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rob carrick

The end of a golden age for Canadian banks seems at hand.

Our banks aced the financial crisis and made sacks of money in the aftermath as they fuelled a wave of consumer borrowing. Through a mix of rising stock prices and dividends, investors made out well.

But times are changing. Bank shares have lost their mojo, and the dividend increases for which banks were famous are not what they used to be. Meantime, public attitudes toward the banks may be shifting from benign indifference to something a little testier. That's one interpretation of the angry public response to Royal Bank of Canada's use of a technology outsourcing company that brought in temporary foreign workers even as the bank was letting 45 employees go.

Outsourcing is common and well-documented in our economy. In a recent Personal Finance column, it was cited as one of several reasons why the income of Canadians has actually shrunk over the past few decades if you measure by inflation-adjusted purchasing power. RBC didn't invent outsourcing, and it denies that any of its employees were displaced by temporary foreign workers. But public reaction to the bank's actions has been sharply negative.

On my Facebook personal finance page, I asked people this week if RBC's conduct is the sort of thing that gets them thinking about moving their account. Some people defended the bank in a roundabout way by saying it's not unique in what it did, but the overall level of condemnation was striking. Quite a few people said they would switch their accounts, although you have to be skeptical about how many will follow through once they consider the aggravation and required time.

Are people mad at RBC, or are they mainly angry about outsourcing? It's probably the latter more than anything, but the eagerness to pile onto RBC is noteworthy because bankers have rarely been held in more public esteem than they have been in the past five years.

There seemed over that period to be a true appreciation by customers that their banks didn't make the same catastrophic blunders as those in the United States and Europe. Whether the banks themselves or the regulations governing them saved the day is unclear. What we do know is that our banks were considered among the world's safest.

The way our banks survived the crisis may account for the lack of any appreciable outcry during a period of unprecedented increases in service fees and rates over the past several years. Bank accounts for seniors, unsecured credit lines and overdraft protection are examples of products that have been drastically repriced by some banks, and not for the better.

Public response to the RBC-outsourcing story raises the question of why people might be feeling more critical of the banks. Bank profits could be the reason.

These are precarious times in an economic sense – we're not badly off as a country, but stagnant household income growth has diminished our feeling of prosperity. Job creation has been up and down, underemployment's a problem and the global backdrop remains uncertain. The banks have done well, though. RBC made $2.1-billion for the first quarter of fiscal 2013 and a record $7.5-billion for 2012.

Huge bank profits could be rationalized in the past on the basis that we all benefited through rising bank stocks and dividends. If you didn't cash in through direct holdings in bank stocks, then you did with indirect investment through mutual funds, exchange-traded funds and company pension plans that held bank shares.

But bank stocks aren't the wealth generators they once were. On a year-to-date basis, shares of the Big Six banks are down slightly on average. Over the past three years, they averaged a yawn-worthy 3.1 per cent annually.

Dividends have always been a major reason to own bank stocks, but not so much in recent years. I'll have more to report in my Portfolio Strategy column this Saturday, but recent dividend growth patterns for the big banks are nowhere near what they were prior to the financial crisis.

Prospects for improved dividend growth and share price gains are limited today as a result of increasingly challenging business conditions for banks. Borrowing through mortgages, credit lines and credit cards has powered bank earnings in recent years, but people have lately become a lot more cautious about adding new debt.

Slower debt growth is good for our household balance sheets, but it puts pressure on bankers to cut costs and find other sources of revenue. That leads to things like fee increases and outsourcing, which could in turn mean more of the kind of bank bashing RBC experienced this week.