King Oleg! Currie's conquest!! Revenge of Danny Chavez, McCaughey's banana peel! The Paper Freeze, Steady Eddie's royalty ruckus
ERIC REGULY
HIT: OLEG DERIPASKA
Oleg Deripaska turns 40 next month and it appears the former metals broker who came from nothing has already won the oligarch sweepstakes. Forbes magazine last ranked him as Russia's second-richest man, with holdings valued at $13.3-billion (U.S.), after Chelsea Football Club owner Roman Abramovich. But Mr. Deripaska embarked on a voracious investment spree in 2007 and there is little doubt the next tally will put him on top. Russia's Finans magazine has already anointed him king.
Mix wealth, business savvy, aggression and impeccable connections - Mr. Deripaska is said to be the Kremilin's favourite oligarch - and you tend to get what you want. The question is whether the chief executive officer of Basic Element wants all he can get.
Running such a large, diversified empire, with holdings that range from airports and auto factories to UC Rusal, the world's biggest aluminum maker, and a $1.5-billion chunk of Canada's Magna International, is not easy. There are more than 300,000 employees. The boss has said finding the best people to manage the Basic Element spread is his biggest challenge, all the more so now that new businesses seem to arrive by the day. Basic Element is on the verge of buying Russneft, one of Russia's biggest independent oil producers, and has just agreed to pick up a big piece of Norilsk Nickel, which probably will be melded with Rusal to create a global Russian resources powerhouse.
Mr. Deripaska himself seems aware that something has to give. He is preparing the biggest companies, including Rusal, for independence. Initial public offerings are coming. The empire requires billions of dollars of capital and stock market listings are essential. Here's a guess: Mr. Deripaska will be a lesser oligarch in two or three years and be happier for it.
MISS: MERVYN KING AND
ALISTAIR DARLING
The would-be rescuers of aggressive-to-a-fault mortgage lender Northern Rock, Mervyn King, the governor of the Bank of England, and Alistair Darling, the Chancellor of the Exchequer, have some explaining to do. Theirs is a textbook case on how to take a bad situation - the first run on a British bank since 1866 - and make it worse.
The Rock is a victim of a credit crunch triggered by the U.S. subprime mess. In August, the Rock was suddenly unable to fund itself and the bank run started when news of its dire financial shape leaked a month later. At first, it appeared Mr. King would let the Rock go - he had been a critic of bank support operations, in the sound belief that such actions would encourage reckless behaviour elsewhere in the financial system. As embarrassing pictures of panicked Rock customers filled the media, his attitude quickly changed. The Rock was tossed a line of credit that ballooned; the Bank of England - that is, the taxpayer - is now owed the equivalent of $50-billion (Canadian). Meanwhile the Bank has been flooding the money markets with cash to bring down interbank lending rates.
The support blitz was apparently designed to buy time to find a rescuer for the Rock. But by mid-December, that hadn't happened. Mr. Darling's sin was not insisting that the government guarantee the Rock's deposits from the very onset. If the government had done so, the deposits could have been transferred to another bank, the remnants of the Rock could have been sold and the hideously expensive public rescue could have been avoided. Throughout the ordeal, the Bank of England and the government made it clear they were wholly unprepared to handle a banking crisis.
DEREK DeCLOET
HIT: RICHARD CURRIE
He was crabby and difficult. He lashed out at his critics, calling the executives at a rival company "complete amateurs." He was accused of bungling the biggest corporate auction in Canadian history.
BCE Inc. chairman Richard Currie didn't make a lot of new friends this year. But so what? Judge the man on results, not on impressions. Six months after BCE announced its $35-billion sale to a private equity group, the outcome looks better than ever.
The critics claimed there were huge flaws with the "process." Mr. Currie can respond: $42.75 a share, baby. He sold the company with nearly perfect timing, striking a deal on June 30, about five minutes before the junk debt markets imploded and the large-scale buyouts went into a deep freeze. Had the board allowed the auction to drag on for another month, it's doubtful they would have got $42.75. It's debatable they would have had a deal at all.
The board came in for the harshest criticism for allegedly driving Telus Corp. away. As the only telecom company at the bargaining table, some believed it could have paid more than anyone else. But its offer included a large component of stock. Mr. Currie said that meant more risk.
Right again, Dick. Telus shares have fallen 24 per cent since Canada Day and the stock market's down 2.2 per cent. Cash is king. (And he'll have more of it now, since he bought one million BCE shares when they were cheap. He'll personally make about $17-million on the deal.)
Meanwhile, Loblaw Cos. Ltd., the grocery retailer he ran brilliantly for 25 years, continues to come unglued without him. In retirement, Dick Currie has never looked smarter.
MISS: GERALD MCCAUGHEY
Gerald McCaughey could see the bad times coming. Eventually, the business cycle will take a nasty turn, warned the new boss of Canadian Imperial Bank of Commerce. If consumers and businesses hit a debt wall at the same time - well, "we haven't seen that in recent history, and it could be difficult."
That was in January, 2006. But he would not get caught. Oh, no. This was the new CIBC - the solid, unexciting, low-risk, dividend-paying bank suitable for widows, orphans and foster children.
So how did his bank prepare for turmoil in the economy? By stepping right into the teeth of the U.S. housing bubble and strapping on a $10-billion trade in risky mortgages, then hedging $3.5-billion of that with a single insurer, ACA Capital Holdings Inc.
ACA isn't exactly Prudential or Deutsche Bank: It's small, little known and has been around for all of 10 years. It's also on the brink of insolvency, which will mean the guarantees it wrote to CIBC are worthless. For the bank, that likely means $3-billion worth of mortgage writedowns - or more, by the time the losses are counted.
We would have expected this from Bear Stearns or Merrill Lynch or some other Wall Street high rollers. Heck, we would have expected it from CIBC in the John Hunkin or Al Flood days, too. But Mr. McCaughey was supposed to be different. He talked a good game about managing risk. Now it looks like it was just talk. Fixing CIBC's balance sheet might be easy compared to repairing the CEO's credibility.
JACQUIE McNISH
HIT: ISADORE SHARP
Issy Sharp built one of the world's most admired luxury brands from a single Toronto motor lodge by ignoring conventional wisdom that a global chain of five-star hotels was unsustainable. So it comes as little surprise that when the 76-year-old decided to sell his lush havens for nearly $4-billion, he did it his way. First, Mr. Sharp persuaded two of the planet's most admired investors, Saudi Prince al-Waleed bin Talal and Microsoft's Bill Gates, to buy his legacy on his terms. He kept the CEO's title and 10 per cent of the chain, while his new partners divvied up the rest.
When shareholders howled that they wanted a richer offer and a proper auction, Mr. Sharp thumbed his contrarian nose again. The deal, he sniffed, "is the only one I am prepared to pursue." Investors rallied to try to stop the deal, the company's stock price swooned and market players muttered darkly that the deal was dead. On a cool morning in April, a visibly strained Mr. Sharp walked into a Toronto Four Seasons Hotel meeting room to observe a vote by minority shareholders on the bid. He needed at least 50 per cent to close the deal. He got 51.85 per cent, one of the biggest squeakers in Canadian deal history. In the cool, appraising light of hindsight, the unpopular sale stands as one of the year's best coups. Had angry shareholders prevailed, Four Season's stock price and any new deal would have been trapped in the maw of the global liquidity crisis.
MISS: DBRS
There are many authors of the Big Freeze in asset-backed commercial paper that handed hundreds of Canadian companies, funds and investors multimillion-dollar losses on what were supposed to be sure-thing investments.
You could point a finger at the Office of the Superintendent of Financial Institutions for demanding the now infamous phrase "general market disruption," which gave banks a truck-sized loophole to walk away from emergency ABCP loans to cover paper issued by non-bank companies. Or you could finger global regulators, investment dealers and even investors themselves for failing to insist on any data about the specific assets underlying the murky paper. Then there is the Caisse de dépôt et placement du Québec, which kept the non-bank ABCP engines running by investing more than any other single buyer. But the one party that wears it more than anyone else is Canada's DBRS Ltd.
While U.S. rating agencies refused to endorse Canadian paper because of the OSFI-created bank loan flaw, DBRS jumped in and gave the notes its highest ratings. Without the DBRS rating, flawed Canadian ABCP would likely never have found a buyer.
Also worthy of question is DBRS's close relations with ABCP issuers. The firm earned commissions on the notes it rated and wasn't always quick to share bad news with investors. It had become such a market booster that it rushed to reassure investors it "has no concerns" about the quality of ABCP issued by Toronto's Nereus, even though the firm was reeling from a management exodus and legal battle with its parent Coventree Inc.
What DBRS did not say publicly is that it privately warned the companies in writing that the turmoil could cause "a potential loss of confidence by investors."
DAVID EBNER
HIT: DANNY WILLIAMS
In April, 2006, Danny Williams, the cable TV multimillionaire-turned-populist Premier of Newfoundland and Labrador, had the gall to say no to Exxon Mobil Corp. over the proposed multibillion-dollar development of the offshore Hebron oil field.
With oil then at $70 (U.S.) a barrel, Mr. Williams wanted a much better deal for his poor province than the ones previous administrations had managed to wrench from Big Oil. He wanted equity, he wanted super-royalties at high oil prices. Exxon, with its hard-rock fighting fists, took the tack it takes when it's unhappy, loudly stomping away from the bargaining table, never to return (in theory).
As potential piles of new dollars vanished, Danny Boy was ridiculed by the capitalist press, derisively dubbed "Danny Chavez," as though there was any real similarity between Mr. Williams, a hard-bargaining capitalist, and Hugo Chavez, the Bolivar socialist in Venezuela.
How dare Mr. Williams, the armchair quarterbacks chimed, scrap with Exxon? A pipsqueak premier simply doesn't get the economics of international oil, and taking on the CEO of the biggest public company on Earth was just dumb. Newfoundland, the consensus suggested, would pay the price for years.
Well, well, a year later, look who comes slinking back (with oil nearing $100 a barrel). Exxon, after seeing its assets basically seized by the state in Venezuela, figured that the Rock ain't such a bad place to play, and generally agreed to all the terms that Mr. Williams demanded in 2006.
Now, instead of the predicted poverty, there's the "Danny Williams effect" as the local economy surges. "Oh Danny Boy," Newfoundlanders sang as they bestowed a massive fresh majority on the man in the fall, "we love you so."
MISS: ED STELMACH
The unelected premier of Alberta got his job a year ago, the dark-horse compromise candidate who ended up as premier in a party convention vote to replace Ralph Klein.
Though very few people in Alberta or elsewhere had ever heard of "Steady Eddie," he was among the group of leadership candidates who promised a review of royalties paid on oil and natural gas, a major issue that hadn't been looked at seriously for more than a decade, even as prices for the commodities surged higher.
Apparently lacking the gumption to act on his own, Mr. Stelmach struck a review panel to deliver some answers. It was clear, based on all tangible evidence, that the issue was the oil sands and the nominal royalties paid there.
Somehow, however, the public panel grabbed a big stick to smack the province's fragile natural gas business in the face. It recommended higher oil sands royalties, yes, but also much higher rates on gas.
Mr. Stelmach hemmed and hawed for about a month this fall, assessing the panel's recommendations, and ended up endorsing most of the ideas. He was hard on natural gas but strangely soft on the oil sands, all in hopes of collecting $1-billion-plus (Canadian) in extra royalties, a lot of it immediately coming from gas.
But Eddie's not steady any more. Already more than $1-billion in potential spending on gas for 2008 has been yanked by the likes of giant EnCana Corp. and Canadian Natural Resources Ltd. Meanwhile, money continues to pour into the oil sands - supermajor BP PLC is the latest arrival in what's still one of the best deals on Earth for Big Oil.
For the Alberta treasury, Mr. Stelmach's idea of compromise might well be the seed of a long-term fiscal disaster, with gas production collapsing and oil sands royalties still too low to make up the difference.
HEATHER SCOFFIELD
HIT: THE DOLLAR
There's nothing Canadians do better than put themselves down, and we proved it again this fall when the loonie popped up above parity with the U.S. dollar.
Exporters screamed in pain as the Canadian dollar spiked all the way up to $1.10 (U.S.). Bank of Canada Governor David Dodge and Finance Minister Jim Flaherty zoomed to the rescue, armed with - what else? - chatter about how the Canadian economy is good, but not that good.
Jaw-boning usually doesn't work very well, but the Ottawa crowd had the wind at their backs this time. With a soaring dollar driven by irrational speculation, it didn't take much to persuade buyers of Canadian dollars to become sellers.
It also didn't take much to persuade shoppers to head to the United States for better bargains, or haggle with Canadian retailers - moves suggested by both Mr. Flaherty and Mr. Dodge in an attempt to force retailers to slash prices. In October, the number of Canadians heading to the U.S. for a day or more rose by 25 per cent from a year earlier. Retailers are no doubt getting the message, and now prices aren't rising much any more - paving the way for the Bank of Canada to cut its key interest rate and make the Canadian dollar even less attractive.
Now that the dollar is back below par, Canadians and their leaders are clearly much more comfortable with being almost, but not quite, as good as the Americans.
MISS: JIM FLAHERTY'S
FLIRTATION WITH INTEREST
DEDUCTIBILITY
Mr. Flaherty thought he'd win a few brownie points on Main Street by attacking tax havens in his spring budget. The Finance Minister vowed to put an end to the ability of companies to deduct tax on investments made in foreign countries, saying it was "morally wrong" for companies not to pay "their fair share" of taxes.
In the end, he confused Main Street, shocked Bay Street, and had to backtrack, set up a committee, allow for higher costs to business, and stall for more time.
Did he really think shutting down an obscure tax loophole would actually resonate, even among the few tax lawyers who actually understand it? At first, the announcement was so vague that it didn't even get noticed by the companies that were about to get dinged. When they woke up to the changes, they fought back tooth and nail, even suggesting that this was the last line of defence against the hollowing out of Corporate Canada.
Sheepishly, Mr. Flaherty scaled back the reach of his initial proposal. Then he punted the whole thing to an expert committee, which will in turn pass the issue along to a round table of business leaders. That means guaranteed limbo until at least after the next election.
But the escapade did do something for Mr. Flaherty: It cemented his reputation as an anti-Bay Street finance minister who is reluctant to consult.
BARRIE MCKENNA
HIT: CHINA
The year of the red pig has been fortuitous for China. Its improbable economy continues to defy gravity. Its banking sector was supposed to crumble under the weight of bad loans and rampant inflation. Instead, it's the European and U.S. financial institutions that are looking a little wobbly right now.
And guess what? China, through government-controlled China Investment Corp., has just bought a $5-billion (U.S.) piece of Morgan Stanley, a venerable Wall Street broker with a subprime hangover. If the Chinese play their hand right, they could wind up owning nearly 10 per cent of Morgan Stanley.
What about U.S. threats to beat China into submission over the cheap yuan and the trade deficit? Never happened.
Then there were the Bali climate change talks. Some of the greener rich countries set off for the Indonesian tropical paradise with a plan to stick it to the Chinese and other big polluters with tough carbon emission caps. Instead, there are no caps, and the rich countries are going to pay for technology to help China go green. How great is that?
Never bet against the lowly pig. Here's a beast that eats every waking moment, loves to snooze and doesn't have a care in the world.
Look out for the year of the rat - one of the hardest-working and canniest members of the animal kingdom.
MISS: PAUL WOLFOWITZ
Old hands around the World Bank warned the White House it was a bad idea. But George W. Bush was having none of that. Paul Wolfowitz, a trusted foreign policy wonk and key architect of the Iraq war, was a good man, and he needed somewhere to rebuild his career.
And so in March, 2005, with Iraq not going quite as planned, the Bush administration nominated Mr. Wolfowitz as president of the Washington-based development bank.
And for a short while, things seemed to go pretty well. He said all the right things to top staff. He travelled the globe, kissing babies and making nice with the bank's developing-world clients.
But it didn't take long for the neocon to upset the stuffed shirts around the venerable institution. He surrounded himself with a coterie of loyal Bushies, who gradually froze out long-time bank executives from decision making. His team tried to cut loans to countries with corruption problems (even after officials pointed out that would disqualify some of its best clients). And he sidelined birth control and climate change efforts.
Then, seemingly out of the blue came the Shaha Riza mess. Bank insiders leaked embarrassing details of Mr. Wolfowitz's role in securing Ms. Riza, his girlfriend and a top bank official, a series of inflated pay hikes and a transfer to a cushy U.S. State Department job.
It was all too much. On May 17, 2007, Mr. Wolfowitz resigned from the bank following an internal probe.
But Ms. Riza was always a sideshow. The heavy hitters at the bank, particularly the Germans and the French, never got beyond the feeling that the Wolfowitz appointment was a poke in the eye.
Ouch back.
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