Tuesday, March 31, 2009

PM tells Canada’s banks to expand overseas

In the Financial Times by Julie MacIntosh, Francesco Guerrera and Bernard Simon:

Canada’s banks should capitalise on the relative strength of their balance sheets by acquiring assets in the US and other countries, Stephen Harper, Canada’s prime minister, told the Financial Times on Monday.

Canada’s leading banks have stayed profitable and maintained dividends throughout the collapse of financial markets in other developed countries. Five of them – Royal Bank of Canada, Toronto-Dominion, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce – now rank among the 50 largest banks in the world.

Mergers between struggling global banks have been scarce, aside from those forced by governments, because few institutions have stayed strong enough to position themselves as buyers.

Mr Harper indicated Canada’s banks could lead an eventual charge toward consolidation, and said he would support such efforts as “an opportunity for Canada to expand its role in the world financial sector”.

“I’m not going to try running banks, but I hope our banks will see this as an opportunity to build the brand – the country’s brand, their own brand – and to expand their scope and profitability over time,” Mr Harper said. “I can assure you that the steps we’re taking in the financial sector will not be designed to promote greater protectionism.”

Several Canadian banks have a US presence. Toronto-Dominion sold its US TD Waterhouse brokerage operations to Ameritrade in 2006 in exchange for a stake in the new company. It took control of Banknorth in 2007, and bought Commerce Bank in 2008. Bank of Montreal owns Chicago-based Harris.

Mr Harper said he was frustrated some countries had loosened regulations that might have prevented the need for intervention in global banking systems.

“In the name of conservatism or free markets, in some cases, governments ignored very fundamental lessons we knew from history,” he said.

“Canada itself has shown that if you have a reasonable system of regulation, there is no need for governments to be nationalising banks and directing executive compensation and trying to micromanage economic activity,” he said.

“One could say we were over-regulated, but our solution is going to lead to us having the most free-enterprise financial sector in the world. We’re the only one not nationalising or partial-nationalising or de facto nationalising.”

Still, Canadian banking shares have suffered from scepticism over whether banks can maintain their dividends.

The potential for Canada’s banks to suffer a disadvantage against government-supported institutions was a “very real worry” in the short term, Mr Harper said, but not a long-term concern.

“I think in the longer term this government intervention in the final sector, if it’s not unwound, will lead to politicisation of the sector and poor management. I just don’t think government-run or . . . partially run banks are going to be very effective institutions over time.”

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