By Erica Alini - Monday, January 28, 2013 - 0 Comments
Credit rating agency Moody’s just downgraded by a notch the long-term ratings of BMO, ScotiaBank, Caisse centrale Desjardins, CIBC, National Bank and TD. RBC was spared.
The decision follows an identical move by Standard and Poor’s in December.
Here’s what Moody’s had to say about the rationale for the downgrade (the full press release is here):
High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable than in the past to downside risks the Canadian economy faces:
By 30 September 2012, Canadian household debt to personal disposable income reached a record 165%, up from 137% as of 30 June 2007, as debt grew faster than personal incomes. Growth in consumer debt has been driven by rising house prices, which have increased by approximately 20% since November 2007.
Downside risks to the Canadian economy have increased:
Moody’s central scenario for Canada’s gross domestic product (GDP) is for it to grow between 2% and 3% in 2013, but downside risks have increased. The open, commodity-oriented economy is exposed to external macro-economic risks, which if they arise would have significant ramifications for the Canadian economy, and consequently its banks.
NBC, BMO and BNS have sizeable exposure to volatile capital markets businesses:
Moody’s believes that trading and investment banking activities expose financial firms to the risk of outsized losses and risk management and controls challenges, and leave them highly dependent on the confidence of investors, customers and counterparties.
Canadian banks’ have noteworthy reliance on wholesale funding:
The Canadian bank’s noteworthy reliance on confidence-sensitive wholesale funding, which is obscured by limited public disclosure, increases their vulnerability to financial markets turmoil.
Moody’s has removed systemic support from the ratings of all Canadian banks’ subordinated debt instruments that had benefited from support “uplift”:
The rating agency believes the global trend towards imposing losses on junior creditors in the context of future bank resolutions reduces the predictability of such support being provided to the sub-debt holders of the large Canadian banks given the Canadian regulators’ broad legislated resolution powers. The removal of support for subordinated debt is consistent with recent actions we’ve taken elsewhere, including in many European countries, reflecting the increased likelihood that sub-debt holders would be subject to burden sharing in the event support was required.
By Tamsin McMahon - Friday, October 26, 2012 at 5:56 PM - 0 Comments
Adding to the growing chorus of analysts predicting a bursting of the Canadian housing bubble, ratings agency Moody’s Investor Service placed almost all of Canada’s major banks on review for a downgrade Friday, citing the country’s growing household debt levels.
Among the banks that Moody’s warned may be downgraded are: Bank of Montreal, Bank of Nova Scotia, CIBC, TD Bank and National Bank, along with Quebec’s Caisse Centrale Desjardins. The agency said its rating for Royal Bank of Canada, which was downgraded earlier this year, would be left unchanged.
Canadian household’s debt to disposable income ratio hit 163 per cent in the second quarter of the year, up from 137 per cent in the same period in 2007, the ratings agency noted. House prices are up 21 per cent over the same time period, it said, far outstripping the growth in incomes.
“Today’s review of the Canadian banks reflects our concerns about high consumer debt levels and elevated housing prices which leave Canadian banks more vulnerable to increased risks to the Canadian economy,” Moody’s vice-president David Beattie said in a statement.
By Charlie Gillis - Thursday, October 25, 2012 at 6:00 AM - 0 Comments
More workers are choosing to be self-employed, ramping up pressure on top firms to win over top talent
Companies competing for smart, skilled workers have done well in the past to observe Sun Tzu’s battlefield dictum, “Know thine enemy.” If one firm dangles bonuses, better hours or share-purchase programs, those down the street are faced with a choice: respond in kind, or risk a crippling round of defections—starting with the innovative, energetic people they need most to stay on the competitive vanguard. But what happens when the enemy lurks unseen, in the dreams and ambitions of the workers themselves?
It’s a relevant question because these days a lot of Canadians see a brighter future in self-employment than in signing on with the bluest of blue-chip companies. As of last June, fully 500,000 were in the process of starting their own firms, a level indicative, says a CIBC report, of “a strong culture of individualism and self-betterment.” Fully 80 per cent of the new entrepreneurs are believed to have chosen the rocky path of self-employment, notes Benjamin Tal, author of the CIBC study, which sets them apart from the waves of laid-off workers who hung out shingles during bygone recessions. They’re also older, and better educated: one in three has a university degree, compared to just 15 per cent of new business owners in the early 1990s, and almost 30 per cent are over the age of 49.
“Many of these people have spent years working in large companies,” says Tal. “They have an understanding of the business environment, the connections they need and some money in reserve. Their likelihood of success is much higher.”
An obvious explanation for the shift lies in the flexibility offered by self-employment—a valued perk in an era of dual-income households. “I might be putting in as many hours as anyone, but they’re the hours I choose,” says Kate Bonnycastle, a Halifax-area copywriter who went independent in 2006 after years of working in-house at major firms. “I can work at night, I can work early in the morning. I can run out and drop stuff off for my kids at school in the middle of the afternoon.”
But work-life balance is only part of the picture. Technology and the economy’s march toward specialization has rewarded people willing to provide narrowly defined services to a select list of clients. The result, say economists, has been an increasing symbiosis between big global firms and entrepreneurs: instead of hiring the talented workers on a permanent basis, the giants build business-to-business relationships with them, contracting their services when needed, in some cases keeping them on retainer. The arrangement can work as well for the upstart as it does for the corporate giant. Bonnycastle, for one, boasts a list of blue-chip clients that has included McDonald’s, Vancity Group and Bell Canada. “I think I’m the future,” says the 44-year-old. “All companies have their ebbs and flows, but because I work for several clients, I have year-round work.”
Linda Duxbury, a professor at Carleton University’s Sprott School of Business, agrees that the new reality can be liberating to the gifted and ambitious (though studies suggest they work just as many hours as employees with equivalent skills). It’s large firms and institutions, she warns, who might regret the implications, because their need for brains is as urgent as their need to keep a lid on labour costs. “These people starting their own businesses are also the ones employers are going to really want to hire,” explains Duxbury, who studies changes in Canada’s labour force and workplaces. “It leads to a situation I call ‘jobs without people and people without jobs.’ We’re going to have a shortage of people at the talent end, and an oversupply of people with no skills that the market needs.”
The best employers, of course, still have their pick of bright applicants. And few on the Maclean’s honour list worry about the siren call of self-employment stealing their stars. David Clarkson, vice-president of strategy and planning for Cisco Canada, says the company boasts a minuscule one per cent annual turnover rate—that is, employees who choose to leave. Still, he says, the company works hard to avoid the atmosphere of a faceless corporation where innovation is underappreciated. “Cisco is a culture of cowboys, where being disruptive is viewed as a positive thing,” Clarkson says. “People do try to correct things that are wrong, and I think as a company you should not be punishing that.”
Some firms, notes CIBC’s Tal, have gone so far as to encourage employees to start up new business units under their corporate umbrellas, replicating the decision-making latitude and reward structure of an independent business, complete with bonuses and profit sharing. That might not be enough to keep, say, a Steve Jobs from bolting from Atari in pursuit of his own grand visions. But it’s a sign, at least, that a new reality is starting to sink in. In an economy that rewards independence and ingenuity, the greatest competition for human talent might not come from the firm down the street. It might well come from the talent itself.
By Chris Sorensen - Tuesday, October 16, 2012 at 10:39 AM - 0 Comments
Banks are acquiring wealth management businesses, but customers aren’t buying in
For Canadians who entrusted their retirement savings to professionals over the past few years, the phrase “wealth management” probably seems like a contradiction in terms. The combination of volatile stock markets and ultra-low interest rates has made it difficult for investors to come out ahead. As a result, many have simply opted to sit on the sidelines.
And that has been a problem for the wealth-management industry, which employs everyone from financial advisers to stockbrokers. As a result, several Canadian financial services firms have looked to sell their underperforming wealth-management businesses—mostly to the big banks, which are keen to diversify and are attracted to the steady stream of fees that can be charged to wealth-management clients.
In August, the Canadian Imperial Bank of Commerce bought the wealth-management arm of MFS McLean Budden. National Bank bought the wealth-management business of Wellington Financial last year. The most recent deal, last week, involved Montreal’s Fiera Capital buying Canadian Wealth Management Group from Société Générale Private Banking for an undisclosed sum.
However, all that shopping hasn’t addressed the issue of too many advisers chasing too few clients. That’s among the reasons Canaccord Financial, one the country’s largest independent full-service firms, recently revealed plans to close 16 of its 32 wealth-management branches. Canaccord, which posted a loss of $20 million in the first quarter, said the offices on the chopping block only contributed to 16 per cent of the $13.1-billion of assets under management. “The consolidation of branches will allow Canaccord to better service its private clients by concentrating its support resources and capital investments in client service activities in its key markets,” the firm said in a statement.
However, Canaccord cautioned that the remaining branches “will operate on a near break-even basis in current market conditions,” although they all have the potential to be “consistently profitable” in the future. Now it’s just a matter of waiting for deep-pocketed customers to return.
By David Friend, The Canadian Press - Friday, August 31, 2012 at 10:50 AM - 0 Comments
TORONTO – Canada’s biggest banks posted a stunning $7.8 billion of cumulative profit in the third quarter, as consumers maintained their borrowing habits and domestic banking results propped up weakness in some other divisions.
The performance left analysts’ restrained predictions in the dust, marking an increase of 45 per cent from net income of $5.38 billion a year ago.
All five banks delivered a surprise boost to their dividends paid to shareholders. Royal Bank (TSX:RY) also boasted that its profits rose 73 per cent to a new record high.
It was quite a contrast from concerns that lending would subside during the period, while banks looked for ways to cut their costs. But several analysts say they’re not convinced these bombastic results are sustainable into next year.
“Earnings from Canada face a lot of headwinds,” said National Bank analyst Peter Routledge in an interview.
By Richard Warnica - Monday, May 14, 2012 at 10:52 AM - 0 Comments
Many shareholders, it turns out, belong to the 99 per cent
The global economy may not have completely recovered from the financial crash of 2008, but for senior executives, the hard times, if they ever arrived at all, are now nearly over. American CEOs earned an average of US$11 million in total compensation last year. That’s down just slightly from the US$12.4 million they earned in 2007, the last pre-crash year, according to a new analysis by the Economic Policy Institute, a U.S. think tank. In Canada, meanwhile, the 100 best-paid chief executives earned an average of $8.4 million in 2010, a raise of 27 per cent from 2009.
But there are growing signs that largesse isn’t sitting well, and not just with the Occupy movement. Investors worldwide are protesting more vocally about executive pay. More than half of Citigroup shareholders voted to reject a US$15-million pay package for CEO Vikram Pandit in April. (Shares in the U.S. bank have fallen more than 80 per cent since Pandit took over in 2007.) In the U.K., Barclays’ shareholders heckled board chairman Marcus Agius at a recent annual meeting, while investors in U.S. natural gas giant Chesapeake Energy, CIBC and other firms have been rumbling about similar revolts in recent months. It turns out that institutional investors, too, are part of the 99 per cent.
By John Geddes - Thursday, November 4, 2010 at 4:31 PM - 0 Comments
An obvious question arises from Environment Minister Jim Prentice’s surprise announcement this afternoon that he’s leaving to join CIBC as vice-chairman: During the period when Prentice was in talks with bank about the job, did he recuse himself from federal cabinet talks on financial institutions issues?
I put the question to Prentice through a media spokesman, who provided this answer: ”Jim Prentice has not participated in or had any discussions in cabinet or elsewhere in government pertaining to CIBC in particular or financial institutions in general since initially being contacted by the bank.”
By Aaron Wherry - Thursday, November 4, 2010 at 3:43 PM - 0 Comments
Earlier this hour, Jim Prentice rose on a point of order and announced his departure from federal politics. His resignation as Environment Minister is immediate and he will resign from the House by year’s end. He will then join CIBC.
His interim replacement as Environment Minister will be John Baird, the current government House leader and a former minister of the environment.
Official statement from Mr. Prentice after the jump. Continue…
By macleans.ca - Monday, June 14, 2010 at 9:00 AM - 3 Comments
Our second annual survey of companies in Canada that prove it pays to have a conscience
For many successful companies, corporate social responsibility (CSR) is no longer just a boardroom buzzword, but a key to business. So, for the second year in a row, Maclean’s has partnered with Jantzi-Sustainalytics, a global leader in sustainability analysis, to present the country’s Top 50 Socially Responsible Corporations.
While the reasons each company was selected vary—from Gildan Activewear donating more than half a million dollars to Haitian relief efforts, to Loblaw’s commitment to acquiring all of its seafood from sustainable sources by 2013, to Nike making World Cup jerseys for nine national teams out of bottles found in landfills—the underlying goal is the same: make the world a better place. As well as the Top 50 list, which begins on page 42, we look into how CSR might help with major PR problems, like BP’s oil spill, and whether the recession made the business world any less socially responsible.
By macleans.ca - Monday, June 14, 2010 at 9:00 AM - 28 Comments
These companies have made doing good a big part of their business
Click on a company name for more details:
Ballard Power Systems Inc.
BMO Bank of Montreal
Brookfield Properties Corp.
General Mills Inc.
Gildan Activewear Inc.
H.J. Heinz Company
JPMorgan Chase & Co.
Kinross Gold Corp.
Loblaw Companies Ltd.
Nexen Inc. .
State Street Corp.
Sun Life Financial
Suncor Energy Inc.
Talisman Energy Inc.
TD Bank Financial Group
Westport Innovations Inc.
For the related article and methodology, The Jantzi-Maclean’s Corporate Social Responsibility Report 2010 click here.
By John Geddes - Friday, March 26, 2010 at 11:55 AM - 11 Comments
Flaherty projects five years of about five per cent growth
Everything in Jim Flaherty’s 2010 budget hinges on his forecasts. The finance minister’s plan to shrink the deficit from a staggering $49.2 billion this year to a pesky $1.8 billion in just five years depends on steady economic growth. He’s often challenged for projecting five consecutive years of growth of around five per cent, including inflation. But Flaherty has a great comeback: he’s using the average of 15 respected private forecasts. He’s been known to rhyme off the forecasters’ names, as he began to in question period last week—“TD Bank, BMO, CIBC, RBC, Scotiabank…”—before the Speaker cut him off.
That roll call, though, may sound weightier than it really is. Of those 15 firms, Flaherty’s department told Maclean’s, six don’t attempt to project as far out as 2013-14 and 2014-15—the crucial years in his deficit-busting narrative. Of the remaining nine, some are less than ringingly conﬁdent about the numbers they offer. Take BMO Capital Markets, whose outlook is a touch more optimistic than the forecast average used in the budget. “We generally do not publish our long-range economic forecasts,” said Douglas Porter, BMO’s deputy chief economist, “and I would view these more as ‘assumptions’ than as ‘forecasts.’ ” Don Drummond, the chief economist at TD Bank Financial Group, is somewhat more pessimistic than the forecast average. Still, Drummond isn’t dismissive. “It is not as though they dreamed up a scenario biased to the optimistic,” he said. He views the budget assumptions as “credible,” although “the economy and revenues could certainly underperform.”
Yet Flaherty doesn’t build in any cushion against such potential disappointments. In his 2009 budget, he adjusted the private-sector forecast down just to be prudent—but not in 2010. Gone, too, is the old Liberal practice of setting aside contingency reserves. For Flaherty’s deficit-fighting plan to work, there can be no unpleasant surprises.
By Aaron Wherry - Monday, September 14, 2009 at 1:38 AM - 37 Comments
Another reality check this weekend.
Prime Minister Stephen Harper says an election would “screw up” the fragile economic recovery. But that’s not the view on Bay St. There, it elicits laughter.
“You believe that?” blurted Avery Shenfeld, senior analyst at CIBC World Markets. National political campaigns are not a cause for concern on Bay Street, he said. ”We don’t typically see a lot of financial market or business response to Canadian elections,” which, Shenfeld noted, “don’t tend to be revolutionary.”
By Colin Campbell - Monday, June 1, 2009 at 12:00 PM - 33 Comments
Will soaring prices crush globalization? Don’t bet on it.
Jeff Rubin was, for years, a lonely voice among economists when it came to predicting the price of oil. In 2007—when crude began the year at a relatively modest $50 a barrel—Rubin, then the chief economist at CIBC, all but staked his reputation on a prediction that oil was about to hit triple-digit prices and never look back. In his reports, speeches and even addresses to skeptical oil executives, he preached the end of the era of cheap fossil fuels. “The bottom line is, we’re in the bottom of the ninth inning of the hydrocarbon age,” he declared at a conference that year. Like any economic soothsayer, he had flubbed some calls in the past, but this, it seemed, was different. Oil prices kept rising just as he said they would until last summer, when the big spike hit and oil surged to over $140 a barrel. Rubin’s star rose right along with the price of crude.
This concept became Rubin’s preoccupation, and in his spare time—unbeknownst to his bosses at CIBC—he started writing a book about how the era of soaring oil prices would change the world profoundly and forever. This winter, Rubin told CIBC about the project and his plans to promote it, and the two decided to part ways. “I don’t think the message of this book is necessarily a message that any particular investment bank would want to be associated with,” said Rubin in an interview.
By Steve Maich - Thursday, May 28, 2009 at 9:00 AM - 3 Comments
The new normal: Call it frugality if you like. We call it sanity.
When will things go back to normal? That is the only question that seems to matter: when will this strange and frightening episode pass? It’s a fair question, but not exactly the right one. What most really mean is: when will my house price begin soaring again? How long before my stocks triple? And when will I feel safe to max out my credit cards again? Over the past 15 years that became “normal,” or at least common. But that isn’t coming back soon.
The reality is, everything we see happening around us is part of the process of returning to normal. For the past decade or so the laws of financial gravity were suspended. Now they are back in force, and those who soared the highest have the furthest to fall.
By Duncan Hood - Tuesday, May 5, 2009 at 12:20 PM - 11 Comments
How CEOs became obscenely overpaid, and what can be done about it
It was a bitterly cold February morning in Toronto just over a year ago when Gary Hawton witnessed a miracle. As CEO of Meritas Mutual Funds, a socially responsible investing company in Kitchener, Ont., he had been watching executive pay levels surge from generous to ridiculous over the last 15 years, and he’d had enough. As of 2007, the collective compensation of Canada’s 100 best-paid CEOs had crashed through the billion-dollar mark, and average individual pay packages were topping $10 million apiece. As a professional investor, Hawton knew that most CEOs were simply not worth that kind of money.
He sent letters to all the big Canadian banks asking them to allow shareholders to vote on CEO pay packages. He spoke out at shareholder meetings and talked up the issue to the press. At first, he was completely ignored. But Hawton, a former investment banker raised with strong Christian values, is a bit of a crusader. So last year, he decided to try a different strategy. He would introduce a shareholder’s motion that, if passed, would pave the way for a vote on executive pay whether the banks liked it or not. He knew it was a long shot. He knew it would take at least two years, quite a lot of money and infinite reserves of patience. He also knew that his mission would quite likely make him the financial world’s Don Quixote.