Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Where’s my self-driving car? - 16th Aug 22
Real Reason why Pakistan and India Gained Independence in 1947 at 75th Anniversary - 16th Aug 22
Electronic Payments Can Benefit Your Business - Here’s How - 16th Aug 22
Qualcom Stock Market Harbinger - 12th Aug 22
Apple Exec Gets World's 1st iPhone 14 for Daughters 14th Birthday Surprise Present Unboxing! - 12th Aug 22
Steps to remember while playing live roulette online - 12th Aug 22
China Bank Run Protests - Another Potential Tiananmen Square Massacre? - 11th Aug 22
Silver Coin Premiums – Another Collapse? - 11th Aug 22
Gold-to-Silver Ratio Heading Lower – Setup Like 1989-03 - 11th Aug 22
Severe Stocks Bear Market: Will You Be Among the Prepared 1.5%? - 11th Aug 22
There's a Hole in My Bucket Dear Liza, UK Summer Heatwave Plants Watering Problem Song - 11th Aug 22
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Only Western Country Where the Banks are Profitable

Stock-Markets / Canadian Stock Market Apr 18, 2009 - 07:46 PM GMT

By: Justice_Litle

Stock-Markets

Best Financial Markets Analysis ArticleIf you can believe it, there is a land where the bankers are still honest and polite… and even profitable.

First, a quick corrective note. On Wednesday I said that FAZ, at more than 125 million shares traded in recent days, “had bigger trading volume than Microsoft, Intel, Exxon and IBM combined.”


I should have qualified that by saying intraday volume (at the time of my writing). Microsoft, Intel, Exxon and the like have all had their occasional 100 million share days. But the general point still stands... FAZ is super liquid, and routinely out-trades some of the biggest names in existence.

Now, on to today’s topic... Would you believe it if I told you that not all big banks are dishonest?

How about if I told you that even in this time of sweeping global financial crisis - a time when banks on both sides of the Atlantic gorged themselves on leverage to the point of bursting like the fat guy in the Monty Python skit - there is a nearby land where the bankers are not only polite and honest, but actually profitable... without relying on gross accounting fictions or endless reams of bailout cash.

That’d be pretty hard to believe, eh?

Take Off, Hoser!

Hard to believe, but true. In case the “eh” didn’t give it away, the magical land of polite and honest bankers I’m talking about is Canada. (And I hope our readers from the Great White North can forgive the McKenzie brothers reference.)

As it turns out, while American and European bankers were busy making damn fools of themselves, Canada’s bankers went about the business of earning C$12 billion worth of profits in 2008... and they did it without any help from Dudley Do-Right types or Royal Mountie rescue missions from the Canadian government. (Okay, no more tongue-in-cheek references, I promise.)

As this FDIC failed bank list shows, more U.S. banks have failed in 2009 alone than one can count - at least without running out of fingers and toes. In Canada, there hasn’t been a bank failure in nearly a quarter century. And prior to two regional bank failures in 1985, Canada hasn’t seen a bank go under since 1923.

So how did they do it?

Bankers, Not Banksters

“Canada’s banks are still making money,” Bloomberg reports, “because they kept a bigger cushion of capital - the result of more stringent regulation and conservative management - while steering clear of riskier loans and securities.”

Ah, so that’s the trick. They acted like bankers are supposed to act, instead of coked-up profit junkies willing to do anything for another earnings fix.

As of January 2009, according to Bloomberg, Canada’s eight publicly traded banks held capital equivalent to 9.9% of assets. That’s more capital than the 7% minimum Canadian law requires, and a whopping sixty percent more than the standard set for U.S. commercial banks.

Canada also managed to sidestep some of the nuttiness of the global housing bubble by taking a pass on sketchy mortgage loans. If you can believe it, Canadian bankers actually decided to pay attention to the creditworthiness of potential borrowers, instead of handing out neg-am interest-only NINJA loans (No Income, No Job, No Assets) to anyone who could fog a mirror.

Canada hasn’t gone completely untouched by the financial crisis. In a move of forbearance and caution, the Canadian government set up a special loan program in October 2008, in order to backstop Canadian lenders and help them compete with newly government-backed lenders in the U.S. and Europe. But the funds were never tapped.

A True Partnership

From America’s perspective, Canada can have a reputation as being a little stodgy, a little too reserved... in need of “loosening up” a bit. (Not that I personally agree with this perception. I’ve met a fair number of Canadians in my world travels, and they can be pretty wild let me tell you.)

But if anything, “stodgy” and “reserved” are exactly the kind of adjectives one would want applied to banks. (That’s why bank buildings are so heavy on the brick and stone and marble - to convey a sense of prudence and permanence.)

There is also a tendency for America’s freewheeling business culture to look askance at Canada’s more buttoned-up approach. Would it be worth it, U.S. businessmen seem to ask, to squelch American spirit with lots more rules and regulations like they have up north?

The answer there is, you don’t need extra red tape. You just need accountability.

Take the old investment banks, for example. Back when investment banks were actual, honest-to-god partnerships, the partners had both their reputation and their money on the line at all times. Every single deal was scrutinized, because the partners knew it was their money they were risking.

Similar lines applied to the old family-owned and private-investor-owned banks. There are still a few of these around today, but not many.

Point being, in the days of true accountability and true partnership, nobody would have dreamed of racking up thirty and forty times leverage, making massive bets with other people’s money that threatened to bring down the house upon failure. Prudence was built in because accountability was built in.

America could get that model back, and take a page from Canada, by properly aligning ownership interests and financial consequences in U.S.-based financial institutions. Break up the monsters... let the players get smaller... let the system get privatized, with risk allocated as it should be - to the private investors - and start again.

It seems too bad we are striving so hard now to run in the opposite direction... looking for ways to absolve public bank investors of their bad decisions at any cost, thus encouraging the caretaker CEOs of these outfits to go out and leverage up on the taxpayer’s dime once again.

A Sounder Footing

Meanwhile, the favorable position of Canada’s banks offers yet more reason to take a hard look at the Canadian economy.

As the global economy finally begins to heal itself - which it will at some point - which North American economy will be in better shape do you think? The one that is still nursing the mother of all leverage hangovers, or the one that showed a little more prudence and sobriety during the crazy times and still has a working financial system to show for it? No matter how you slice it, the health of Canada’s banks (compared to the sickness and malaise everywhere else) will be a positive draw.

There are different ways to think about investing in Canada... one of them is through long-term exposure to the Canadian dollar.

The “Loonie,” as the Canadian dollar is affectionately nicknamed, looks to have worked out a bottoming process over the past six months, and could easily ride higher - maybe much higher - along with natural resource prices as the global economy gets on a sounder footing.

It should be pointed out that trading in a currency and investing in a currency are two different things... while timing is critical on the trading side, with a long-term investment it’s easier to take a bigger-picture perspective.

Buying currencies backed by natural resources and sound financial underpinnings now, then holding those currencies for a period of years, looks like a hard-to-go-wrong way to diversify out of the dollar (or the euro) and shore up one’s investment portfolio.

Warm Regards,

By Justice Litle
http://www.taipanpublishinggroup.com/

Copyright © 2009, Taipan Publishing Group

Justice Litle is editorial director for Taipan Publishing Group. He is also a regular contributor to Taipan Daily, a free investing and trading e-letter, and editor of Taipan's Safe Haven Investor, which helps guide readers to new global investment frontiers and safe harbors.

Justice_Litle Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in