Actual finance blog

Canadian cultural policy has long relied on two levers to promote Canadian content. First, regulators require broadcasters and cable companies to allocate a portion of their revenues to help support the creation of new Canadian content. Second, that content is granted preferential treatment through minimum "CanCon" requirements for both television and radio broadcasting.

While these approaches may have worked for conventional broadcasting, the big question in the Canadian Radio-television and Telecommunications Commission’s forthcoming hearings on new media is whether they can be applied to the Internet.

Canadian cultural groups, the biggest proponents (and beneficiaries) of this policy approach argue that similar mechanisms can be adapted to the Internet by requiring Internet service providers to hand over a portion of their subscriber revenues for the creation of new media content. ISPs unsurprisingly opposed, arguing an Internet tax is unfair since it forces all subscribers to fund content in which they may have little interest. Moreover, they note such a scheme may also be illegal since it applies the Broadcasting Act to telecommunications activities.

The CRTC adopted a new CanCon approach for the introduction of satellite radio in Canada and similar creative thinking is needed for the online environment.

One possibility would be to provide new media creators – whether independent filmmakers, digital photographers, musicians, podcasters, or bloggers – with the assurance of equal access to online audiences by mandating that Canadian ISPs treat all similar content in an equivalent or neutral fashion.

In recent months, many Canadian ISPs have engaged in "network management practices" that degrades the bandwidth allocated to certain applications and content. While the ISPs argue such practices are essential to ensure quality of service for the majority of their users, similar activities in the United States have drawn a rebuke from the Federal Communications Commission and a promise from President-elect Barack Obama to address the issue.

This issue has been typically treated as telecom matter, yet there would be considerable benefits in assessing it through the lens of Canadian cultural policy Faxless pay advances. Granting preferential treatment for Canadian content may have made sense in a world of scarcity when there were limited channels and bandwidth, however, it no longer applies in a world of abundance in which the Internet offers virtually unlimited choice.

Canadian creators, therefore, do not need guaranteed space since there is room on the Internet for everyone. Rather, they need guaranteed access – the assurance that their content can find an audience by being treated like any other video or cultural programming. As ISPs move toward tiered access that grants preferential treatment (such as faster speeds) to their own content or to premium content promoted by deep-pocketed interests, an equal approach to new media content would bring CanCon into the Internet era by asking for nothing more than a fair shake.

This approach would also address the funding side of cultural policy. Many ISPs object to the equal treatment principle by maintaining that new media creators should pay for equal access and avoid using technologies such as BitTorrent that are viewed as transferring the cost of distribution from the creator to the network provider. From their perspective, if a new media creator (or a public broadcaster like the CBC) wishes to use an application to distribute content subject to reduced speeds, a requirement to grant unimpeded access should be regarded as a subsidy from the network provider to the content creator.

If so, such a subsidy could be seen as the Internet equivalent of cultural funding. Rather than adopting an ill-suited ISP tax, the costs associated with providing Canadian content with equal treatment could be treated as the financial contribution, thereby eliminating the legal concerns associated with an ISP tax and allowing the CRTC to extract support from network providers for the benefit of Canadian cultural production.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at mgeist@uottawa.ca or online at www.michaelgeist.ca.

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South Korea’s central bank cut interest rates for the third time in a month on Friday to soothe markets and shore up its economy, after a flurry of deep rate cuts across Europe failed to calm panicky investors.

Central bank action could not halt a slide in global stock markets and coincided with a warning by the International Monetary Fund that the developed economies were headed for the first full-year contraction since the World War Two in 2009.

“Increasingly, the signs point to a deep and synchronized global recession that began last quarter and has gathered momentum,” said Bruce Kasman, an economist at JPMorgan Chase in New York.

The IMF cut its 2009 global growth forecast to 2.2 percent from 3 percent, a prediction made only last month, and urged governments to ramp up spending to support the economy.

Asian stocks fell for a third day and commodity prices also tumbled, as layoffs and corporate profit warnings piled up.

Later on Friday, Barack Obama is due to hold his first news conference since winning the U.S. presidency after a meeting with his economic team, as the world awaits signs of how he might tackle the economic crisis.

Markets are particularly keen to learn who will become Obama’s Treasury Secretary, but it was not clear when he might announce his choice.

Among those seen as leading candidates for the job are Timothy Geithner, president of the Federal Reserve Bank of New York; former Treasury Secretary Lawrence Summers; and former Federal Reserve Board Chairman Paul Volcker easy online payday loans.

Investors also looked anxiously ahead to Friday’s U.S. jobs payroll report for October, which is expected to further underscore the weakening economy.

According to the median of a Reuters forecast of 87 economists another 200,000 non-farm jobs were shed last month, which would be the largest monthly cut in jobs since March 2003 and would mark a 10th straight month of losses.

CORPORATE WOES

In Asia, Toyota saw its stock overwhelmed with sell orders and tumbling as much as 12 percent, after it halved its profit forecast because of dwindling demand. The carmaker’s stock had fallen 10 percent on Thursday ahead of the profit warning.

Its woes illustrate how the financial crisis, which started when the housing boom in the United States turned sour 15 months ago, has spread from Wall Street to Main Street.

Hit by economic slowdown, sliding property prices and a sharp fall in its capital markets business, Singapore’s DBS Group, Southeast Asia’s biggest bank, suffered a bigger-than-expected 38 percent drop in profit, as bad debt charges quadrupled. Its shares fell 9 percent.

As investors are bracing themselves for a dismal set of quarterly results from General Motors and Ford on Friday, industry sources said their chief executives sought a $50 billion federal bailout to survive a financial crunch blamed on a worsening economy and the “near collapse” in demand for cars. 

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U.S. consumers slashed spending in October, shunning purchases of items over $1,000, as a global financial crisis battered their savings accounts and their psyches, according to figures released on Wednesday by SpendingPulse, the retail data service of MasterCard Advisors.

“The numbers for October are very negative across the board,” said Michael McNamara, vice president at MasterCard Advisors, of sales figures tracked by SpendingPulse.

“Any area that deals with consumer durables, especially areas like furniture, electronics and appliances … that relies heavily on sales purchases that exceed $1,000 in value are under significant pressure,” he said.

SpendingPulse data is derived from aggregate sales in the MasterCard U.S. payment network, coupled with estimates on all other payments including cash and checks.

The data provides an early glimpse into the strength of retailers’ monthly sales, which will be released by chains like Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), Saks Inc (SKS.N: Quote, Profile, Research, Stock Buzz) and American Eagle Outfitters Inc (AEO.N: Quote, Profile, Research, Stock Buzz), later this week.

Wall Street is already bracing for weak sales. Consumers clamped down on spending as the financial crisis that began in September swept into October, roiling stock markets, erasing trillions of dollars in wealth and raising the prospect of a deep global recession.

According to SpendingPulse, October specialty apparel sales fell 12.2 percent from a year earlier. Women’s apparel sales dropped 18 low fee pay day loans.2 percent, while men’s apparel sales fell 8.3 percent. Footwear sales dropped 9.7 percent.

Sales of electronics and appliances tumbled 19.9 percent, compared with a decline of 13.8 percent in September.

“If you take out the purchases above $1,000, the sector is really down about 10 percent,” McNamara said. “Sales above $1,000 just aren’t really moving.”

That trend, along with further weakness in the housing sector, also hurt demand for home-related merchandise. Furniture sales dropped 15.1 percent in October from a year ago, while sales of home furnishings, or decor, fell 20.6 percent.

High-end retailers took a hit, with luxury sales dropping 20.1 percent, compared with a 4.8 percent drop in September.

“The sector has been down five consecutive months, but October was a more significant decline,” he said.

While luxury shoppers continued spending in the face of rising fuel and food prices earlier this year, the group has retrenched as the global financial crisis hits investment portfolios and devalues real estate holdings.

SpendingPulse also found that e-commerce sales declined 3.9 percent. McNamara said purchasing volume rose, but shoppers were buying cheaper items, driving down total sales results.

In a bright spot, restaurant sales rose three-tenths of one percent in October, with sales at fast food restaurants rising 1 percent. 

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Insurance firm Hartford Financial Services Group Inc. said Monday its capital position should be sufficient to maintain "AA" ratings levels at the end of the year, even assuming further deterioration in the markets.

Hartford Financial (HIG, Fortune 500) said that, to maintain investment-grade "AA" level ratings, it would need to have excess capital of about $2 billion if the Standard & Poor’s 500 index fell to 900. The company said its capital reserve totaled about $3.5 billion as of Oct. 6.

The S&P 500 closed Friday at 968.75.

The insurance firm also said its risk-based capital ratio was well above the levels historically associated with "AA" level ratings.

Should further capital be needed, Hartford Financial said it would not have to tap public markets during the ongoing credit crisis and instead could use a $500 million contingent capital facility and a $1 loan till payday.9 billion bank credit facility. Amid the downturn in credit markets, it has become difficult and expensive for financial firms to raise new cash.

Shares of Hartford Financial fell sharply last week after the company said it lost $2.6 billion, or $8.74 per share, during the third quarter, compared with a profit of $851 million, or $2.68 per share, in the year-ago period.

Hartford Financial shares plummeted 58% during the week, to close at $10.32. Shares fell as low as $8.23 during the week. 

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As the impact of the economic crisis takes hold, employees from Wall Street to Main Street are feeling nervous about their jobs, and with good reason.

As of September, 760,000 jobs have already been lost this year, according to data from the Bureau of Labor Statistics.

And a quarter of U.S. employers expect to make layoffs in the next 12 months, according to a recent report by consulting firm Watson Wyatt.

But which industries will suffer the most? Experts say certain sectors are more vulnerable to layoffs than others.

Housing: Jobs in the housing sector were the first to go when the mortgage meltdown took hold. But with the industry outlook at an all-time low, even more layoffs could follow.

Beyond mortgage lenders and homebuilders, jobs in commercial real-estate and at real-estate agencies will be the next to go, according to Dean Baker, director of the Center for Economic and Policy Research in Washington, D.C.

With the worst September for new home sales since 1981, "some of the big [real-estate] chains will do some consolidation," Baker said, "clearly you need fewer offices," Baker said.

Finance: Few in the financial sector are feeling secure about their positions. The latest employment figures from the Department of Labor show financial firms have eliminated an estimated 110,000 jobs over the past year through September, and experts say there will be even more losses in the months ahead.

As financial firms reorganize and consolidate, there are going to be a lot more layoffs, Baker said.

"Financial services firms have cut tremendously and I don’t think that’s over," echoed Lee Pinkowitz, associate professor at Georgetown University McDonough School of Business.

Retail: Before the credit crunch, retailers were already struggling with soft sales as high gas prices and falling home equity forced consumers to curtail non-essential purchases. Now retail sales are dismal heading into the holiday season. "This could be the weakest holiday hiring season since 2001," said John Challenger, chief executive of global outplacement firm Challenger, Gray & Christmas, and that’s not good for those employed in the retail industry.

"I doubt we’ll see the pick up in seasonal hiring that we’d normally see," Pinkowitz said.

But while department stores and high-end boutiques may be particularly hard hit, discount retailers, like Wal-Mart (WMT, Fortune 500) could fare well in the current climate, Challenger said. Wal-Mart is also the nation’s largest private-sector employer, and could be a safe haven for those who work there.

Publishing: As consumers cut back, advertisers follow, and that means tough times for print publications, including newspapers and magazines, experts say creditreport.

According to Bureau of Labor Statistics data, employment in the publishing industry has been contracting since the beginning of last year.

But the "grand decline" of jobs in the media industry, which also includes broadcast and digital media, began with the dot-com bust in 2001, noted Heidi Shierholz an economist at the Economic Policy Institute, a research group based in Washington. Now a loss of jobs in traditional publishing is being exacerbated, in part, by the move away from print toward digital media.

"Every time you have a recession it pushes companies that have been holding on by their fingernails out of business," Challenger said. "It clears away an old generation of companies and I think we’ll see that with print."

Autos: While sales at the Big Three automakers have fallen 20% this year and are likely to tumble further, trouble in the auto sector is not confined to manufacturing. All told, about 2 million Americans work in the industry.

While declining sales will likely lead to more job losses, those in "the tentacles of the auto industry" could be particularly hard hit in the coming months, Pinkowitz said, which includes those jobs at dealerships and suppliers.

Travel: Airlines have already announced layoffs across the board, but as consumers and businesses continue to scale back discretionary spending on travel, the implications go far beyond flying.

"All the industries under the umbrella of travel are going to be at risk" Challenger said, including rental cars, hotels and even restaurants.

If people are cutting back, travel and leisure activities are the easiest things to do without, explained Baker. Big restaurant chains will close locations, he said, which means eliminating many wait staff and service jobs, while some smaller restaurants will be forced out of business entirely.

But despite the mostly doom-and-gloom predictions, some say there are some bright spots ahead for American workers.

"Even if you’re in an industry where there has been some job downturns, there still can be some opportunities," said Kimberly Bishop, vice chairman of Chicago-based executive search firm Slayton Search Partners.

Bishop suggests focusing on those skills and experiences that can translate beyond the industry in which you work. There are certain roles that every organization needs, she said, and you may be able to fulfill that role in another industry that has more promise. 

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EDINBURGH–Fresh from a surprise election victory, Scotland’s leader, Alex Salmond, vowed last year to win independence from the United Kingdom and with it, bring a wave of prosperity.

Salmond, whose separatist Scottish National Party won control of Scotland’s national Parliament last May from Britain’s governing Labour Party, has long aspired to end the 300-year union with England. He wants to take control of lucrative oil and natural gas reserves, slash corporate tax rates and transform this country of five million into an economic powerhouse.

But that was before the global financial meltdown redrew the economic map. Salmond once dreamed of a North Atlantic "arc of prosperity" stretching from Ireland through Iceland and Scotland to Norway. Now, his nation’s similar-sized neighbours are struggling with the ravages of the downturn.

Iceland, held up by Scottish nationalists as an example of how smaller nations can transform their fortunes, is possibly headed toward bankruptcy, while Ireland has slumped into recession.

At home, two of Scotland’s iconic businesses – the Royal Bank of Scotland and the Halifax Bank of Scotland – have found themselves savaged by the economic turmoil.

RBS is now partly owned by British – not just Scottish – taxpayers, who’ll also have a major stake in HBOS if it finalizes a combination with Lloyds TSB after a rescue deal was brokered by Salmond’s nemesis and fellow Scot, British Prime Minister Gordon Brown.

It has left Salmond’s claims that Scotland can cope without leadership from London, and his hopes of winning an independence vote in 2010, in tatters.

A year ago, RBS – Scotland’s largest business – was a proud emblem of economic prowess as it led buyouts of Dutch bank ABN AMRO and the Belgian-Dutch Fortis bank, turning in pre-tax profits in 2007 of £10 billion, or $20 internet pay day loans.3 billion (Canadian). Now it’s partly nationalized and has taken a £20 billion handout from the British government. If the combination of HBOS and Lloyds TSB goes ahead, the new bank will take a similar £16 billion cash injection.

Brown – a robust defender of the United Kingdom – claims that without England, Wales and Northern Ireland, Scotland could never have afforded to bail out its own banks. He suggests an independent Scotland would have an annual GDP of only about £100 billion, in contrast to a British annual total of around £2 trillion.

But Salmond argues that membership in the United Kingdom seems only to be dragging Scotland down.

Unemployment in Scotland rose by 19,000 people in September, economic growth slowed to 0.1 per cent and, according to the Nationwide Building Society, the nation’s once-booming housing sector saw prices drop by 5 per cent.

He said Brown’s "age of irresponsibility" was over. "The new age of responsibility means Scotland taking charge of its own destiny with independence," Salmond wrote.

Though Salmond, a former economist with RBS, has enjoyed an extended honeymoon in the 18 months since his party took power as a minority government at the Scottish Parliament, support for independence remains low. Most polls show that less than a third of Scots currently want to leave the union.

But Salmond’s SNP trounced Brown’s Labour Party in a special election for a British Parliament seat in Glasgow in July and is predicted to win again on Nov. 6 when a second special election takes place.

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For most banks, lending is all about the numbers.

If a customer has the right credit score, good financial records and a believable plan, the bank is interested in doing business. If they don’t, well, no dice, particularly in this economy.

Some banks are going beyond the numbers to develop long-term relationships, digging deeper to make sure business customers are doing all they can to survive the turbulent economy. It’s a long tradition among community banks, which focus on serving businesses, consumers and farmers in their local market areas.

The extra attention ranges from financial checkups or priority-setting sessions at Commerce Bancshares Inc. and National City to Enterprise Bank & Trust Co.’s college-style courses.

Sandy Washington, senior vice president of small-business banking at Commerce, said the bank has been doing its checkups for years, but customers are more receptive to them in the current environment.

"The more we understand what their goals and their objectives are, the more we can help them," Washington said.

Rick Sems, Missouri banking president for National City, said building relationships with business customers is nothing new for the bank. Twice a year, customers have a business priority agenda session with an account manager, a local branch manager and a cash management officer.

Jim Watson, president of Midwest BankCentre, said the bank also does checkups and sponsors regular gatherings with speakers who can help customers understand the economy.

"Communications is a mutual responsibility," Watson said. "Even our customers today are very concerned about how their bank is doing."

Kevin Eichner, who retired as chief executive of Enterprise Bank in May to become president of Ottawa University, said the bank started Enterprise University to give its business customers a chance to continue their education in a way that fit their schedules and their budgets.

"It’s part of a consultative approach" at Enterprise, said Jerry Mueller, the bank’s senior vice president of marketing. "The idea is, we want to partner with our clients and help them be more successful."

On a recent Wednesday morning, 20 executives sat at tables scattered around a classroom in an industrial building in Olivette.

Lori Lewis, Enterprise’s director of organizational development, was leading a class on "Managing Your Energy," based in part on "The Power of Full Engagement," a book by Jim Loehr and Tony Schwartz.

For nearly three hours, Lewis led the executives through exercises designed to help them manage their business and personal lives more effectively. Lewis, who has a doctorate in organizational psychology, sprinkled her lecture with a clip from National Public Radio, a Power Point presentation, handouts and a Sudoku puzzle.

Classes at Enterprise University range from marketing, sales and financial management to leadership effectiveness and personal financial planning. Some are taught by bank executives like Lewis or Stephen Marsh, the bank’s president. Other teachers include lawyers, business consultants or experts in things such as energy conservation.

The classes are open to anyone with an interest in the topics covered. There is no charge, and it’s up to attendees whether they’d like to be contacted by the bank after the class.

Kay Erb, registrar for the classes and a member of the bank’s marketing department, says between 300 and 500 people attend Enterprise University classes every semester. About 80 percent are presidents or top managers of their companies.

Jeffrey Jappa, president of JMC Manufacturing in Bridgeton, said the classes gave him a good introduction to the bank. He had been considering changing banks after he bought the wood products company from his father absolutely free credit report.

"Other banks sponsor seminars," Jappa said, "but not one that’s really put together like a university with a course load that’s really targeted to the small-business owner. Even though I was already interested in the bank, there was no selling whatsoever."

Jappa has since become an Enterprise customer, and likes their approach.

"Other banks just let you run, and you only hear from them when things are going wrong," he said. "My account manager is very interested in my business. He’s worked hard to create compliance targets that are reasonable and can be attained."

Mueller said Enterprise University has been a great way to set the bank apart.

"It enhances the relationship," Mueller said. "We can help (customers) improve their skills and show them ways to make their businesses more efficient."

Commerce Bank’s financial checkups include an hour-long meeting to review financial statements. Customers are encouraged to bring their tax advisers along. The bank may ask about the customer’s goals, the ways they’re collecting receivables or managing cash. Personal finance can be on the agenda as well.

"We always have an open door," Washington said. "We encourage our customers to meet with us regularly. As economic conditions change, so does the bank’s appetite to supply credit to particular businesses."

Washington said the bank recently worked with a family-owned bakery facing a downturn in its business because of a decline in the market for sweet goods.

"We sat down with the family and provided some reality checks," Washington said. The bank was able to help the business improve its collections and worked with an accountant to help the bakery manage its finances.

At National City, the agenda-setting sessions range from reviews of financial statements to discussions about cash management. Small-business customers’ personal wealth often is tied up in the company. Owners need to make sure their families are protected while they run the business, Sems said.

The bank has had to get more creative on loans lately, tapping Community Development Corp. programs and working with business development groups to arrange financing or equity injections, he said. Recently, customers have been more concerned about how their accounts are titled to ensure that they have the maximum insurance from the Federal Deposit Insurance Corp.

"I really try to push that what we’re trying to do is advise, not prod and poke so much," Sems said.

Wayne Kissel, owner of K1 Creative, a design firm in Eureka, said sessions with his National City banker have shown him how to protect assets, change investment strategy and handle employee benefits. Kissel said he went with National City after looking at proposals from six different banks.

"My personal lender has been down to earth and easy to work with," Kissel said. The bank was instrumental in helping the business build its own building after years in less desirable rented space.

Bankers have to be careful about how much advice they give because of potential liability if a customer feels he or she was pushed to make a decision that turns out badly, said Rick Palank, senior vice president for finance at the St. Louis County Economic Council.

Palank said it’s rare for banks to go beyond the numbers, especially now.

"They’re very, very conservative now," Palank said.

jerristroud@post-dispatch.com

314-340-8384

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Facing a barrage of public criticism, big banks lowered their prime lending rates again yesterday after the federal government announced plans to buy from them $25 billion in residential mortgages – a massive cash injection designed to shore up this country’s banking system.

Just days before a federal election, Finance Minister Jim Flaherty said the move would help domestic banks, which are dealing with skyrocketing funding costs, to raise more longer-term funds so that they can keep providing mortgages to consumers.

The action plan involves the government purchasing up to $25 billion in "insured mortgage pools" through the Canada Mortgage and Housing Corp., a Crown corporation that is responsible for the housing industry.

The extraordinary measure means that Ottawa, through the federal government and the Bank of Canada, will have injected a whopping $45 billion in additional cash into the financial system in an effort to combat the credit crunch that is choking banks around the world.

Even so, Prime Minister Stephen Harper insisted yesterday’s announcement was not a bailout of Canadian banks.

"This transaction is simply a market intervention," Harper told reporters.

"What we are doing is exchanging assets that we already hold the insurance on."

Echoing those sentiments was Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association: "It is definitely not a bank bailout. I mean what has happened in the U.S. was buying up bad assets and those kinds of things. It has nothing to do with that."

Commercial banks, however, reacted by lowering their prime rates by differing amounts. Toronto-Dominion Bank was first to trim its prime rate, by 15 basis points to 4.35 per cent, effective Tuesday. Canadian Imperial Bank of Commerce also lowered its prime rate, to 4.35 per cent.

Breaking ranks with those rivals, though, were the Bank of Nova Scotia, Bank of Montreal, Royal Bank of Canada and National Bank of Canada.

They all cut their respective prime rates by a full quarter-point to 4.25 per cent. Those four banks have now fully matched the Bank of Canada’s half-point interest rate cut, a move that will likely quell consumer condemnation of an initial quarter-point reduction from big banks earlier this week.

It was not clear if CIBC and TD would relent and lower rates even further over the coming days. For his part, Tim Hockey, president and CEO of TD Canada Trust, offered this explanation: "The Bank of Canada’s rate change is just not a lock-step change in financial institutions’ funding these days. It is a very complex mix of deposit costs, borrowing costs through multiple instruments, liquidity premiums, you name it.

"In fact, the Bank of Canada rate change did not lower our funding costs by 50 basis points, not at all." He was unable to specify just what kind of savings TD did enjoy after the Bank of Canada’s rate cut, citing competitive reasons. Funding costs do vary from bank to bank.

"But it did have an impact, which is why we decided to move to some degree," Hockey said.

Earlier in the day, some observers suggested that consumer outrage would force banks to completely match the full half-point cut.

"It would look quite bad to the public if they remained at a quarter point, yet they’re being perceived as being helped out by the government," said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc.

Canada’s stock of residential mortgages amounts to about $773 billion, according to finance officials.

Subprime mortgages represent less than 5 per cent of all outstanding mortgages in the country, compared with about 20 per cent in the United States.

The government said its mortgage program involves "insured mortgage pools" that already carry government backing, creating "no additional risk" to taxpayers. The securities are expected to earn interest that is "well above" the government’s own cost of borrowing, officials said.

"It is important to underline that Canada’s banks and other financial institutions are sound, well capitalized and less leveraged than their international peers," Flaherty said. "Our mortgage system is sound. Canadian households have smaller mortgages relative both to the value of their homes and to their disposable incomes than in the U.S."

The government will begin buying mortgages next Thursday, with an initial purchase of up to $5 billion. The remainder will be purchased over the coming weeks. Officials said a "competitive auction process" would be used to purchase the insured mortgage pools.

Canadian banks, while more conservative than their American and European counterparts, have found themselves further entangled in the financial crisis in recent weeks as funding costs spiked. Despite massive injections of cash, interest rate cuts and costly bailouts of American and some European banks, inter-bank lending has largely remained frozen.

With worldwide subprime-related writedowns and credit losses now nearing $600 billion (U.S.), banks around the world are terrified to lend to each other. That, in turn, has driven up the costs of borrowing for individuals and businesses.

Canadian banks – while touted this week as being the envy of the world by the World Economic Forum’s Global Competitiveness report – have also become less willing to lend to each other. The difference in yield between Canada’s three-month Treasury bill and the three-month dollar London Interbank Offered Rate rose to the highest since at least 1990 this week.

"It is not a silver bullet that is going to solve every single problem of this situation around the world but it is certainly going to help Canadian banks get their hands on increased funding," said Hughes Anthony of the bankers association.

With files from the Star’s wire services

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In a move to dramatically cut costs and better compete with Intel Corp., chip maker Advanced Micro Devices Inc. said Tuesday it will spin off its factories into a new joint venture with investors in the Persian Gulf state of Abu Dhabi.

The deal should shore up AMD’s (AMD, Fortune 500) finances and let it focus on the design and development of computer chips.

The new venture, to be based in the U.S. and for now called Foundry Co., will include AMD’s manufacturing plants, including two in Dresden, Germany.

In conjunction with the spin off, Abu Dhabi’s investment arm, Mubadala Development Co., will invest $314 million to more than double its current stake in AMD to 19.3% from 8.1%.

Another entity backed by the Persian Gulf state, Advanced Technology Investment Co., will invest $2.1 billion for a stake in Foundry Co., which also will assume about $1.2 billion of AMD’s existing debt.

Advanced Technology Investment then plans to contribute between $3.6 billion and $6 billion to Foundry Co. over the next five years to fund the expansion of the company’s chip-making capacity. That plan includes the construction of a new facility in Saratoga County, New York.

Sunnyvale, Calif.-based AMD, the world’s No. 2 maker of computer microprocessors, has been saddled with debt and hurt by product delays.

Hector Ruiz stepped aside as CEO in July as pressure grew for the company to improve its finances and regain its competitive edge against Intel (INTC, Fortune 500). AMD lost $1 (payday loan).19 billion in the second quarter, nearly double its losses from a year earlier.

AMD’s finances have also been hurt by its 2006 acquisition of graphics chip maker ATI Technologies. As part of that buyout, AMD absorbed divisions that make chips for cell phones and digital television sets. Both were underperforming, and AMD wrote down their value by $876 million.

AMD replaced Ruiz with Dirk Meyer, who had been president and chief operating officer, and focused on developing a strategy for cutting its manufacturing expenses, which are large for any semiconductor company but particularly troubling for AMD as it burns through cash and faces fierce competition with Intel.

"With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading-edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing," Meyer said in a statement.

Foundry’s board will be made up of executives from AMD, which will own 44.4% of the company, and Advanced Technology Investment, which will own 55.6%.

An AMD senior vice president, Doug Grose, is to become chief executive of Foundry Co., and Ruiz, who had been AMD chairman, will step down to take on that post at Foundry Co.

The transaction is expected to close at the beginning of 2009, pending regulatory approvals. 

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Miner Xstrata Plc dropped plans for a $10 billion takeover bid for No. 3 platinum producer Lonmin Plc on Wednesday due to financing difficulties linked to the global credit crunch, sending Lonmin’s share price plummeting.

“The current lack of clarity and certainty regarding the future availability of credit introduces significant risks into the financing package available to Xstrata,” Chief Executive Mick Davis said in a statement.

Lonmin’s shares, which had already shed a third since Xstrata made its 33-pound-per-share proposed offer on August 6, tumbled as much as 30 percent and was trading 18.7 percent weaker at 18.00 pounds by 0733 GMT.

Xstrata shares, which had shed 46 percent since it made the approach, surged 10.7 percent to 19.00 pounds, compared to a 4.9 percent increase in the UK mining index.

“This is certainly the outcome that the majority of (Xstrata) shareholders will have wanted in the short term cashadvance. Xstrata had become a natural target for short sellers in the market,” Cazenove said in a note.

Xstrata said loan terms required it to refinance a substantial portion of the debt within 12 months.

“Finalizing the bank debt necessary to implement the offer on those terms would not be in the best interest of Xstrata. As a result, Xstrata has no current intention to make an offer for Lonmin.”

Banking sources told Reuters last month that Xstrata had approached 22 banks to make commitments for a $15 billion loan to both fund the Lonmin takeover and refinance existing debt. 

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