Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

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

6 Critical Money Making Rules