These are stories Report on Business is following Wednesday, April 10, 2013.
Flaherty should back off: Scotiabank
The chief executive officer of one of Canada’s major banks says the finance minister should stay out of how the industry prices mortgages.
Rick Waugh’s comments in an interview with Bloomberg News follow a high-profile admonishment of Bank of Montreal by Finance Minister Jim Flaherty.
Mr. Waugh, the CEO of Bank of Nova Scotia, told the news agency Tuesday he understands Mr. Flaherty’s concerns, but that “I just philosophically don’t think” that a government should get involved.
“Despite the difficulties of central banks to use interest rates, the alternative of trying to manage specific products or prices, to me, is fraught with difficulty,” Mr. Waugh said after the bank’s annual meeting in Halifax.
Mr. Flaherty and Bank of Canada Governor Mark Carney have been urging Canadians to tame their record debt loads, the latter through moral suasion and the finance minister through several rounds of mortgage restrictions.
Mr. Flaherty’s tightening of the mortgage rules have rapidly cooled Canada’s housing market.
Last month, Mr. Flaherty raised concerns over BMO promoting a five-year, fixed-rate mortgage at 2.99 per cent, which marked a cut from 3.09 per cent.
The finance minister spoke to BMO to raise his concerns and publicly thanked “those Canadian financial institutions that have not chosen to reduce their rates further.”
Like Mr. Waugh, the CEO of Toronto-Dominion Bank also understands Mr. Flaherty’s issues, though, unlike his Scotiabank peer, believes the finance minister was being reasonable.
“The short and long is, we understand why he’s doing it, we’ve been concerned about household debt, we continue to be … and I think he’s just trying to highlight the issue,” Ed Clark said after TD’s annual meeting last week.
- Boyd Erman's Streetwise: Mortgage growth dropped off dramatically last September
- TD CEO voices understanding of Flaherty’s mortgage moves
- Flaherty thanks banks for holding mortgage rates steady after BMO cut
Barrick suspends project work
Barrick Gold Corp. has suspended construction on a huge gold and silver project in Chile, responding to a court order that further delays the mine, The Globe and Mail’s Pav Jordan reports.
Barrick Gold stock sank today after an appeals court said the Pascua-Lama project should be halted as the court reviewed complaints by local communities that the project is polluting groundwater and rivers.
No allegations have been proven in court.
“It is too early to assess the impact, if any, on the overall capital budget and schedule of the project,” Barrick said, adding that is “working to address environmental and other regulatory requirements to the satisfaction of Chilean authorities.
“In the interim, activities deemed necessary for environmental protection will continue as authorized,” Barrick added.
Gold outlook dims
Gold is losing some of its shine among the world’s forecasters.
Goldman Sachs Group Inc. today slashed its outlook, projecting gold will average $1,545 (U.S.) an ounce this year and $1,350 next.
“Despite resurgence in euro-area risk aversion and disappointing U.S. economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning,” Goldman said in its outlook, according to Reuters.
Last week, Société Générale projected gold will sink by 15 per cent by the end of 2013, averaging $1,500 this year and ending at $1,375.
- Scott Barlow in ROB Insight (for subscribers): Goldman Sachs waves a red flag at gold investors
- Cyprus to sell gold to help finance bailout
- On gold, Société Générale warns of years of 'gentle bear market'
Fed members see end to QE
The Federal Reserve was forced to release minutes of its last meeting several hours before scheduled today, but the bottom line is that its members largely see an end to its quantitative easing program.
The minutes had been sent by mistake early to some groups, so the U.S. central bank released them publicly before markets opened.
According to the minutes, many members of the policy-setting panel see the asset-buying program known as QE3 slimming down and ending by the end of the year if the jobs market picks up.
This discussion took place March 19 and March 20 and, of course, before Friday's disappointing report on job creation in the United States in March.
- Fed policy makers eyed ending bond buying this year
- Kevin Carmichael's Economy Lab: QE's time could be limited, but no end in sight to cheap money
Smaller players quit group
Upstart wireless carriers are quitting their industry association over what they say is the dominance of the major plays.
Wind Mobile, Mobilicity and Public Mobile said today they're leaving the Canadian Wireless Telecommunications Association amid "consistent bias" in favour of Rogers Communications Inc., BCE Inc. and Telus Corp., The Globe and Mail's Bertrand Marotte reports.
"From this point, the CWTA does not, and cannot claim to speak on behalf of the Canadian mobile wireless sector," they said.
China imports surge
There are questions today surrounding the credibility of China’s latest trade statistics, but a 14-per-cent surge in imports in March is buoying investors nonetheless.
Export growth slowed to 10 per cent, leading some observers to question the accuracy of Beijing’s numbers.
“The slowdown reflects the fact that rapid export growth earlier this year was never likely to last,” said economist Qinwei Wang of Capital Economics in London.
“It also reinforces concerns about the accuracy of the official data. Note that official customs data on exports were much stronger than the corresponding figures from China’s trade partners in the first two months of this year.”
Still, investors applauded the stronger imports as a sign of China helping to bolster a global recovery. There are questions, though, as to how long this can last.
“With the lingering concerns about property markets depressing commodity demand and few signs that household spending is picking up, this momentum is unlikely to be sustained,” Capital Economics said.
Study looks at bank sector
A new academic study says the stability of Canada’s banking sector lies in history, specifically English oppression of French Canada.
The study by Professor Charles Calomiris of Columbia University, presented yesterday at a financial conference hosted by the Federal Reserve Bank of Atlanta, cites several reasons for Canada’s sound banks, which emerged from the recent crisis largely unscathed and are deemed as a model in the wake of the meltdown.
But rather than this being the handiwork of a string of governments, there’s “a single, overarching factor” that shaped Canada’s political economy, says the university’s Henry Kaufman Professor of Financial Institutions in research soon to be part of a book.
“Following the American Revolution, British policy makers were determined to hold onto Canada, but doing so was difficult because the vast majority of the Canadian population in the late 18th century was of French origin,” he says.
“Holding Canada in the empire required British policy makers to engage in a series of institutional experiments designed to simultaneously concede increased self-government to their Canadian subjects while limiting the political power of the numerically-large French population,” he adds.
“They did not do so simply out of chauvinism; these steps were essential if Canada was to be an economically viable colony. The solution that they eventually hit upon was a federal system that gave the central government control over economic policy making.”
Professor Calomaris cites “systematic malapportionment” in Parliament to hold the French down.
“In short, the need to solve a difficult problem of empire - crafting political institutions so that the French population in Quebec could not hold up the economic development of the Canadian interior - gave rise to a political system in which the central government had the exclusive right to charter banks,” he says.
“Provincial governments could not create local, territorially-demarcated banks that could serve as the nucleus of an anti-national bank coalition, as happened in the United States.”
In the end, he notes, the United States has suffered 12 banking crises since 1840, while Canada has generally sailed along nicely.
How did we accomplish that?
“The short answer is that the Canadian banking system has a very different structure than that of the United States; it has always been composed of very large banks with nationwide branches,” writes Professor Calomaris.
“This has not only allowed Canadian banks to diversify their loan portfolios across regions, it has also allowed them to transfer funds in order to shore up banks in regions affected by an adverse economic shock. Nationwide branch banking has also allowed Canada’s banks to capture scale economies in administration, while competing among themselves for business in local markets.”
Streetwise (for subscribers)
- Mortgage growth dropped off dramatically last September
- Natural gas producers help themselves by lowering production
- Bond bubble talk: fear mongering, or fully justified?
- QE's time could be limited, but no end in sight to cheap money
- For Latin America, an urgent warning about productivity
ROB Insight (for subscribers)
- We need more women in top roles - but why would anyone want the job?
- Goldman Sachs waves a red flag at gold investors
- How has Air Canada got its first thumbs-up from Moody's?
- Angry about paying steep bank fees? Here are some options
- Video: Are your kids too young to play the stock market?
- Rob Carrick on money: Housing - the good, the bad and the ugly
- Video: Need-to-know info for boomers moving to condos