Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

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