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Canadian Government remain concerned about availability of consumer lending

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The Canadian government continues to pressure banks  to ensure they keep consumer lending going.  The negative headlines from the US relative to credit certainly flow over into Canada and levels of Canadian consumer confidence.

Canadians voice concerns over access to credit, Flaherty says | Globe and Mail

TORONTO — Finance Minister Jim Flaherty says consumers across the country are worried about access to credit.

“We are hearing across Canada concerns about access to credit,” Mr. Flaherty said Tuesday. “It is a major issue going into 2009.”

The finance minister said in Toronto he will be talking to the country’s major banks and working to ensure there is affordable and accessible lending.

Written by amwatts

December 23, 2008 at 5:19 pm

Posted in Canadian Banks, economy

What does it mean for the Canadian economy as government and banks face off

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In a coordinated move the Governor of the Bank of Canada (Carney) and the Federal Finance Minister (Flaherty) have come out using identical wording “It is not clear to me that they need additional capital buffers,” and insist that the banks turn lending back on, particularly for businesses who are having difficult finding access to lending from the Banks.

Flahery warns Banks on lending | Globe and Mail

“It is not clear to me that they need additional capital buffers,” he said of the banks during a meeting with the editorial board of The Globe and Mail. “What is clear to me is that there is unfilled demand for credit for worthy investments, and I’m sure that our banks will see these opportunities in the fullness of time.”

The federal government is buying $75-billion of mortgage securities from banks to help them expand their balance sheets and pledged to backstop their sales of wholesale debt. The central bank is offering billions more through short-term loans to financial institutions hurt by the credit crisis.

Mr. Flaherty made clear he doesn’t think the banks are showing enough gratitude.

and yesterday:

Carney to banks: Lend, don’t hoard | Globe and Mail

TORONTO — Mark Carney is pointing a finger at the country’s big banks for hoarding capital against a rainy day instead of doling out more loans, a choice the Governor of the Bank of Canada says is damaging the economy.

Worries about companies’ struggles to get loans emerged as one of the biggest risks to the economy at a meeting between Finance Minister Jim Flaherty and his provincial counterparts yesterday in Saskatoon.

This introduces a dilemna for the Governent that was well stated by the famous economist J.M. Keynes nearly 90 years ago.

The Paradox of Thrift | Economics Professor

Paradox of thrift was revised by English economist John Maynard Keynes (1883-1946) in the 1930s, who asserted that thrift is virtuous only up to a point. If an individual increases the proportion of income he saves, his reduced expenditure on goods will lower total demand in the economy.

Simply put, when peoples confidence is unsettled their natural reaction is to batten down the hatches,  save, pay off debts and prepare for the future.  In turn this reduces the size of the economy and reduces value for everyone.  It becomes a vicious spiral.   It is interesting that the communication effort to Banks is focussed on helping businesses, presumably because business confidence is a necessary precursor to consumer confidence returning.

GDP is made up of spending by 1. Business, 2. Consumer, and 3. Government plus 4. net exports.  The thinnking of the government is that with confidence for 2. being in the ditch, they must do all they can to avert 1. (business) confidence dropping so much.

All this coming at the time when banks consider they need to re-capitalise in order to save for future loan losses including the likes of the Maddoff affair coming out of the woodwork, and they are betting there has to be more to come.

Written by amwatts

December 18, 2008 at 5:51 pm

Posted in Canadian Banks, economy

The problem with mathematical finance – it ignores people

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Niall Ferguson [Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.] offers analysis and conclusions on the world of financial services, and the historic lead up to the current financial crisis. 

Wall Street Lays Another Egg | Vanity Fair

The author charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning.

Its a long piece and worth the read for those interested.  He speaks of systemic issues and highlights one in particular – the obscure world of derivatives, which amount to over $400 trillion around the world.  This amount is significant, when compared to world GDP of $49 trillion, or the combined stock markets’ value of $51 trillion. [note:  1 trillion = 1,000 billion]

All this to display the runaway value in a financial market that surprisingly few understand, and which is hidden behind a complex mathematical formula developed in the late 90’s.  The results of this formula drove the derivatives market. 

The result of the belief in this formula, developed by Nobel prize winners, was as Ferguson goes on, that normal lending practices and risk assessment were replaced by computer models based on the formula.  Thus we saw securitized sub-prime mortgages magically transitioned into AA commercial paper, and sold off around the world.

If ever there was a time to bring back transparency of information between borrowers and lenders, that time has come.  While mathematics will always play a part, the relationship between lenders and borrowers is more than mathematics.

For borrowers transparency allows them to be assessed on their merits, and the right balance of information about them.  For lenders transparency offers the insight and information to get back to basic risk assessment, and to provide appropriate to the right borrowers.

Written by amwatts

November 10, 2008 at 9:06 pm

Unlike the US banks, Canadian banks hold back on dropping rates

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The Canadian banks choose to rebel against the Government of Canada direction to reduce interest rates.  The Central Bank dropped rates by a half percentage point indicating concern about the economy and in an attempt to ease credit.  However the Canadian Banks are choosing to keep 50% of the drop for themselves.  Story at the Globe and Mail.

Banks trim prime but lag BoC cut | Globe and Mail

OTTAWA — Major Canadian banks said they would lower their prime rates by just a quarter of a percentage point, refusing to pass along all of the Bank of Canada’s half-point decline.

The rebellious move is a departure from the past, when the big banks have fully matched central bank rate cuts, despite complaints they couldn’t really afford it.

Written by amwatts

October 8, 2008 at 7:48 pm

Posted in Canadian Banks, economy

Stock markets suggests US banking crisis does not appear to be mirrored in Canada

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The mainstream press do a good job of presenting quick quotes, and implying all kinds of dread and panic.  Its worth looking beyond the headline and some facts at the differences between the US situation and Canada.

Future of Canada’s economy comes into question as TSX ends week of panic | Canadian Press

The theme of the article is broadly the spillover effect of a slowing US economy, reduction in credit availability, and reduction in consumer spending.

It is certainly not our place to make predictions or make economic commentary, but some facts might be useful.  Then we can each decide the reason or cause for any panic reflected in the TSX.

Some basic facts in the diagram below, compiled courtesy of Google Finance.  In order to highlight the relative effects of banking in each country’s stock market.  We have US on the left, Canada on the right. 

The US Dow is down 26% and roughly the same in Canada at 27%. 

However when we look at financial services, a component of the Dow index, the American index is down 52%.  This suggests that the Dow banking sector is worried.   The sentiment of the market is that the US is in a flat out banking crisis.

In Canada it appears to be the opposite – what exactly are we panicking about in Canada?  Clearly not banking, because relatively speaking the Canadian banks are holding the Canadian stock market higher, with the TSX is apparently being dragged down by other factors.  We may well have cause for panic, but it doesn’t appear to be reflected in market sentiment for Canadian financial services.


US Can comparison

Written by amwatts

October 5, 2008 at 3:48 pm

Posted in Canadian Banks, economy

Banks | Today is the perfect day to start a blog – begin the conversation with your customers

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Confidence in financial institutions has been shaken, and the rules for regaining confidence are not clear.  Part of the reason that the road ahead is unclear, is because the rules have changed.  Its not uncommon for people to suggest that banks don’t ‘get it’, however in fairness to all concerned the new rules are not always clear.

One side outcome from the financial headlines has been to isolate some clear rules that anyone can follow, including Banks.  These posts deal with some of the issues for banks, and any company to consider.  Incidentally, this is the heart of step 1 of  Web 2.0 for banks.

5 Steps: How Banks Must Regain Trust (hint: Not Via Advertising)

But some serious trust has been lost. Managing our own personal finance is one of those things that the average American feels less and less confident about. Most of us have no choice but to surrender our trust to financial experts and institutions.

And this from my own contribution over at

“Stop reinforcing the idea that bank leadership is out of touch with reality by delivering your same “plan for retirement” ads”

The main page is running their (AIG) latest ad here, and it speaks about ‘what we see’, has photo’s of football players, and is generally a typical wealth management type ad.  … If I had an AIG policy, what are you doing for me – is my policy still working?  Simple basic comments addressing what people are actually thinking.  This is what people expect and what social media mean.  Talk to people and listen to people.

In the ‘5 steps post’ John speaks about 5 rules, and here are three of them with a similar theme.

– Stop your traditional advertising with your old campaign now
– Whoever said corporate blogging is dead is an idiot – start a blog for godsakes
– Listen and react to your customers publicly

    The theme here is simple.  Get personal with your customers, and get real with your customers.  Ask yourself and ask your friends. 

    Does the sight of football players jumping around or other typical corporate branding exercises engender trust in a time of confidence crisis?  If a friend is having a crisis in their life is the first thing that you would do to suggest a new paint job or to buy a new car?  Not likely.

    In a time of confidence crisis, the first thing to do is to match the communication method and media to the times.  In times of a confidence crisis, people don’t want to be spoken at , they want to have a conversation, to ask questions and to get answers.  In fact, as you follow this theme along you will see that this is not just in a time of a confidence crisis.  This is something to expressly do at all times – because at any given time someone is having a financial confidence crisis and needs re-assurance.   This football player ads don’t help those people at that moment.  They want … a conversation.

    Something to try Mr financial services executive:

    Adopt the persona of a customer – read a few headlines in the business section …. close your eyes … now go to your web site – how does it feel?

    Written by amwatts

    October 1, 2008 at 5:40 pm

    Banks, investment banks, and government – state of crisis

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    Today will be a bloodbath on the markets, following Sunday when we saw the end of Lehman Brothers, Merrill Lynch, and a deepening crisis for AIG Insurance.

    Wall Street shaken by Lehman failure, Merrill sale | Globe and Mail

    NEW YORK — — Global markets plummeted on Monday after investment bank Lehman Brothers Holdings Inc. [LEH-N] filed for bankruptcy protection, rival Merrill Lynch [MER-N]agreed to be taken over and the Federal Reserve threw a life line to the battered financial industry.

    As a deepening crisis took new, bigger victims, the U.S. Federal Reserve said for the first time it would accept stocks in exchange for cash loans and 10 of the world’s top banks agreed to establish a $70-billion (U.S.) emergency fund, with any one of them able to tap up to a third of that.

    On a black Sunday for Wall Street, frantic attempts to find a rescuer for Lehman failed, and troubled insurer American International Group [AIG-N]asked the Fed for a lifeline, according to news reports.

    But the larger question remains – what does this all mean for Banks and financial institutions.  The day to day Banks that we all see are enormous holding companies comprising banking, brokerage, mutual funds, and investment banking.  Then there are the specialised investment banks such as Merrill and Lehmans,  So the obvious school of thought is that the big bank  holding companies will simply take over the investment banks.  Bank of America is paying 48 billion for Merrill.

    Banking models | The Financial Times

    Is it the end for standalone broker-dealers? Many believe the fading of the light at Bear Stearns, Lehman Brothers and Merrill Lynch proves that the independent investment banking model is dead. Even the mighty Goldman Sachs and Morgan Stanley are under pressure to explain how they will survive on their own. The new mantra is that investment banks only have a future within large financial institutions.

    That view is wrong. Indeed, until recently, investors argued the complete opposite. Universal banks such as HSBC and UBS, for example, have long been accused of being too diverse, with their share prices underperforming the broader sector as a result. Common complaints were that global banks lacked focus, or scale in particular businesses. And the revenue benefits from running, say, a wealth management division next to investment banking, were also tricky to identify.

    However as the FT points out the complaint on the banks is that they are already too widely spread and have become unwieldy.  The notion that the average persons bank account funds should be held and managed to support risky investment banking, for example is not something that everyone agrees with.  When the investment banking arm loses money, whose fees are raised to compensate?

    Banks are also becoming even closer to the central banks, particularly in the US, with the latest episode yesterday resulting in the Federal Government providing $70 billion in support.

    The credit crisis has laid bare the banking model, and the relationship between the banks, the investment banks, and the government.  It will be fascinating to watch how the crisis is managed over the next months and years.  Yesterdays events appeared US specific, but Barclays Bank from UK were also involved.  This is a global crisis, and Canada is not immune – the reverberations will hit us at some point.

    Written by amwatts

    September 15, 2008 at 2:08 pm

    Posted in Canadian Banks, economy


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