Quebeckers have a mental Bloc

[Edward Campbell]

Huge debt is a security issue obviously.

And to make matters worse, the Globe and Mail is reporting that two senior Canadian market analysts have already downgraded the National Bank in the wake of the PQ victory:

http://www.theglobeandmail.com/globe-investor/investment-ideas/national-bank-slapped-with-downgrade-after-pq-win/article4520177/

National Bank slapped with downgrade after PQ win

DARCY KEITH
The Globe and Mail
Published Wednesday, Sep. 05 2012

These are some of the key analyst actions on Bay Street today.

National Bank of Canada

The Parti Québécois win has prompted a downgrade for National Bank of Canada over fears that the uncertain political environment in the province may wind up limiting upside potential in the stock.

National Bank’s core market is in Quebec, which now faces months -- if not years -- of political and economic uncertainty, even though the minority status for the separatist party has tempered concerns somewhat.

BMO Capital Markets analyst John Reucassel downgraded National Bank to “market perform” from “outperform,” becoming the second analyst this week to lower his rating.

“We believe that the market has largely discounted recent election results and as such we do not expect significant downside risk in the share price from current levels,” Mr. Reucassel said in a statement. “However, an uncertain political environment limits the ability of NA shares to narrow the valuation discount with the rest of the bank group - this was a key aspect of our outperform rating on the shares.

“This development is unfortunate as National Bank's financial results have been amongst the best in the industry,” he added.

Indeed, National Bank had no problem beating the Street consensus in reporting adjusted quarterly earnings per share last week of $1.98.

CIBC World Markets analyst Robert Sedran downgraded National Bank to “sector underperformer” and cut his price target to $78 on Tuesday. He linked the action to disappointing interest income and margins, but also cited the Quebec political situation as a potential concern.

“While we suspect that fears may be overblown as they relate to the bank, they may remain an overhang on the shares if no clear mandate emerges from the vote,” Mr. Sedran wrote prior to the election results.

Shares in the bank are down 0.2 per cent near mid-day, underperforming the TSX financial index, which is up 0.06 per cent.

Downside: Mr. Reucassel, who made no changes to his earnings forecasts for the bank over the next two years, cut his price target to $76.50 from $81.

More on link ~ about other downgrades

 

[Edward Campbell]

Further to the "strategy of non-engagement," see this report which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/commentary/ottawas-approach-to-a-pq-quebec-more-stick-than-carrot/article4522862/

Ottawa’s approach to a PQ Quebec? More stick than carrot

JOHN IBBITSON
The Globe and Mail

Published Thursday, Sep. 06 2012

There were three reasons that a plethora of cabinet ministers fanned out across Canada Wednesday reannouncing federal spending that had already been promised.

The first was to emphasize that it was business as usual in the Harper government, despite the Parti Québécois victory Tuesday night.

The second was to send a message to the incoming government in Quebec: that whatever Pauline Marois may be about to demand, the answer is no.

The third was to establish the tone of that message: respectful of the choice Quebeckers had made, but emphatic in the Harper government’s refusal to be drawn into protracted negotiations over new powers for the province.

Christian Paradis, the Industry Minister, made that position clear in a press conference Wednesday afternoon. When asked how the government would respond to Ms. Marois’s demands for new powers over labour, culture, communications and immigration for Quebec, he replied: “If she makes proposals with the goal of sabotaging the federal government, obviously there will be fewer grounds for agreement. But our open federalism approach remains the same.”

Mr. Harper’s office made the same point, though in a more prime-ministerial tone, in a statement summarizing his phone call to congratulate the premier-designate. Mr. Harper, the statement said, had promised to work co-operatively with Ms. Marois on “common objectives, so as to respond to Quebeckers’ and Canadians’ concerns and foster continued stability, economic growth and job creation.”

Human Resources Minister Diane Finley was the first to get specific. She dismissed Ms. Marois’s demand that Ottawa hand responsibility for the Employment Insurance program over to Quebec.

“Employment insurance has been federal a jurisdiction since 1940,” Ms. Finley told the Canadian Press. “It’s a national program to help all regions of the country. But our focus is quite frankly on helping people get back to work.” That notwithstanding, “I’m quite happy to work with Ms. Marois’s government on common goals.”

It was all a careful blend of carrot and stick, but mostly stick. Ottawa planned to focus on the economy; all demands for new powers for Quebec would be rebuffed. But do look us up if you have any proposals of mutual interest.

Fresh evidence emerged for why this strategy is not only essential to placate the Conservative base, but necessary to satisfy the broader public. The pollster Ipsos Reid reported that, when asked whether Ottawa should accommodate the PQ’s demand to hand over Employment Insurance and other programs, eight in 10 Canadians outside Quebec said that Mr. Harper “should reject this demand because these programs are national in scope and best run by the federal government.” Eight. In. Ten.

No federal government could afford to ignore such a message. When Mr. Harper says no, Ms. Marois should realize it’s not a bluff.

Now, I happen to believe (as did both the Supreme Court of Canada and the British Judicial Committee of the Privy Council (which was Canada's final court of appeal until 1949)) that Employment Insurance must be a provincial responsibility because it is part of the "property and civil rights" domain which makes it an area of exclusive provincial responsibility(Constitution Act, 1867, section  92 [13]), so I wish that Human Resources Minister Diane Finley had said, "We'll be pleased to hand over responsibility, an sufficient tax points, for EI to ALL provinces as soon as Mme. Marois and a majority of her colleagues tell us they want it and present a plan to manage it on a provincial basis."

But, on balance, I think the PM is on the right track if he's doing what Ibbittson suggests for the reasons Ibbittson offers.

The key is

The pollster Ipsos Reid reported that, when asked whether Ottawa should accommodate the PQ’s demand to hand over Employment Insurance and other programs, eight in 10 Canadians outside Quebec said that Mr. Harper “should reject this demand because these programs are national in scope and best run by the federal government.” [size=12pt]Eight . In . Ten. ... No federal government could afford to ignore such a message.[/size]

The "two solitudes" have rarely been farther apart.

 

[Privateer]

Section 91 of the (now) Constitution Act, 1867, was amended in 1940 to add paragraph 2A, making Unemployment Insurance a federal responsibility.  It would take a constitutional amendment to make it a provincial responsibility.

 

[Edward Campbell]

Section 91 of the (now) Constitution Act, 1867, was amended in 1940 to add paragraph 2A, making Unemployment Insurance a federal responsibility.  It would take a constitutional amendment to make it a provincial responsibility.

Agreed; that's why I said "I wish that Human Resources Minister Diane Finley had said, "We'll be pleased to hand over responsibility, an sufficient tax points, for EI to ALL provinces as soon as Mme. Marois and a majority of her colleagues tell us they want it and present a plan to manage it on a provincial basis."" The Constitution can be amended if enough provinces, and the feds, agree.