Toronto To Overtake London As A Hub For Bankers

[isaidso]

Originally Posted by hkskyline

The problem is Canadian corporate and personal income tax rates are actually not competitive against the US or Britain. Hence, Canadian banks will never be able to compete as a tax haven. In absence of this, Toronto will not turn into a Zurich where money will want to flow in.

How can you argue that taxes in Canada aren't competitive with the US or the UK, when they are lower? And why are you assuming that Toronto wants to emulate Zurich? Toronto has no interest in being a tax haven, but gaining market share by offering a compelling reason for doing business here.

Originally Posted by hkskyline

There is no major Canadian international investment bank or private bank that has a truly global footprint. No Canadian bank can match the likes of HSBC, UBS or even a Morgan Stanley in the size and breadth of foreign operations. I don't see this going to change any time soon.

Only HSBC is based in London, so I'm not sure why you're mentioning Swiss and US banks. And why don't you see Canadian investment banks gaining market share? Canadian banks have made billions of dollars in foreign acquisitions specifically in this field, and have been on a hiring binge around the world poaching talent from the top firms. Surely the facts trump your perception of whether Canadian firms are gaining?

Originally Posted by hkskyline

Canadian banks have historically been quite risk-averse. That's why they've avoided much of the global crisis so far, and in return, they make relatively less when times are good. The US seems the most logical stepping stone for them, but they've only been able to break through in certain parts of that market.

Contrast that to Citibank, which even has significant retail operations outside its home base.

How do Canadian banks not have significant retail operations outside of Canada? As I've already mentioned, TD Bank has more branches outside of Canada than within, Bank of Montreal will be in the same position in 2-3 years, while Scotiabank has a major retail presence in almost every nation in America except the United States.

Originally Posted by hkskyline

I think amount of assets managed is a far better measure of a bank's strength than market capitalization.

Investors would beg to differ. Market cap is the best gauge of how much a company is worth. People pay what they think a company's stock is worth. What's the point in having twice as many assets if those assets earn the firm less money?

[isaidso]

Bank of Montreal branches outside Canada
United States: 695 branches


Scotiabank branches outside Canada
Caribbean: 320 branches in 23 countries
Mexico: 600 branches
Costa Rica: 42 branches
El Salvador: 58 branches
Peru: 170 branches
Venezuela: 118 branches
Colombia: 175 branches
Chile: 140 branches
Thailand: 250 branches
A retail presence in 19 other countries.


TD branches outside Canada
United States: 1,275 branches


CIBC branches outside Canada
Caribbean: over 100 branches in 18 countries


Royal Bank branches outside Canada
Caribbean: 127 branches in 17 countries
United States: 424 branches (just sold to US bank)



The investment in foreign retail branches by Canadian banks is only in its infancy. It's not fair to say that they've made little headway when they're only ramping up now and already have significant presence beyond Canada.

[hkskyline]

Originally Posted by isaidso

How can you argue that taxes in Canada aren't competitive with the US or the UK, when they are lower? And why are you assuming that Toronto wants to emulate Zurich? Toronto has no interest in being a tax haven, but gaining market share due to the business case for doing business here.

The differences are not huge. Tax havens charge barely any corporate or income tax, not 3X%. I actually don't see much internationalization options in Canada if the tax haven option is scratched out. There simply isn't enough market in a country of 30 million to entice the foreign players to base a huge operation there like a London or New York.

Originally Posted by isaidso

Only HSBC is based in London, so I'm not sure why you're mentioning Swiss and US banks. And why don't you see Canadian investment banks gaining market share? Canadian banks have made billions of dollars in foreign acquisitions specifically in this field, and have been on a hiring binge around the world poaching talent from the top firms. Surely the facts trump your perception of whether Canadian firms are gaining?

The world of finance is dominated by the British and the Americans, and this won't likely change unless their economic influence significantly wanes. Even then, the true emerging competitors are the likes of China and India, not Canada. What the Canadian banks have to realize is they need to capitalize on the growth abroad to solidify their international footprint, or risk being marginalized when the other large competitors, like the British and the Americans, move in.

The Swiss are on a completely different business model, but it is quite obvious that the world's richest would most likely bank there, whether in secret or not. That's their secret to success. For such a small country their two big banks manage a tremendously large pool of assets.

You may have a perception that there is a lot of M&A activity involving Canadian banks, but looking at the big picture, I still don't see how Canadian banks' amount of assets managed is anything to be proud of, or anything impressive even among the developed economies. When I speak of large M&A, I'm talking about the likes of a Bank of America and Merrill Lynch merger, where BoA agreed to pay $50 billion in stock for Merrill.

While Canadian banks may have poured some money on acquisitions, you have to also factor in the rest of the world is also moving and doing the same as well. I suggest you start by reviewing some international M&A data : http://uk.reuters.com/article/2008/0...15121720080915

The below Bloomberg report is generic across industries, but gives a good indicator of how M&A activity in Canada stacks against other countries. Notice to even hit the top 10 in the Americas, the total value had to exceed $10 billion. Sprinkling a few billion for some acquisitions isn't really a big deal today.

http://about.bloomberg.com/pdf/glma.pdf

Originally Posted by isaidso

How do Canadian banks not have significant retail operations outside of Canada? As I've already mentioned, TD Bank has more branches outside of Canada than within, Bank of Montreal will be in the same position in 2-3 years, while Scotiabank has a major retail presence in almost every nation in America except the United States.

So how do Canadian banks' foreign retail operations stack up against the truly large international competitors such as HSBC? Perhaps a better comparison would be against the Australian banks, as they're still far off from the true international giants.

Originally Posted by isaidso

Investors would beg to differ. Market cap is the best gauge of how much a company is worth. People pay what they think a company's stock is worth. What's the point in having twice as many assets if those assets earn the firm less money?

Wrong. Not all banks have full free float. Market cap only measures what's listed. Unless all the banks have the exact same free float percentage, market cap is a meaningless comparative figure. Market cap also doesn't necessarily correlate to profits for the exact same reason. That's why analysts look at return on assets, not return on market cap.

[hkskyline]

Originally Posted by isaidso

Scotiabank branches outside Canada

Caribbean: 320 branches in 23 countries
Mexico: 600 branches
Costa Rica: 42 branches
El Salvador: 58 branches
Peru: 170 branches
Venezuela: 118 branches
Colombia: 175 branches
Chile: 140 branches
Thailand: 250 branches

A retail presence in 19 other countries.

Meanwhile, "HSBC's international network comprises around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa."

Citibank is another impressive international bank. From their website :

Citi is the leading global financial services company with some 200 million customer accounts and does business in more than 140 countries.

In the Asia Pacific region, Citi has over 50,000 employees across 19 countries and territories: Australia, Bangladesh, Brunei, China, Guam, Hong Kong, India, Indonesia, Japan, Korea, Macau, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.

In Europe, the Middle East and Africa (EMEA), Citi employs approximately 38,000 people, maintains a physical presence in 55 countries, and does business in 61 more.

Citi has the broadest presence of any financial institution in the region, with operations in 24 countries throughout Latin America. Citi currently operates nearly 2,600 retail bank branches and point of sales – including joint ventures – in Latin America, serving more than 26 million retail customers accounts.

[Taller, Better]

Originally Posted by hkskyline

http://www.zyen.com/PDF/GFCI%2010.pdf

.

First thing I look for in a study is to see who is behind it and where they got their info. This one
is a study by the Government of Qatar, and Z/Yen group of London.

"Z/Yen Group thanks the City of London
Corporation for its cooperation in the
development of the GFCI and for the use of the
related data still used in the GFCI."

London ranks first in the study.

[InTheBeach]

Originally Posted by hkskyline

I think amount of assets managed is a far better measure of a bank's strength than market capitalization.

I'm mixed on that one.

I don't like either and prefer to focus on earnings (which should drive market cap, but not always).

What is the point of having lots of assets under management if you can't monetize it.

[oceanmdx]

Originally Posted by jerseyboi

HSBC has more assets than all the Canadian banks the world top 50 combined.

Ya, but what are their liabilities?

There's no trick in obtaining $2 trillion (or whatever) in assets if you also have $2.1 in liabilities... even though I'm sure you would be highly impressed with such a situation so long as it's a British bank.

[jerseyboi]

regrettably I can put a spanner in Works for either London or Toronto regarding
Finance. Regrettably Jersey offers even more attraction than both! ( with being offshore)
Jersey has many offshore attractions......

[oceanmdx]

Originally Posted by hkskyline

I think amount of assets managed is a far better measure of a bank's strength than market capitalization.

I don't... so what if they have a lot of assets managed if they are losing money? Lehman Brothers, BAC, and lots of others (including European banks) all had massive assets in 2007... What happened to them? One is gone the other had to get bailed out by government or it also would be gone.

[jerseyboi]

Royal Bank of Canada is investing in Jersey with new Offshore Head office.



http://www.rbcwminternational.com/locations.html?jersey

[Taller, Better]

excellent news! A very worthy investment for the Royal Bank!


It should be pointed out that this article/study is about a possible future trend and is not stating that Toronto is now a larger financial capital than London. It is just saying the gap is closing.

[oceanmdx]

Originally Posted by hkskyline

Wrong. Not all banks have full free float. Market cap only measures what's listed. Unless all the banks have the exact same free float percentage, market cap is a meaningless comparative figure. Market cap also doesn't necessarily correlate to profits for the exact same reason. That's why analysts look at return on assets, not return on market cap.

You have a point, but I suspect that it's a rather weak one... I mean how significant it this issue that not all banks have full free float to the final numbers?

Analysts certainly do consider P/E (market cap/shares outstanding/earnings)...so essentially they do consider return on market cap, although it is never called that.

[oceanmdx]

What boggles my mind with this discussion is the boasting about US and European banks when so many of them only continue to exist because a few years ago the taxpayers in the countries where they are domiciled were forced to bail them out to the tune of hundreds of billions of dollars.... while the Canadian banks needed no bailout money... and it's not like these Canadian banks are small.

When I lived in The Bahamas... Canadian Banks absolutely dominated the retail banking sector... actually they pretty much totally owned it. If you were to close all Canadian Banks there, the economy of the country would collapse.... and here in Los Cabos, Mexico, I see several branches of ScotiaBank.

[rbt]

Originally Posted by oceanmdx

What boggles my mind with this discussion is the boasting about US and European banks when so many of them only continue to exist because a few years ago the taxpayers in the countries where they are domiciled were forced to bail them out to the tune of hundreds of billions of dollars.... while the Canadian banks needed no bailout money... and it's not like these Canadian banks are small.

Government backed banks are pretty common for the large ones. Obvious with the Chinese ones, less obvious with European and American.

Canadian banks do get their share of indirect government assistance too (insuring account balances, mortgage insurance, making it difficult to open a bank, reduced overnight rates during difficult times for the banks, etc.)

That said, the Government benefits from a stable banking system.

[oceanmdx]

Originally Posted by rbt

Canadian banks do get their share of indirect government assistance too (insuring account balances, mortgage insurance, making it difficult to open a bank, reduced overnight rates during difficult times for the banks, etc.)

Nope! I just conferred with a Canadian banker (next door), and the Canadian government gives no such financial assistance/subsidy... either the bank pays or the customer pays to insure accounts and mortgages. Neither adding liquidity to the financial system or setting low rates is a government subsidy.

[oceanmdx]

Boy, those big European banks sure are awesome:



In France, Credit Agricole S.A. FR:ACA -4.01% , which has a stake in Greece’s Emporiki Bank, reported a net loss of 1.47 billion euros ($1.96 billion) for 2011 compared to a profit of €1.26 billion in the previous year. In the fourth quarter of 2011, the bank posted a loss of €3.07 billion.

Credit Agricole took an average writedown of 74% on its Greek bond holdings. In total, the Greek crisis cost the bank €2.38 billion in 2011.

“Credit Agricole spent €2.2 billion acquiring a controlling stake in Emporiki Bank of Greece in 2006, a decision that looks more unwise by the day,” Nolan said.

The losses at troubled French-Belgian bank Dexia DEXB -6.52% were particularly heavy. The lender reported a net loss of €11.6 billion for 2011, with total impairments on its exposure to Greece amounting to €4.61 billion last year.

Royal Bank of Scotland RBS +5.50% UK:RBS +5.09% , which was rescued by the U.K. government at the height of the financial crisis, also paid a price for its exposure to Greece.

The bank reported Thursday a loss of 1.99 billion pounds ($3.12 billion) for 2011, up from the £1.13 billion loss posted in 2010. RBS took a £1.1 billion impairment on Greek sovereign debt last year. As of Dec. 31, the bonds were marked at 21% of par value, the bank said.

For the rest of the story: http://www.marketwatch.com/story/gre...ngs-2012-02-23

European banks remind me of dirty old gasoline engines... they need to be de-Greeced even if they are turbocharged.

Canadian banks may be stodgy and underpowered, but they are smooth and polished.... no need to subsidize the gas so they can run.

[isaidso]

Originally Posted by hkskyline

Meanwhile, "HSBC's international network comprises around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa."

Your argument was that Canadian banks have very little retail presence outside of Canada. That statement was clearly incorrect. What HSBC has is neither here nor there as far as your assertion goes.

Originally Posted by hkskyline

What the Canadian banks have to realize is they need to capitalize on the growth abroad to solidify their international footprint, or risk being marginalized when the other large competitors, like the British and the Americans, move in.

And that is what they are clearly trying to do. I'm not sure why you're so adamant that the Canadian financial services industry isn't making gains when they're clearly expanding while British firms are paring payrolls, selling assets, and retrenching.

What does your argument that HSBC having 7,500 foreign branches have to do with this thread topic? No one has said that Canada has matched Britain in financial services; the argument all along has been that Canada is closing the gap. I'm flabbergasted how anyone can say that it's not.

London has lost tens of thousands of jobs in this sector, its firms are deeply in the red and required bailouts, talent is leaving for competitors. Toronto has added tens of thousands of jobs in this sector, firms are posting record profits, and they're on an acquisition binge of competitors and top talent. I don't know how you can take this information and deduce that Toronto isn't gaining on London. That, and only that, is what is being debated in this thread.

[koolio]

Originally Posted by oceanmdx

Nope! I just conferred with a Canadian banker (next door), and the Canadian government gives no such financial assistance/subsidy... either the bank pays or the customer pays to insure accounts and mortgages. Neither adding liquidity to the financial system or setting low rates is a government subsidy.

The government does regulate the financial sector quite heavily while protecting Canadian banks on the home turf from foreign competition. That may not be a "subsidy" in the strictest definition of the term but it is a form of government assistance.

Not that I'm opposed to that, mind you. If we have averted a crises in the financial sector, it was certainly because our financial sector in Canada was heavily regulated. Also I think discussions like this are pointless. I don't think Toronto should yearn to be a global financial hub, nor do I think it is possible for Toronto to become one with New York so close by. In addition, London has some tremendous historical and geographical advantages. Situated between Asia and North America, they will remain a convenient, central hub for international financial activities. Rather than focusing on how much more we can slash sector specific corporate taxes to attract more financial activities, I think we should realize that with the emergence of developing nations into the market, we are only getting engaged in a race to the bottom that we just can't win. The focus of the Ontario and Canadian government should be to keep Toronto as a hub of a strong, mixed economy.

[Nouvellecosse]

Originally Posted by isaidso

What does your argument that HSBC having 7,500 foreign branches have to do with this thread topic? No one has said that Canada has matched Britain in financial services; the argument all along has been that Canada is closing the gap. I'm flabbergasted how anyone can say that it's not.

I'm not sure I'd give it too much thought. HKskyline always seems to show up to play devil's advocate in any thread that suggests the Canadian/Torontonian economy or financial sector are making any progress globally.

No need to rack your brain looking for the logic behind it. Some things just seem to make certain people uncomfortable.

[hkskyline]

Originally Posted by InTheBeach

I'm mixed on that one.

I don't like either and prefer to focus on earnings (which should drive market cap, but not always).

What is the point of having lots of assets under management if you can't monetize it.

The correlation between assets managed and profits is far stronger, since the bank's business model is to invest the assets that clients place with it. Banks don't make money by investing their market cap.

Being able to drive profits out of assets is a whole different scenario. I haven't come across a historic profitability (RoA) analysis of late. I think we need to see at least 1 cycle rather than the past 2-3 years to get the right big picture. After all, the other G7 banks may take on more risk, so they will logically earn more in the good years, and lose more in the bad.

Originally Posted by oceanmdx

Ya, but what are their liabilities?

There's no trick in obtaining $2 trillion (or whatever) in assets if you also have $2.1 in liabilities... even though I'm sure you would be highly impressed with such a situation so long as it's a British bank.

So does HSBC have that much in liabilities? Wouldn't market cap tank to 0 in your scenario? Clearly, that's not what the market is pricing. In fact, having a large asset pool is better insurance in these tough times to weather out economic shocks. A Walmart is likely more able to sustain losses than a much smaller corner store.

Originally Posted by oceanmdx

I don't... so what if they have a lot of assets managed if they are losing money? Lehman Brothers, BAC, and lots of others (including European banks) all had massive assets in 2007... What happened to them? One is gone the other had to get bailed out by government or it also would be gone.

Derivative contracts are not necessarily assets on the balance sheet, and there are many ways to move them off the balance sheet. Canadian banks can also "hide" these things under international accounting rules. Canada has not been insulated from bank failures either historically. It is because they are not international enough that has insulated them from the recent subprime and Greek debt problems, and in return, they will have far less opportunities to make money when the cycle turns. It's all about risk and return after all. Despite the gloom in recent years, there are international superstars that fared very well and were able to sustain their profits. Goldman is a good example of a solid investment bank that has achieved this spectacularly.

Looking at RBC's 2011 annual report, they had CAD 752 billion in assets and CAD 710 billion in liabilities. S&P gives it a AA- rating on senior debt. I think the regulators would have taken notice long before liabilities were to exceed assets though. The correlation between assets and liabilities is strong since the asset you invest with the client's deposit is in itself a liability.

Originally Posted by oceanmdx

You have a point, but I suspect that it's a rather weak one... I mean how significant it this issue that not all banks have full free float to the final numbers?

Analysts certainly do consider P/E (market cap/shares outstanding/earnings)...so essentially they do consider return on market cap, although it is never called that.

P/E is not a very good indicator nowadays, because it tends to distort in extreme economic cycles. Historically, the consensus was market P/E is reasonable at around 15, but when the cycle turned to the extreme in the past few years, nobody was buying even when it dropped below 10. But P/E is calculated based stock price / earnings, not market cap / earnings.

Originally Posted by isaidso

Your argument was that Canadian banks have very little retail presence outside of Canada. That statement was clearly incorrect. What HSBC has is neither here nor there as far as your assertion goes.

And that is what they are clearly trying to do. I'm not sure why you're so adamant that the Canadian financial services industry isn't making gains when they're clearly expanding while British firms are paring payrolls, selling assets, and retrenching.

What does your argument that HSBC having 7,500 foreign branches have to do with this thread topic? No one has said that Canada has matched Britain in financial services; the argument all along has been that Canada is closing the gap. I'm flabbergasted how anyone can say that it's not.

London has lost tens of thousands of jobs in this sector, its firms are deeply in the red and required bailouts, talent is leaving for competitors. Toronto has added tens of thousands of jobs in this sector, firms are posting record profits, and they're on an acquisition binge of competitors and top talent. I don't know how you can take this information and deduce that Toronto isn't gaining on London. That, and only that, is what is being debated in this thread.

I'm not just talking about retail presence, but overall presence. Period.

Canadian banks may think they're expanding, but their international footprint is still pitiful. Similarly, British banks are cutting back, but their international footprint is simply much larger still. RBS may need to be nationalized, but HSBC still operates in far more countries, and there is also another international bank called Standard Chartered that has weathered the crisis fairly well. I think you need to understand the industry a bit more rather than look at individual examples that don't necessarily indicate the general norm.

There seems to be a general misconception here that Canada's relative isolation from the recent global turmoil means Toronto's gain can make it reach London ever so closely. That's simply untrue. Some British and American banks have suffered immensely because their risk appetite was huge. They made a lot of money in the good times, and they lost a lot of money in the bad. Yet the fundamentals have not really changed. The UK and the US will remain at the core of the international economy, hence New York and London will not likely be challenged in the years to come. The ones to watch out for are the emerging markets, where there are tremendous growth opportunities. That's where the next New York or London will likely be. Unless Canadian regulations and tax laws are fundamentally changed to entice foreign capital to pour in (like a Switzerland), I simply don't see much incentive for a major international bank presence in Canada. Similarly, unless Canadian banks start to relax their risk appetite, they will not likely be major international players either.

Just to put things into perspective, HSBC suffered a lot during subprime, and cut thousands of jobs. Supposedly, they're in a down cycle now, but they still made USD $18.4 billion in 2010, and they're still cutting jobs and trimming fat today. Meanwhile, in 2010, Canada's big 5 banks combined made CAD $19.5 billion. So one bank's bad cycle equates 5 banks' good. That's scary.