talks are ongoing and no final decision has been reached.

Delisting of the Gurugram, India-based power producer, with a market capitalization of more than US$2.2 billion as of Friday, will give CPPIB greater control over the firm that competes with deep-pocketed rivals. India presents a massive opportunity for clean energy developers as it aims to almost triple non-fossil fuel power capacity to 500 gigawatts by 2030.

ReNew Energy Global Plc Class A shares rose more than 23 per cent, its biggest single-day gain ever, on Friday after Bloomberg News reported CPPIB’s plan to take it private. The stock had dropped to a record low earlier this month.

The potential “privatization might reduce transparency, but could eliminate distraction from its share price, which has more than halved since its listing,” Sharon Chen, an analyst at Bloomberg Intelligence, said in a note. It “could demonstrate support from a strong shareholder and cause ReNew’s bonds to tighten.”

A spokesperson for CPPIB said the company will not comment on market speculation, while ReNew’s spokesperson declined to comment.

CPPIB bought US$268 million worth of ReNew shares from Goldman Sachs Group Inc. this month, giving the Canadian firm a stake of 51.6 per cent, according to the Business Standard newspaper. ReNew’s other backers include Abu Dhabi Investment Authority, according to data compiled by Bloomberg.