Vancouver Information and Newspaper

Archive for August, 2009

TORONTO – Banks have played the unenviable role of culprit in the current global recession, taking a fair share of the blame for the subprime mortgage crisis in the U.S. and the subsequent financial meltdown that produced billions of dollars in losses. But you wouldn’t know it in Canada.

Canada’s so-called Big Five banks earned a combined total of $4.4 billion in third quarter profits, up by $500 million from $3.9 billion a year earlier. Scotiabank, the last of the big banks to release financial results this week, said Friday it earned $931 million for the fiscal third quarter ended July 31.

That was lower than last year’s $1 billion profit but well above analyst expectations and showed the Canadian banks, despite higher loans losses and problems in some of their businesses, have weathered the recession better than most.

Compared to the U.S., where the financial crisis has seen 81 banks fail in 2009 alone, the Canadian banking system is quickly establishing itself as one of the safest in the world, and this quarter only served to cement that reputation.

Once criticized for making huge profits and squeezing consumer and corporate borrowers, the Canadian industry is now being viewed by many Canadians as prudent, solid foundations of the economy which avoided the recklessness that battered big Wall Street financial companies such as Lehman Brothers , Bear Stearns and AIG.

“I don’t know that their reputation needed any more help than it’s already gotten over the past two years, given how the Canadian banks have performed relative to banking systems around the world,” said Craig Fehr, bank analyst at Edward Jones in St. Louis.

Although Canadian banks have by no means been insulated from the credit crisis that has rocked institutions in the U.S. and elsewhere, the fact that they’ve managed to improve their profits in the midst of a global financial crisis has lifted their share prices, with the TSX financial sector gaining four per cent this week.

With the exception of Canadian Imperial Bank of Commerce (TSX:CM), all the major banks roundly beat analyst expectations for the quarter ended July 31.

“I would categorize the key theme to this quarter as being better-than-expected credit performance for the group as a whole,” Fehr said.

Two of the five banks – TD Bank Financial Group (TSX:TD) and BMO Financial Group (TSX:BMO) – said they put aside less money to cover bad loans this quarter compared to a year earlier.

Analysts had expected significant loan losses due in large part to the declining value of U.S. commercial real estate. Although CIBC, Bank of Nova Scotia (TSX:BNS) and Royal Bank (TSX:RY) reported higher provisions for credit losses, investors expected the banks’ overall credit performance to be much worse.

In additions, loan loss provisions were offset in large part by the Bank of Canada lowering its key overnight rate to 0.25 per cent, which has allowed the banks to rake in a higher net interest margin, Booth said.

However, this doesn’t mean Canada’s big banks are in the clear when it comes to credit losses, Fehr said.

“I don’t think that we’ve seen the peak and it’s all roses from here on out in terms of credit provisions,” he said.

“We’re going to continue to see loan losses be a headwind to earnings for several quarters going forward.”

CIBC, which has the biggest retail division of the five major banks, was also the only bank to disappoint analysts with its earnings this quarter.

CIBC said it set aside $547 million in provisions for loan losses in the quarter, up significantly from $203 million a year earlier.

Loan losses were most pronounced in the retail banking sector, which includes credit cards and personal loans, where weak economic conditions led to a spike in bankruptcies and delinquencies. CIBC Retail Markets recorded loan losses of $423 million, while net income totalled $416 million.

Fehr said credit cards will continue to “crank out higher provisions” as higher unemployment rates take their toll on personal finances, and commercial loan deterioration could continue to be a problem as well.

However, as long as interest rates stay low, the banks will continue to do well, especially if loan losses continue to moderate in the meantime, said .

“The banks could make a ton of money over the next six months if that sort of scenario unfolds,” said Laurence Booth, a finance professor at the University of Toronto’s Rotman School of Management.

“Before the Bank of Canada starts letting the overnight rate rise, you could see the banks’ profits increasing dramatically.”

All five major banks reported this week. BMO’s adjusted earnings per share beat analyst expectations by 11 per cent, while TD topped expectations by 20 per cent, Royal beat expectations by 33 per cent and Scotiabank exceeded predictions by four per cent. CIBC was the only major bank to disappoint investors, missing expectations by two per cent.

HALIFAX, N.S. – Halifax police are investigating after a teen suffered a gunshot wound to the leg in the city’s north end.

Officers responded to a Creighton St. address just before 11 p.m. Sunday where they found the 17-year-old male victim. Police say they were told the teen and several other friends were sitting on the front step of the house when three men dressed in black hoodies and dark pants approached them on foot.

One of the suspects had a handgun and fired more than one round at the group before all three suspects fled the scene.

The victim was taken to hospital with non life-threatening injuries.

PRINCE GEORGE, B.C. – The search for the remains of a missing 25-year-old Alberta woman is over.

But the question remains – What, if anything, did the Mounties find at the two sites in northern B-C? Cpl. Annie Linteau says it’s too early to say whether investigators found any human remains or other items of interest at either site. Police wrapped up work Sunday at a two-hectare property near Prince George and at an unauthorized community dump about a kilometre away.

They began searching the first property last week for the remains of Nicole Hoar, from Red Deer, Alberta.

She disappeared June 21, 2002, while hitchhiking along Highway 16 west of Prince George on her way to visit her sister in Smithers, B-C.

The R.C.M.P. say Hoar’s case is part of a broader investigation into the fate of 18 women who have been killed or disappeared in the region during the past several decades.

Nearly all of the women have been aboriginal, although Hoar was not.

Linteau says the renewed focus on the case has prompted about 100 tips from the public.

Last week, police obtained a warrant to search a property once owned by convicted murderer Leland Vincent Switzer, who shot his brother to death two days after Hoar disappeared.

Switzer’s former defence lawyer says an investigator interviewed Switzer about Hoar in 2004.

VANCOUVER, B.C. – Finance Minister Jim Flaherty offered a firm endorsement Sunday of a harmonized sales tax while at the same time distancing his government from a policy that has sparked criticism of provincial governments considering it, particularly in British Columbia.

Flaherty, speaking with reporters in Vancouver, said “there’s no question” that combining provincial sales tax with the GST is good fiscal policy – but he stressed it’s not up to Ottawa.

“First of all, the decision to harmonize the GST and PST has to be that of the provincial government,” he said.

“I realize that this is challenging for provincial leaders, but I have no doubt in my mind that it’s good long-term economic policy for our country.”

Flaherty has long said he would prefer the provinces make the switch, and Ottawa is offering some encouragement in the form of billions of dollars in transition funding for governments that sign on.

While supporters argue switching to the HST will save businesses money, critics complain that it would apply to numerous items currently exempt from provincial sales tax, costing consumers more.

British Columbia and Ontario recently announced they would be switching to the HST system, and other provinces are considering doing the same.

The issue has become a headache for B.C. Premier Gordon Campbell, who is facing persistent calls to reconsider the plan, set to take effect next year, and accusations that he hid his intentions during the spring election campaign.

Campbell’s government tables a new budget on Tuesday, and he’s expected to use the occasion to argue his case for the HST.

The political opposition in Ontario has also seized on the issue, although it hasn’t gained the same traction as in B.C.

Saskatchewan, Prince Edward Island and Manitoba are considering adopting the HST, but they have expressed concern about its impact on consumers.

Several Conservative MPs and the Prime Minister’s Office have said the federal government had nothing to do with the province’s decisions.

Flaherty quickly brushed aside the suggestion that federal Conservatives are trying to avoid political fallout.

“It’s not up to us,” he said.

But New Democrat MP Libby Davies said the federal Conservatives are trying to hide from public anger.

“I don’t think he has any idea that it is now the biggest issue here in B.C. – people are hopping mad,” said Davies, who showed up to Flaherty’s media availability to speak with reporters.

“The Conservatives campaigned on this, I find it very curious that the Conservative members of Parliament in B.C. are now running for cover.”

Meanwhile, Flaherty used a speech Sunday evening to offer a glowing assessment of his government’s handling of the global economic crisis.

Flaherty acknowledged there is still work to be done to ensure Canada recovers from the recession and avoids slipping back into trouble, but he said Canada’s response has been a model to the rest of the world.

“We put forward our system as an example for others to follow, while not ignoring the need to make certain improvements here at home,” Flaherty told a conference on fiscal policy.

“All countries must take a critical look at their own systems and do what it takes to prevent another financial meltdown. The Canadian system clearly works, and works well.”

In a familiar refrain, Flaherty boasted that Canada’s banks have avoided the collapses and massive financial bailouts seen elsewhere, and he lauded the Conservative government’s stimulus program, including infrastructure spending and tax cuts.

He promised his government isn’t finished yet, listing off several changes still to come that he suggested will strengthen Canada’s financial footing.

He said the Bank of Canada will be asked to look for ways to implement monetary policy to ensure financial stability, and he said his government continues to work towards a national securities regulator.

“This might be the part of the speech where I say, ‘If it ain’t broke, don’t fix it,”‘ he said in his speech.

“While we have led the way internationally, our system is not perfect.”

Earlier this month, Flaherty said the deficit for the current fiscal year will total $50.2 billion. The federal government plans on running deficits for at least the next four years.

OTTAWA – Canada’s version of the Great Global Recession may have seemed brutish, but – if economists are right about new output numbers being released Monday – it will also have turned out to be mercifully short and relatively mild.

With gross domestic product data released for June and the second quarter, the consensus of economists is that the economy continued to contract sharply for the third straight three-month period.

But it will also show that the recession, at least as it is technically defined in terms of gross domestic product, likely ended in June.

Bank of Canada governor Mark Carney took some heat last month for declaring the recession all but over – with only a smattering of hard data to back him – but most economists now believe the evidence is lining up squarely behind him.

The consensus is that the official report Monday will show that growth returned to the economy for the first time in 10 months in June – albeit minuscule growth of 0.2 per cent.

Finance Minister Jim Flaherty said Sunday not to get too excited if the numbers do show growth.

“If you’re out of a job in Canada, it doesn’t make any difference at all, does it?” he said in Vancouver.

“We expect continuing deterioration in employment numbers over the next number of months, our focus certainly as part of the economic action plan is to expand employment insurance to help out those individuals and their families.”

“We won’t know when the recession is over or will have been over until we look back some months from now at quarters and see what the numbers look like.”

If the recession is over, and barring an unexpected reversal, Canada will have gotten off relatively easy, economists say.

“We have lost a lot of jobs, but in general, Canada has come out fairly well, fairly unscathed,” said economist Pedro Antunes of the Conference Board, an Ottawa-based economic think-tank.

“Last fall it looked very dreary. But we should remember that even as we are entering the darkest hours, we do typically come out of these things.”

This time, however, it was not without a great deal of help and money.

TD Bank chief economist Don Drummond has few doubts the global recession would have lasted much longer and been far deeper had not central bankers acted quickly to slash interest rates and support lending, and governments responded in a co-ordinated fashion with trillions of stimulus dollars.

According to the White House, the U.S. alone will add have added as much as US$9 trillion dollars to its debt over the next decade, in large part because of the unprecedented fiscal and monetary stimulus.

In Canada, the federal government estimates federal and provincial stimulus spending will total $80 billion this year and next.

Most analysts say the public intervention was necessary. Some believe growth is so dependent on the public sector that there remains a risk of a double-dip recession later next year once the government spigot is turned off.

“It’s true that relative to what we all thought a year ago amid some of the biggest financial institutions falling apart, everybody’s got off a little bit lighter than we would have thought,” Drummond said.

“But it took unprecedented both monetary and fiscal stimulus to come out of it, and as we are going to become painfully aware over time, those things come with costs.”

Discussion about costs, in terms of weak growth and lower than expected improvements in living standards, is taking a back seat to the more immediate sense of relief.

The world is breathing easier now that there appears little chance of a repeat of the calamity of the 1930s, when rampant excess coupled with clueless governmental and central bank policies turned a stock market correction into one of the darkest economic periods in history.

For most of the industrial world, the downturn of 2008-2009 will indeed go down as the worst since the Great Depression.

At its free-falling worst – the first quarter of 2009 – Japan’s output plummeted a record-shattering 14.2 per cent, and the 16-country euro currency zone saw a 10 per cent retreat. The U.S. saw a decline of 5.7 per cent, although it’s steepest fall occurred the previous quarter, when GDP slid by more than six per cent.

In comparison, Canada’s recession was milder and shorter.

Output fell three straight quarters – 3.7 per cent annualized at the end of 2008, 5.4 per cent in the first three months of this year, and an estimated three per cent in the second quarter, which ended June 30.

In terms of total peak-to-trough GDP output, the current slump will come in at about half the 4.9 per cent pull-back of the early 1980s recession, similar to the 1990-91 contraction.

Job losses, while significant at 414,000 and likely still climbing, are also more in line with the early 1990s slump than with the longer and more painful slump of a decade earlier. By comparison, the U.S. has lost close to seven million workers.

According to Export Development Canada chief economist Peter Hall, exports fell about 15 per cent in real terms during the recession. Combined with the lower value commanded by commodity exports, Hall expects the value of what Canada sold the world will fall about 20 per cent this year alone, by far the worst on record.

Canada’s domestic economy, worth about 68 per cent of the total, held up remarkably well.

At $34.4 billion, June’s retail sales, for instance, were only about half a percentage point below last June. And Canada’s home values have largely recovered, although starts remain depressed from the pre-recession levels.

“Exports is what really smacked us the most. If we were an island, Canada would likely have escaped with only a mild nick,” said Douglas Porter, deputy chief economist with BMO Capital Markets.

Economists note that Canada, aided by skyrocketing commodity prices that kept the economy afloat during the first half of 2008, entered the recession months later than many other countries.

And it was in far better position to shelter itself when the storm came.

Canadian governments had been reporting budget surpluses for most of the decade, the housing market was not a house of cards built on suspect mortgages, and critically, Canada’s banks were solid.

That meant that while loans dried up in many economies, regardless of the risks, in Canada the credit crunch was more of a pinch.

“We did not have the same level of excess in our economy as America had, or other major economies in the world,” said Hall.

Economists warn that dangers persist. The strengthening loonie threatens to keep growth in check, and with the excess overhang in the U.S. expected to restrict spending for several years, Canada’s export sector will continue to struggle.

Then there’s the tricky balancing act faced by central bankers and governments, including Canada, of when to start winding down stimulus, and possibly even start raising taxes to pay off debt, and hiking interest rates to reign in inflation.”Now comes the interesting part,” cautioned Drummond. “My concern is that in the name of short-term stimulus, we’ve bought medium term pain.”

TORONTO – Finance Minister Dwight Duncan will announce “big changes” Monday at the problem-plagued Ontario Lottery and Gaming Corp., sources say.

“The government feels (the OLG) needs to change its ways,” a senior government source told The Canadian Press. “The OLG will have to clean up its act.”

There are reports that OLG CEO Kelly McDougald, who was hired in 2007 after stints at Bell Canada and Nortel Networks, is fighting to keep her job and that other executives may be on their way out.

But government sources wouldn’t elaborate on whether a management shakeup is in the works, saying things are still in a “state of flux.”

“We will make whatever changes are necessary to ensure taxpayer interests are protected,” said another source.

They say there have been ongoing concerns about the OLG, which seems unable to shake off troubles that have plagued it over the last few years.

The government may also be trying to stave off another potential embarrassment in the wake of the eHealth Ontario spending scandal, and before voters in the Toronto riding of St. Paul’s head to the polls Sept. 17.

“It seems to me that the government doesn’t have a grip – and hasn’t for some time – on the agencies and some of their ministries,” said NDP Leader Andrea Horwath.

“It seems to me that there’s likely a scandal brewing there, and they’re trying to get ahead of it to try to head off any damage that might be done leading up to the byelection.”

Progressive Conservative Leader Tim Hudak also suggested the government was trying to pre-empt another eHealth-like scandal, and promised his party would “shine the light” on any Liberal misspending.

“What we’re seeing after six years in office is a McGuinty government that’s become far too comfortable,” Hudak said.

Over the last two years, the OLG has been sharply criticized for questionable insider wins, botched scratch-and-win tickets, malfunctioning slot machines, even buying foreign cars as casino prizes at a time when thousands of Ontario auto workers were losing their jobs.

The OLG is also facing a $3.5-billion lawsuit from a gambling addict who claims gaming staff allowed him to keep gambling even though he had authorized them to keep him out of the casino.

In March, McDougald and other executives were reprimanded by Infrastructure and Energy Minister George Smitherman for their “crappy decision” to buy foreign cars, but no resignations were demanded.

Since then, the Ministry of Finance has taken over responsibility for the agency.

Duncan’s announcement will also pre-empt a deadline set by the Ontario ombudsman for the OLG to crack down on insider wins.

Ontario Ombudsman Andre Marin had given the OLG until early September to report back to him about cleaning up its act.

Unless the OLG could show him that “rampant fraud” was purged from the system, Marin said he was prepared to press the government to ban all retailers and lottery insiders from playing.

He imposed the deadline after a sweeping forensic audit in February revealed lottery insiders in Ontario won prizes totalling $198 million over the past 13 years.

At the time, Marin said he was stunned by the “astronomical” sum revealed by the audit and that the OLG still had a problem with dishonest lottery insiders that must be addressed.

The agency has been trying to rebuild consumer confidence and enhance security since Marin’s 2007 report accused unscrupulous retailers of collecting tens of millions of dollars in “dishonest” winnings – and the lottery corporation of letting them get away with it.

All insider wins have been directly investigated by the police branch of the Alcohol and Gaming Commission of Ontario since Jan. 1, 2008, and they have since laid several charges.

Linda Williamson, a spokeswoman for Marin, said the ombudsman was unaware of any executive shakeup at the agency.

“It’s not part of the Ombudsman’s role to get involved in personnel changes in the organizations we investigate,” she said in an email.

The government had two years to clean up the OLG, said Horwath.

Health Minister David Caplan, who landed in hot water over the eHealth scandal, was supposed to fix the OLG when he held the infrastructure portfolio, she said.

“The government seems to be incapable of putting its agencies on the right track,” Horwath said.