'Dr. Doom' Nouriel Roubini says the world economy is headed for a 'tropical storm' that will cause significant financial damage

Jennifer Sor
Tue, June 27, 2023

 
Nouriel Roubini, an economics professor, speaks at a panel discussion at the SALT conference in Las Vegas 

.Rick Wilking/Reuters

The economy is likely headed for a "tropical storm" that will entail at least a mild recession, Nouriel Roubini said.


The "Dr. Doom" economist warned even a shallow downturn could hurt stock prices and result in damage.


Previously, he's sounded the alarm for a stagflationary debt crisis to hit the US economy.

The world economy is headed for a "tropical storm" that could cause big damage to markets and the global financial system, according to Wall Street's "Dr. Doom" economist Nouriel Roubini.

Roubini, who was among the first to call the 2008 financial crisis and has warned of disaster for the US economy for nearly 20 years, sounded the alarm for a coming worldwide recession in an op-ed for Project Syndicate on Tuesday.

Though he dialed back earlier predictions that the the economy was in for a "Bermuda Triangle" of financial stressors, the world economy and markets could still face significant tumult, he warned, as an economic downturn is becoming more likely as central bankers struggle to get inflation under control.

"While a severe hurricane for the global economy looks less likely than it did a few months ago, we are still likely to encounter a tropical storm that could cause significant economic and financial damage," Roubini said, outlining four possible scenarios for the world economy:

A soft landing. Central banks around the world will lower inflation to their target, and avoid a recession in the process.

A "softish" landing. Central banks will achieve their inflation targets, but push their economies into a short, mild recession in the process.

A hard landing. Central banks are unable to get inflation back down to ideal levels without creating a more serious recession. Higher interest rates will eventually tip the world economy into a downturn, and potentially spark chaos in debt markets, which will come under pressure as borrowing costs rise.

A stagflationary crisis. If central bankers give up on their inflation target to preserve financial stability, they could inadvertently cause a stagflationary crisis, a scenario where inflation becomes entrenched and expectations spiral out of control.

Roubini estimated that the second scenario of a short shallow recession was most likely to happen, as serious stressors on the world economy, such as the credit crunch stemming from banking failures earlier this year, have eased. Still, even a mild recession could hurt investors:

"But even a short and shallow recession – let alone a hard landing – would cause significant declines in US and global equities. And if central banks were then to blink, the resulting increase in inflation expectations would drive up long-term bond yields and eventually hurt stock prices, owing to the higher discount factor that would be applied to dividends," Roubini warned.

Economies around the world are already slowing down as the inflation battle drags on. The US economy has showed signs it is running out of gas as consumers pull back on spending. Meanwhile, the eurozone slipped into a technical recession after posting two negative quarters of GDP, and China's economy has also struggled amid its disappointing economic reopening following the COVID-19 pandemic.

Investors have fretted over a possible recession for the last year, as the Fed aggressively raised interest rates to combat inflation. Rates are now at their highest level since 2007, and the New York Fed is showing a 71% probability that the economy will tip into recession by May 2024.

Fed economists say a historic 37% of US companies are in big trouble - and warn that could worsen the fallout from fighting inflation


Zahra Tayeb
Tue, June 27, 2023 

Fed Chair Jerome Powell.Getty Images

Fed economists just rang the alarm on the historic percentage of distressed US companies today.


Around 37% of firms are in major trouble, which could worsen the fallout from the Fed's rate hikes.


Investment, employment, and economic activity could all take a significant hit, researchers said.

Federal Reserve economists just warned a historic surge in the percentage of distressed American companies could worsen the fallout from the US central bank's fight against inflation.

"The share of nonfinancial firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s," Ander Perez-Orive and Yannick Timmer said in a recent note.

The upshot is that the Fed's hikes to interest rates — intended to curb the pace of price increases by raising borrowing costs — threaten to have a magnified impact on business investment, employment, and economic activity.

That's likely because debt-ridden companies will balk at spending money on new equipment or facilities, hiring more people, and ramping up production.

The percentage of troubled US firms currently stands at around 37%, the pair of researchers said. That could lead to the Fed's rate hikes having some of the most devastating impacts of any of its tightening cycles over the past four decades, they noted. The full extent of the damage should become clearer over the next 18 months, they added.

The Fed has already hiked interest rates from nearly zero to north of 5% since last spring in an effort to curb inflation, which spiked to a 40-year high of more than 9% last year. After 10 consecutive rate hikes, the central bank has helped to bring inflation down to about 4%.

Fed Chair Jerome Powell and his colleagues skipped a rate hike this month, against a backdrop of cooling inflation and emerging cracks in sectors such as banking and commercial real estate. However, they've signaled they could raise rates a couple more times in the months ahead.

The prospect of further hikes has some investors worried that the Fed is going overboard in its fight against inflation, and might tip the economy into recession unnecessarily.

New Mexico negotiates settlement over permit renewal for US nuclear waste repository

ALBUQUERQUE, N.M. (AP) — New Mexico has reached a settlement with the U.S. Department of Energy over the renewal of a permit for the federal government’s only underground repository for nuclear waste.

Officials with the New Mexico Environment Department announced Tuesday that an agreement was reached last week after four days of negotiations. The state first outlined its terms in December, seeking to ensure that high-level waste such as diluted plutonium wouldn't find its way to the state.

The Waste Isolation Pilot Plant in southeastern New Mexico plays a key role in the nation’s multibillion-dollar effort to clean up radioactive waste left behind by decades nuclear research and bomb-making. Currently, it's licensed to take what is known as transuranic waste, or waste generated by the nation’s nuclear weapons program that is contaminated with radioactive elements heavier than uranium.

The new draft permit would provide greater regulatory oversight and safeguards at the repository over the next decade, officials said. It also would prioritize the cleanup of Cold War-era waste at Los Alamos National Laboratory — the birthplace of the atomic bomb.

“The new permit conditions affirm New Mexico’s authority and position that all roads lead from WIPP — we are no longer the last stop for clean-up but the driving force in that process that begins here,” said James Kenney, head of New Mexico's Environment Department.

The state agency expects to publish the modified permit on Aug. 15. A public meeting will follow in September, with a final permit being issued in October.

Nuclear watchdog groups said they were in support of the agreement because it focuses on the waste at Los Alamos and requires more transparency about legacy defense-related waste around the U.S.

The permit also includes language that would enable the state to suspend shipments to WIPP if there's evidence of a threat to human health or the environment.

New Mexico also could move to revoke the permit if Congress were to increase WIPP's capacity or expand the types of waste that could be sent there. State officials and watchdogs have said that language serves as a hedge against New Mexico becoming the nation's permanent dumping ground.

Under the permit, the Energy Department would have to document its progress in siting another underground repository in a state other than New Mexico through a new annual report as well as hold quarterly meetings to update the public.

Tue, June 27, 2023 
Susan Montoya Bryan, The Associated Press

New Mexico lawmakers question fallowing as way to reduce water use along the Rio Grande

Tue, June 27, 2023 



ALBUQUERQUE, N.M. (AP) — Some New Mexico lawmakers are warning that leaving farmland unplanted along one of North America’s longest rivers won’t be a long-term answer to ensuring Texas gets its share of the Rio Grande under a pending settlement that would end a yearslong fight over the river's management.

Members of the powerful Legislative Finance Committee met Tuesday in Las Cruces, not far from the border with Texas. On the agenda were briefings from top water managers about the history of the dispute and the creation of a task force that will be charged with developing a plan for implementing the proposed agreement.

“The work ahead in the lower Rio Grande is significant and we know that and we see that and we're prepared to take it on. We have a plan,” said Hannah Riseley-White, interim director of the Interstate Stream Commission.

That plan calls for reducing use through a combination of efforts that range from paying farmers not to pump groundwater to leasing surface water, fallowing farmland and making infrastructure improvements.

The proposed settlement reached last fall by New Mexico, Texas and Colorado still needs the approval of a judge who has been overseeing the case and ultimately the U.S. Supreme Court.

State Sen. Joseph Cervantes, a Democrat from Las Cruces, argued that the settlement was far from a done deal, while other lawmakers said the burden of meeting water delivery obligations should not fall just to farmers in southern New Mexico.

Some officials talked about fallowing land along the Rio Grande to reduce both diversions from the river and groundwater pumping that many farmers are forced to rely on in times of drought. In fact, it was pumping over the last two decades that prompted Texas to sue, arguing that the practice was cutting into the amount of water that was ultimately delivered as part of a decades-old water sharing compact between Colorado, New Mexico and Texas.

Others at the meeting said focusing on infrastructure would result in more efficient use of the river. They also said storm water runoff could be captured and managed to help recharge aquifers in southern New Mexico.

Proposals at two dams along the southern reaches of the river call for building secondary ponds where runoff could be held for later release so New Mexico would not lose out when storm surges send excess water beyond the state line.

“This infrastructure is absolutely necessary to adapt to this changing climate that we're in. It is necessary, but not sufficient,” said Phil King, an engineering consultant with Elephant Butte Irrigation District, the largest in New Mexico. “We're definitely going to have to change the way we administer our water.”

King noted that farmers along the lower Rio Grande are not pumping any more water than they did between the early 1950s and late 1970s, a period that serves as the baseline condition. However, municipal and industry use has increased 250% since then, he said.

Speaking to the fallowing efforts, King said: “Do you really want to go and slaughter the goose that lays the golden eggs, contributing to our economy and forming an important part of our culture? Or do you want to look at trying to use infrastructure first to minimize how much you have to reduce water use?”

Cervantes said that while the proposed settlement would end the dispute with Texas, it will create a battle between users in southern and northern New Mexico and that most farmers would not be willing to sell their land for the prices offered through the fallowing programs.

Democratic Sen. George Munoz, who chairs the Legislative Finance Committee, suggested money appropriated by the state Legislature as well as federal infrastructure funding would be better spent on infrastructure improvements along the river.

“We need to think about how we target the money we’re going to use in this next year to fix some of these problems,” he said. “But the Middle Rio Grande guys, my message to you is they’re coming for you next. You better get ready because there’s not enough water down south.”

Susan Montoya Bryan, The Associated Press

Credit Suisse’s Fund Outflows Continue With $6 Billion Pulled

Steven Arons
Wed, June 28, 2023 


(Bloomberg) -- Credit Suisse Group AG’s asset management arm saw clients continue to pull money from its investment funds this quarter, underscoring the challenges for UBS Group AG as it integrates its former rival.

Investors took out about $6 billion through June 22 from open-end funds and ETFs tracked by Morningstar Direct. The data covers funds holding more than $150 billion worth of assets, which is roughly equivalent to 40% of the investment unit’s total assets under management. It excludes money market funds, feeders and funds of funds.

The figures are an early indication of the performance of Credit Suisse asset management unit, which has seen clients pull for five consecutive quarters amid a crisis of confidence that saw it collapse into the arms of UBS in March. Stemming those outflows has been a key priority for the leadership of the combined bank.

Assets under management at Credit Suisse’s investment unit have been dropping since the end of 2021 when they stood at 477 billion Swiss francs ($533 billion). They hit 399 billion francs at the end of the first quarter.

--With assistance from Marion Halftermeyer.

Tens of thousands of Credit Suisse staffers are about to find out if they still have a job

Jeffrey Cane
Tue, June 27, 2023 

UBS' rescue takeover of Credit Suisse will lead to tens of thousands of job cuts

Samantha Lee/Business Insider

UBS is set to begin slashing jobs at Credit Suisse.


New York bankers and traders are among those most at risk of the chop.


Huge cuts follow layoffs by Goldman Sachs, Morgan Stanley, JPMorgan and others.

Everyone knew that deep cuts would be coming at Credit Suisse, the bank that was taken over by local rival UBS in an emergency rescue one weekend in March. Yet the scale of the planned reductions are still eye-popping.

More than half of Credit Suisse's global workforce will be pruned beginning in July, Bloomberg reports, citing unidentified people familiar with the matter. That's more than 20,000 people. That's more than the headcounts of Blackstone, Jefferies, Lazard, and Moelis combined.

Credit Suisse bankers, traders, and support staff in New York will be among those bearing the brunt of the cuts, Bloomberg says, in addition to those in London and some Asian locations.

Credit Suisse insiders and outside recruiters told Insider in March that they expected employees of many investment banking divisions, including equity research analysts and traders, to get the ax.

"The investment banking business at Credit Suisse is in a lot of trouble," Oliver Rolfe, the founder of London-based recruiting firm Spartan International, said at the time. "There is so much overlap" between Credit Suisse and UBS.

The psychological impact of such deep cuts following a series of culls on Wall Street is significant.

Goldman Sachs has eliminated more than 3,000 jobs, Morgan Stanley is eliminating 3,000, and JPMorgan Chase and Citigroup have laid off hundreds. The retrenchment follows a drought in dealmaking and expectations of a broader economic slowdown in the US.

Adding to the anxiety for financial professionals is that many of the cuts on Wall Street have been coming in rounds since late last year. For UBS, July is only the first wave of reductions, with two more expected to come in September and October, Bloomberg says.

The goal, according to two of the people cited by Bloomberg, is to reduce the combined UBS-Credit Suisse work force by some 30% – or 35,000 people.

Credit Suisse had already been trimming its headcount before its troubles forced Swiss regulators to take action. Clients of the Swiss bank had pulled out $69 billion in the first quarter.

Swiss authorities had forced the shotgun marriage of the two banks to prevent a banking failure, yet the result will still see a loss of jobs in that country even as foreign finance centers take a bigger hit.

The silver lining? Most Credit Suisse's private bankers will be encouraged to stay, Bloomberg reports, although many have already left.

KPMG to cut 2,000 jobs in US

Adam Mawardi
Mon, 26 June 2023

The latest reductions, announced internally on Monday, will affect all areas of KPMG’s American operation, including its advisory, audit and tax practices. - Reinhard Krause

Auditor KPMG is to cut around 5pc of US jobs as demand for its consulting services slows.

Paul Knopp, the “big four” auditor’s US chief executive, said the cuts are designed to address the “significant mismatch” between its US workforce and the reduced demand amid global economic uncertainty.

He wrote in a memo to staff: “While our pipeline of opportunities is strong and we continue to win in the marketplace, we are experiencing economic headwinds that are not unique to our business or firm.”

About 1,950 workers will be affected by the decision, based on the firm’s US workforce of 39,000 people, the Financial Times reported.

It comes as consulting firms deal with slowing deal-making activity, soaring inflation and global economic uncertainty, which has forced clients to cancel projects and push for lower fees.

The latest reductions, announced internally on Monday, will affect all areas of KPMG’s American operation, including its advisory, audit and tax practices.

The cull will take place between now and the end of the firm’s financial year in September.

It marks KPMG’s second round of layoffs this year, after it became the first big four auditor to announce job cuts earlier in February.

KPMG announced in February plans to slash nearly 700 roles in the firm’s US advisory business, which then represented around 2pc of staff in the country.

Adding to this pressure is the lower-than-expected decline in US workers choosing to leave the auditor voluntarily, according to Mr Knopp, who also serves on KPMG’s global board.

It comes after US consulting firms in recent months have slashed thousands of jobs amid weaker demand.

Auditor EY has announced plans to cut 3,000 US jobs following a failed attempt to separate its consulting and accountancy arms, while Deloitte reportedly plans to lay off around 1,200 members of its American workforce.

CRIMINAL CAPITALI$M

The Great Grift: More than $200 billion in COVID-19 aid may have been stolen, federal watchdog says


Tue, June 27, 2023


WASHINGTON (AP) — More than $200 billion may have been stolen from two large COVID-19 relief initiatives, according to new estimates from a federal watchdog investigating federally funded programs that helped small businesses survive the worst public health crisis in more than a hundred years.

The numbers issued Tuesday by the U.S. Small Business Administration inspector general are much greater than the office's previous projections and underscore how vulnerable the Paycheck Protection and COVID-19 Economic Injury Disaster Loan programs were to fraudsters, particularly during the early stages of the coronavirus pandemic.

The inspector general's report said “at least 17 percent of all COVID-EIDL and PPP funds were disbursed to potentially fraudulent actors.” The fraud estimate for the COVID-19 Economic Injury Disaster Loan program is more than $136 billion, which represents 33 percent of the total money spent on that program, according to the report. The Paycheck Protection fraud estimate is $64 billion, the inspector general said.

In comments attached to the report, a senior SBA official disputed the new numbers. Bailey DeVries, SBA's acting associate administrator for capital access, said the inspector general's “approach contains serious flaws that significantly overestimate fraud and unintentionally mislead the public to believe that the work we did together had no significant impact in protecting against fraud.”

The SBA inspector general had previously estimated fraud in the COVID-19 disaster loan program at $86 billion and the Paycheck Protection program at $20 billion.

The Associated Press reported June 13 that scammers and swindlers potentially swiped about $280 billion in COVID-19 emergency aid; an additional $123 billion was wasted or misspent. The bulk of the potential losses are from the two SBA programs and another to provide unemployment benefits to workers suddenly unemployed by the economic upheaval caused by the pandemic. The three initiatives were begun during the Trump administration and inherited by President Joe Biden. Combined, the loss estimated by AP represents 10% of the $4.2 trillion the U.S. government has so far disbursed in COVID relief aid.

The federal government has now reported $276 billion in potential fraud, a figure that aligns with the AP’s analysis.

Gene Sperling, a senior White House official overseeing pandemic relief spending, said in a interview Tuesday that 86% of the fraud, or potential fraud, in the emergency loan programs happened during the first nine months of the pandemic when President Donald Trump was in office.

“$200 billion is a very big number, but this, again, should be remembered as potential fraud,” Sperling said. “We think the amount of likely or actual fraud is significantly less, significantly under $100 billion, perhaps around $40 billion."

But he added, "whichever it is, it’s unacceptably high.”

The SBA inspector general, Hannibal “Mike” Ware, said in a statement Tuesday that the report "utilizes investigative casework, prior (inspector general) reporting, and cutting-edge data analysis to identify multiple fraud schemes used to potentially steal over $200 billion from American taxpayers and exploit programs meant to help those in need.”

Ware, in an interview with The Associated Press earlier this month, said these latest fraud figures won’t be the last ones issued by his office.

“We will continue to assess fraud until we’re finished with the investigations on these things,” Ware said. That could be a long while. His office has a backlog of more than 90,000 actionable leads into pandemic relief fraud, which amounts to nearly a century's worth of work.

SBA issued its own report Tuesday detailing anti-fraud measures it has adopted. The agency’s administrator, Isabella Casillas Guzman, said in an emailed statement that the report outlines “the effective measures added to fight fraud and hold bad actors responsible.”

SBA previously told The Associated Press the federal government has not developed an accepted system for assessing fraud in federal programs. Previous analyses, the agency said, have pointed to “potential fraud” or “fraud indicators” in a manner that conveys those numbers as a true fraud estimate when they are not. For the COVID-19 Economic Injury Disaster Loan program, the agency said it's “working estimate” found $28 billion in likely fraud.

Fraud in pandemic unemployment assistance programs stands at $76 billion, according to congressional testimony from the Labor Department's inspector general, Larry Turner. That’s a conservative estimate. An additional $115 billion mistakenly went to people who should not have received the benefits, according to his testimony.

The Biden administration put in place stricter rules to stem pandemic fraud, including use of a “Do Not Pay” database. Biden also recently proposed a $1.6 billion plan to boost law enforcement efforts to go after pandemic relief fraudsters.

Bob Westbrooks, a former executive director of the federal Pandemic Response Accountability Committee, said in an interview the $200 billion number is “unacceptable, unprecedented and unfathomable.” Westbrooks published a book last week, “Left Holding the Bag: A Watchdog’s Account of How Washington Fumbled its COVID Test.”

“The swift distribution of funds and program integrity are not mutually exclusive,” Westbrooks said Tuesday. “The government can walk and chew gum at the same time. They should have put basic fraud controls in place to verify people’s identity and to make sure targeted relief was getting into the right hands.”

The fraudulent payouts have consequences, said John Griffin, a finance professor at the University of Texas at Austin's McCombs School of Business,.

Griffin and colleagues said i n a new paper that pandemic relief fraud inflated house prices.

The study found that people who fraudulently obtained Paycheck Protection loans were more likely to buy a house than people who got legitimate loans, and housing prices increased 5.7 percentage points on average in ZIP codes with high amounts of fraud during the pandemic, even after controlling for other factors that affect home prices such as land supply, prior house price growth and the ability to telework. For a $400,000 house, that would add $22,800.

The study also found increases in consumer spending in ZIP codes where people received high amounts of fraudulent funds, which may have fueled inflation more broadly, Griffin said Tuesday.

“If you paid too much for your house because fraudsters pumped up the house prices in your ZIP code and then your house price ends up going down, you could be the victim of an unintended consequence of fraud,” he said in an interview. “It’s another reason why we should care about fraud.”

—

McDermott reported from Providence, Rhode Island.

Richard Lardner And Jennifer Mcdermott, The Associated Press

CANADA

Rodriguez says newsrooms will be supported should Meta, Google block news

The Canadian Press
Tue, June 27, 2023


OTTAWA — Canadian Heritage Minister Pablo Rodriguez said he remains hopeful digital giants will not make good on their threat to block access to Canadian news on their platforms, but if they do then the Liberal government will ensure newsrooms have the resources they need to continue their work.

"The world has changed and the same way we're adapting to platforms, well, the platforms also have to adopt to the new reality," Rodriguez said Tuesday in an interview.

The Liberal government's Online News Act became law last week, requiring tech companies such as Google and Meta to negotiate deals compensating media outlets for news content they share or otherwise repurpose on their platforms.

Rodriguez, facing tough opposition from Google and Meta, has stood firm in his view that the legislation, which was known in Parliament as Bill C-18, is needed to preserve newsrooms struggling to compete for online advertising dollars.

Meta said last week it would comply with the law by removing news from its Facebook and Instagram platforms before it takes effect by the end of this year.

Google said it came close to making the same choice as Bill C-18 came closer to passing, but an "11th-hour" meeting with Rodriguez resulted in the company delaying the decision. The company said it had "aggressively" pursued Rodriguez so that it could express its displeasure over the legislation.

Rodriguez disputed the characterization of the meeting as a last-ditch effort to co-operate. He said he usually meets stakeholders when a bill is introduced and again as it passes, and that his department met Google several times throughout.

He also said he remains firm in his view that Google will be subject to the law because of their market dominance in online advertising.

"They have a lot of questions, which is normal. And they want more certainty, they want more clarity, which from a business perspective is totally logical," Rodriguez said, adding that his conversation with Google was tough but constructive.

"Quite often that clarity comes at the end of the process, once the bill is adopted and you go into regulations."

Rodriguez would not say how his government would ensure newsrooms have resources beyond the existing suite of measures, which include funding programs for magazines, newspapers and local journalism, as well as tax credits.

But he said every option is on the table should Meta and Google block news.

"We have to make sure that newsrooms are open, that (journalists) are able to do their job and (they) have the resources necessary," he said.

The legislation for online news is one of two bills the Liberals passed this year that bring in new government oversight to digital giants.

The Online Streaming Act, which was known in Parliament as Bill C-11 before it became law in April, will force digital platforms such as Netflix, YouTube and TikTok to contribute to and promote Canadian content.

Rodriguez said tech giants and governments are not used to working together, but he predicts that C-18, already modelled after legislation that Australia passed in 2021, willusher in similar laws elsewhere around the world.

Rodriguez said a meeting of G7 heritage ministers he attended last year was mostly focused on Canada's work on both the online news and streaming acts.

A bill similar to C-18 is expected to soon become law in California, prompting similar threats from Meta that says it will block news in that state. But like Rodriguez, the California state legislature continues to call the company's bluff.

European Union regulators also recently hit Google with antitrust charges, saying the only way to satisfy competition concerns about its lucrative digital ad business is by selling off parts of the tech giant's main money-maker.

The EU followed a similar move by the U.S., which wants to bust Google's alleged monopoly on the online ad ecosystem.

Rodriguez said he has not had any conversations about Canada pursuing similar charges.

"I always try the positive or proactive approach: sit down and have constructive conversations," Rodriguez said.

Still, he perceives Google and Meta's online dominance as a growing threat to democracy, as newsrooms continue to shrink because of declining ad revenue.

Since 2008, nearly 500 newsrooms have closed across the country, and it's vital to Canada's democracy to keep the remaining ones open, Rodriguez said.

"I'm still hopeful that we can find a positive outcome for everyone," Rodriguez said.

This report by The Canadian Press was first published June 27, 2023.

— With files from The Associated Press

———

Meta funds a limited number of fellowships that support emerging journalists at The Canadian Press.

Mickey Djuric, The Canadian Press

MONOPOLY CAPITALI$M

Canada's Postmedia Network confirms merger talks with Nordstar Capital

Reuters
Tue, June 27, 2023

(Reuters) - Postmedia Network Canada Corp on Tuesday confirmed it was in a non-binding discussion with Nordstar Capital for a potential merger with some operational assets of the Toronto Star and the Metroland newspapers.

The merger will help to significantly reduce overall debt and to grow a strong national editorial infrastructure, the company said.

Nordstar Capital LP will have a 50% voting interest and 44% economic interest in the merged entity, which is yet to be named, while Postmedia shareholders will hold the rest.

Jordan Bitove, owner of Nordstar, will be the chairman of the combined entity and Andrew MacLeod, CEO of Postmedia, the CEO.

The Toronto Star will maintain its editorial independence through the incorporation of a new company, Toronto Star Inc, the company said.

Nordstar would retain a 65% interest in Toronto Star Inc, and Bitove would remain publisher of the Toronto Star.

(Reporting by Khushi Mandowara in Bengaluru; Editing by Sriraj Kalluvila)

Postmedia in merger talks with Toronto Star owner Nordstar

The Canadian Press
Tue, June 27, 2023 


TORONTO — Postmedia Network Canada Corp. said Tuesday that it's in talks to merge with Nordstar Capital LP, the owner of Metroland Media Group and the Toronto Star.

The two publishers say the proposed deal, which is yet to be finalized, is a bid to create greater scale so they can respond to the "existential threat" facing the media industry.

“The viability of the newspaper industry in Canada is at an extreme risk," said Jordan Bitove, publisher of the Toronto Star, in the news release.

Postmedia said discussions to consider a combination are so far non-binding, but that the proposed merger would see an even division of voting rights. Postmedia shareholders would hold a 56 per cent economic interest and Nordstar would hold a 44 per cent interest. Nordstar would retain a 65 per cent interest in Toronto Star Inc.

Bitove, owner of Nordstar, would be chairman of the merged entity and Andrew MacLeod, chief executive of Postmedia, would be CEO.

Postmedia, which owns publications including the National Post, Vancouver Sun and Calgary Herald, said the proposal would see the Toronto Star maintain editorial independence through the incorporation of a new company that would manage its editorial operations.

It says the deal would involve converting some of its outstanding debt to equity, resulting in "significant economic dilution" to existing shareholders, while reducing the overall debt of the merged entity.

"The core rationale for the proposed merger is to create a new entity with reduced debt, national digital scale to compete with the global technology giants and economies of scale in the business model," said MacLeod in the release.

"The proposed merged entity would provide the best opportunity to ensure strong news media coverage for Canadians from coast to coast."

While many of the details are yet to be confirmed, it's not clear that the deal would lead to better coverage, said Christopher Waddell, professor emeritus at the School of Journalism and Communication at Carleton University.

“It’s not clear to me ... how this accomplishes what they’re saying they’re going to accomplish in being able to invest more money and produce a strong news media coverage for Canadians.”

He said the pace of contraction among news organizations has been accelerating amid declining ad revenues and audience numbers, and that this deal looks to be the result.

“There’s more than a little bit of desperation.”

Postmedia has been struggling financially for years, saddled with extensive debt. It reported a net loss of $20.8 million in its latest quarterly results, while in its last full fiscal year it paid $31 million in interest expenses while carrying about $275 million in debt.

The company announced significant layoffs in January this year, with around 11 per cent of editorial staff to be affected. In recent years, Postmedia has closed a number of small-town newspapers, reduced print production of some of its titles, and moved some to digital-only formats to manage costs, among other layoffs and buyout offers.

Last week, Jamie Irving resigned as executive chair of the media conglomerate's board. He had held the role for less than seven months after assuming the role when longtime Postmedia chairman Paul Godfrey stepped down.

Postmedia said it confirmed the discussions in light of unusual trading activity, which saw its share price climb by more than 50 per cent on the day.

This report by The Canadian Press was first published June 27, 2023.

———

Torstar holds an investment in The Canadian Press as part of a joint agreement with subsidiaries of The Globe and Mail and Montreal’s La Presse.

Companies in this story: (TSX:PNC.B)

The Canadian Press

Newspaper Chains in Canada Plot Merger, Debt Swap to Stay Afloat


Derek Decloet
Tue, June 27, 2023 


(Bloomberg) -- Newspaper chain Postmedia Network Canada Corp. is in talks to merge with the owner of the Toronto Star, a deal that would reshape a domestic news industry that’s been crushed by falling revenue.

The two companies disclosed the non-binding discussions on Tuesday after a 56% jump in the price of Postmedia shares, which rarely trade.

Holders of Postmedia, which owns titles including the National Post and the Calgary Herald, would get a 56% economic interest in the merged entity, while private equity firm Nordstar Capital LP would get 44%. Closely held Nordstar and its publisher, Jordan Bitove, would keep majority control of the Star, one of the Canada’s largest newspapers, which would have editorial independence from the parent company.

The companies said they’re also considering a debt-for-equity swap that would lead to “significant” dilution for existing shareholders. Postmedia had C$287 million ($217 million) in long-term debt and lease liabilities as of Feb. 28, according to data compiled by Bloomberg.

Postmedia has lost about a third of revenue since 2018 because of falling advertising and circulation revenue. The company produced operating income of just C$13 million, excluding depreciation, amortization, restructuring and other costs, in the fiscal year ended Aug. 31. The company’s interest expense during the year was C$31 million.

“The news media industry in Canada and around the world is under existential threat, new models are urgently required,’ Postmedia Chief Executive Officer Andrew Macleod said in a statement.

Postmedia newsrooms have been gutted by staff cuts, and earlier this year the company told employees of the Vancouver Sun and Province, its major titles in Canada’s third-largest city, to work from home permanently so it could get rid of office space.

“The viability of the newspaper industry in Canada is at an extreme risk, especially in the small towns and communities that are important to this nation,” Bitove said.

Bitove and Paul Rivett bought the Star and other newspapers in 2020 in a C$60 million takeover of Torstar Corp. But the two men had a public falling out last year, partly over plans to cut costs, and they ended their partnership. Rivett had been quoted as saying the Star was losing C$1 million a week.

Last week, Prime Minister Justin Trudeau’s government passed a new law intended to force major technology platforms such as Alphabet Inc. and Meta Platforms Inc. to pay money to news publishers. Both companies have protested the law, and Meta has threatened to block news links in Canada on Facebook and Instagram rather than pay.