Canadian investors flock to high-risk debt

By Tamsin McMahon - Monday, April 8, 2013 at 5:21 PM - 0 Comments

The appetite for risky debt is growing in Canada as investors search farther afield for ways to boost their portfolios, according to Royal Bank of Canada, the country’s largest corporate debt underwriter.

The bank told Bloomberg it predicts issuances of high-yield debt will hit $95 billion this year, led by a boom in mortgage securitizations, foreign bond purchases and below-investment grade junk bonds. High yield bond issuances climbed 32 per cent in the first quarter of the year, compared to 11 per cent in the U.S., according to Bloomberg data.

Large Canadian investors are increasingly looking at riskier debts as a way to hit their annual targets, which have been hammered by persistently low interest rates. That trend is expected to continue for the next few years, with RBC predicting Canada’s junk bond market would hit $35 billion in 2016, compared to $11 billion this year.

Bank of Montreal profit tops $1 billion in Q1, beats estimates

By The Canadian Press - Tuesday, February 26, 2013 at 1:17 PM - 0 Comments

TORONTO – Bank of Montreal (TSX:BMO) delivered a number of surprises Tuesday, including an unexpected dividend increase and first-quarter results that beat analyst estimates, although its profit and revenue were both lower than a year before.

The bank said Tuesday that its net income slipped to $1.05 billion or $1.53 per share from $1.12 billion or $1.63 per share a year earlier.

On an adjusted basis, earnings were $1.52, beating analyst expectations by four cents, according to a survey by Thomson Reuters.

Total revenue was down slightly from a year earlier, falling by one per cent to $4.08 billion from $4.12 billion. Continue…

Scandal-hit Barclays bank says finance director Chris Lucas stepping down

By The Associated Press - Sunday, February 3, 2013 at 10:19 PM - 0 Comments

LONDON – Finance director Chris Lucas and a senior legal adviser are stepping down from scandal-hit British bank Barclays, it said Sunday.

Barclays said Lucas and general counsel Mark Harding will leave once successors have been found. The bank said in a statement that given the men’s seniority, that could take “a considerable time.”

Lucas did not disclose reasons for his departure, but said his six-year stint as group finance director had occurred during “the most eventful period during which anyone could have occupied a role such as mine.”

Lucas is one of several past and present Barclays staff being investigated over whether the bank broke the rules when it took big cash infusions from Qatar’s sovereign wealth fund in 2008.

He also was one of the most senior survivors of a period that saw several top executives, including CEO Bob Diamond, leave since a rate-fixing scandal erupted last year. Barclays was fined $453 million by U.S. and British authorities after it emerged that executives had been involved in a campaign to rig a key interest rate known as LIBOR.

Barclays also is one of several British banks involved in a scandal over the mis-selling of payment protection insurance, in which consumers were signed up for inappropriate and expensive insurance products. That scandal has already cost Barclays hundreds of millions of pounds in compensation.

Last week CEO Antony Jenkins said he was forgoing his annual bonus in light of the “multiple issues of our own making besetting the bank.”

When banks are too big to behave

By Tamsin McMahon - Friday, July 13, 2012 at 10:15 AM - 0 Comments

Olivia Harris/Reuters

As long as there have been banks, there have been banking scandals. The treasurers of Athena burned the Acropolis in an attempted cover-up after secretly lending money to speculative bankers. Wall Street’s first banking scandal—a familiar tale of banks lending too heavily to property speculators who lost it all when the real estate bubble burst—happened in 1837. Banking that breaks the rules “in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous and frequently fatal to the banking company which attempts it,” economist Adam Smith warned in The Wealth of Nations nearly 250 years ago.

With that history, it’s understandable that economists don’t quite believe promises by U.K. regulators that the latest scandal to rock the global financial industry—revelations that banks were manipulating a key interest rate affecting more than $300 trillion in worldwide investments—will usher in a new era of ethical banking. “It’s guaranteed to be a losing battle,” says Richard Grossman, an economist at Wesleyan University and author of Unsettled Account: The Evolution of Banking in the Industrialized World since 1800. “The incentives in banking are so strong and the money is so big. As soon as you close off one area, someone is going to think of a new way to do things.”

Related: 

• The LIBOR scandal: Why manipulating prices is easier in the financial industry

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Insurance brokers file complaint against RBC and BMO

By Alex Ballingall - Monday, April 23, 2012 at 12:18 PM - 0 Comments

Canada’s insurance brokers have filed an complaint with the federal government against the Bank of Montreal and the Royal Bank of Canada, claiming the large banks are treading outside their designated jurisdiction by advertising insurance services online.

In 2009, Finance Minister Jim Flaherty announced that Canada would maintain a strict separation between the banking and insurance sectors. The removal of barriers between the two industries in the U.S. has been widely credited with precipitating the 2008 financial collapse.

BMO and RBC both claim to be playing by the rules spelled out by Flaherty, which came into effect on March 1. But the Insurance Brokers Association of Canada has sent a letter to the Office of the Superintendent of Financial Institutions (OSFI) alleging that the two banks still have information posted on their websites that contradicts the new rules.

“This all started two-and-a-half years ago when the minister asked the banks to voluntarily take the information off of their bank websites, and they said that they would comply once the regulations were in place,” brokers’ association spokesperson Steve Mansyk told the Globe and Mail. ”These banks are not complying with the regulations.”

Bankers of Japan: unite!

By Jen Cutts - Wednesday, March 14, 2012 at 1:06 AM - 0 Comments

Bank workers in Japan have done the near impossible, and formed what’s assumed to be Goldman Sachs’s first-ever union, according to the Japan Times. The Goldman Sachs Japan Employee Union—a banking rarity—was launched on Feb. 23, in response to the Wall Street titan’s handling of layoffs last year.

Many large banks have cut staff in Japan due to its shaky economy, but employees objected to Goldman’s methods, saying it tried to force them to voluntarily step down as a way to work around Japan’s strict labour laws. In a culture where job loss or failure of any kind is viewed as disgraceful, employers are expected to try cost-saving measures, such as reducing overtime or executive salaries, before resorting to layoffs. Employees weren’t convinced Goldman Sachs, whose outsized bonuses routinely make headlines, had taken steps to avert widespread dismissals.

When a group of workers refused to sign the voluntary layoff agreements, Goldman began playing rough. It began claiming dismissals were for poor performance, said one employee, and denying non-Japanese workers documents they needed to stay in the country. “If Goldman Sachs had just treated us with respect,” he said, “there would have been no reason to join forces to protect ourselves.”

Paul Martin’s prescription

By Aaron Wherry - Monday, September 19, 2011 at 2:15 PM - 16 Comments

In between cups of coffee—15 per day? Really?—Paul Martin explains how the world and Canada should be reacting to global economic turmoil.

In Canada, he would like to see the federal government take advantage of this country’s relatively strong finances to quickly make needed investments in infrastructure, education, and research and development. Those, he says, will be the key to Canada’s prosperity in a world where success will hinge on the ability to compete with, and tap into, Asia.

“Our economy is slowing down, we’re going to be affected by the [downturn in the] United States and we’re going to be affected by Europe,” he says. “We have to penetrate those rising Asian markets, and we’re not going to do that unless we have got the best-educated work force, unless we’ve got the best infrastructure, and unless we are creating our own Apples.”

Don't bank on it

By Chris Sorensen - Tuesday, April 5, 2011 at 11:13 AM - 1 Comment

Photograph by Jessica Darmanin

Tourists ambling through Toronto’s financial district often stop to snap a photo of the historic Toronto Stock Exchange building on Bay Street. Though dwarfed by the bank towers that now surround it (the art deco facade is actually inset in one of the TD Centre’s sleek, black towers), the building’s imposing stone walls, tall, narrow windows and the detailed frieze that runs above the entrance nevertheless evoke a sense of solemnity and gravitas—the idea that Canada’s capital markets are serious business. The reality of a modern stock market, though no less important, is somewhat less exciting to behold. In the case of the TSX, now part of the TMX Group, most of the action takes place in a humming data centre in suburban Toronto, after the trading floor was officially closed in 1997 (although TMX’s headquarters and a media centre remain in a nondescript office tower downtown).

Now those clusters of computer servers are suddenly the subject of national hand-wringing, after TMX said last month that it plans to merge with the London Stock Exchange in a bid to create a transatlantic player. And among the most vocal opponents have been several of Canada’s big banks. They are calling on Ottawa, which will review the deal, to block the $7-billion transaction, to ostensibly prevent the loss of a strategic national asset. Their powerful voices, as dominant players in Canada’s capital markets, could turn out to be a deciding factor in whether the deal is permitted to go ahead.

Critics say the banks’ protestations are nakedly self-interested. For one thing, the country’s big banks are all stakeholders in a rival trading platform that has helped kneecap TMX’s business in recent years—not exactly the sort of behaviour one would expect from a group concerned about safeguarding a key national institution. At the same time, observers note that in the event of a TMX-LSE merger, the banks are facing the prospect of competing on a more global scale when it comes to offering lucrative brokerage and dealer services. “Now they will be competing not just with Canadian banks and other entities, but with European banks—particularly through London,” says Maurice Levi, a finance professor at the University of British Columbia’s Sauder School of Business.

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Policy alert

By Aaron Wherry - Tuesday, March 29, 2011 at 1:42 PM - 53 Comments

Jack Layton promises a cap on credit card rates.

The first policy announcement from the NDP campaign would allow the federal government to regulate credit card interest rates so that they could not be any higher than five points above the prime rate, which the Bank of Canada has currently set at three per cent. That would mean credit card companies could not charge more than eight per cent interest on the monthly bill — the same idea the NDP put forward on the 2008 campaign trail and then introduced in a private member’s bill last year.

Signing away your savings

By Risha Gotlieb - Friday, March 25, 2011 at 6:00 AM - 8 Comments

Skip Nall/GETTY IMAGES

At 85 and with failing eyesight, Donna (not her real name) was relieved when her daughter returned to Toronto to assist her. Eventually, she added her daughter’s name to her bank accounts to facilitate bill payments. A year and a half later, Donna’s eldest son, who works overseas, hired Jayne-Ann Steele, a long-term care specialist, to surrogate some of his sister’s duties. “One day Donna asked me to read her bank statements aloud,” says Steele. “She was shocked when I read out the huge sums of money being withdrawn like clockwork every month—to the tune of over $200,000″ in the span of 18 months. When I saw her daughter’s name beside hers, I instinctively knew who was taking the money.” Today Donna no longer speaks to her daughter. She must rely on her other three children to subsidize her retirement expenses. “These families never recover from the betrayal,” says Steele.

Joint bank accounts are increasingly being used as a vehicle to defraud Canadian seniors. Although the banking industry recognizes the problem, most banks do little to curtail it, say experts. Toronto lawyer Jan Goddard, an estate and elder law specialist, says banks are making it dangerously easy for their senior clients to add others to their accounts. In fact, sometimes the bank staff “steers” them into this arrangement, she says, because they recognize they need help with the simplest of banking tasks. (Raising the question: are seniors giving informed consent if they can’t even decipher a bank statement?) It’s a process that can take mere minutes, ruin lives, and yet seniors may be encouraged to do it without the benefit of legal advice.

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Easy money men

By Chris Sorensen - Wednesday, January 12, 2011 at 10:00 AM - 43 Comments

Carney (below) slashed interest rates and kept Canadians spending—but helped fuel debt—while Flaherty tightened mortgage rules | Chung Sung-Jun/Getty Images

When Mark Carney took over as governor of the Bank of Canada in early 2008, he had relatively little central banking experience under his belt. As fate would have it, the former Goldman Sachs managing director got plenty of opportunity to test his mettle later that year when the U.S. financial crisis erupted. He responded, perhaps predictably, by slashing already low interest rates until, by April 2009, they stood near zero. But he also took the unusual step of telling Canadians that rates would likely stay there until mid-2010.

It was a departure from the style of central banking popularized by former U.S. Federal Reserve chairman Alan Greenspan, who was once dubbed “maestro” for his seeming ability to orchestrate economic growth (critics would say “bubbles”) through the 1990s and early 2000s. Greenspan’s speeches and statements were often masterworks of ambiguity, forcing investors to parse their true meaning and lending the man behind them an Oz-like aura.

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All about the Benjamins

By Julia Belluz - Wednesday, December 22, 2010 at 9:20 AM - 2 Comments

Manuel Balce Ceneta/AP

It could be the most costly printing error in U.S. history: over US$100 billion worth of redesigned $100 bills are currently being quarantined and may be destroyed because government printers failed to churn out usable currency. New high-tech notes, which were scheduled for release in February 2011, were designed with advanced security features, including a 3-D security strip to stave off counterfeiters. But the complex production process they require rendered a crease in an unknown number of the new bills, leaving a blank portion that is revealed when the bill is tugged on both ends.

The source of the printing problem is unknown, but one official familiar with the situation told CNBC that “the frustration level is off the charts.” These new $100 bills were to be the first to carry Treasury Secretary Timothy Geithner’s signature. Now, in order to prevent a $100 bill shortage, the Federal Reserve has ordered more of the low-tech variety, which features Bush-era treasury secretary Hank Paulson’s signature.

The questionable cash, which represents more than 10 per cent of the entire supply of American currency in the world, will be held in vaults at Fort Worth in Texas and in Washington until the government figures out how to sort the bad bills from the properly printed ones.

When Wall Street turned to Canada

By Jason Kirby - Thursday, December 16, 2010 at 9:00 AM - 0 Comments

Jin Lee/Bloomberg/Getty Images

In August, Washington passed the Dodd-Frank Act, the most ambitious overhaul of financial regulation in decades. Turns out that was the easy part. Now regulators must grapple with how to put the mammoth new law into effect, and as Wall Street ramps up its lobbying effort to soften the impact of the reforms, Canada’s biggest bank has claimed a seat at the table.

In mid-November, John Taft, CEO of Royal Bank’s U.S. wealth-management division, took the helm as chairman of one of Wall Street’s most powerful industry groups, the Securities Industry and Financial Markets Association (SIFMA). It’s the first time a representative from any of Canada’s banks has held the spot, and in the lead-up to his one-year appointment, he’s made the rounds on business news channels like CNBC and Bloomberg—always with the yellow RBC lion prominently displayed over his shoulder—to argue that unless the new rules governing Wall Street are properly thought out, the end result could be over-regulation that hurts the economy. “Priority number one is to make sure regulatory reform proposals are implemented in the right way that makes the system safer, sounder, more secure without inhibiting the ability of financial institutions to promote economic growth,” he told Maclean’s.

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Microfinance meltdown

By Erica Alini - Thursday, November 25, 2010 at 1:40 PM - 1 Comment

Getty Images

The global economic downturn destroyed the image of big finance, but did nothing to tarnish that of microfinance, the altruistic business of making tiny loans to small entrepreneurs in developing countries. Recently, though, even microlending appears to be headed toward its own mini financial crisis.

Once hailed as a magic bullet against poverty, the practice has come under attack in India and Bangladesh where it is being accused of increasingly adopting the same loansharking methods that it is meant to rescue small borrowers from, like punishing interest rates. The backlash first originated in India, where a wave of suicides by farmers with outstanding microloans led local authorities to rein in financiers. Similarly, in neighbouring Bangladesh—the birthplace of the global microlending movement—regulators are planning measures that include an interest rate cap.

Microfinance firms deny wrongdoing, saying that charging hefty interest rates (usually around 30 per cent) is necessary to cover servicing costs in remote villages. But microfinance founder and Nobel Peace Prize winner Muhammad Yunus has been warning that high growth and high profits have been corrupting the industry. The concept of microcredit, he told the Wall Street Journal, “is being blatantly abused.”

Collections for creditors

By Kate Lunau - Thursday, September 30, 2010 at 11:00 AM - 0 Comments

Bradley C. Bower/Bloomberg/Getty Images

Days after the two-year anniversary of Lehman Brothers’ infamous collapse, its corporate art is going up for sale: two separate auctions, in London and New York, will see pieces from the company’s multi-million-dollar collection go under the hammer. Proceeds will help pay off the bank’s creditors, who are still owed more than US$600 billion.

Lehman isn’t unique in amassing a collection of museum-worthy pieces; wealthy companies tend to collect art as a form of philanthropy or investment. (It doesn’t hurt when trying to impress a client, either.) But just as companies buy art in good times, they might sell it in bad. Earlier this year, bankrupt Polaroid held a court-ordered auction of its corporate art, including works by Ansel Adams and Chuck Close, to pay creditors.

Alongside pieces by Damien Hirst, Takashi Murakami and Cindy Sherman that Lehman will be selling off, one lot has raised some eyebrows—a plaque bearing the company name that once hung outside its office.

Buy, hold and forget?

By Jason Kirby - Monday, June 21, 2010 at 4:20 PM - 3 Comments

Grauer's forgotten account grew to a five-figure sum over the course of 20 years PHOTOGRAPH BY BRIAN HOWELL

It’s not every day a stranger calls to say they’ve got a sum of money waiting for you to collect, and when it does happen, it’s almost certainly a scam. So when a woman from a Toronto investment firm phoned Cindy Grauer last year and told her she was eligible to reclaim a mutual fund account she didn’t even know existed, alarm bells went off. But after cautiously confirming her identity, Grauer learned both the caller—Alison Pettigrew, a customer relations manager from Front Street Capital—and the fund—a straggler left over from a 20-year-old investment account—were for real. Then came the stunner. “Are you sitting down?” Pettigrew asked. After two decades orphaned on Bay Street, Grauer’s small initial investment had exploded to a healthy five-figure sum. “It’s like winning the lottery,” she says. “But how could something like this happen? It’s outrageous.”

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The Commons: A great show of strength

By Aaron Wherry - Tuesday, May 18, 2010 at 6:21 PM - 72 Comments

The Scene. The Prime Minister was, just yesterday, lamenting the tawdriness of this place. ”I’ve been very clear with the Canadian people our number one focus week in and week out remains the economy. When we sit down as a caucus or when we sit down in cabinet, that’s 80 percent of our discussion,” he recounted to a group of young people. “Everything else that often gets so much attention from your former media colleagues, Mike, these are sideshows. The economy is what matters and it’s got to be what matters everywhere and it’s got to be what matters at these meetings in June.”

That the Prime Minister was, at that very moment, participating in an actual sideshow is an irony that seems to have gone uncommented upon by Senator Mike Duffy, the former journalist assigned to host this little infomercial on Parliament Hill. “Prime Minister,” Mr. Duffy is recorded to have assured, “we’ll be watching with great interest.”

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So your bank account’s wiped out

By Mark Steyn - Thursday, June 11, 2009 at 2:40 PM - 117 Comments

“ ‘Hey, Dad, something strange.’

“ ‘Yeah?’

“ ‘Listen.’

“He stood there silent for a moment. It was a quiet spring evening, silent except for a few birds chirping, the distant bark of a dog . . . rather nice, actually.

“ ‘I don’t hear anything.’

“ ‘That’s it, Dad. There’s no traffic noise from the interstate.’

“He turned and faced toward the road. It was concealed by the trees . . . but she was right; there was absolute silence. When he had first purchased the house, that had been one disappointment he had not thought of while inspecting it but was aware of the first night in, the rumble of traffic from the interstate a half mile away. The only time it fell silent was in the winter during a snowstorm or an accident . . .

“ ‘Most likely the accident’s further on and people were told to pull over and wait,’ he said.

“The girls nodded . . . It was almost eerie. You figure you’d hear something, a police siren if there was indeed an accident, cars down on old Highway 70 should still be passing by.

“And then he looked up. He felt a bit of a chill.

“This time of day any high-flying jets would be pulling contrails . . . ”

But there aren’t any contrails, or jets. It’s America “one second after,” to use the title of William R. Forstchen’s novel.

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