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Loblaw goes driverless, credit card surcharges and why adulting is unaffordable: Must-read business and investing stories

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An autonomous driving vehicle drives around a parking lot without a human driver behind the steering wheel from the Loblaw office to a Superstore in Brampton, Ont., on Tuesday, October 4, 2022. (Christopher Katsarov/The Globe and Mail)Christopher Katsarov/The Globe and Mail

Getting caught up on a week that got away? Here’s your weekly digest of The Globe’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.

Loblaw trucks along with no drivers

Canada’s largest grocer announced this week the launch of driverless delivery trucks on the roads across Toronto and surrounding suburbs, delivering products to its stores. In partnership with Palo Alto, Calif.-based startup Gatik, Loblaw has been testing the autonomous driving technology in Ontario since 2020 with a human on board, and has now moved to the next phase – sans human. As Susan Krashinsky Robertson reports, Gatik received approval from Ontario’s Ministry of Transportation to operate fully driverless vehicles; however, the province is not keen to comment on any details about the approval that’s been granted, or whether others are testing similar tech on Ontario roads. Loblaw’s driverless trucks are a first, but certainly won’t be the last.

Paying with a credit card might cost you more

Canadians may see added surcharges to their bills when paying by credit card starting this week. New rules that have come into effect are the result of a settlement in a class-action legal battle between small merchants, Visa, MasterCard and financial institutions, Chris Hannay writes. Credit-card companies had long resisted allowing businesses to pass on these costs as it could lead consumers to switch payment methods to avoid paying the fees. Instead, merchants pay the costs, and many of them feel they have to pay to accommodate customers who want to pay by credit card. That’s no longer the case. Business owners now have the choice of making these fees transparent to their customers. And according to a new survey from the Canadian Federation of Independent Business, an estimated one in five small businesses is planning to pass on credit-card transaction fees to their customers. The fees aren’t set, but would be around 1.4 per cent or more of the bill.

Auto sales continue to slump

The auto industry was one of the hardest hit during the pandemic because of supply chain issues, and it appears that car sales are still languishing. In September, around 130,000 cars and light trucks were sold in Canada, and while that was a slight improvement from August, sales were down 22 per cent from three years ago. Auto dealers still struggling to fill their lots have been hit with yet another issue: rising borrowing rates. The average interest rate for auto loans advanced in July was 6.62 per cent, up from a pandemic low of 4.04 per cent. Matt Lundy takes a look at slumping vehicle sales in this week’s Decoder.

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More interest rate hikes are coming

The Bank of Canada has raised interest rates five times since March, and they’re not done yet, Mark Rendell writes. In a speech this week, BoC governor Tiff Macklem said that more interest rate increases are necessary to tame inflation, despite the economy showing signs of slowing and inflation beginning to recede. “Simply put, there is more to be done,” Mr. Macklem said, pointing to domestic inflation and a tight labour market as areas of concern. The policy rate is currently 3.25 per cent, and economists widely expect the central bank to announce another half-point increase at its next meeting on Oct. 26.

Asked to be an executor? Ask this first

It’s hard to say no when a family member or friend asks you to be the executor of their will. After all, it’s the final favour you’ll ever do for them. But as Rob Carrick warns, being an executor can bring a bunch of trouble, and one should know what they’re up against before agreeing to do the deed. So what questions should you be asking? For one: How complex is your estate? Executors should expect to spend around 100 hours over 18 to 24 months to settle an estate, and complexities such as family businesses, trusts and investment properties can add significantly to your commitment, and require that you spend time consulting outside experts.

The unaffordability of adulting these days

Enough about expensive lattes and avocado toast. The magnitude of obstacles facing young Canadians launching into adulthood today is incomparable to generations before. In Erica Alini’s ROB cover story, she crunched the numbers on how much it costs people in their 20s and 30s to live on their own, pay down student debt and save for a home in Canada. The math is grim, and earning a paycheque is hardly the issue. By 2030, buying an average-priced home with a minimum down payment will likely require a household income of around $230,000 in today’s dollars in places such as Vancouver, Toronto and – wait for it – Hamilton. Meanwhile, Gen Z and younger millennials can’t even make the rent. In Vancouver and Toronto, the average one-bedroom now rents for well over $2,000.

Now that you’re all caught up, prepare for the week ahead with the Globe’s investing calendar.

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FTX founder speaks for 1st time since crypto company's collapse – CBC.ca

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  1. FTX founder speaks for 1st time since crypto company’s collapse  CBC.ca
  2. Here’s what an FTX investor thinks of Sam Bankman-Fried  Fox Business
  3. A journalist who interviewed Sam Bankman-Fried about FTX’s collapse said it ‘felt like a therapy session’ for the crypto mogul  Yahoo Canada Finance
  4. SBF Missed FTX’s Risks  Bloomberg
  5. View Full Coverage on Google News



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Blackstone limits withdrawals from its US$69-billion REIT – The Globe and Mail

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Blackstone Inc limited withdrawals from its $69 billion real estate income trust (REIT) on Thursday after receiving too many redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth.

The curbs in redemptions came because they hit pre-set limits, rather than Blackstone setting the redemption limits on the day. Nonetheless, they fuelled investor concerns about the future of the REIT, which makes up about 17% of Blackstone’s earnings. Blackstone shares ended trading down 7.1% on the news.

Investors in the REIT, which is not publicly traded, have been growing concerned that Blackstone has been slow to adjust the vehicle’s valuation to that of publicly-traded REITs, which have taken a hit amid rising interest rates, a source close to the fund said. Rising interest rates weigh on real estate values because they make financing them more expensive.

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Blackstone has reported a 9.3% year-to-date return for its REIT, net of fees, while the publicly-traded REIT index is down 3.02% in the same period. This outperformance has some investors questioning how Blackstone comes up with the valuation of its REIT, said Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia.

“People are taking profits at the value Blackstone says their Blackstone REIT shares are at,” said Snyder.

A Blackstone spokesperson declined to comment on how Blackstone values its REIT but said its portfolio was concentrated in rental housing and logistics and relied on a long-term fixed rate debt structure, making it resilient.

“Our business is built on performance, not fund flows, and performance is rock solid,” the spokesperson said.

Two sources familiar with the matter said turmoil in the Asian market, fuelled by concerns about China’s economic prospects and political stability, contributed to the redemptions. The majority of investors redeeming were from Asia and needed the liquidity, they said.

Blackstone said it would curb withdrawals from its REIT franchise after it received redemption requests in November greater than 2% of its monthly net asset value and 5% of its quarterly net asset value.

Analysts said that Blackstone’s REIT runs the risk of getting caught in a spiral of selling assets to meet redemptions if it cannot regain the trust of many of its investors. On Thursday, the firm said the REIT had agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.

“The impact on Blackstone depends on whether the REIT is able to stabilize its net asset value over time, or is forced to enter an extended run-off scenario, with significant asset sales and ongoing redemption backlog – too early to tell, in our view,” BMO Capital Markets analysts wrote in a note.

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Big Six bank earnings show mixed bag for Canadian economy – CTV News

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The most recent earnings reports from Canada’s big banks are showing signs that the Canadian economy is slowing down ahead of a potential recession, with some signs of optimism.

The Big Six banks – RBC, TD, CIBC, Scotiabank, BMO and National Bank – all released their Q4 2022 reports this week. Five out of the six saw their profits dip compared to last year and three fell short of their earnings expectations.

Michael Morrow, managing director of mergers and acquisitions and capital markets at financial firm BDO Canada, says high inflation, lower capital markets activity and rising loan-loss provisions are all putting pressure on the big banks.

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High inflation has meant higher operating costs – including higher staffing costs amid a tight labour market – that has cut into their margins, Morrow said. Meanwhile, rising interest rates and economic uncertainties have slowed investment and led to lower capital markets activity.

“Capital markets activity continues to be a drag on all of the banks, particularly those that have a higher concentration of capital markets activity versus regular retail-related activity,” Morrow said.

RBC CEO Dave McKay said on an earnings call on Wednesday the bank is bracing for a “brief and moderate recession.”

In anticipation of an economic downturn, the big banks are also increasing their loan-loss provisions, which refers to money set aside to cover bad loans.

“As the bank’s worry about the economic performance of the Canadian economy, what that might mean is more loan losses going forward. And so their provisions every quarter has been creeping up, including this quarter,” Morrow said.

“It’s definitely a leading indicator in terms of where we think the Canadian economy will be next year and where the where the risks lie.”

Loan-loss provisions especially weighed heavily on CIBC, which set provisions for credit losses for the three-month period of $436 million, up from $78 million in the same quarter last year. CIBC missed its earnings expectations by over 19 per cent.

“As we look ahead to 2023, global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation,” said CIBC CEO Victor Dodig on an earnings call on Thursday.

“In response to these headwinds … we are going to continue to take actions to reposition our business to adjust to these new realities, but also continue to grow our client franchise and moderate our expense growth.”

But despite these so-called headwinds, Morrow believes there is still good news to be gleaned from these results. Most of the Big Six are increasing their dividend rates for shareholders, which Morrow says “provides us with a view of confidence in the stability of the banks and their earnings profile.”

“If they’re increasing dividend rates, then that’s certainly an indication that they feel that the business and their capital ratios are going to be able to not only withstand this downturn, but continue to thrive through the year, through the back half of next year,” he explained.

On top of that, RBC announced it would be taking over HSBC’s Canadian operations in a $13.5 billion deal, pending regulatory approval. Morrow says he sees the purchase as a “positive vote of confidence for the Canadian economy,” especially given the fact that RBC is paying a premium price for the acquisition. The bank is paying 9.4 times HSBC Canada’s 2024 adjusted earnings.

“Certainly, you know, it gleans to the confidence that RBC has within the within the Canadian lending market. And if there were certain doubts in the Canadian market, you wouldn’t see these participants paying premiums in the marketplace at this point in the cycle,” he said.

With files from The Canadian Press and Reuters

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