January 6, 2015 Newsletter

Dear Friends,

Tangents:

Carolann is out of the office, I will be writing the newsletter on her behalf.

PHOTOS OF THE DAY

Visitors walk past large ice sculptures during the Harbin International Ice and Snow Festival in the northern city of Harbin, Heilongjiang province, China. The winter event runs through the end of February and draws several million tourists each year. Kim Kyung-Hoon/Reuters  crocodiles. Toby Melville/Reuters

A Hubble telescope photograph of the iconic Eagle Nebula’s ‘Pillars of Creation’ is seen in this NASA image released today. By comparing 1995 and 2014 pictures, astronomers noticed a lengthening of a narrow jet-like feature that may have been ejected from a newly-forming star. Over the intervening 19 years, this jet has stretched farther into space, across an additional 60 billion miles, at an estimated speed of about 450,000 miles per hour. NASA/ESA/Hubble Heritage Team/Reuters

Market Closes for January 6^th, 2015   

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Doug Alexander

     (Bloomberg) — Bank of Nova Scotia was Canada’s top arranger of stock sales for the first time since 2002 after exclusively leading offerings for Manulife Financial Corp. and Veresen Inc. in a year fueled by energy financings.

     Canadian stock sales climbed to a four-year high of $34.5 billion last year, with oil-and-gas firms accounting for about35 percent of the total, according to data compiled by Bloomberg. The amount companies raised through Canadian initial public offerings, secondary sales and convertible debentures inched up from $34.1 billion in the prior year, the data show.

     “Energy was a significant contributor to the activity level both in terms of acquisition finance and also IPOs and follow-on offerings,” said John McCartney, managing director and head of global equity capital markets at Scotia Capital.“We were on our way to surpassing the record issuance of 2009, but a very quiet final quarter of the year had us fall short.”

     Crude oil plunged 54 percent from a June 20 high amid a glut in supplies and a battle for market share between the U.S. and Organization of Petroleum Exporting Countries. Surging production and slower-than-expected demand growth also contributed to the rout, which saw oil-and-gas producer Teine Energy Ltd. push back the timing of its IPO.

     Scotiabank was credited on 33 deals for $5.1 billion in 2014, while Royal Bank of Canada’s RBC Capital Markets, which previously held top spot for two straight years, ranked second with 44 deals for $4.86 billion, the data show. Scotiabank, the country’s third-biggest bank by assets, hasn’t ranked higher than second since 2008.

     Bank of Montreal’s BMO Capital Markets fell to third from second, with 51 sales for $4.28 billion. Canadian Imperial Bank of Commerce was fourth with $3.9 billion of sales, edging past fifth-ranked Toronto-Dominion Bank’s TD Securities by less than$1 million.

     The figures and rankings, which exclude preferred share sales and self-led deals, were current as of today and may change as more transactions are recorded.

     RBC, which ranked No. 1 for domestic stock sales seven times in the past decade, helped oversee some of last year’s largest deals including Scotiabank’s sale of C$2.62 billion ($2.25 billion) shares of CI Financial Corp. in May. Energy will likely play less of a role in stock sales this year, though issuance by consumer companies, retailers and industrial firms may pick up, said Kirby Gavelin, RBC’s head of Canadian equity capital markets.

     “Canadian equity new-issue finance may not be as high as what we saw last year, but we don’t see it dropping by a major factor,” Gavelin said in an interview. “There’s M&A activity, expansion activity and other parts of the economy that have the potential to be more active than energy perhaps this year.”

     Scotiabank had mandates including landing the sole bookrunner role for Manulife’s sale of C$1.76 billion in subscription receipts in September, and Veresen’s C$920 million sale of subscription receipts the same month.

     “We’ve had a long history with these clients,” said Scotia Capital’s Lawrence Lewis, a vice chairman in equity capital markets. “We were able to get Manulife exceptionally tight terms, very good terms for the size required on a time- effective basis.”

     Scotiabank’s ties with Calgary-based Veresen, an owner of natural-gas pipelines, go back to the 1990s, when the bank took the company known then as Fort Chicago public.

     “The firm’s had strong relationships, we’ve done equity financings, preferred financings and we know the management well,” Lewis said. “It’s allowed us to be in a competitive position to sole lead these transactions.”

     Five stock sales each raised more than C$1 billion, with Encana Corp.’s C$2.6 billion September sale of its remaining stake in PrairieSky Royalty Ltd. topping the list.

     PrairieSky Royalty was also Canada’s biggest IPO last year — and the largest in the country since 2000 — after Encana raised C$1.67 billion including an over-allotment in its May initial sale of its 46 percent stake.

     Companies raised $3.6 billion from 29 IPOs last year, the highest amount since 2010, with CIBC No.1 based on value with roles on PrairieSky, Northern Blizzard Resources Inc. and Journey Energy Inc.  “The No. 1 ranking in IPOs is something that is absolutely essential to us,” Benoit Lauze, CIBC’s head of equity capital markets, said in a phone interview. “The IPO market leads to a lot of follow-on activity, typically, so this bodes very well for CIBC going forward given that we were bookrunner on most of the very large IPOs.”

     Beyond energy, Catalyst Capital Group Inc. raised $264 million in an IPO of its Callidus Capital Corp. unit, while technology firms Kinaxis Inc. and Lumenpulse Inc. each raised about $105 million in IPOs last year. A more diverse group of companies, such as retailers, technology firms and those involved in consumer products, may tap public markets for the first time this year, Lauze said.

     “Recent market volatility will certainly have an impact on equity new issue markets in 2015, with lower oil prices leading to lower oil and gas issuance,” said Sante Corona, head of equity capital markets at TD Securities. “There are sectors that stand to benefit from lower oil prices and a weaker Canadian dollar, and we may see issuance from those sectors such as industrials or companies that sell into U.S. markets.”

     IPO candidates include Inovent Capital Inc. and Canada Jetlines Ltd., which are marketing a C$50 million offering to fund a new “ultra-low cost” airline out of Vancouver International Airport, according to company filings. And BitGold Inc. co-founder Roy Sebag said in a December interview that he aims to raise as much as C$20 million in a Toronto IPO within six months for a business that will enable customers to swap their holdings between gold bullion and bitcoins.

     Both of those deals would pale in comparison to any sale of part of Vale SA’s base metals unit. After buying Canadian nickel producer Inco Ltd. eight years ago, the Brazilian miner said Dec. 2 it may sell a minority stake in the unit, valued as much as $35 billion.

     “Vale’s been well broadcast and that could clearly come, as well as some of the unnamed senior mining companies who do have debt and will have to deleverage in this environment,” Peter Miller, head of Canadian equity capital markets at BMO Capital Markets, said in an interview. “They could come with some chunky offerings.”

US

By Michael P. Regan

     (Bloomberg) — Perusing the list of the biggest stock- market losers since the price of oil peaked in June yields some predictable results.

     You have your large-cap energy companies like Transocean Ltd., Denbury Resources Inc., Nabors Industries Ltd., Noble Corp. and Halliburton Co., all down at least 45 percent.

     Yet mixed in with all the obvious ugliness are some names that bring to mind the question asked of Billy Joel by those drinkers at the piano bar, or perhaps even some of the wedding guests who watched him walk down the aisle with Christie Brinkley: Man, what are you doing here?

     The answer illustrates how much of an impact the energy industry has had on the bottom line of corporate America, whether it’s companies profiting from the boom in domestic production or those that made big investments based on the premise that fuel will always be expensive. As such it helps explain why the entire stock market, not just the energy companies, tends to freak out when oil heads lower rapidly.

     The big bets on high energy prices made by companies like Ford Motor Co. (down 13 percent since oil peaked on June 20) or Tesla Motors Inc. (down 10 percent) or Boeing Co. (down 3.9 percent) jump immediately to mind.

     Not so obvious, unless you follow the stock closely, is the investment made by Fifth Third Bancorp, one of the regional lenders that tried to chase the fracking boom. (It’s down 12 percent since June 20.)

     Here’s how the company’s management described the rationale for the launch of a new national energy banking team two years ago: “The energy sector is a rapidly growing industry,” said the announcement. The new team “demonstrates our commitment to providing dedicated banking services to this evolving sector.The oil and natural gas sector represents a tremendous growth opportunity.”

     The sector certainly is “evolving.” Fitch Ratings last month identified regional banks lifted by the shale boom that now face potential credit pressures in loans related to the industry. Oil prices below $50 a barrel, like now, would likely trigger a jump in credit losses, Fitch said.

     Fitch’s list of banks with high concentrations of loans to the industry is topped by BOK Financial Corp., which is down 13 percent since June 20.; Cullen/Frost Bankers Inc., down 16 percent; Hancock Holding Company, down 19 percent; Comerica Inc., down 14 percent; and Amergy Bank of Texas, a subsidiary of Zions Bancorp, which is down 13 percent.

     Losses are even worse among the industrial companies that provide the services and sell the pipes, valves and assorted doodads used to pump oil and gas.

     Fluor Corp., an engineering, maintenance and project management firm that counted on the oil and gas industry for 42 percent of its revenue in 2013, is down 27 percent since June 20. Flowserve Corp., whose pumps and valves are used in refineries and pipelines, is off about the same amount.

     Caterpillar Inc., Joy Global Inc., Allegheny Technologies Inc., Dover Corp., Jacobs Engineering Group and Quanta Services Inc. are all down more than 20 percent since oil peaked at almost $108.

     Morgan Stanley last month detailed stocks that stand to benefit from lower oil prices, such as airlines and consumer companies, and concluded cheaper fuel is a net benefit for the U.S. economy.

     Yet the firm’s list of stocks outside the energy and industrial sectors that could be challenged was not short, and included some surprising names: from Sprint Corp. to Intelsat SA in the telecommunications industry, to Agilent Technologies Inc. and Varian Medical Systems Inc. in health care, and investment firms like Carlyle Group LP and real-estate investment trusts such as American Residential Properties Inc.

     Just yesterday, U.S. Steel Corp. warned of potential layoffs for 756 employees at two plants that stand to be hurt by lower spending by energy companies.

     Anyway, the latest boom and bust in the energy industry calls to mind another Billy Joel lyric, reflecting on a summer in Highland Falls, New York, a state where our reason coexists with our insanity and fracking was banned last month: We are always what our situations hand us, it’s either sadness or euphoria.

Have a wonderful evening everyone!

Be magnificent!

Thousands of candles can be lighted from a single candle, and the life of the candle will not be shortened. Happiness never decreases by being shared.

Buddha

As ever,

Leyla

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7