Stock markets make triple-digit gains as bank and insurer investors rejoice
· TSX+313.37 Stock markets surged on a huge runup in bank and insurance shares after American financial-services giant Citigroup Inc. said it was profitable in the first two months of this year. It was the biggest gain this year for the benchmark Canadian index.
· DOW +379.44 Traders were also encouraged as Federal Reserve chairman Ben Bernanke outlined measures to prevent another financial crisis. These would include legislation to handle the failure of a huge financial institution in an orderly way, along with tighter supervision of risk at companies regarded as too big to be allowed to fail.
· Dollar +.83c to 77.81USD. The U.S. dollar eased in general and the loonie benefited as Singapore's government investment council released a statement favouring investing in Canada
· Oil -$1.36 to $45.71US per barrel. Crude oil, gasoline and other fuel prices tumbled after the U.S. government again lowered its forecast for global energy demand and said average oil prices for this year will likely be below current levels.
· Gold -22.10 to $895.90 USD per ounce
· Canadian 5 yr bond yields +.05bps to 1.91
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
The 5 year bond yield is 1.91, up 0.05 from yesterday. Four weeks ago it was 2.12.
Canada to emerge from global crisis before others and stronger than before: Harper
Allison Jones, The Canadian Press BRAMPTON, Ont. - Canada will emerge from the global recession before any other country and in a stronger economic position than ever, Prime Minister Stephen Harper said Tuesday as his government aggressively moved to sell its fiscal plan.
The rosy picture Harper painted of the ability to not only recover but profit from the worldwide crisis came as he dispatched two of his top lieutenants to deliver variations of the same message: the Conservative stimulus package will put the country on the right track and the opposition must support it.
The notion that the opposition was stalling economic recovery raised the ire of Liberal Leader Michael Ignatieff, who said the party is doing everything it can to help get the money out the door.
Harper, in his address to a business crowd in Brampton, Ont., noted that "Canada was the last advanced country to fall into this recession."
"We will make sure its effects here are the least severe, and we will come out of this faster than anyone and stronger than ever."
The crisis, ultimately, is an "opportunity to position ourselves so that when the recovery comes, we're among the first to catch the wave."
While Harper placed Canada at the forefront of economic relief, he also said our fortunes depend on those of the United States.
"We will not turn the corner on this global recession until the American financial sector is fixed," he said.
Across town, Industry Minister Tony Clement echoed that sentiment following a speech to the C.D. Howe Institute which focused - like his boss's address - on the government's plan to navigate the crisis.
Only American consumers can save the flattened auto industry from extinction, he said.
In Ottawa, Finance Minister Jim Flaherty delivered the hard-sell as he demanded that the Liberal-dominated Senate pass his budget bill and its $40-billion stimulus package.
The simultaneous sorties by the prime minister and his two most senior economic ministers in three different locations represent an aggressive shift into selling the economic plan.
Harper's own MPs have complained privately that there has been too much gloom and not enough reassurance about Canada's economic future in the six weeks since the budget was delivered.
The prime minister took on a more prominent role after the Jan. 27 federal budget and has been visiting various pockets of the country to make stimulus-funding announcements.
He spent this past weekend at his official residence typing away at Tuesday's 3,300-word address - one of the rare occasions when Harper has written a speech from start to finish.
In his speech, Harper suggested that the opposition is standing in the way of the fiscal rescue plan - pointing to the proposed $3-billion fund aimed at quickly stimulating the economy.
The Liberals have said they won't support it without having some idea how the money would be spent.
"We cannot have the opposition in Parliament replacing bureaucratic red tape with political red tape," Harper said.
Liberal Leader Michael Ignatieff said he found Harper's comments laughable.
"It's a comic spectacle but it's a spectacle of misrepresentation," he said after Question Period in Ottawa.
"We passed the budget last week. Did anybody notice? We passed the budget... We have done everything we can to get the money out the door quickly.
"There will be literally no delay, repeat, no delay from the Liberal Party of Canada in getting needed, needed stimulus to Canadians."
At least one economist agreed with Harper's assertion that Canada is in a better position to weather the economic crisis and will not be hit as hard as other nations.
Still, TD chief economist Don Drummond said he was "less certain about the bit that we will recover faster."
Canada's economy is inextricably linked to the global economy through our exports to the United States and it's hard to imagine Canada recovering faster, Drummond said.
"In our forecast we have the recoveries occurring simultaneously."
TD has predicted Canada's economic troubles will ease at the end of the year, but Drummond said that may change.
"We will be putting out our forecast on the 12th and we go through five key assumptions that one has to make, but if any of those don't get fulfilled then I think it's going to get delayed beyond that."
Wednesday, March 11, 2009
Tuesday, March 10, 2009
Financial Update for March 10, 2009
· TSX-24.53 ended at its lowest close in more than 5 years as weaker gold prices dragged down materials shares while bank worries weighed on financial issues.
· DOW -79.89 Billionaire Warren Buffett said all 535 members of Congress should stop partisan bickering about solutions and support President Barack Obama. What is required is a commander in chief that's looked at like a commander in chief in a time of economic war,''
· Dollar -.45c to 76.98USD.
· Oil +$1.55 to $47.07US per barrel.
· Gold -24.40 to $917.70 USD per ounce The drop in gold prices knocked the TSX's broader materials sector -- home to many of the country's top gold miners -- down by 0.98%
· Canadian 5 yr bond yields +.01bps to 1.86
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Analysts advise choosing type of mortgage wisely
Ross Marowits The Canadian PressMar 09, 2009
MONTREAL
Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.
Canadian Imperial Bank of Commerce's chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.
"If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap,'' Benjamin Tal said.
"Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising.''
Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.
Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.
The central bank went even further last week, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.5 per cent.
Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.
The self-professed fan of variable mortgages said they give customers control, which is important in the current climate.
Gaetano said homeowners should use this window of low rates to pay down their mortgages.
Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.
Mortgage expert Moshe Milevsky of York University suspects many Canadians will opt for the security of fixed mortgages considering how low rates have dropped.
But he said the decision about what kind of mortgage to take should never be made in isolation of individual circumstances such as the amount of equity, value of the house, debts and risk aversion.
And in markets where real estate prices are falling, seeking a long-term rate may be more important than the type of rate.
"The last thing you want to do is have to renew your mortgage in a year from now and have the bank say: 'Let's assess what that house is really worth,"' he said in an interview.
Studies conducted by Milevsky have shown that variable rates have historically produced greater savings 88 per cent of the time.
"But in today's environment, you'd be hard-pressed to make a case to continue floating,'' he said, advocating a blend between fixed and floating rates.
Why it’s time to buy a house Experts say right now may be the best time in years to buy a home Friday, March 6, 2009 Julian Beltrame Canadian Press
OTTAWA - Jim Rawson says it's a great time to buy a house.
The regional manager of Invis mortgage brokerage firm in Toronto has been in the business since 1978 and has never seen interest rates, both variable and fixed, so low. Pair that with falling housing prices and it's a no-brainer.
"People have to have somewhere to live and whether you are paying for a mortgage or paying rent, you still have to be paying to live somewhere," Rawson explains.
But something is missing in the equation. As prices for most consumer goods, cars and homes decline - in some cases plunge - and the cost of borrowing falls, Canadians have been hesitant to buy.
The Bank of Canada did its part this week to lure consumers and businesses out of their fox hole, dropping the overnight rate down to an unheard of half per cent - virtually zero.
Canada's chartered banks lowered their prime rate to 2.5 per cent on Tuesday, shortly after the central bank moved, and by the end of the week were lowering other lending rates.
TD Canada Trust, for one, is reducing several of its posted fixed-term mortgage rates on Saturday. TD's biggest decrease was with its two-year mortgage, which falls to 5.0 per cent from 5.75 per cent.
Scotiabank went even further, lopping nearly two full percentage points off the advertised price for its 10-year mortgage, which fell to 5.25 per cent from 7.15 per cent, effective Friday.
By almost every measure, Canadians have slowed down borrowing and spending, most visibly in the auto sector, which saw sales volume crash by 28 per cent in February.
The Canadian housing market, for years a source of boundless growth, has come crashing to earth with sales, prices, and construction of new homes all down, in many cases by double-digits.
Consumers have also stopped discretionary purchases, as the 5.4 per cent contraction in retail sales in December - the largest in 15 years - shows.
"I think they're scared out there," says Bruce Cran of the Consumers' Association of Canada. "Consumers are tapped out and frightened of over-spending. They are going back to being savers."
Bank of Canada deputy governor Pierre Duguay may have a point in saying there is a danger of "irrational fear" taking hold, but there are also very real reasons to be concerned.
Canada lost 129,000 jobs in January, the third straight month of decline, and announcements of future layoffs are being posted almost daily. Everyone is predicting the Canadian economy has much further to fall after contracting 3.4 per cent in December.
There is also fact that the days of easy money are over. Chartered banks are being more choosy who they lend to and interest rates - low as they are - are higher than they might be given the central bank rate and non-existent inflation.
Variable rate mortgages, for example, formerly could be had below the banks' prime rate. The prime rates have fallen, along with the Bank of Canada's moves, but now banks' variable mortgage rates are well above prime.
Individuals have also cut back on borrowing, hence spending. TD Bank chief executive Ed Clark said this week that overall demand for loans is coming down.
Under normal times, economists would say that is a good thing. Rampant buying, particularly in the United States, was a major contributor to the financial sector meltdown that brought the world low.
Americans have now pulled back big time making matters worse, even though the Federal Reserve rate at 0.25 per cent is lower than the Bank of Canada's. The U.S. once lamentable savings rate has shot from just above one per cent to five per cent in a matter of months.
The amount of debt Canadians held as a ratio of their income increased last year to 136 per cent from 130 per cent. What kept them solvent is that low interest rates made the cost of servicing that mounting debt at affordable levels.
That is as long as jobs, incomes and the economy were advancing. In a recent CIBC World Markets report, economist Benjamin Tal showed the squeeze was underway.
Canadians assets fell by $160 billion in the third quarter, he noted, adding that with house and equity values falling, Canadians would likely be another $180 billion poorer in the fourth quarter. Values haven't gotten better since.
As well, debt is rising and consumer bankruptcies are jumping - 13.5 per cent last year with expectations they could hit 30 per cent growth this year. Mortgage arrears are also on an upward path, rising from a record low of 0.24 per cent to the current 0.33 per cent, the highest in six years.
But the big number, says Tal, is the number of Canadians who have lost their job and the much bigger number that are for the first time in many years afraid of losing their job.
"The issue is confidence," he said. "People talk about the unemployment rate going to eight and nine per cent, but the focus should be on the 91 per cent of people who are employed and are concerned about their jobs."
Tal and most economists believe that Canadians will start spending again because they no longer can put off purchases. But he doesn't believe they will spend with the reckless abandon of the recent past.
"After the crisis is over, consumer spending will be stronger but not like it used to be because it was artificially strong before, using borrowed money," Tal said.
Rawson believes that time is coming soon, at least in the housing market.
Applications for mortgages in his Toronto office have doubled since December, Rawson says, with many in the pre-approved market. That usually involves first-time prospective buyers making sure all their ducks are lined up before taking the plunge.
"These are people who haven't bought yet but they will buy in the future," he says.
· DOW -79.89 Billionaire Warren Buffett said all 535 members of Congress should stop partisan bickering about solutions and support President Barack Obama. What is required is a commander in chief that's looked at like a commander in chief in a time of economic war,''
· Dollar -.45c to 76.98USD.
· Oil +$1.55 to $47.07US per barrel.
· Gold -24.40 to $917.70 USD per ounce The drop in gold prices knocked the TSX's broader materials sector -- home to many of the country's top gold miners -- down by 0.98%
· Canadian 5 yr bond yields +.01bps to 1.86
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Analysts advise choosing type of mortgage wisely
Ross Marowits The Canadian PressMar 09, 2009
MONTREAL
Bargain basement borrowing costs are prompting many Canadians to opt for fixed mortgages even though variable products continue to be a money-winning option for the foreseeable future, industry observers say.
Canadian Imperial Bank of Commerce's chief economist says variable rate mortgages should produce the greater benefit for the next two to 2.5 years, but be a wash over five years.
"If you're really risk-averse, jump on those fixed-term rates because they're extremely cheap,'' Benjamin Tal said.
"Going variable probably will give you good performance for the next two years or so and beyond that, we might see interest rates rising.''
Inflation could ultimately lead to higher interest rates, but likely not before 2011, he said.
Variable rates remain attractive even though banks last fall eliminated discounts and began charging premiums for those who signed up for them after the Bank of Canada lowered its interest rate.
The central bank went even further last week, cutting its trend-setting overnight rate another a half percentage point to 0.5 per cent. Banks followed by lowering their prime rate to 2.5 per cent.
Homeowners with variable rates, especially those with discounts reaching 90 basis points, should ignore temptations to lock in now, says Vince Gaetano, vice-president of Monstermortgage.ca.
The self-professed fan of variable mortgages said they give customers control, which is important in the current climate.
Gaetano said homeowners should use this window of low rates to pay down their mortgages.
Owners of rental properties, however, should stick to fixed-rate mortgages to balance steady income with stable interest expenses, he added.
Mortgage expert Moshe Milevsky of York University suspects many Canadians will opt for the security of fixed mortgages considering how low rates have dropped.
But he said the decision about what kind of mortgage to take should never be made in isolation of individual circumstances such as the amount of equity, value of the house, debts and risk aversion.
And in markets where real estate prices are falling, seeking a long-term rate may be more important than the type of rate.
"The last thing you want to do is have to renew your mortgage in a year from now and have the bank say: 'Let's assess what that house is really worth,"' he said in an interview.
Studies conducted by Milevsky have shown that variable rates have historically produced greater savings 88 per cent of the time.
"But in today's environment, you'd be hard-pressed to make a case to continue floating,'' he said, advocating a blend between fixed and floating rates.
Why it’s time to buy a house Experts say right now may be the best time in years to buy a home Friday, March 6, 2009 Julian Beltrame Canadian Press
OTTAWA - Jim Rawson says it's a great time to buy a house.
The regional manager of Invis mortgage brokerage firm in Toronto has been in the business since 1978 and has never seen interest rates, both variable and fixed, so low. Pair that with falling housing prices and it's a no-brainer.
"People have to have somewhere to live and whether you are paying for a mortgage or paying rent, you still have to be paying to live somewhere," Rawson explains.
But something is missing in the equation. As prices for most consumer goods, cars and homes decline - in some cases plunge - and the cost of borrowing falls, Canadians have been hesitant to buy.
The Bank of Canada did its part this week to lure consumers and businesses out of their fox hole, dropping the overnight rate down to an unheard of half per cent - virtually zero.
Canada's chartered banks lowered their prime rate to 2.5 per cent on Tuesday, shortly after the central bank moved, and by the end of the week were lowering other lending rates.
TD Canada Trust, for one, is reducing several of its posted fixed-term mortgage rates on Saturday. TD's biggest decrease was with its two-year mortgage, which falls to 5.0 per cent from 5.75 per cent.
Scotiabank went even further, lopping nearly two full percentage points off the advertised price for its 10-year mortgage, which fell to 5.25 per cent from 7.15 per cent, effective Friday.
By almost every measure, Canadians have slowed down borrowing and spending, most visibly in the auto sector, which saw sales volume crash by 28 per cent in February.
The Canadian housing market, for years a source of boundless growth, has come crashing to earth with sales, prices, and construction of new homes all down, in many cases by double-digits.
Consumers have also stopped discretionary purchases, as the 5.4 per cent contraction in retail sales in December - the largest in 15 years - shows.
"I think they're scared out there," says Bruce Cran of the Consumers' Association of Canada. "Consumers are tapped out and frightened of over-spending. They are going back to being savers."
Bank of Canada deputy governor Pierre Duguay may have a point in saying there is a danger of "irrational fear" taking hold, but there are also very real reasons to be concerned.
Canada lost 129,000 jobs in January, the third straight month of decline, and announcements of future layoffs are being posted almost daily. Everyone is predicting the Canadian economy has much further to fall after contracting 3.4 per cent in December.
There is also fact that the days of easy money are over. Chartered banks are being more choosy who they lend to and interest rates - low as they are - are higher than they might be given the central bank rate and non-existent inflation.
Variable rate mortgages, for example, formerly could be had below the banks' prime rate. The prime rates have fallen, along with the Bank of Canada's moves, but now banks' variable mortgage rates are well above prime.
Individuals have also cut back on borrowing, hence spending. TD Bank chief executive Ed Clark said this week that overall demand for loans is coming down.
Under normal times, economists would say that is a good thing. Rampant buying, particularly in the United States, was a major contributor to the financial sector meltdown that brought the world low.
Americans have now pulled back big time making matters worse, even though the Federal Reserve rate at 0.25 per cent is lower than the Bank of Canada's. The U.S. once lamentable savings rate has shot from just above one per cent to five per cent in a matter of months.
The amount of debt Canadians held as a ratio of their income increased last year to 136 per cent from 130 per cent. What kept them solvent is that low interest rates made the cost of servicing that mounting debt at affordable levels.
That is as long as jobs, incomes and the economy were advancing. In a recent CIBC World Markets report, economist Benjamin Tal showed the squeeze was underway.
Canadians assets fell by $160 billion in the third quarter, he noted, adding that with house and equity values falling, Canadians would likely be another $180 billion poorer in the fourth quarter. Values haven't gotten better since.
As well, debt is rising and consumer bankruptcies are jumping - 13.5 per cent last year with expectations they could hit 30 per cent growth this year. Mortgage arrears are also on an upward path, rising from a record low of 0.24 per cent to the current 0.33 per cent, the highest in six years.
But the big number, says Tal, is the number of Canadians who have lost their job and the much bigger number that are for the first time in many years afraid of losing their job.
"The issue is confidence," he said. "People talk about the unemployment rate going to eight and nine per cent, but the focus should be on the 91 per cent of people who are employed and are concerned about their jobs."
Tal and most economists believe that Canadians will start spending again because they no longer can put off purchases. But he doesn't believe they will spend with the reckless abandon of the recent past.
"After the crisis is over, consumer spending will be stronger but not like it used to be because it was artificially strong before, using borrowed money," Tal said.
Rawson believes that time is coming soon, at least in the housing market.
Applications for mortgages in his Toronto office have doubled since December, Rawson says, with many in the pre-approved market. That usually involves first-time prospective buyers making sure all their ducks are lined up before taking the plunge.
"These are people who haven't bought yet but they will buy in the future," he says.
Monday, March 9, 2009
Financial Update for March 09, 2009
· TSX-37.70 Investors hoping that markets were near bottom saw those hopes tried after concerns about the financial sector sent North American indexes crashing through the lows of last November.
· DOW +32.50 also hit by more miserable data from the U.S. showing a loss of 651,000 jobs last month, while the unemployment rate jumped to 8.1% from 7.6%
· Dollar +.11c to 77.73USD.
· Oil +$1.91 to $45.52US per barrel.
· Gold +15.10 to $942.10 USD per ounce
· Canadian 5 yr bond yields +.04bps to 1.85
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
TORONTO - The Canadian Auto Workers union has reached a tentative labour agreement with General Motors of Canada Ltd. that calls for a freeze on wages and pensions as part of the automaker's restructuring, the union said Sunday.
The deal came 3 days after the country's biggest industrial union began talks with GM in a bid to help the automaker cut costs and remain competitive with U.S. plants to secure future car and parts assembly work in Canada. The proposed agreement, which would run to September 2012, suspends quarterly cost-of-living adjustments for wages and scraps annual increases to pensions, among other things.
"These changes represent a major sacrifice by our active members and retirees," said CAW President Ken Lewenza. "They will reduce active hourly labour costs by several dollars per hour, reinforcing Canada's investment advantage relative to U.S. facilities." The automaker called the agreement "a positive further step" in its restructuring plan, which it submitted to Ottawa and the Ontario government Feb. 20. "We compliment the CAW for their leadership to share sacrifices in these extremely challenging economic times," the company said in a statemen
Canada envy, amid a global meltdown
TARA PERKINS AND BOYD ERMAN From Saturday's Globe and Mail
Canada's banks are finally getting some respect.
Derided for years as meek and mild while banks around the world expanded wildly, suddenly the reputation of Canada's big lenders as prudent and sometimes downright boring has become an asset instead of a liability.
U.S. President Barack Obama has heaped praise on the management of this country's financial system. Ireland is considering overhauling its system to look more like Canada's. Financial papers around the world are running headlines such as “Canada banks prove envy of the world.”
Whether measured by market value, balance sheet strength or profitability, Canada's banks are rising to the top. Since the credit crunch began in the summer of 2007, the Big Five banks have booked a total of $18.9-billion in profits.
In roughly the same period, the five biggest U.S. banks have lost more than $37-billion (U.S.). One, Wachovia Corp., was forced to sell out to avoid failing. Another, Citigroup Inc., long the world's largest bank, may have to be nationalized and this week became a penny stock. The picture is similar in Britain.
The U.S. has spent most of the $700-billion the government earmarked for bank bailouts, and there are estimates that the final tally could be more in the trillions of dollars. The head of the Bank of England said last month that it's “impossible” to know how much money it will take to fix his country's banks.
Canada, by contrast, has not had to inject capital directly into banks, other than starting a program to buy from banks $125-billion (Canadian) of insured mortgages – any losses from which the government was already on the hook for anyway.
The reason comes down to a fundamental conservatism. From lending practices to bets on trading to financial reserves and takeovers, the Big Five banks have long tended to be more careful than their global peers. And when they did want to get aggressive, government and regulators held them in check.
“The Canadian banks were under a significant amount of pressure from both the analysts and the marketplace in general to be more aggressive in expanding into international markets, particularly the United States, and I think to some degree resisted partially because of a more conservative approach,” says RBC chief executive officer Gordon Nixon.
Still, the industry has had stumbles, most notably Canadian Imperial Bank of Commerce's misadventure in derivatives, which led to a $2.1-billion loss for 2008.
And shareholders in Canadian banks have been battered. As a group, the banks' shares are down almost 50 per cent since Aug. 1, 2007, with most of the decline in the past six months as the economy worsened.
The concern weighing on these bank shares, for starters, is that profit growth in general is a thing of the past until the economy picks up. Most analysts say the banks' profits will shrink in coming quarters as more loans go sour and margins on lending tighten up. There's also nagging doubts that dividend payments are unsustainable and that something bad is still lurking on balance sheets.
More writedowns are likely in store for banks such as Toronto-Dominion Bank and Royal Bank of Canada, both of which made big acquisitions in recent years that now look overpriced.
Still, bank bosses such as Rick Waugh, CEO of Bank of Nova Scotia, say the banks are insulated from lingering problems because they have profits rolling in from many sources.
“We have made mistakes,” he says, “but we made sure that we were well diversified.”
That's a result of a conservatism not just among executives. That same approach extends to consumers, helping the banks sail along on the strength of their domestic lending businesses.
“You've got a more balanced cultural approach towards consumption and savings than we do in this country,” says Charles Dallara, head of the Washington-based Institute of International Finance, and a former managing director at JPMorgan Chase & Co.
Much of that stems from the pain of the last recession. While the downturn of the early 1990s was short and sharp in the U.S., it was drawn out in Canada, leading to more of a social evolution, says CIBC chief executive officer Gerry McCaughey.
Former central bank governor David Dodge agrees. Canadian bank executives keenly remember that period, “and there was therefore perhaps a degree of prudence, a lack of aggressiveness, in comparison with major banks around the world,” he said.
And he gives top marks to the Office of the Superintendent of Financial Institutions, Canada's banking regulator, for being more conservative than those in the U.S. or Britain. “I think that, from a regulatory point of view, you can say that the Canadian banks were more appropriately regulated.”
The final key is the structure of the mortgage market.
While U.S. banks sold a large proportion of their mortgages, Canadian banks held the bulk of theirs on their balance sheets, giving them an incentive to make sure they were good loans.
Riskier ones are backed by government insurance. And the law here makes it tough for consumers to walk away from a mortgage because banks can go after other assets.
Still, the banks are wary of getting cocky when a careful approach has worked well.
“It's a good thing for us to recognize the things we do very well, but maybe do it in what is appropriately a Canadian way – with modesty,” said Bank of Montreal CEO Bill Downe.
Royal Bank of Canada
First quarter profit: $1.05-billion, down from $1.25-billion.
What's working: The bank's securities arm makes big bucks, and its huge retail bank in Canada generates steady earnings. RBC benefits from strong loan growth and expense control, notes UBS analyst Peter Rozenberg.
What's worrying: A foray into the U.S. leaves it exposed to the sagging American economy.
Investors never like to see too much of a bank's earnings come from capital markets, because it's a volatile business. And while the securities division is doing well, it's also booking big writedowns. “RBC's Achilles heel, in Moody's view, is its U.S. operation,” the rating agency says.
What the CEO says: “As a Canadian bank with global operations, RBC does have a competitive advantage relative to many of our global peers. The fundamentals of our domestic economy, while stressed, appear stronger than in Europe and the United States, having benefited from a public policy agenda that for many years valued prudent fiscal management.”
Total assets: $713-billion
Tier 1 capital ratio (Jan. 31): 10.6 per cent
Provision for credit losses: $747-million, up from $293-million
Toronto-Dominion Bank
First-quarter profit: $712-million, down from $970-million.
What's working: Retail arm TD Canada Trust is a dominant force across the country. “The bank's sizable capital cushion, combined with the recurring earnings from its Canadian franchise, leave it well positioned to manage through a period of economic headwinds,” says Moody's Investors Service.
What's worrying: TD expanded in the U.S. just as things were getting really bad. Now, the bank has the biggest U.S. retail banking presence of any Canadian bank – half of all the bank's branches are in the U.S. Plus, TD owns a big U.S. wealth management operation that may suffer as markets plunge. The consensus among analysts is that the bank's securities and trading side isn't big enough to make up for declining performance in other areas of the bank.
What the CEO says: “We are living in unprecedented times. So what we consider solid performance in the current environment is certainly not what we would be happy with in the long term. … We are going to take some bruises if the situation gets worse, but we're still going to be able to deliver solid earnings.”
Total assets: $585-billion
Tier 1 capital ratio (Jan. 31): 10.1 per cent
Provision for credit losses: $537-million, up from $255-million
Bank of Nova Scotia
First-quarter profit: $842-million, up from $835-million.
What's working: The bank's international business – the largest of the Canadian banks – posted a record quarter, and Scotiabank's reputation for risk management remains intact. The bank's securities and trading arm, Scotia Capital, had a near-record quarter.
What's worrying: Investors are leery of exposure to car loans and the auto industry. They are also keeping an eye on the bank's corporate loan book, the biggest of any Canadian bank.The bank's large international division, with a big presence in Latin America, was much more profitable than anticipated in the latest quarter, but the macro environment in Latin America has deteriorated in recent months, notes RBC Dominion Securities analyst André-Philippe Hardy.
What the CEO says: “The banking sector in Canada is still in good shape. Some say the best in the world. As a group, we are all very well capitalized by global standards. And Scotiabank clearly demonstrated this by the fact that we were able to raise more capital this quarter, all of it from the market, from private sources.”
Total assets : $510-billion
Tier 1 capital ratio at Jan. 31: 9.5 per cent
Provision for credit losses: $281-million, up from $111-million
Canadian Imperial Bank of Commerce
First-quarter profit: $147-million, up from a loss of $1.46-billion.
What's working: Most of the big problems relating to exposure to subprime-linked investments are behind the bank, and its balance sheet is rock solid after raising another $1.6-billion of capital this week. Analysts and investors like the fact that its Canadian-focused business means bad U.S. loans aren't a big issue.
What's worrying: The bank is getting out of or cutting back in so many business lines to avoid problems that it's unclear where growth will come from. Investors worry that the bank is becoming so risk-averse that it won't be able to compete.
Its core consumer lending segment saw earnings decline 14 per cent in the latest quarter, due in large part to rising provisions for bad credit card, manufacturing and real estate loans, notes Blackmont Capital analyst Brad Smith.
What the CEO says: “Market conditions worldwide for banks remain difficult. Yet arguably one of the better places to be right now is in Canada. At CIBC, the majority of our revenue is derived from retail markets, where we enjoy strong market positions in a broad range of products and services.”
Total assets: $354-billion
Tier 1 capital ratio at Jan. 31: 9.8 per cent (it's now a whopping 11.5 per cent)
Provision for credit losses: $284-million, up from $172-million
Bank of Montreal
First-quarter profit: $225-million, down from $255-million.
What's working: The bank's trading operations are buoying profit, and its retail operations are rebounding after lagging for years. A switch toward more profitable products, such as lines of credit, is helping the core operations churn out strong earnings.
What's worrying: Investors are concerned that trading profits can disappear fast, and the bank has a U.S. loan portfolio by virtue of its presence in the U.S. Midwest. There's also a nagging worry that the bank will cut its dividend that won't go away no matter how many times CEO Bill Downe says the payout is safe.
Credit Suisse analyst James Bantis is watching for rising credit losses in the $42-billion (U.S.) U.S. loan portfolio. He sees a large drop-off in the quality of the U.S. portfolio, which accounts for 27 per cent of BMO's loan book, compared to the Canadian portfolio.
What the CEO says: “Financial institutions everywhere continue to face headwinds in credit markets and the capital markets environment. BMO is well positioned to meet these challenges, having accessed markets to bolster our capital position and having further strengthened our strong liquidity in the period, albeit at a higher cost.”
Tier 1 capital ratio at Jan. 31: 10.21 per cent
Total assets: $443-billion
· DOW +32.50 also hit by more miserable data from the U.S. showing a loss of 651,000 jobs last month, while the unemployment rate jumped to 8.1% from 7.6%
· Dollar +.11c to 77.73USD.
· Oil +$1.91 to $45.52US per barrel.
· Gold +15.10 to $942.10 USD per ounce
· Canadian 5 yr bond yields +.04bps to 1.85
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html
TORONTO - The Canadian Auto Workers union has reached a tentative labour agreement with General Motors of Canada Ltd. that calls for a freeze on wages and pensions as part of the automaker's restructuring, the union said Sunday.
The deal came 3 days after the country's biggest industrial union began talks with GM in a bid to help the automaker cut costs and remain competitive with U.S. plants to secure future car and parts assembly work in Canada. The proposed agreement, which would run to September 2012, suspends quarterly cost-of-living adjustments for wages and scraps annual increases to pensions, among other things.
"These changes represent a major sacrifice by our active members and retirees," said CAW President Ken Lewenza. "They will reduce active hourly labour costs by several dollars per hour, reinforcing Canada's investment advantage relative to U.S. facilities." The automaker called the agreement "a positive further step" in its restructuring plan, which it submitted to Ottawa and the Ontario government Feb. 20. "We compliment the CAW for their leadership to share sacrifices in these extremely challenging economic times," the company said in a statemen
Canada envy, amid a global meltdown
TARA PERKINS AND BOYD ERMAN From Saturday's Globe and Mail
Canada's banks are finally getting some respect.
Derided for years as meek and mild while banks around the world expanded wildly, suddenly the reputation of Canada's big lenders as prudent and sometimes downright boring has become an asset instead of a liability.
U.S. President Barack Obama has heaped praise on the management of this country's financial system. Ireland is considering overhauling its system to look more like Canada's. Financial papers around the world are running headlines such as “Canada banks prove envy of the world.”
Whether measured by market value, balance sheet strength or profitability, Canada's banks are rising to the top. Since the credit crunch began in the summer of 2007, the Big Five banks have booked a total of $18.9-billion in profits.
In roughly the same period, the five biggest U.S. banks have lost more than $37-billion (U.S.). One, Wachovia Corp., was forced to sell out to avoid failing. Another, Citigroup Inc., long the world's largest bank, may have to be nationalized and this week became a penny stock. The picture is similar in Britain.
The U.S. has spent most of the $700-billion the government earmarked for bank bailouts, and there are estimates that the final tally could be more in the trillions of dollars. The head of the Bank of England said last month that it's “impossible” to know how much money it will take to fix his country's banks.
Canada, by contrast, has not had to inject capital directly into banks, other than starting a program to buy from banks $125-billion (Canadian) of insured mortgages – any losses from which the government was already on the hook for anyway.
The reason comes down to a fundamental conservatism. From lending practices to bets on trading to financial reserves and takeovers, the Big Five banks have long tended to be more careful than their global peers. And when they did want to get aggressive, government and regulators held them in check.
“The Canadian banks were under a significant amount of pressure from both the analysts and the marketplace in general to be more aggressive in expanding into international markets, particularly the United States, and I think to some degree resisted partially because of a more conservative approach,” says RBC chief executive officer Gordon Nixon.
Still, the industry has had stumbles, most notably Canadian Imperial Bank of Commerce's misadventure in derivatives, which led to a $2.1-billion loss for 2008.
And shareholders in Canadian banks have been battered. As a group, the banks' shares are down almost 50 per cent since Aug. 1, 2007, with most of the decline in the past six months as the economy worsened.
The concern weighing on these bank shares, for starters, is that profit growth in general is a thing of the past until the economy picks up. Most analysts say the banks' profits will shrink in coming quarters as more loans go sour and margins on lending tighten up. There's also nagging doubts that dividend payments are unsustainable and that something bad is still lurking on balance sheets.
More writedowns are likely in store for banks such as Toronto-Dominion Bank and Royal Bank of Canada, both of which made big acquisitions in recent years that now look overpriced.
Still, bank bosses such as Rick Waugh, CEO of Bank of Nova Scotia, say the banks are insulated from lingering problems because they have profits rolling in from many sources.
“We have made mistakes,” he says, “but we made sure that we were well diversified.”
That's a result of a conservatism not just among executives. That same approach extends to consumers, helping the banks sail along on the strength of their domestic lending businesses.
“You've got a more balanced cultural approach towards consumption and savings than we do in this country,” says Charles Dallara, head of the Washington-based Institute of International Finance, and a former managing director at JPMorgan Chase & Co.
Much of that stems from the pain of the last recession. While the downturn of the early 1990s was short and sharp in the U.S., it was drawn out in Canada, leading to more of a social evolution, says CIBC chief executive officer Gerry McCaughey.
Former central bank governor David Dodge agrees. Canadian bank executives keenly remember that period, “and there was therefore perhaps a degree of prudence, a lack of aggressiveness, in comparison with major banks around the world,” he said.
And he gives top marks to the Office of the Superintendent of Financial Institutions, Canada's banking regulator, for being more conservative than those in the U.S. or Britain. “I think that, from a regulatory point of view, you can say that the Canadian banks were more appropriately regulated.”
The final key is the structure of the mortgage market.
While U.S. banks sold a large proportion of their mortgages, Canadian banks held the bulk of theirs on their balance sheets, giving them an incentive to make sure they were good loans.
Riskier ones are backed by government insurance. And the law here makes it tough for consumers to walk away from a mortgage because banks can go after other assets.
Still, the banks are wary of getting cocky when a careful approach has worked well.
“It's a good thing for us to recognize the things we do very well, but maybe do it in what is appropriately a Canadian way – with modesty,” said Bank of Montreal CEO Bill Downe.
Royal Bank of Canada
First quarter profit: $1.05-billion, down from $1.25-billion.
What's working: The bank's securities arm makes big bucks, and its huge retail bank in Canada generates steady earnings. RBC benefits from strong loan growth and expense control, notes UBS analyst Peter Rozenberg.
What's worrying: A foray into the U.S. leaves it exposed to the sagging American economy.
Investors never like to see too much of a bank's earnings come from capital markets, because it's a volatile business. And while the securities division is doing well, it's also booking big writedowns. “RBC's Achilles heel, in Moody's view, is its U.S. operation,” the rating agency says.
What the CEO says: “As a Canadian bank with global operations, RBC does have a competitive advantage relative to many of our global peers. The fundamentals of our domestic economy, while stressed, appear stronger than in Europe and the United States, having benefited from a public policy agenda that for many years valued prudent fiscal management.”
Total assets: $713-billion
Tier 1 capital ratio (Jan. 31): 10.6 per cent
Provision for credit losses: $747-million, up from $293-million
Toronto-Dominion Bank
First-quarter profit: $712-million, down from $970-million.
What's working: Retail arm TD Canada Trust is a dominant force across the country. “The bank's sizable capital cushion, combined with the recurring earnings from its Canadian franchise, leave it well positioned to manage through a period of economic headwinds,” says Moody's Investors Service.
What's worrying: TD expanded in the U.S. just as things were getting really bad. Now, the bank has the biggest U.S. retail banking presence of any Canadian bank – half of all the bank's branches are in the U.S. Plus, TD owns a big U.S. wealth management operation that may suffer as markets plunge. The consensus among analysts is that the bank's securities and trading side isn't big enough to make up for declining performance in other areas of the bank.
What the CEO says: “We are living in unprecedented times. So what we consider solid performance in the current environment is certainly not what we would be happy with in the long term. … We are going to take some bruises if the situation gets worse, but we're still going to be able to deliver solid earnings.”
Total assets: $585-billion
Tier 1 capital ratio (Jan. 31): 10.1 per cent
Provision for credit losses: $537-million, up from $255-million
Bank of Nova Scotia
First-quarter profit: $842-million, up from $835-million.
What's working: The bank's international business – the largest of the Canadian banks – posted a record quarter, and Scotiabank's reputation for risk management remains intact. The bank's securities and trading arm, Scotia Capital, had a near-record quarter.
What's worrying: Investors are leery of exposure to car loans and the auto industry. They are also keeping an eye on the bank's corporate loan book, the biggest of any Canadian bank.The bank's large international division, with a big presence in Latin America, was much more profitable than anticipated in the latest quarter, but the macro environment in Latin America has deteriorated in recent months, notes RBC Dominion Securities analyst André-Philippe Hardy.
What the CEO says: “The banking sector in Canada is still in good shape. Some say the best in the world. As a group, we are all very well capitalized by global standards. And Scotiabank clearly demonstrated this by the fact that we were able to raise more capital this quarter, all of it from the market, from private sources.”
Total assets : $510-billion
Tier 1 capital ratio at Jan. 31: 9.5 per cent
Provision for credit losses: $281-million, up from $111-million
Canadian Imperial Bank of Commerce
First-quarter profit: $147-million, up from a loss of $1.46-billion.
What's working: Most of the big problems relating to exposure to subprime-linked investments are behind the bank, and its balance sheet is rock solid after raising another $1.6-billion of capital this week. Analysts and investors like the fact that its Canadian-focused business means bad U.S. loans aren't a big issue.
What's worrying: The bank is getting out of or cutting back in so many business lines to avoid problems that it's unclear where growth will come from. Investors worry that the bank is becoming so risk-averse that it won't be able to compete.
Its core consumer lending segment saw earnings decline 14 per cent in the latest quarter, due in large part to rising provisions for bad credit card, manufacturing and real estate loans, notes Blackmont Capital analyst Brad Smith.
What the CEO says: “Market conditions worldwide for banks remain difficult. Yet arguably one of the better places to be right now is in Canada. At CIBC, the majority of our revenue is derived from retail markets, where we enjoy strong market positions in a broad range of products and services.”
Total assets: $354-billion
Tier 1 capital ratio at Jan. 31: 9.8 per cent (it's now a whopping 11.5 per cent)
Provision for credit losses: $284-million, up from $172-million
Bank of Montreal
First-quarter profit: $225-million, down from $255-million.
What's working: The bank's trading operations are buoying profit, and its retail operations are rebounding after lagging for years. A switch toward more profitable products, such as lines of credit, is helping the core operations churn out strong earnings.
What's worrying: Investors are concerned that trading profits can disappear fast, and the bank has a U.S. loan portfolio by virtue of its presence in the U.S. Midwest. There's also a nagging worry that the bank will cut its dividend that won't go away no matter how many times CEO Bill Downe says the payout is safe.
Credit Suisse analyst James Bantis is watching for rising credit losses in the $42-billion (U.S.) U.S. loan portfolio. He sees a large drop-off in the quality of the U.S. portfolio, which accounts for 27 per cent of BMO's loan book, compared to the Canadian portfolio.
What the CEO says: “Financial institutions everywhere continue to face headwinds in credit markets and the capital markets environment. BMO is well positioned to meet these challenges, having accessed markets to bolster our capital position and having further strengthened our strong liquidity in the period, albeit at a higher cost.”
Tier 1 capital ratio at Jan. 31: 10.21 per cent
Total assets: $443-billion
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