Banks David T. Nicholson's Wednesday-Night.com

Sunday 04 May 2008 Warren Buffett: big is bad for banks
THE big banks have become too large to manage their own risks properly, Warren Buffett, the world’s most successful investor, warned last night. Their size had led to the recent meltdown in financial markets.
Buffett’s business partner Charlie Munger said a “crazy culture of greed and overreaching” had led to the excesses of the credit crisis and was “counter-productive for the country”.

Burning money
Urban sprawl and the car culture hit Quebecers right in the wallet
We all know the impact of the soaring price of oil on our own wallets. But its effect on Quebec's overall prosperity is getting much less attention.

Friday 02 May 2008 OTTAWA: CENTRAL BANK WON'T RESCUE INCOMPETENT FIRMS
The governor of the Bank of Canada, Mark Carney, has warned that the central bank won't intervene to rescue companies in danger of bankruptcy because of unwise business decisions. Mr. Carney told the Senate Committee on banking, Trade and Commerce that the Bank of Canada won't intervene as the U.S. government did when the Bear Stearns investment house became submerged in the subprime mortgage turmoil and that the bank won't help firms that try to maximize profits by ignoring risks. Mr. Carney acknowledges that the central bank has a responsibility as a lender of last resort, but that applies only to institutions that are solvent not those who merely need to be bailed out. On another subject, Mr. Carney dismissed speculation that the economy is headed toward recession, speculation stoked by the revelation on Wednesday that it shrank by .2 per cent in February. The central banker predicts that the economy will slow in the first half but recover in the second.

Sunday 20 April 2008 Don't buy bank shares yet
It looks too early to be buying financial stocks ...
After all, the news has been so gloomy, what with the write-downs on mortgage-related bonds, the exposure to a slowing American economy and the crisis at Bear Stearns. Perhaps sentiment has become unduly pessimistic. Richard Cookson of HSBC points out that only three American banks have gone bust so far, compared with 534 in 1989, when the savings and loan crisis was in full swing.

Thursday 17 April 2008 OTTAWA: FINANCE MINISTER CONVOKES BANKERS
Federal Finance Minister Jim Flaherty has called a meeting of the country's top bankers for next week to discuss implementation of financial reforms accepted by the world's top economies. Mr. Flaherty and his six G7 counterparts adopted recommendations put forward by the Financial Stability Forum last weekend. The minister says Canadian regulators and bankers deserve praise for avoiding the deep losses incurred by American and European financial institutions since the subprime mortgage crisis erupted last summer in the U.S. The Financial Stability Forum represents some 60 of the world's strongest economies and made a variety of suggestions aimed at avoiding similar turmoil. These include strengthening the oversight of capital, liquidity and risk management; better valuation of risk; and betterment of the application and uses of credit ratings. Mr. Flaherty says next week's meeting is aimed at ensuring that the reforms are carried out uniformly in Canada.

Tuesday 18 March 2008 Marching to the beat of a different drummer. According to the Wall Street Journal, Royal Bank (RY) was one of a number of potential buyers that took a look at Bear Stearns (BSC). Other potential buyers included private-equity investors J.C. Flowers, Kohlberg Kravis Roberts and British bank Barclays PLC. None of whom could put together a deal by Sunday. Was there really any other option to the JP Morgan’s (JPM) offer? As CNBC’s David Faber said, it was either JP Morgan or bankruptcy for Bear Stearns. The Fed has a deal with JP Morgan to provided $30 billion in non-recourse financing. If anyone were to buy Bear Stearns, would the Fed still have been there? The Journal quoted an unnamed person familiar with the sale process in saying, “The government said you have to do a deal today...we may not be there tomorrow to back you up.” In any case, the Bear Stearns rescue may be another case of a stronger balance sheet company buying a weaker balance sheet company. If something like this were to happen in Canada, do you think the Canadian government would finally give in to bank mergers? It was 10 years ago that the Canadian government blocked the merger attempts of four of the country's banks. Royal Bank and Bank of Montreal (BMO) had plan to merge, as had TD Bank (TD) and CIBC (CM). The Canadian government has appointed a panel to look into the merger issue and the panel is due to report by mid-year.

Sunday 16 March 2008 Fed Chief Shifts Path, Inventing Policy in Crisis
Ben S. Bernanke, who has long argued that a central bank should act on consistent principles, now has to improvise.
WASHINGTON — As chairman of the Federal Reserve, Ben S. Bernanke has long argued that a central bank should base its policies as much as possible on consistent principles rather than seat-of-the-pants judgment.




BUSINESS Saturday 15 March 2008

	Bear Stearns gets emergency funds US bank Bear Stearns gets emergency funding, raising fears that one of Wall Street's biggest names may collapse.

	Fresh banking fears knock shares US shares fall sharply on renewed fears about the impact of bad mortgage debt and the wider credit squeeze.

	Bush reassures over economic woes President Bush attempts to reassure US businessmen that the country's economy is fundamentally strong.

Friday 14 March 2008 Credit crunch Plugging holes
Central banks' latest moves to increase liquidity will ease but not solve the credit crunch

Wednesday 12 March 2008 OTTAWA: CENTRAL BANK AGAIN INTERVENES TO AVERT CREDIT CRISIS
The Bank of Canada has again intervened in tandem with its U.S. and European counterparts to inject cash into financial markets to alleviate the world credit scarcity and to avert recessions. The banks have injected $245 billion overall, Canada's contribution being $4 billion. The central bank says its contribution is relatively modest because Canada's money markets aren't under the same kind of pressure as others. This is the second time since December that the Bank of Canada has intervened in concert with other central banks to make more money available for borrowers.

Friday 07 March 2008 When the rivers run dry Can bank regulators and central banks prevent future liquidity crises?
POLICYMAKERS and academics are still grappling with the causes and consequences of the credit crunch. One broad area of agreement is that ample “liquidity” encouraged the lax lending that led to bad mortgage debts, and a sudden dearth of it helped to precipitate the crisis. But what is liquidity, why does it suddenly evaporate and what can central banks and regulators do to ensure that its ebb and flow does not destabilise economies? This and much else is the subject of a special issue of the Bank of France's Financial Stability Review.*

Monday 28 January 2008 Should Bankers Pay for Their Mismanagement?
From the savings and loan meltdown in the 1980s to the current housing-led seizure, financial institutions have proved unable to curb their appetite for risky assets — blowing up the bank and spreading economic mayhem.

Wednesday 23 January 2008 OTTAWA: BANK ACTIONS EASE JITTERS
Central banks in Canada and the United States leapt to the rescue of panicky financial markets Tuesday by chopping interest rates, in the hopes of averting a full-blown recession. In separate but related moves, the Bank of Canada trimmed its key overnight rate by one-quarter percentage point, less than an hour after the U.S. Federal Reserve, acting a week before its scheduled announcement date, axed its target rate by three-quarters of a point. By the end of the day Tuesday, the Toronto Stock Market hadn't quite regained all of Monday's massive losses, but it did make a substantial recovery. The TSX closed up more than 500 points, after losing 605 points Monday. In New York, the Dow rallied from a 457-point deficit to close down 128 points. New York's Nasdaq composite index fell 48 points to 2,292. Economists warn, however, that the interest rate cuts won't be enough to end market turmoil.

Sunday 06 January 2008 OTTAWA: BANK OF CANADA SAYS COFFERS FORGOTTEN
The Bank of Canada says it is seeking some 845,000 people who have abandoned bank accounts worth millions of dollars. Some of the forgotten accounts have been inactive for at least 10 years, and some for as long as 99 years. A statement on the Bank's website says one apparently unknowing Canadian has an unclaimed account worth over $420,000.

2007

Friday Dec 21, 2007 All banks should help to ease credit crisis
The legendary bandit Willie Sutton once told an interviewer that he had chosen to rob banks because "that's where the money is." Bank of Canada Governor David Dodge has better motives but is following the same logic in pressuring Canada's big banks to put their shoulders to the wheel of the asset-backed-commercial-paper crisis.

Wednesday 19 December 2007 Is the banking crisis showing evidence of improving? Nobody wants to touch financials no matter how rattled and “on sale” they have become. Even in the case of Goldman Sachs (GS) (see our comment below), where they totally beat the street’s estimates with an excellent quarter. But a couple of favourite gauges of the banking sector are the TED spread and two-month swap rate spread over Treasuries. The TED spread is the difference between 3-month LIBOR and 3-month Treasuries. It is a measure of liquidity and shows the flow of dollars into and out of the U.S. It has been rolling down of late, failing to reach the spread spike peak hit in late August. This is good, as T-Bills are considered to be risk-free, while LIBOR rates spike when uncertainty and fear increases. The lower the premium for LIBOR, the less premium lenders are demanding. Similar with the swap-rate premiums relative to the equivalent duration Treasuries. It remains to be seen if the various central bank liquidity moves will alleviate the stresses. But so far, so good.

Tuesday 11 December 2007 Canadian Banks - Q4 Review
The six banks reported median core EPS growth of 7% from Q4/06 to Q4/07. GAAP earnings were much lower at NA and BMO given the various writeoffs incurred by the two banks. Gains related to the restructuring of Visa masked losses on CDOs and U.S. RMBS at CIBC and RY, and an increase in liability for credit card rewards at RY. TD and CIBC posted the highest growth in core EPS, while NA, RY and BMO were lowest. Retail earnings were short of expectations on greater than anticipated margin pressure, but still up 9% versus Q4/06 on revenue growth of 6%. Wholesale earnings were ahead of RCB CM’s expectations, but they were negatively impacted by capital markets turmoil as GAAP earnings were down 46% versus Q4/06 and 56% sequentially. TD remains least dependent on wholesale earnings, NA and BMO most so. RBC CM believes that key drivers for Canadian bank stocks in 2008 will be growing retail and wealth management businesses, slowing earnings growth, rising risk factors, negative newsflow, and capital ratios.

Friday 07 December 2007 TORONTO: BANK SET EARNING RECORD
Canada's six biggest banks have reported a record profit of $19.5 billion for fiscal 2007, surpassing the previous year's profit of $19 billion. The Bank of Nova Scotia on Thursday was the last to report and racked up a yearly profit of $4.05 billion, also a record. The record figure for the six banks was established despite the losses five of the six suffered in the last quarter due to their involvement in the subprime mortgage crisis in the U.S. Only Toronto Dominion was able to escape the charges.

Thursday 06 December 2007 OTTAWA: CENTRAL BANKER ADVISES AGAINST DOLLAR PEG
The governor-designate of the Bank of Canada, Mark Carney, says it would be a bad idea to peg the value of the Canadian dollar to the U.S. currency or to form a currency union. He told the House of Commons finance committee that he understands the attraction of the idea and that many would like exchange rate certainty to protect sectors like manufacturers. But Mr. Carney says the price would be too high because it would be tantamount to Canada's adopting U.S. monetary policies even though the two economies are very different. The governor-designate says he realizes that the recent volatility of the Canadian currency has been difficult for manufacturers and exporters but the central bank shouldn't intervene except to control inflation.

Thursday 06 December 2007 Royal Bank of Scotland [the only bank Chil Heward likes] announced write-downs of £950m ($1.9 billion) related to subprime-mortgage loans and £250m on leveraged loans capping a dismal few weeks for big banks worldwide, which revealed the initial extent of their losses from the meltdown in credit markets.

Tuesday 04 December 2007 Commercial Banks
Royal Bank’s core cash EPS of $1.00 was below Street estimates of $1.03 and RBC CM’s estimate of $1.05. U.S. and International banking earnings were down 73% versus Q4 as provisions for credit losses rose. Core Canadian banking earnings were up 5%, but slightly below expectations due to loan losses and continued margin compression. The wholesale division was better than expected outside of sub-prime write-offs. Management provided an objective of approximately $4.55-4.65 for cash EPS in 2008, which is slightly above RBC CM’s expectations

Tuesday 20 November 2007 (NA : TSX : $51.80), Net Change: 0.77, % Change: 1.51%, Volume: 818,881
A real ABCPiece of work. National Bank managed to swim through yesterday’s sea of red, despite announcing a $575 pre-tax charge and before compensation adjustments – we hope this means that the writedowns will negatively affect bonuses. On a net after-tax basis, this totalled $365 million. National also stated that it bought $2.1 billion of ABCP in Q4, primarily from its own sponsored mutual funds and pooled funds as well as some owned by its retail clients. This is in addition to the $150 million National Bank had previously on its balance sheet. It also appears that National took a conservative stance by writing down more than 25% of its ABCP exposure. The market appeared to cheer this conservative approach. With a Tier 1 ratio of expected of over its 8.5% target as of October 31, 2007, the liquidity ratio appears to be well above the 7% Tier 1, or core capital, ratio target required in Canada.

Caught in the turmoil gripping the credit markets, the Canadian Bank Index has fallen 13% from its 2007 high. This is well below the decline of the US Regional Bank Index (-26% from its 2007 high).
Investors remain spooked over the continuing sub-prime related write downs of global banks and the potential spill over effect on the broader economy.
In our view, the losses reported to date for the Canadian Banks (roughly $2.2 billion pre-tax) pale in comparison with the massive write-downs announced by some of the US and European banks and brokers.
On November 27th, Bank of Montreal will start off the fourth quarter earnings season for the Canadian Banks. We expect the banks to report solid core earnings, with annual growth (+9% YoY) underpinned by strong domestic retail and wealth management earnings. Each of the banks are expected to record flat or sequential declines in earnings growth (-6.5% QoQ in aggregate) mainly due to weaker wholesale revenue.
What are the key issues for Q4/07? 1) Ballooning balance sheets. 2) Write-downs related to current risk exposures and losses on trading portfolios. 3) Falling, but still strong Tier 1 ratios. 4) Impact of the rising Canadian dollar. 4) NIM compression. 5) Visa perks.
What are management actions telling us? Think long-term, this crisis will pass. During the past quarter, three banks announced major acquisitions: TD Bank with Commerce Bank (US$8.5 billion), Royal Bank with RT&T (US$2.2 billion) and Alabama National (US$1.6 billion), and Scotiabank with Chilean' Banco del Desarrollo ($1.0 billion).
While we are still in the midst of a restructuring of the global credit markets, in our view an opportunity is presenting itself to acquire Canadian Bank shares at a valuation level well below historical averages. Valuation multiples have compressed in recent weeks by 2.0 multiple points to 11.0 times trailing earnings. We do not expect the banks to reach the trough valuations (10.0x trailing earnings) of the LTCM/ Russian debt crisis.
The rationale for our constructive view on the Canadian Banks is based on the following: 1) Solid earnings and dividend growth (8%-10%) is expected for 2008. 2) Lower relative exposure to underlying credit problems (US sub-prime, CDOs, etc). 3) Positive domestic retail banking trends driven by upbeat economic and consumer data. 4) Strong capital ratios in the face of mark-to-market write-downs and expanding balance sheets.

Wednesday 14 November 2007 Canadian Banks - Q4 Preview
The big six Canadian banks report Q4 results between November 27th and December 6th. RBC CM expects TD to grow EPS at the highest rate on industry leading retail growth, a lower relative exposure to wholesale markets, and RBC CM’s belief that it and Scotiabank are less at risk of markdowns in capital markets. Management commentary on the outlook for 2008 is expected to be more important for shares than actual earnings as write-downs in securities portfolios are expected to negatively impact earnings. The turbulence that has caused many global banks and brokers to post disappointing results over the past couple of months will impact Canadian banks, but on a smaller scale. The two banks most exposed to US sub-prime securities are CIBC and Royal Bank, and they stand to benefit the most from the Visa restructuring, so National Bank and Bank of Montreal seem more at risk of being negatively impacted by write-downs on a net basis. RBC CM remains cautious on the banks and continues to prefer lifecos in the near-term.

TORONTO: ROYAL BANK AFFECTED BY SUBPRIME CRISIS
The Royal Bank of Canada says that it too has suffered losses due to its investments in the subprime mortgage market in the U.S. RBC will record a charge of about $360 million for the last quarter of the financial year. Last week, Canadian Imperial Bank of Commerce and Toronto Dominion Bank announced similar charges. However, RBC foresees a profit of $325 million in its Canadian banking services division for the quarter.

2008

2007

Bank chief makes parting plea for regulation

PETER HADEKEL, Freelance