‘That is a strange call’


In international news coverage unrelated to the Prime Minister’s bathroom habits, the Wall Street Journal’s John Jannarone doesn’t think much of our economist’s suggestion that buying opportunities abound for our banks. Full dismissal after the jump.

Canada’s wilderness is renowned for big-game hunting. While the country’s banks may be tempted for a shot at foreign M&A, now isn’t the time to head abroad.

Canada’s banks have so far stayed profitable, and their toxic-asset exposure is probably manageable. Encouraged by this, Canadian Prime Minister Stephen Harper has suggested they score some international trophies, possibly in the U.S.

That is a strange call. Canada’s central-bank governor says the economy likely experienced the deepest contraction since 1961 in the first quarter, and unemployment stands at 7.7%.

A weak economy hurts domestic banking operations, with business and consumer borrowers struggling to cope. Peter Rozenberg of UBS reckons loan-loss provisions will rise to 0.73% of total loans in 2009 from 0.44% last year.

Given those pressures, purchases of beaten-down U.S. banks would be seriously risky. Existing U.S. operations already are weighing on the Canadians. Toronto-Dominion Bank, for example, has 30% of its loan assets in the U.S. Loss provisions on U.S. loans rose 78% sequentially in the bank’s first fiscal quarter, while provisions for Canadian loans rose 27%.

True, there are opportunities further afield. But aside from Bank of Nova Scotia, Canadian banks have little experience beyond North America. Changing a fundamental strategy would be distracting, at best, right now.

Mr. Harper should be happy his country’s banks are still in decent shape and encourage them to stay that way — not risk their stability on calling the bottom of the banking crisis overseas.


‘That is a strange call’

  1. Ouch!

    • Do you think it’s easy being a banking-stock-market-economist-guru?!

  2. Hey, it’s not like he expects anyone to take his advice. But as a catch phrase ‘Its a buying opportunity’ seems to be just how Harper describes everything…

    • Except when he’s talking about selling off the assets of the Canadian government.

  3. Who does he think he is? An economist?

  4. Of course, TD bought Commerce Bancorp before the bubble burst so it’s a pretty terrible example since lots of companies that made acquisitions at the height of the boom are having trouble digesting those deals. It doesn’t mean a Canadian bank with much less losses coming down the pipeline might not roll the dice to expand it’s US presence in time for the turnaround by making an acquisition at a beaten down price. They’ll probably want to wait it out a bit but I can see a couple of them making a play down the road.

  5. What few people seem to realize is that canada is in a net foreign ownership postion! Intersting little tidbit this one is. More canadian businesses own foreign content than foreign ones own canadian – who would have thought!

    • Do you have a link to the data?

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