Why you shouldn’t be loyal to your bank

By Erica Alini - Wednesday, May 11, 2011 at 2:03 PM - 18 Comments

When it comes to your relationship with your bank, you should be flirtatious. That’s the takeaway from a recent report by the Bank of Canada, which concludes that “loyal consumers pay more” when negotiating a mortgage rate with their bank. If you have three or more products with the same bank (such as a bank account, credit card and insurance), the bank “interprets your loyalty as reason to believe you are less likely to shop around, making you less price sensitive,” writes RateHub, a Toronto real estate startup that noticed the report.

The Bank of Canada’s study found that new clients receive a rate discount of 0.1 per cent more than existing clients. Based on the average value of Canadian homes on the market, which is currently around $370,000, that translates into savings of about $6,000 on a 25-year mortgage at a 4 per cent rate. It’s a substantial price to pay for loyalty.

European banks should “show moderation and responsibility”

By macleans.ca - Wednesday, January 19, 2011 at 1:39 PM - 0 Comments

As banks announce their annual bonus pools in coming weeks, Europe’s top regulator urged them to “show moderation and responsibility”—before enumerating the consequences if they don’t. Michel Barnier, the European Union’s internal market commissioner who oversees financial services, said banks needed to act “in a responsible and moderate fashion” and that “banks in Europe would be well advised not to lose sight of the economy and society.” Barnier’s comments echo concerns over bankers’ pay as Wall Street institutions such as JPMorgan Chase and Goldman Sachs set aside billions of dollars for their employees. Barnier pointed to the restrictions on pay agreed to by member states and parliamentarians last year, but did not explicitly threaten any further rule-making on pay. However, he did note that Brussels is still considering the whole area of corporate governance in the financial services sector.

Financial Times

Blaming banks for Madoff

By Erica Alini - Thursday, January 13, 2011 at 1:20 PM - 2 Comments

Getty Images

The last few weeks of 2010 brought a flurry of new lawsuits against Wall Street’s heavy hitters, as lawyers for the victims of Bernard Madoff’s Ponzi scheme raced against a Dec. 11 legal deadline marking two years since the financier’s arrest. Among the big names targeted in the fresh batch of lawsuits are JPMorgan Chase, UBS, HSBC, Citigroup and Merrill Lynch-Bank of America.

The banks have called the lawsuits “unfounded” and “utterly baseless.” But Irving Picard, the court-appointed trustee who’s spearheading the effort to recoup defrauded investors’ money, says it’s Madoff’s financial activity that bore little resemblance to reality—and big banks should have known. The lawsuit against HSBC alleges the bank failed to notice that some of Madoff’s trades had been settled on a Saturday, when stock markets are closed, and that for three years his investor statements misnamed a fund in which he claimed to have put client money. HSBC did hire an independent auditor to look at Madoff’s deals, and the probes warned of possible shams and fraud. But the bank is accused of turning a deaf ear.

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The ideal crime?

By Chris Sorensen - Thursday, October 14, 2010 at 10:20 AM - 0 Comments

John Lund/Getty Images/ Rick Wilking/Reuters

Several years ago, the Bank of Montreal first noticed what it described as “irregularities” in some mortgages sold in Alberta. After conducting an internal investigation, it quietly launched a lawsuit last year that alleged a massive mortgage fraud scheme involving hundreds of people, ranging from lawyers to mortgage brokers and four of the bank’s own employees—even a Calgary MP. It also hired a forensic accounting firm to try to trace the funds. BMO claims it advanced a total of about $70 million in mortgage funds to the scheme’s architects, with its losses estimated at $30 million.

Those who work in Canada’s mortgage lending industry described the case, which only came to light earlier this year, as unusual—not because mortgage fraud is rare in Canada (police say it’s not), but because of the size and sophistication of the operation, which involved as many as 14 different interconnected groups.

BMO’s decision to file a lawsuit (in a bid to recoup its money) is also seen as an oddity, with some suggesting that banks and other lending institutions are reluctant to talk about what is believed to be a relatively easy—and lucrative—crime to commit. “If you’re a bank with 1,200 branches, they would probably say that by talking about it, they’re going to educate people on how to pull off a fraud,” says Gerald Soloway, the chief executive of Home Capital Group, which sells mortgages in British Columbia, Alberta, Ontario and Nova Scotia. “I happen to feel that it is a big problem. And I, for one, would like to see more resources devoted to trying to stamp it out.”

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Our banking rules are smarter, not tighter

By Andrew Coyne - Monday, February 8, 2010 at 8:10 AM - 46 Comments

For all their growing closeness on other matters, such as global warming, Barack Obama and Stephen Harper could not be further apart on the issue of how to reform banking regulations, in the wake of the worst financial crisis in 75 years. A week after unveiling tough new rules that would limit the size and scope of banks’ activities—and two weeks after hitting them with a hefty new tax—the President took at least a dozen swipes at “banks” or “bankers” in his state of the union speech. Over and over again, he reminded his listeners of the banks’ part in the crisis, of how they had had to be bailed out at public expense, and of how, once the worst had passed, they had quickly reverted to their old ways.

The next day, Harper took the stage at the World Economic Forum in Davos, Switzerland, to deliver a very different message. While some reform was in order, he allowed, “Canada believes that financial sector regulation . . . must not be excessive.” He understood how, “in situations very different than Canada’s,” public anger over the failure and subsequent bailout of the banks had fuelled “demands for tough or even retaliatory measures.” But Canada “will not go down the path of excessive, arbitrary, or punitive regulation of its financial sector.” Canada would go its own way, its banking system would remain a haven of relative freedom, whatever certain other countries might choose to do.

The odd thing about this parting of the ways is that some of Obama’s closest advisers and acolytes seem to think they are copying the Canadian model. By forcing banks to get out of the riskier types of trading and capping their size, they imagine themselves to be replicating the safe, stolid commercial banks that have lately made Canada famous. The former chairman of the Federal Reserve, Paul Volcker, on whose recommendations the President’s reforms are based, has spoken of his fondness for the Canadian system, with its supposed focus on the traditional business of banks, taking deposits and making loans. The influential columnist Paul Krugman wrote this week in praise of Canada’s “boring” banks.

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How “dull” Canada outshined the world

By macleans.ca - Tuesday, February 2, 2010 at 5:46 PM - 7 Comments

In an exhaustive report on Canada’s banking system by the Financial Times, one sentence stands out: “Canada is the only G7 country to survive the financial crisis without a state bail-out for its financial sector.” Chrystia Freeland talked to everyone who is anyone in Ottawa, Bay Street and beyond to find out why the True North proved so resilient while banks elsewhere required billions and billions in handouts. Canada’s “culturally distinct approach to banking” was her main finding. In the end the reason wasn’t the “play nice” stereotype but rather something even more fundamental to Canada’s system: a belief in order and good government and above all, rules. Freeland quotes a senior official in Ottawa who said, “[Canadian bankers] are boring, but in a good way. They are more interested in balance sheets than in high society. They don’t go to the opera.”

Financial Times

It's not the banks I hate, it's their fans

By Philippe Gohier - Tuesday, January 26, 2010 at 5:52 PM - 24 Comments

$39.8 billion: That’s how much Quebec’s Caisse de dépôt et placement lost in 2008.

After watching a quarter of its total value vanish into the ether, the Caisse naturally opted for the most reasonable course of action—it sought to reinsure nervous investors by preaching and exercising extreme caution in the face of what could very well have been a devastating economic and political crisis.

Wait, you didn’t believe that did you? Continue…

Econowatch

By Jason Kirby - Friday, December 11, 2009 at 8:30 AM - 7 Comments

Even before Canada’s job market shifted back into high gear with Friday’s encouraging jobs report, it was clear something fundamental had changed. Never mind the recent prognostications by analysts about better days ahead. Sometimes all the cues you need can be found in the lives of the people behind the statistics.

Take the story of an employee we’ll call Janice who works at a small, struggling auto parts supplier outside Toronto. As the economy began to crumble last year, management put everyone on a four-day workweek and slashed pay, even as they rewarded themselves with bonuses. Workers weren’t happy, but what could they do? It was brutal out there.

Then a few days before the new employment data was released, the higher-ups tried to turn the screws again with more pay cuts. Only this time a couple of employees in the sales and accounting departments did something that even two months ago would have been unheard of—they told their boss to shove it. “Quitting felt so good,” Janice said, after giving her notice. And here’s the kicker: she didn’t even have another job lined up yet.

That, folks, is what economists describe as a rebound in confidence. But most people would just call it chutzpah. And it’s something we haven’t seen in the labour market for a very long time.

Make no mistake, the fact the economy added 79,000 new jobs in November doesn’t guarantee a prompt and speedy recovery. There are still vast numbers of Canadians out there fearful for their jobs. Younger workers in particular have felt the brunt of the recession, with an unemployment rate nearly twice the national average. Nor are investors convinced Canada’s economy is back on solid ground. It’s not gotten much attention yet, but Canada’s stock market has been sputtering sideways for months now, with the much-heralded rally actually ending back on Sept. 16, when the TSX closed at 11,555 points—almost exactly where it languishes today.

But put all that aside for a moment. During the recession Canadian employees were repeatedly asked to take one for the team. Yet prior to the downturn, Canada was in the throes of a labour shortage. As skilled workers begin to reassert themselves, the balance of power will shift back to its previous state. It may take some time, but you can bet many disgruntled employees are just plucking up the courage to follow in Janice’s footsteps.

THE GOOD NEWS

Building boom
The Canadian real estate sector continues to drive the country’s economic recovery even as some warn of the possibility of a housing bubble. Statistics Canada said the value of building permits hit a 13-month high of $6.1 billion in October, an increase of 18 per cent. Economists had predicted a one per cent jump.

TARP tamed
The Obama administration is planning to cut its Troubled Asset Relief Program by some $200 billion as Wall Street appears to be on the mend. The U.S. government now plans to spend just $141 billion over the next decade on the financial sector.

’Tis the e-season
U.S. online retailers enjoyed a five per cent jump in sales on the first Monday following American Thanksgiving, now known as Cyber Monday, the day when Americans return from a holiday spent window shopping and place online orders. The US$887 million that was spent equalled the busiest e-commerce day on record.

You’re hired
Restaurants, grocery stores and other retailers are hiring more employees, as confidence in the economic turnaround grows. In November, nearly four per cent of all job applications resulted in hires, the highest level so far this year.

THE BAD NEWS

Cool on cars
Automakers may be seeing a faint light at the end of the tunnel as North American sales of cars, trucks and SUVs gradually pick up—but Canadians don’t seem to be doing much of the buying. Car sales in Canada were down 2.9 per cent in November after driving off a cliff in October. By contrast, vehicle sales in the U.S. market were essentially flat year-over-year, with observers blaming the U.S. government’s Cash for Clunkers program for recent volatility in U.S. sales numbers.

Factory blues
Manufacturing levels in the U.S. did not increase as much as economists had hoped in November. The Institute for Supply Management’s manufacturing index fell two points from the month before to 53.6. Nevertheless, the index still shows an increase in output year-over-year, suggesting the economy continues to expand.

Busted
The number of U.S. companies and people being pushed into bankruptcy continues to soar. Bankruptcy petitions were up 26 per cent in November compared to the same time last year, according to data compiled from court filings by Jupiter eSources. The good news is there were slightly fewer bankruptcy petitions in November than October. Still, the first 11 months of this year resulted in 1.3 million U.S. bankruptcy filings, about 21 per cent more than in all of 2008.

Graph of the week

A real recovery • The very modest GDP growth in the third quarter suggested a recovery in Canada won’t be easy. But there are more encouraging signs that the recession is truly over. Both consumer spending and business investment posted the biggest gains since 2007.

Signs of the times

• Don’t stand between a banker and his bonus. The board of the Royal Bank of Scotland threatened to resign en masse after the British government suggested it might veto bonus payments for 20,000 investment bankers. Hundreds of the bankers have already reportedly quit in protest. The bank received a nearly $80-billion bailout last year, and has come under intense scrutiny for its bonus plans.
• Fore! Close! The game of golf has been sent running for cover by the recession. This year, 114 courses have closed in the U.S. as players cut back on green fees. Several others have been forced into bankruptcy as values of some courses have fallen as much as 50 per cent in the real estate crash. The industry has been hit by its own credit crunch, too, as golf course lenders have turned off the taps.
• Alligator farmers in Louisiana, the alligator farming capital of the world, have felt the bite of hard times. Last year, the farmers picked 500,000 wild alligator eggs. This year, they haven’t taken any as demand for luxury alligator skin products, from watch straps to hand bags, has disappeared. Their troubles have been made even worse by an oversupply of alligator skin in recent years.
• Damn the recession, it’s full speed ahead for the cruise ship industry. Royal Caribbean just launched Oasis of the Seas, a US$1.4-billion ship that rises 20 stories above the sea. Norwegian Cruise Line has an equally big ship in the works—the US$1.2-billion Norwegian Epic. Despite the downturn, the companies say they’re taking the long view with ships that will be plying the seas for 30 years.

Latest intelligence

After months of shedding workers, Canadian companies are finally hiring again. Some 79,100 jobs were created in November, including many in the key private sector. That blew by economists’ forecasts and, when combined with similarly positive U.S. jobs data, raised hopes that the economy is recovering faster than expected.

“Job numbers tend to be quite volatile, but there may be something to this.” - Eric Lascelles, chief economics and rates strategist, TD Securities

“November’s net hiring was all the more encouraging in that it included a swing back toward paid employment at the expense of self-employed jobs.” – Avery Shenfeld, chief economist, CIBC World Markets

“The solid November report offsets the prior month’s disappointing drop.” - Benjamin Reitzes, economist, BMO Capital Markets

“Canada’s economy is transitioning from recession to recovery.” - Sal Guatieri, senior economist, BMO Capital Markets

“This was a surprisingly strong report with details matching
the ‘wow’ factor in the headline print.” - Ian Pollick, strategist, TD Securities

“We consider this pace of job growth to be unsustainable.” - Millan Mulraine, economist, TD Securities

“With the unemployment decreasing and the participation rate rising, there is no doubt that the Canadian labour market is improving.” – Yanick Desnoyers, assistant chief economist, National Bank Financial

The Week Ahead

FRIDAY, DECEMBER 11: The U.S. Census Bureau will release retail sales figures for November. Sales are expected to rise slightly.
MONDAY, DECEMBER 14: The capacity utilization rate of Canadian industries will be reported by Statistics Canada. The rate hit a record low of 67.4 per cent in the second quarter of this year.
WEDNESDAY, DECEMBER 16: Statistics Canada will report manufacturing sales for October. Sales were up 1.4 per cent in September.

Sit back, relax and don't shop

By Jason Kirby - Thursday, November 12, 2009 at 8:40 AM - 22 Comments

Bobby Ammar wants you to feel at home. Well, not at home, exactly. More like the lobby of a boutique hotel, or an art gallery. Which is extraordinary, really. Because Ammar operates in the dusty business of selling cars. When the new Ericksen Infiniti dealership in Edmonton opened in September, complete with plush leather chairs, wide-screen plasma TV and, says general manager Ammar, “the most expensive cappuccino machine in the city,” it offered a peek into an emerging retail phenomenon—lounging. “We wanted a place where people could pour a latte, sit back and relax.”

Lounging is a reversal of almost everything we’ve come to expect from retail. Over the years, stores perfected the quick sell. Transactions-per-minute became the measure of success, with customers viewed more as commodities than living, breathing souls. Get in, do your business, then get out. But now a host of businesses, like car dealerships, but also dental offices, malls and even banks, want you to stay, take off your jacket and unwind. In a hyper-competitive retail landscape decimated by the recession, businesses are going to remarkable lengths to make you feel comfortable. If the waiting room was once the purgatory of retail, today it’s becoming an indulgence all its own. Continue…

Contrasting Canadian and U.S. banking, regulation

By John Geddes - Tuesday, April 7, 2009 at 10:10 AM - 11 Comments

Reading Andrew Coyne never fails to make me to think harder. His current piece “Our so-called genius banks,” a welcome assault on conventional wisdom, is no exception. After mulling it over, though, I don’t buy key parts of my colleague’s bid to debunk the by now familiar story of how, in the financial crisis, Canada’s banking regulation and culture have proven superior to other systems, notably the American alternative.

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You, Sir, are nothing but a banker

By Jonathon Gatehouse - Friday, March 20, 2009 at 8:00 AM - 1 Comment

Forget the black hats; these days the bad guys wear pinstriped suits. At soccer games in Ireland, crowds are reacting to bad calls by labelling the ref “a banker,” instead of the rhyming w-word. The nefarious King Rat was a foreclosing moneylender in the British pantomimes this past Christmas. In the recent thriller The International—tag line “Everybody Pays”—Clive Owen’s cop was on the trail of murderous, arms-dealing financiers. And a sequel to Wall Street, with a recently paroled Gordon Gekko still manipulating markets through a protege, is being rushed into production.

But absolute proof that the global economic meltdown has defined the villains of our age will be available next fall, when an unnamed ABC sitcom, featuring Kelsey Grammer as a fiscal titan whose shrinking circumstances force him to become a househusband, makes its debut. After all, no one plays a pompous ass quite like the former Dr. Frasier Crane.

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A plan to cut the banks out entirely

By Duncan Hood - Monday, January 26, 2009 at 10:39 PM - 1 Comment

Many solutions have been proposed for the global credit crunch, but the most novel one yet is circulating in an unassuming academic paper that’s been stirring up a lot of buzz. The idea? That businesses create their own backup currency and leave the banks out of it entirely.

The proposal is set out by Bernard Lietaer and his colleagues in “White Paper on the Options for Managing Systemic Bank Crises.” In it, Lietaer, who is currently a research fellow at the Center for Sustainable Resources of the University of California, suggests that if businesses can’t get the money they need from banks, maybe they should lend it to each other instead. For instance, if the banks won’t lend money to HP to buy processors from Intel, then why not create a credit system that lets Intel lend money to HP so it can buy Intel’s chips?

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Lend…or else

By Steve Maich - Friday, December 19, 2008 at 9:44 AM - 35 Comments

Finance minister Jim Flaherty has delivered what sounds suspiciously like an ultimatum to Canada’s banks, to lower lending rates and pump more consumer credit into the system.
It’s understandable enough, but it raises a couple of questions. What evidence does Ottawa have that the banks are refusing to make loans, at reasonable rates, to people who deserve them? And if the ultimatum is “lend or else…” the obvious question is “or else what?”

The banks are clearly approaching full-on rebellion at the Bank of Canada’s strategy to re-inflate the economy (refusing to pass on fthe full impact of interest rate cuts etc.), but it’s not clear how much leverage Ottawa has in this case. The banks are sitting back and refusing to do the things that got us into this mess in the first place. We’re going through a period in which credit is tight for very good reasons. We don’t want or need Ottawa pushing the banks to behave like Citigroup or worse, Wachovia.

What smells fishy?

By selley - Tuesday, November 25, 2008 at 1:45 PM - 12 Comments

Must-reads: John Ivison on abandoning Senate reform; Don Martin on embracing deficits; Jonathan Kay on the Bush legacy; Vaughn Palmer on the B.C. budget.

The federal miscellany
Deficits, unelected senators, anti-Semites, etc.

The Toronto Star’s James Travers fingers the “brainy, focused and tough” Kevin Lynch, clerk of the Privy Council, as a good candidate to replace Michael Wilson as ambassador to Washington. But he notes there are “flies in this ointment.” One fly: “renewing the civil service, the Sisyphean task that drew Lynch home [from a position at the IMF], remains a work in progress.” (Indeed, being a Sisyphean task, it could hardly be anything but “in progress.” But we really must stop parsing Travers’ metaphors so closely; it leads only to heartache.) Two flies: Lynch led the “usefully inconclusive investigation” into the NAFTA disasta, which is ostensibly why Wilson has to leave in the first place. And three flies: successor boulder-pushers at the PCO “are in short, surprisingly reluctant, supply.”

The Globe and Mail’s Jeffrey Simpson + fisheries quotas = barnburner! We kid. It’s a very sober and actually fairly interesting look at the benefits of switching from the “common property resource fishery” model—in which “the government establishes an elaborate system of allocations to fishermen and companies, all under the watchful (?) eye of the Department of Fisheries and Oceans”—to one in which “fishermen, communities, co-operatives or companies” are directly given “ownership rights to certain amounts of fish.” It’s better suited to sustainable fishing, we learn, because it takes politics largely out of the equation in establishing quotas. As it stands, “since people speak, and fish are silent, the minister usually heeds people/constituents and opens fisheries that should remain closed or raises allocations that should remain low.”

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How to save banks and start trade wars

By Jason Kirby - Tuesday, October 14, 2008 at 1:37 PM - 8 Comments

Does anyone else find the following argument scary?

Canada’s banks are supremely healthy, best in the world even, and if we don’t throw them a massive taxpayer-funded lifeline right now, they’re going to be in serious trouble.

That, in a nutshell, sums up the sentiment being voiced by Finance Minister Jim Flaherty, Canadian bank executives and analysts at the moment. All over the world governments are injecting billions, nay trillions, of dollars to prop up their country’s biggest financial firms. The U.S. is buying $250 billion worth of shares in the likes of Citigroup, J.P. Morgan and Bank of America. Britain is shelling out $65 billion to help Royal Bank of Scotland and Lloyds. France is doing it. Germany is doing it. Even educated Swedes are doing it. The fear now is banks in those countries will be able to borrow funds at lower rates than Canadian banks, and that, in turn, will lead to higher borrowing costs and put Canadian businesses at a competitive disadvantage.

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Take it to the bank

By Paul Wells - Thursday, October 9, 2008 at 11:14 AM - 38 Comments

And make sure it’s a Canadian bank. The things are bullet-proof, apparently. I can certainly vouch for the incomparably higher quality of Canadian banks compared to, say, their awful, awful, awful French counterparts.

RBC will show some guts…maybe

By Steve Maich - Friday, September 26, 2008 at 9:32 AM - 11 Comments

I am delighted to see that Gord Nixon is prepared for a little prudent treasure hunting amid the wreckage of the U.S. financial system. This is encouraging in the wake of JP Morgan’s shotgun takeover of Washington mutual last night.  JPM takes on an estimated $31 billion in troubled loans, but also gets a hold of America’s biggest savings and loan, reaching almost half of the country’s population, for a mere $1.9 billion. TD was one of several banks that had expressed interest in WaMu, but this big fish goes to the same bank that swallowed Bear Stearns las March at government behest.

When the smoke finally clears from this disaster, and it will, JP Morgan and Bank of America are going to be in a very powerfu position in the US financial market. Surely there are going to be some nice meals for Canadian banks too, if only we have the will to elbow our way to the table.

Biz Fix

By Jason Kirby - Friday, June 27, 2008 at 12:08 PM - 4 Comments

In the money: Suncor CEO Rick George puts the rhetorical boots to Barack Obama in today’s Globe. The presidential candidate has proposed restricting imports of “dirty” oil. George says go ahead. “These guys will say a lot of things, but then when they get into office, it’ll end up they’ll do something else,” Mr. George said. “The pragmatic thing is, if they don’t buy crude from Canada, where are they going to buy it?”

Trading down: Who knew General Motors, along with building trucks nobody wants, also builds time machines. The General’s shares have fallen to levels not seen in 34 years, or 53 years (depending on who’s counting). Incidentally GM’s woes have had an interesting side effect. Based on market capitalization Magna International, the Aurora, Ont-based auto parts supplier, at $7.12 billion, is now a bigger company than GM, at $6.47 billion. Of course, since GM is one of Magna’s largest customers, that doesn’t bode well.

Number cruncher: Sure, $140 a barrel oil gets all the attention, but another commodity is breaking records, and the consequences are even more dire. Because of flooding in the U.S. corn futures hit an all-time high of $7.99 a bushel. The price of corn has more than doubled in the last year. Bad news for families around the world. Follow this link for a chart showing corn prices since 2000. For no other reason than pure curiosity I plotted corn against the S&P 500. Stunning.

Boom or gloom: StatsCan says our paychecks are still rising, but after four straight months of pullbacks, Desjardins Group predicts Canada’s economy is headed for a recession. Prognosis: Gloom.

Ticker tape: Mark Mcqueen of Toronto investment firm Wellington Financial thinks Royal Bank and Scotiabank should team up to buy mega Wall-Street bank Citigroup, once the largest company in the world… With prices for everything from gasoline to lipstick going through the roof, bet you didn’t know inflation in Canada only “accelerated slightly” last year, but that’s the way it was according to StatsCan