Planes, trains, and shaking up the family business

Planes, trains, and shaking up the family business

Feb 12: Bombardier brings in a new CEO, and an early test for QE in the eurozone. Plus, do women make better fund managers?


After a long and busy week, what a calm Friday it seems to be – although those sound suspiciously like a case of “famous last words.”

Yesterday’s big Canadian headline was a major shakeup of Bombardier – from ending their dividend to new leadership roles and equity-raising – and we’ll start with a quick recap of what’s changed. The loonie also had a boost yesterday, rising almost a cent to close above 80 cents once again. In international news, yesterday was an incredibly hectic day, as Ukraine got both a $17.5-billion emergency bailout (an extension of earlier funds) and what looks like a ceasefire with Russia, to begin tomorrow. The Greek drama will resume in full by Monday, but any sense of optimism over Ukraine on European markets could be shaken if Yanis Varoufakis decides to say anything at all.

This morning saw the release of the eurozone’s GDP for the last quarter of 2014, while in the U.S., a cybersecurity conference could include a locking of (polite) horns between the tech industry and the Obama government. At home, we’ll see the release of new vehicle sales for December, and existing home sales for January. On the weekend, the place to watch is Nigeria, for fallout from the rescheduling of the election until May. The government says the election has been postponed due to ongoing violence from Boko Haram, which has killed thousands of people just since the start of the year. The president denies any involvement in the decision.

Bombardier shakes up the family business. Amid disappointing quarterly earnings results and a dividend cut, the maker of trains and planes announced a leadership change yesterday, with current CEO Pierre Beaudoin stepping down – but not very far. He’ll remain executive chairman, and will still have a day-to-day role in running the business. His father, Laurent Baudoin, will become chairman emeritus. The new CEO is Alain Bellemare, formerly of United Technologies Corp. Nonetheless, the company is still tightly controlled by the Bombardier family which, along with the Beaudoins, hold most of the class A stock, which comes with more shareholder rights than the commonly traded class B stock. The company also announced plans to reverse their cash shortage and lighten their debt by raising US$600 million in equity and $1.5 billion in new debt. Bombardier stock reacted unhappily to the news, slumping 12 per cent.

Growth and the eurozone. This morning, the eurozone released their last quarter GDP numbers, which chugged in a little higher than expected at 0.3 per cent growth (expectations were for 0.2 per cent.) Germany was the standout performer, with growth higher than expected, while France, Italy and Austria all lagged. Greece was at the bottom of the list, with even worse growth than expected, after its economy contracted by 0.2 per cent. The big debate going in was whether the benefits of anticipated quantitative easing are showing up yet. Yesterday, the ECB’s chief economist said the economy has seen a “turning point” after the announcement of a bond-buying program worth more than a trillion euros. On the skeptical side is QE’s chief critic, the head of the German central bank, who has warned that QE will likely not be as effective in the eurozone as it has been in the U.S. In the first Weekend Playbook, we looked at a lineup of the criticism, including limits to how much lower bond yields can actually go. Quantitative easing also has another side effect: the impact on pension deficits. The U.K., which has also used a QE program, has seen deficits balloon each time yields have inched lower. After inflation expectations, U.K. sovereign bond yields are currently negative, and aggregate deficits rose over £100 billion in January alone. Now, the problem is ramping up in the eurozone.

Should women run the finance industry? That’s the claim behind a recent study in the American Economic Review, summarized here by Quartz, which claims that in experiments involving asset management, male managers tend to produce more speculative bubbles, while female managers tend to be more risk averse. Another study found that over 2013, funds managed by women outperformed funds managed by men. But the data is so small it’s hard to know how reliable it is: there are only 125 industry-reporting funds run by women – in the entire world. The idea that women are better fund managers is not new (even if it’s contentious), and neither is the issue of financial industry sexism, and the FT recently released a feature on “Sexism and the city“, exploring the lack of women in top roles. Those who do make it to the top still experience regular sexism, according to another FTfm study, with a third of women working in the business in the U.K. reporting they experience sexist behaviour on a monthly, or even weekly, basis.

Motoring with the ruble. Who is benefiting from the fall of the ruble? Not Russians, that’s for sure. As the country’s central bank has been drawn into repeated rate-hiking and rate-slashing, there’s one group finding a silver lining in the drop: Finnish motorists. Gas prices are half the price in Russia compared to Finland, so drivers near the border have been crossing over in increasing numbers to fill up. There are a few logistical hoops to this brand “petrol tourism” of course – every visit requires a Russian visa, and apparently, “not everyone wants to travel to Russia in the winter.”

Need to know:
TSX: 15,229.85 (+78.53), Thursday
Loonie: 80.06 (+0.95 cents), Thursday
Oil (WTI): $51.71, Friday morning (3:30 a.m.)