Canada Stocks Fall on Lehman Failure; Suncor, Brookfield Drop
By John Kipphoff
Sept. 15 (Bloomberg) -- Canadian stocks fell, led by energy and financial companies, the market's biggest components, as Lehman Brothers Holdings Inc.'s bankruptcy and Merrill Lynch & Co.'s sale fanned concern U.S. mortgage losses will slow growth.
Suncor Energy Inc. led commodity producers lower as prices for oil tumbled. Brookfield Properties Inc., the owner of Manhattan's World Financial Center, dropped the most in almost 13 years, pacing declines among financial shares.
``We've seen some mighty institutions fail,'' said Greg Eckel, a money manager at Morgan Meighen & Associates in Toronto, which oversees about $1.2 billion. ``We just don't know the fallout yet. These things add up in terms of global growth. Sentiment has been shattered.''
The Standard & Poor's/TSX Composite Index dropped 320.06, or 2.5 percent, to 12,449.52 at 12:10 p.m. in Toronto as about 10 stocks fell for every one that rose.
Canada's main equity benchmark, which derives more than three-quarters of its value from energy, materials and financial stocks, is down 17 percent from its June 18 record after world financial institutions posted more than $511 billion in credit losses and writedowns and commodity prices retreated. Today Lehman Brothers filed for protection in the biggest bankruptcy ever and Bank of America Corp. agreed to buy Merrill for $50 billion, as the credit crisis claimed another victim.
Suncor Energy, the world's second-largest oil-sands producer, declined 4.8 percent to C$48. Canadian Natural Resources Ltd., the nation's fourth-largest energy company by market value, fell 4.7 percent to C$79.41.
Mining Companies
Potash Corp. of Saskatchewan Inc., the biggest maker of crop nutrients by market value, retreated 2.6 percent to C$167.80. Teck Cominco Ltd., Canada's biggest diversified mining company, slid 3.5 percent to C$37.65.
Crude oil slid to a seven-month low and zinc fell the most in almost 10 months, leading commodity prices lower. All commodities in New York and London, with the exception of gold and silver, dropped, prompting a 5 percent slump in the GSCI Index of 24 commodities, on signs the worsening credit crisis may weaken the global economy and curb demand for materials.
Nine of 10 industry groups in the S&P/TSX declined, led by a measure of energy stocks, which lost 4 percent. A measure of financial shares, the largest by value among the 10 industries in the S&P/TSX, retreated 2.3 percent, the most since Aug. 19.
Landlord
Brookfield Properties dropped 9.9 percent to C$20.34, the most since November 1996. Brookfield was cut to ``market perform'' by BMO Capital Markets analyst Karine MacIndoe, who said that the company may face ``what is likely to be an accelerated deterioration of fundamentals'' in its ``core Manhattan market.'' Parent company Brookfield Asset Management Inc. slipped 6.2 percent to C$29.93.
Royal Bank of Canada, the nation's largest lender by assets, fell 2.7 percent to C$47.85. Toronto-Dominion Bank, the second-biggest, dropped 2.9 percent to C$60.48.
Canada's six biggest banks have had writedowns of about C$11.6 billion ($10.86 billion) tied to U.S. debt investments, a fraction of the global total. Canadian Imperial Bank of Commerce, which accounted for two-thirds of total Canadian writedowns, fell 4.7 percent to C$61.17.
Valuations for Canadian banks are likely to decline in the short term because of widening spreads on fixed income securities, and concerns related to both the unwinding of Lehman's $730 billion in derivatives trades and the financial health of other financial companies such as American International Group Inc., RBC Capital markets analyst Andre- Philippe Hardy wrote in a note to clients.
`Manageable'
The ``direct impact'' on Canadian banks of Lehman's failure is probably ``manageable,'' he wrote. Canadian Imperial Bank is the most exposed, he wrote. CIBC Chief Executive Officer Richard Nesbitt said at a conference that his bank expects a loss of about C$25 million from Lehman.
Not all financial companies declined. Fairfax Financial Holdings Inc., an insurance company that's been betting against financial companies through credit-default swaps, gained 2.6 percent to C$233.08.
Research In Motion Ltd. slid 3.3 percent to C$108.62. The maker of the BlackBerry e-mail phone makes about 60 percent of its sales in the U.S. Banks and brokerages are among its most important customers.
Agnico-Eagle Mines Ltd. advanced as investors bought gold as a safe haven. The owner of Canada's biggest gold deposit, increased 1.3 percent to C$56.88.
Some consumer-related companies advanced on speculation demand for their household goods will be hurt least in a recession. Shoppers Drug Mart Corp., Canada's largest pharmacy chain, gained 1.1 percent to C$55.02.
``It's encouraging to see some buyers step in,'' Eckel said. ``Maybe people have done most of their selling already. The market does like to put things behind it.''
To contact the reporter on this story: John Kipphoff in Toronto at
jkipphoff@bloomberg.net.