Bank of Canada holds steady on rates December 11, 2009
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The Bank of Canada kept its benchmark lending rate at 0.25 per cent Tuesday, reiterating its conditional commitment to hold rates steady until the middle of 2010.
“While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly,” the bank said in announcing the rate decision.
The decision to keep rates low concerns some economists.
“It’s too much of a good thing,” Benjamin Tal, an economist with CIBC World Markets, told Havard Gould of CBC’s The National. “It’s stealing [sales] activity from the future.”
Gould’s report will be broadcast Tuesday evening.
Mortgage rate increases only a matter of time
“We’re seeing 10, 12, 13 per cent increases in real estate value in places,” Tal said. “In the ninth inning of a recession, that’s crazy. Are we creating a bubble? If we continue this way for another 12 months, we will be.”
Tal warned that some consumers face a major shock when their mortgages and other debt payments rise, which he says is only a matter of time.
“Rates will rise, and when they do, they will rise much faster than when they fell,” he said. “The amount could be a two or three percentage point increase.”
Borrowers should ask themselves if they can afford such an increase, Tal said. “If you cannot, buy a smaller house.”
Toronto mortgage broker Marcus Tzaferis would agree.
“To those on a variable rate who aren’t keeping an eye on it, I would say call your bank,” he said. “I think there’s a belief that the worst is behind us, and there’s no way property values can decrease again, but in actual fact we didn’t really see much of a decrease.
‘This is a bubble.’? Marcus Tzaferis, mortgage broker
Tzaferis said conditions now are artificial.
“I believe we have inflated prices. This is a bubble.”
Although recent data on GDP and inflation has diverged somewhat from projections, “the main drivers and the profile of the projected recovery in Canada remain consistent with the bank’s views,” the bank said.
The Canadian economy grew by a tepid 0.1 per cent in the third quarter, Statistics Canada reported earlier this month.
Canada’s central bank expects economic growth to become more solidly entrenched throughout 2010 and inflation to return to the two per cent target in the second half of 2011.
Loonie’s threat downplayed
RBC economist Dawn Desjardins expects the central bank will raise rates by a full percentage point in the latter half of 2010, once it is more confident the recovery is underway.
The central bank softened its view on the impact of the strengthening currency, indicating ?persistent strength in the Canadian dollar ? could act as a significant further drag on growth and put additional downward pressure on inflation,” Desjardins noted in reaction to the decision.
The central bank is set to unveil its next decision on lending rates on Jan. 19, 2010.
TD Bank profits flat in Q4 December 4, 2009
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Ed Clark, TD Bank’s CEO, says the economy will remain lacklustre for the foreseeable future.(Jeff McIntosh/Canadian Press)
Despite flat profits overall, a strong performance by TD Bank’s core Canadian retail division helped it beat analyst expectations for the fourth quarter.
The Toronto-based bank on Thursday reported net income of $1.01 billion during the three months up to Oct. 31, 2009. That’s slightly down from $1.014 billion during the same period a year earlier.
But a number of one-time earnings helped push adjusted earnings to a record $1.3 billion or $1.46 a share, up from $665 million a year earlier. That bettered the $1.30 a share that analysts were expecting, according to Thomson Reuters.
“Market and economic conditions were challenging during the year, but they also created opportunities to take advantage of our position of strength,? TD president Ed Clark said.
The bank’s Canadian personal and commercial banking posted strong earnings of $622 million in the fourth quarter, up four per cent from the same period last year.
That was offset by an eight per cent profit drop in the wealth management division.
TD’s provision for credit losses nearly doubled to $521 million compared with the year-earlier period, but was down from the prior quarter.
?The market has bounced back more strongly than we would have thought, but we think underlying economic conditions will remain lacklustre for the foreseeable future,” Clark warned.
Total revenue was $4.7 billion in the three months ended Oct. 31, up from $3.6 billion a year earlier.
Canadian offered top Bank of America job: report November 3, 2009
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A Canadian-born bank executive has been offered the job of CEO at Bank of America but turned it down, the Wall Street Journal reported Monday.
Ken Lewis, right, listens to Bank of New York Mellon CEO Robert Kelly speak to reporters outside the White House in March. Kelly is rumoured to have been offered Lewis’s job atop Bank of America.(Ron Edmonds/Associated Press)
Bank of New York Mellon Corp.’s Robert Kelly was approached recently about the next CEO of Bank of America, the paper says, quoting unnamed sources familiar with the situation.
According to the report, Kelly turned the offer down.
The Nova Scotia-born Kelly spent five years as chief financial officer at Wachovia Corp. before his current stint at Mellon. Prior to that, he was an executive at Toronto-Dominion Bank.
After attending St. Mary’s University in Halifax, the chartered accountant worked at TD for 19 years. He was in charge of the bank’s trading desk in the 1980s.
The Journal report describes him as as a shrewd deal-maker who was the key architect of the 2007 combination of Pittsburgh’s Mellon Financial Corp. and Bank of New York Co.
The current CEO of Bank of America, Ken Lewis, is set to retire at year end. Last month, Lewis succumbed to pressure to resign after nearly a year of strife that followed his company’s acquisition of Merrill Lynch & Co.
After a scandal plagued year, the board of the largest U.S. bank by assets are believed to favour outside candidates.
Central bank forecasts 3% GDP growth in 2010 October 23, 2009
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The Canadian economy is projected to grow by three per cent in 2010 and 3.3 per cent in 2011, the Bank of Canada said in its latest economic forecast Thursday.
Bank of Canada governor Mark Carney is forecasting growth for the economy, but warned of the effects of a stronger dollar and the likelihood of higher interest rates.(Tom Hanson/Canadian Press)
The projections are slightly different from those the bank put out in its last update in July. Growth in the second half of this year looks strong, the bank said, with gains in economic output of two per cent and 3.3 per cent in the third and fourth quarters.
That’s up from the July estimates of 1.3 per cent and three per cent respectively.
Overall, the Canadian economy is expected to shrink by 2.4 per cent in 2009. That’s slightly worse than the 2.3 per cent forecast in July.
The projections for the medium term were downgraded slightly. The three per cent expectation for 2010 in unchanged, but the 3.3 per cent growth the bank now expects in 2011 is 0.2 percentage points off what was expected in July.
“Global economic and financial developments have been somewhat more favourable than expected at the time of the July Report, although significant fragilities remain,” the bank said in its latest Monetary Policy Report.
The economy will not reach capacity, when supply and demand are in balance, until 2011, the bank now forecasts.
Despite the generally positive overall tone, the document notes the bank is deeply concerned by the effects of a soaring loonie. “Heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures,” the bank said.
“The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.”
The Canadian dollar remained relatively stable from July to early October, trading in a range of 90 to 94 cents US. More recently, however, it has appreciated sharply, averaging about 96 cents US over the past 10 days, much higher than the 87 cents US the bank had assumed at the time of its July report.
In the immediate aftermath of the news, the Canadian dollar fell, slipping a third of a cent to 95.24 cents US at midday.
“The Canadian dollar is finished in my mind,” currency trader Ian Cochrane at Calgary-based BNH Strategies told CBC News. “Forget about raising rates, they’re going the other way. The Bank of Canada governor basically told us this in no uncertain terms.”
Steam rises from a factory in Hamilton. The Bank of Canada expects the Canadian economy to grow by three per cent in 2010, it said Thursday.(Adrian Wyld/Canadian Press)
On Tuesday, the bank maintained its policy rate at 0.25 per cent and reaffirmed its conditional commitment to hold its current policy rate steady until the end of the second quarter of 2010.
“People should manage their affairs prudently in anticipation that at some point rates will return to a more normal level,” Bank of Canada governor Mark Carney said at a press conference following the release of the report on Thursday.
“Clearly there are going to need to be adjustments in exchange rate policies in many G20 countries.”
Carney also expressed some concerns over consumer debt levels, saying it is something the bank keeps a close eye on.
“Consumer borrowing cannot grow faster than the economy forever, to state the obvious,” he cautioned. “But Canadian consumer balance sheets are starting from a much firmer starting point than U.S. ones,” he noted.
U.S. man in Swiss bank probe pleads guilty October 21, 2009
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The U.S. Internal Revenue Service has named the first man to plead guilty in a probe of Americans suspected of avoiding taxes via Swiss bank accounts.
John McCarthy formally pleaded guilty on Tuesday to one count of failing to file a foreign bank and financial accounts report. He will face up to five years in prison and fines totalling $250,000 US when he is sentenced on Jan. 28.
McCarthy is the first person to be named publicly after the Swiss and U.S. governments reached a deal in August to settle American demands for the identities of suspected tax dodgers.
Swiss banking giant UBS AG has agreed to turn over details of 4,450 Swiss bank accounts suspected of holding undeclared assets to the Internal Revenue Service. The agency is believed to be seeking more than 52,000 names, but won’t say how many names will be revealed.
Prosecutors said McCarthy funnelled more than $1 million to a UBS account with the help of a Swiss lawyer and bank officials.
Under a 75-year-old Swiss law, banking secrecy can only be lifted when individuals are deemed to have defrauded tax authorities deliberately, as opposed to failing to declare all assets, a distinction Switzerland and other tax havens make.
With files from The Associated Press (more…)
2.5% bank rate by 2011: economist October 13, 2009
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The Bank of Canada will push its benchmark interest rate to 2.5 per cent in the next year and a half, an economist with the Central 1 Credit Union predicted Friday.
Central 1 Credit Union is the umbrella organization for the credit union systems in British Columbia and Ontario.
The central bank rate is now at 0.25 per cent and the bank has said it will likely stay there until the spring of 2010. Helmut Pastrick, chief economist with Central 1, told CBC News the recovery remains on track, with only occasional data suggesting a setback.
Helmut Pastrick predicts the central bank will be anxious to move away from rates near zero once recovery is underway.(CBC)
He looked at gains in U.S. housing, manufacturing and government stimulus and predicted the next report on U.S. gross domestic product will show the American economy started growing again this fall, perhaps by as much as four per cent, for the first time in more than a year.
“The general direction of the North American economy is on an improving trend,” Pastrick said. “We can certainly expect industrial production in the U.S. and in Canada to continue to increase in September and October.
“Certainly the Cash for Clunkers program has had a substantial impact, albeit temporary, on car sales but manufacturers now will be in the process of rebuilding their production to help restock new-car dealer inventories.”
Pastrick’s prediction came one day after the chair of the U.S. Federal Reserve, Ben Bernanke, said again he was in no hurry to start increasing interest rates. He expected the rate would stay at present levels for an “extended period,” Bernanke said in a speech in Washington.
The Canadian dollar rose after those remarks, to close up .71 of a cent at 95.75 cents US Friday.
Australia’s central bank surprised everyone on Oct. 10 when it became the first G20 country to raise rates.
Much of the growth will have been the result of government stimulus, especially low interest rates, Pastrick admitted but predicted the private sector would jump in with increased investment and job creation.
“Over time, the private sector begins to take the main role in economic growth and that should play out this time as well. However, it appears that it’ll be more of a longer drawn process, particularly in the U.S. since there’s still some ongoing problems in credit markets,” he said.
Bank of Canada anxious about low rates
Once the recovery is underway, he said, the central bank will be anxious to move away from rates near zero. Pastrick predicted the bank will likely raise rates by half a percentage point at a time perhaps three times through the fall-to-spring period from 2010 to 2011.
“That would allow them some room to cut rates at some future point should the economic recovery falter.”
One wild card would be the sudden rise in the Canadian dollar against the U.S. currency.
“Should the dollar continue to appreciate further, then growth would be restrained and the Bank of Canada’s first move, or move towards rate normalization, would be delayed, he said. “It may not occur perhaps until sometime in 2011.”
IMF mulls bank-failure insurance October 3, 2009
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The International Monetary Fund is open to a plan that would see banks contribute to an insurance policy against a future economic collapse, the agency revealed on Friday.
“Considering that the financial sector is creating a lot of systemic risk for the global economy,” said the fund’s managing director Dominique Strauss-Kahn, “it is just fair that such a sector would pay some part of its resources to help mitigate the risks that they are creating.”
Dominique Strauss-Kahn mulled making banks pay into an insurance fund to mitigate the risks they create, the IMF director said Friday.(Burhan Ozbilici/Associated Press)
Deputy director John Lipsky has been dispatched to head a task force to look at what measures would be appropriate.
The lack of an adequate insurance facility for the global economy has led many emerging markets to self-insure by building excessively large buffers of foreign reserves. There are fears that has contributed to global financial instability by creating widening wealth disparities.
The fund did not release details of what form the insurance fund might take, but Strauss-Kahn stopped well short of backing plans for a so-called Tobin tax ? a flat tax on currency transactions named after the Nobel Prize laureate James Tobin.
Tobin first made his proposal in the early 1970s when U.S. President Richard Nixon ended the dollar’s convertibility to gold and effectively brought an end to the global currency system that had prevailed since the Second World War.
Tobin said the tax would help limit instability arising from a world of floating exchange rates such as the one in which the world finds itself today.
At a summit of G20 leaders in Pittsburgh last week, the IMF was asked to come up with proposals for some sort of global bank insurance fund.
“We’re going to be asking the question: Is there a fair, equitable and efficient way to think about charging the financial system for the potential costs of insuring the system, in the way that banks typically pay for deposit insurance on their depositors?” he said.
“[But] the very simple idea of putting a tax on transactions won’t work for many technical reasons,” Strauss-Kahn said Friday in Istanbul, where the IMF is holding its annual meeting.
Calls for ‘Tobin tax’
Oxfam, which has been pushing for a flat tax on currency transactions, welcomed the IMF’s plan to look at the issue even though cold water was poured on the idea of a Tobin tax.
“Strauss-Kahn said that it was fair to expect the banks to pay for clearing up the mess they’ve created,” Max Lawson, international policy adviser at Oxfam, told The Associated Press. “A financial transaction tax is the only way to do it.”
Lawson said a 0.005 per cent tax on currency transactions in major economies could raise $30 billion a year and that any rescue package for countries should include such a tax.
In his remarks, Strauss-Kahn again warned against the dangers of premature withdrawal of fiscal stimulus from the world’s central banks.
And he warned that export-dependent countries need to focus on domestic demand as United States consumers show signs of eschewing their spendthrift ways and begin to pad savings.
The fund also mused Friday about increased funding to assist poorer countries ? the “innocent victims of the crisis” ? in the battle against climate change.
With files from The Associated Press (more…)
Bank bonuses top G20 agenda September 6, 2009
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As world financial leaders meet to discuss encouraging signs of a rebound in the global economy, pressure mounts to put discussion of exorbitant bonuses in the financial sector atop the agenda.
Treasury Secretary Timothy Geithner, shown at his confirmation hearings in February, has downplayed outrage over exorbitant bank bonuses at a G20 meeting in London, choosing instead to focus on an agreement to boost bank capital reserves.(Pablo Martinez Monsivais/Associated Press)
In a joint opinion piece in Swedish daily Dagens Nyheter published on Friday, the finance ministers of Sweden, France, Spain, Germany, Italy, Luxembourg and the Netherlands said bonuses guaranteed for more than a year should be banned.
“Bonuses should be paid out over a number of years and should mirror the individual’s and the bank’s actual performance over time,” the ministers wrote.
The seven European countries called excessive payouts not only “dangerous” but also “indecent, cynical and unacceptable.”
Britain has supported the European push to tackle bank bonuses, but has stopped short of some of the more stringent new rules proposed.
British treasury chief Alistair Darling said bonuses were an international issue that requires international effort to address.
“Nowadays, no one large bank can simply operate in a vacuum. They operate right across the world, so this truly is an international problem,” Darling told BBC radio on Friday.
After an explosion of outrage over Wall Street bonuses earlier this year, interest in the issue faded in the U.S.
Legislators demanded more information on lavish bonuses handed out at AIG even as the company was collapsing, and in March, New York Attorney General Andrew Cuomo ordered Bank of America Corp. to disclose information about bonuses given to employees at Merrill Lynch & Co. just before the bank bought the brokerage company.
But that interest has waned as the stock market has waxed to recovery.
U.S. Treasury Secretary Timothy Geithner downplayed the talks to be held Friday and Saturday as a “stock-taking meeting,” on the road to the leaders’ meeting in Pittsburgh later this month, “not a new-initiatives meeting.”
The U.S. would prefer the group to focus on an international accord to increase banks’ capital reserves.
Geithner wants to start talks on a new international capital accord that he says would put in place “a more conservative framework of constraints on leverage in the financial sector across the major globally active financial institutions.”
New York Attorney General Andrew Cuomo probed lavish bonuses paid out at Merrill Lynch & Co. even as the troubled brokerage was being bought by Bank of America Corp.(Paul Sakuma/Associated Press)
The accord would be developed under the auspices of the Financial Stability Board, an international body that was recently expanded to include major emerging economies such as China, India and Brazil.
The Obama administration’s proposal would establish stronger international standards for the capital reserves that banks are required to hold to cover potential loan losses.
Many experts believe last year’s financial crisis occurred at least in part because current bank regulations do not impose strict enough requirements for the reserves a bank must hold to cover its loan losses.
The U.S. wants to reach agreement on an accord by the end of 2010, with countries agreeing to implement the plan by the end of 2012.
Turn off the taps?
Bank bonuses are not the only bone of contention among the group.
Despite the nascent signs of recovery, fears remain that curtailing government spending and monetary stimulus via low interest rates and money supply boosts too soon could result in a “double dip” recession.
“You’re seeing the first signs of positive growth now in this country and countries around the world,” Geithner said. “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”
British Prime Minister Gordon Brown, French President Nicolas Sarkozy and German Chancellor Angela Merkel issued a joint letter on Thursday urging the G20 to stick to stimulus plans, while avoiding future imbalances in the global economy such as excessive budget deficits.
German Finance Minister Peer Steinbruck recently called for the reduction of fiscal measures as soon as possible.
The London meeting will discuss ways to co-ordinate plans for an eventual winding down of the trillions of dollars of support.
“The agenda has shifted from ‘will we recover?’ to ‘how are we recovering’ and, even, ‘do we need to start removing stimuli?’ said CentreForum economist Giles Wilkes.
“I think a lot of the meeting will be about when should we withdraw,” said Wilkes. “They want to co-ordinate it. If it is a malco-ordinated adjustment you run the risk of real dislocation.”
With files from The Associated Press (more…)
Laurentian Bank Q3 profit dips September 4, 2009
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Third-quarter profit stumbled at Laurentian Bank without the income from last year’s sale of the Montreal Exchange and as its retail and small-business unit suffered.
The Montreal-based bank reported Thursday that income for the three months ended July 31 was $28.7 million, or $1.08 per share, compared with profits of $30.9 million, or $1.17 per share, for the same period last year. The bank’s bottom line was boosted in 2008 by $11 million from the sale of shares in the Montreal Exchange, partly offset by an increase in loan-loss provisions.
Excluding the one-time items, quarterly profit would have grown 13 per cent year-over-year, Laurentian said.
“Economic and credit conditions remain challenging,” CEO Réjean Robitaille said in a statement. “However, our prudent approach has served us well to date and the quality of our assets remains solid.”
Revenues were up three per cent to 176.7 million for the quarter from 171.1 million a year ago, the bank said.
The results blew away the expectations of analysts, who had forecast adjusted earnings of 88 cents a share on revenues of $162 million, according to Thomson Reuters. Laurentian’s shares were up 4.6 per cent to $37.90 in midday trading in Toronto.
The bank’s income was driven by a 44 per cent profit leap in its real estate and commercial division, held in check by a 16 per cent retreat in its retail and small-business unit.
Provisions for loan losses were down to $16 million for the quarter from $18.5 million in the year-ago period, suggesting the threat of tainted mortgages and defaulting debtors has abated somewhat as the overall economy pulls out of the recession.
Laurentian said its Tier 1 capital ratio, an important measure of the financial stability of banks, stood at 10.8 per cent for first nine months of fiscal 2009. It also reported no holdings in asset-backed commercial paper as of the latest quarter, and $34 million in total asset-backed securities on its books.
Laurentian held its common-share dividend steady at 34 cents.
Bank earnings offer hints of economic rebound August 30, 2009
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For those who view Canada’s banks as proxies for the economy as a whole, this week’s bank earnings reports are all but shouting that recovery is indeed at hand.
Bank after bank said their third-quarter profits came in better than analysts had been expecting. Three banks ? National Bank, Royal Bank, BMO ? actually reported record earnings in the quarter ending July 31.
Canadian bank profits – third quarter
Bank Q3/09 Q3/08
BMO $557 million $521 million
Royal $1.56 billion $1.26 billion
TD $912 million $997 million
CIBC $434 million $71 million
National $303 million $286 million
Scotiabank $931 million $1.01 billion
A look behind the numbers reveals how they managed to improve their numbers at a time when the country was fighting its way out of recession.
Analysts say many banks reported lower-than-expected loan losses. At BMO, its provision for credit losses ? the amount it set aside to account for loans gone bad ? dropped 14 per cent. At TD, the drop was almost 16 per cent.
‘Writeoffs aren’t as bad’
“Key to the bank numbers is the fact that writeoffs aren’t as bad,” said Irwin Michael, a portfolio manager at ABC Funds.
“So if the economy is getting better, thanks to a lot of the money that was thrown out into the marketplace by the monetary authorities, that helps the banks and if it helps the banks, it helps the economy, which helps labour and everything else. Bit of a chain reaction.”
Even banks that reported higher loan loss provisions, like CIBC, said they saw credit conditions improving in several areas.
“[Credit card] delinquencies have improved both on a quarter-over-quarter basis and a consecutive month-over-month basis throughout the third quarter,” CIBC Retail Markets president Sonia Baxendale said during a conference call.
Bank of Nova Scotia was another firm that saw its loan losses inch higher, to $554 million, up from $159 million last year, the bank said on Friday.
But Scotiabank, too, was downplaying the risk. “Provisions for credit losses, including an increase in the general allowance, are within our expectations and risk appetite,” CEO Rick Waugh said in a statement.
Bank CEOs were rushing to declare that the credit crisis that had hobbled their earnings before was easing. “Global capital markets continued to improve from last quarter and we have seen some signs of recovery in the general economy,” RBC chief executive Gord Nixon said during a conference call.
TD Bank CEO Ed Clark said if TD’s various business lines could perform well during a global recession, then it bodes well for the future. “We see tremendous potential upside in those earnings once conditions normalize,” he said.
‘Green shoots’ sprouting
There were other signs this week that suggest the Canadian economy has turned the corner, including:
the Canadian Real Estate Association dramatically increased its forecast for home sales this year.the Conference Board of Canada said consumer confidence surged to its highest level in more than a year.retail sales in June grew more than expected as Canadian consumers were in better shape than their U.S. counterparts.
Of course, there are still hurdles that remain ? both for the Canadian economy, Canadian consumers, and Canadians banks. Unemployment is poised to continue to climb, leading to more personal bankruptcies and retail credit losses.
Also uncertain is the pace of the U.S. recovery, where a majority of Canadian banks have a significant presence. While many analysts see the U.S. emerging from its almost two-year-long recession this fall, the bounce back is expected to be anemic at best.
So significant risks remain. But if this week’s bank earnings show anything at all, it’s that even in the toughest of environments, they have ways of generating revenues and profits than can offset losses in weaker business lines.
That strength allowed Canadian banks to continue operating through the financial crisis without direct government bailouts, unlike in the U.S. and Britain. It also led the World Economic Forum to declare the Canadian banking system the soundest in the world last year.
That resilience ? evident in this week’s bottom lines and in the lack of dividend cuts ? helps to explain why Canadian bank shares have, on average, almost doubled since March.
Less to hate?
Canadians typically love to hate the big banks and the millions they charge in service fees. But there’s research that suggests that the relative stability of the Canadian banking system amid all the global financial carnage may be softening some of those attitudes.
“We’ve seen an increase this year in the overall reputation of the banks according to Canadian consumers,” Dave Scholz of Leger Marketing told CBC News on Thursday. He said Canadians seem to dislike the banks less these days.
That warm and fuzzy feeling may evaporate, of course. But for now, Canadians seem to be acknowledging that the Canadian banking machine’s steady profits may have saved them from having to dig deep to pay for multibillion-dollar bailouts.
With files from The Canadian Press (more…)
