Financial Update for Feb. 3, 2009

· TSX -70.07 energy stocks fell along with oil prices and financials lost ground as investors fretted about the Obama administration's plans for a new bank to buy risky assets from other banks
· DOW-64.11markets evaporated after investors were served with more gloomy economic data
· Dollar -1.12c to 80.41USD for a third day as a decline in crude oil raised investor aversion to the currencies of countries dependent on demand for commodities for economic growth.
· Oil -$1.60 to $40.08US per barrel.
· Gold -20.60 to 906.70 USD per ounce

· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Pressure on as bank bosses give up millions

RBC’s Nixon first to cut compensation; BMO’s Downe follows suit
Eoin Callan, Financial Post

Business leaders will face a stiff challenge in restoring the credibility of the free market system in the wake of a financial and economic crisis of historic proportions, Gord Nixon said Monday as he handed back a $5-million bonus.

The chief executive of RBC said cognizance of the deteriorating economic conditions was a key factor in a "personal decision" to forgo more than half his compensation.

The move put pressure on Bay Street chieftans to follow suit and triggered a sudden reversal from Bill Downe, the head of BMO, who said Monday he was giving back a $4.1-million bonus he received last week.

The gestures follow heavy pressure on bank executives in other countries to shed luxury perks and waive bonuses, and came as U.S. President Barack Obama promised to curb the pay of Wall Street firms rescued by the government.

But Monday's twin decisions to hand back bonuses were the most high profile yet in Canada since the onset of the banking crisis and may reflect sensitivity to a public backlash brewing in this country.

Mr. Nixon said he was mindful of the fact declines in world stock markets had led to widespread "loss of wealth" and "the pressure that has put on pensioners and investors," as well as the threat of rising employment.

The head of RBC said at times like these "chief executives and leaders have to be [particularly] sensitive to issues and developments in the broader environment."

He said executives needed to be asking what they "should be doing to restore credibility and confidence in the system," alluding to co-operation between Bay Street and Ottawa to get credit flowing.

"CEO compensations at this point in the cycle should not be a big issue," he said.

It was unclear if Rick Waugh, chief executive of Bank of Nova Scotia, would retain the full $8.68-million pay package he was awarded Monday.

Mr. Waugh's compensation - excluding his pension - dropped 16% from the previous year after the bank missed three key financial targets. A spokesperson said he was out of the country and could not be reached.

CIBC said late Monday that chief executive Gerry McCaughey would receive pay with a one year delay for 2007 of $5.3-million after he waived a $1.4-million bonus, 40% less than the previous year.

Mr. Nixon's direct compensation from RBC will decline 65% from the $10.9-million he received for the previous year.

The executive also pledged to use the remaining $2.4-million he is receiving in cash incentives to buy shares in RBC, which have fallen 40% this year along with other bank shares.
Ian de Verteuil, a financial analyst at BMO, said the move would enhance the "credibility" of the bank's management.

"It is often difficult to understand the metrics that bank boards use to establish executive compensation, but it is clear in this situation that Royal's CEO intends to share in the ‘pain' experienced by the bank's stakeholders," said Mr. de Verteuil.

But Mr. Nixon stressed that his decision to waive $5-million in bonus did not mean the underlying compensation system used by RBC to reward bankers was "necessarily inappropriate or poorly structured."

Major shareholders and corporate governance advocates said Canada's banks appeared to have missed an opportunity to enact deeper reform of the way bankers are compensated.

Following reports on pay from three of the country's top five banks, Bay Street appeared to be behind the curve in holding back bonuses for bankers until the risks of trades they made were apparent, said Stephen Griggs, executive director, Canadian Coalition for Good Governance, which represents major institutional investors.