Torys Releases Their Capital Markets 2012 Mid-Year Report

If uncertainty in the capital markets is not the new normal, it has at least persisted for several quarters. Many of the themes that clouded the outlook for the markets in mid-2011 remain the same for mid-2012: European stagnation; political debate between austerity and stimulus; concerns about the lack of consumer spending in China; and in Canada, the uncertain future ownership of the TSX. On May 31, 2011, the S&P/TSX Composite closed at 13,802 points; on May 31, 2012, it closed at 11,513 points.

Recent elections in Europe, the pending election in the United States and the likelihood of fiscal and monetary stimulus in China point to a policy shift to emphasize growth at the expense of austerity, later in the year. Equity markets may enjoy a corresponding rebound at that time. In the meantime, as in 2011, Canadian investors have continued to favour issuers with high yield and predictable earnings.

Canadian regulators have sought to address issues of fairness and transparency in the Canadian market. The Ontario Securities Commission’s emerging-market review is aimed at enhancing investor confidence, as the TSX continues its efforts to attract listings from across the globe. The Canadian government is taking steps to ease federally regulated financial institutions off their reliance on federal guarantees to support their financing needs.

In the United States, the federal government has sought to alleviate some of the expense and complexity of the daunting U.S. IPO process by passing the JOBS Act. The relative simplicity and condensed timing of the Canadian public offering process is demonstrated by the case of an unsolicited bidder accessing the public debt markets within the time frame of a takeover bid. Canadian retail investors’ thirst for predictable yield products has been sated, in part, by issuers investing in foreign business or income-producing assets that are excepted from the definition and tax regime associated with SIFT trusts. While capital raising on stock exchanges is relatively slow, capital raising for infrastructure transactions is growing and poised to increase dramatically. For Canadian banks, the implementation of the Basel Committee’s requirements on non-viable contingent capital looms on January 1, 2013, but as yet there has been no first mover.

Each of these issues is discussed in detail in this report, and we hope you find this analysis of interest. Torys lawyers – in Toronto, New York and Calgary – would be pleased to discuss any of these topics with you.

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