CIBC to appeal U.S. court decision ordering it to pay $1.16-billion to Cerberus

Canadian Imperial Bank of Commerce CM-T +1.05%increaseCM-T +1.05%increaseis appealing a U.S. court decision that could force the lender to pay about $1.16-billion, after it was found liable for losses incurred by a New York hedge fund in debt deals related to the 2008 U.S. housing crisis.

A New York State court said late Tuesday that CIBC must pay US$491-million in damages before prejudgment interest. That is less than the US$1.1-billion the hedge fund, Cerberus Capital Management LP, sought when it first brought the bank to court in 2015.

Including prejudgment interest, CIBC said it expects to pay US$848-million. That could cause the bank to record a pretax provision of $1.16-billion in its earnings for its fiscal first quarter, which ends Jan. 31.

New York court issues liability ruling against CIBC in Cerberus lawsuit

Cerberus alleged CIBC defaulted on payments on a limited recourse note the bank issued in 2008, and on a related transaction in 2011. Limited recourse notes are a type of debt instrument that combines elements of preferred shares and corporate bonds to provide fixed-income investors with higher yields.

CIBC has said in its public filings that the two transactions with Cerberus reduced the bank’s exposure to the U.S. residential real estate market.

“CIBC strongly disagrees with the legal and factual basis for the court’s decision,” the bank said in a news release announcing its appeal on Wednesday.

The court initially found CIBC liable for damages in an early December decision, but it had yet to decide how much the bank would have to pay. At the time, CIBC said in a release that it had not set aside any money for a potential loss because it believed it was “more likely than not to prevail at trial.”

The court-ordered charge would take a chunk out of the bank’s common equity tier (CET1) ratio, a key measure of a bank’s ability to cover sour loans, at a time when Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, is increasing the amount of money that banks are required to hold for this purpose.

In December, OSFI increased the domestic stability buffer (DSB), meaning banks must now store more capital during good economic times to limit the damage from downturns. It also increased the maximum level to which the DSB can rise, opening the possibility of the minimum CET1 ratio reaching 12 per cent, from the current 11 per cent.

CIBC said the charge could push its CET1 level down to 11.4 per cent, from its current 11.7 per cent. This would bring the bank closer to the current minimum level and put it in danger offalling under if OSFI were to hike the DSB again. Some analysts have speculated that this could prompt CIBC to turn to public markets to raise funds.

If CIBC had borne the full brunt of Cerberus’ claim, its CET1 ratio would have dropped to 11.2 per cent, which would probably have been “high enough to avoid an equity issue” unless other issues cropped up, RBC analyst Darko Mihelic said in a note in December.

Bank of Montreal is so far the only bank to have done a share sale after OSFI’s change. The lender raised a total of $3.35-billion in a share offering in early December to help cushion the blow of the higher capital requirements as it works toward closing its deal to take over California-based Bank of the West from BNP Paribas.

BMO also lost a year-long legal battle last year, resulting in a $1.1-billion charge. In November, a Minnesota bankruptcy court found the bank’s U.S. arm was liable for US$564-million in damages related to one of the largest-ever Ponzi schemes. The bank is appealing the decision.

UPDATED THU, JAN 5 20235:36 AM EST

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Stock futures are flat as investors digest Fed minutes, look ahead to labor data

Stock futures were flat Thursday as investors looked beyond the hawkishness of the Federal Reserve’s meeting minutes released in the afternoon toward labor data coming later this week.

Futures tied to the Dow Jones Industrial Average lost just 11 points. S&P 500 and Nasdaq 100 futures were both marginally lower as well.

The moves follow a choppy trading session as traders pored over a mixed bag of economic data.

November’s Job Openings and Labor Turnover, or JOLTS, report showed the job market remained strong, bolstering concerns that the Fed could continue raising interest rates as long as there remained a hot market for workers. But the ISM manufacturing index showed the sector was contracting after 30 months of expansion, which investors saw as a positive indicator that previous rate hikes had the intended impact of cooling the economy.

Meanwhile, the minutes from the Fed’s December meeting showed the central bank remained committed to higher interest rates for “some time.”

Investors have “wounds that are still fresh” following 2022, which brought the worst year for the stock market since 2008, said Keith Buchanan, a portfolio manager at GLOBALT Investments. He said investors are attempting to balance what each new piece of economic data or Fed commentary can indicate with broader concerns about the future.

“Every day that goes by and we get a data point that’s moving in the right direction, it’s positive,” Buchanan said. “But it’s also quickly followed up with apprehension on how sensitive and delicate this moment is.”

Investors will watch Thursday for more data on jobs, the trade deficit and business activity. Fed speakers Raphael Bostic and James Bullard are also both slated to speak.

On Friday, investors will review data on nonfarm payrolls, the unemployment rate and hourly wages. Since the report could have a big impact on the Fed’s next moves, it has the potential to impact the market. Investors don’t want to see big gains in wage growth.

Hong Kong stocks are off to their best start since 2018 on China recovery hopes

• The Hang Seng index on Tuesday gained 1.84%, its biggest gain on the first trading session of a year since 2018.
• Property and technology stocks continued to rally, leading the Hang Seng index.
• Alibaba shares rose 8% on Wednesday, as Chinese regulators approved Ant Group’s plan to more than double its registered capital, a sign of progress in resolving regulators’ concerns.

https://www.cnbc.com/2023/01/05/hong-kong-stocks-best-start-since-2018-on-china-recovery-hopes.html

Dubai announces $8.7 trillion economic plan to boost trade, investment and global hub status

• Dubai aims to double the size of its economy in the next decade and become one of the “top 3 economic cities around the world,” Sheikh Mohammed bin Rashid al Maktoum, the ruler of Dubai, tweeted.
• Recent years have seen Dubai roll out a flurry of reforms aimed at making it more attractive for foreigners and international companies to live and invest.

https://www.cnbc.com/2023/01/04/dubai-announces-8point7-trillion-economic-plan-to-boost-trade-investment.html

Jan 3, 2023: Oil feels downward pressure from China, global economy

Oil prices edged lower on Tuesday in volatile trade as weak demand data from China and a gloomy economic outlook weighed.

Brent crude futures fell $0.68, or 0.8%, to $85.23 a barrel. U.S. West Texas Intermediate crude was down 54 cents, or 0.7%, at $79.22.

Both contracts rose by over $1 and Brent dropped $1 in earlier trading.

“Brent and WTI have recovered almost 15% from the lows a few weeks ago as traders continue to price in stronger Chinese demand,” Craig Erlam, senior market analyst at OANDA, said.

“The outlook remains highly uncertain though which should ensure oil prices remain highly volatile,” Erlam added.

The Chinese government has raised export quotas for refined oil products in the first batch for 2023. Traders attributed the increase to expectations of poor domestic demand, as the world’s largest crude importer continued to battle waves of COVID-19 infections.

In further bearish news, China’s factory activity shrank in December as surging COVID-19 infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs.

Adding to the gloomy economic outlook, IMF Managing Director Kristalina Georgieva said on Sunday that the United States, Europe and China – the main engines of global growth – were all slowing simultaneously, making 2023 tougher than 2022 for the global economy.

The market will be looking for indications from the U.S. Fed’s December policy meeting on Wednesday. The Fed raised rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each.

Also on the radar, U.S. December payrolls data is due on Friday, which is expected to show that the labor market remains tight.

Tesla reports 1.31 million deliveries in 2022, growth of 40% over last year

• Tesla just reported 2022 year-end vehicle production and delivery numbers.
• According to a consensus compiled by FactSet, analysts were expecting Elon Musk’s electric vehicle business to report 427,000 deliveries for the fourth quarter as of Dec. 31.
• In 2021, Tesla reported 308,600 vehicle deliveries in the fourth quarter, and full-year deliveries of around 936,172 vehicles.

https://www.cnbc.com/2023/01/02/tesla-tsla-q4-2022-vehicle-delivery-and-production-numbers.html

China December manufacturing contracts at sharpest pace in almost 3 years

• China’s official purchasing managers’ index (PMI) fell to 47.0 from 48.0 in November, the National Bureau of Statistics said on Saturday. The 50-point mark separates contraction from growth.
• The drop was the biggest since the early days of the pandemic in February 2020.
• Economists in a Reuters poll had expected the PMI to come in at 48.0.

https://www.cnbc.com/2022/12/31/china-manufacturing-contracts-sharply-as-covid-infections-soar.html

Ohio county reports more than 80 measles cases, majority of the country’s 117

A measles outbreak in Central Ohio has infected 82 patients under the age of 18 with nearly 40% of the children, 32, needing to be hospitalized, according to reports. 

The outbreak in Franklin County marks the first time a case has been reported in the area in 20 years, Axios reported. 

Franklin County’s 82 cases make up the bulk of the nation’s 117 reported cases. 

https://www.foxnews.com/health/ohio-county-reports-more-than-measles-cases-majority-countrys

Biden signs US$1.7-trillion bill funding government operations

President Joe Biden on Thursday signed a $1.7 trillion spending bill that will keep the federal government operating through the end of the federal budget year in September 2023, and provide tens of billions of dollars in new aid to Ukraine for its fight against the Russian military.

Biden had until late Friday to sign the bill to avoid a partial government shutdown.

The Democratic-controlled House passed the bill 225-201, mostly along party lines, just before Christmas. The House vote came a day after the Senate, also led by Democrats, voted 68-29 to pass the bill with significantly more Republican support.

Biden had said passage was proof that Republicans and Democrats can work together.

Rep. Kevin McCarthy, the House Republican leader who hopes to become speaker when a new session Congress opens on Jan. 3, argued during floor debate that the bill spends too much and does too little to curb illegal immigration and the flow of fentanyl into the U.S. from Mexico.

“This is a monstrosity that is one of the most shameful acts I’ve ever seen in this body,” McCarthy said of the legislation.

McCarthy is appealing for support from staunch conservatives in the GOP caucus, who have largely blasted the bill for its size and scope. Republicans will have a narrow House majority come Jan. 3 and several conservative members have vowed not to vote for McCarthy to become speaker.

The funding bill includes a roughly 6% increase in spending for domestic initiatives, to $772.5 billion. Spending on defence programs will increase by about 10%, to $858 billion.

Passage was achieved hours before financing for federal agencies was set to expire. Lawmakers had approved two short-term spending measures to keep the government operating, and a third, funding the government through Dec. 30, passed last Friday. Biden signed it to ensure services would continue until Congress sent him the full-year measure, called an omnibus bill.

The massive bill, which topped out at more than 4,000 pages, wraps together 12 appropriations bills, aid to Ukraine and disaster relief for communities recovering from natural disasters. It also contains scores of policy changes that lawmakers worked to include in the final major bill considered by that session of Congress.

Lawmakers provided roughly $45 billion for Ukraine and NATO allies, more than even Biden had requested, an acknowledgment that future rounds of funding are not guaranteed when Republicans take control of the House next week following the party’s gains in the midterm elections.

Though support for Ukraine aid has largely been bipartisan, some House Republicans have opposed the spending and argued that the money would be better spent on priorities in the United States.

McCarthy has warned that Republicans will not write a “blank check” for Ukraine in the future.

The bill also includes about $40 billion in emergency spending, mostly to help communities across the U.S. as they recover from drought, hurricanes and other natural disasters.

The White House said it received the bill from Congress late Wednesday afternoon. It was delivered to Biden for his signature by White House staff on a regularly scheduled commercial flight.

Biden signed the bill Thursday in the U.S. Virgin Islands, where he is spending time with his wife, Jill, and other family members on the island of St. Croix. The Bidens are staying at the home of friends Bill and Connie Neville, the White House said. Bill Neville owns US Viking, maker of ENPS, a news production software system that is sold by the Associated Press.

Also in the bill are scores of policy changes that are largely unrelated to spending, but lawmakers worked furiously behind the scenes to get the added to the bill, which was the final piece of legislation that came out of that session of Congress. Otherwise, lawmakers sponsoring these changes would have had to start from scratch next year in a politically divided Congress in which Republicans will return to the majority in the House and Democrats will continue to control the Senate.

One of the most notable examples was a historic revision to federal election law to prevent a future president or presidential candidate from trying to overturn an election.

The bipartisan overhaul of the Electoral Count Act is a direct response to-then President Donald Trump’s efforts to persuade Republican lawmakers and then-Vice President Mike Pence to object to the certification of Biden’s victory on Jan. 6, 2021, the day of the Trump-inspired insurrection at the Capitol.

Among the spending increases Democrats emphasized: a $500 increase in the maximum size of Pell grants for low-income college students, a $100 million increase in block grants to states for substance abuse prevention and treatment programs, a 22% increase in spending on veterans’ medical care and $3.7 billion in emergency relief to farmers and ranchers hit by natural disasters.

The bill also provides roughly $15.3 billion for more than 7,200 projects that lawmakers sought for their home states and districts. Under revamped rules for community project funding, also referred to as earmarks, lawmakers must post their requests online and attest they have no financial interest in the projects. Still, many fiscal conservatives criticize the earmarking as leading to unnecessary spending.