Toronto To Overtake London As A Hub For Bankers

[InTheBeach]

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.

Ever heard of CMHC?

[InTheBeach]

Originally Posted by hkskyline

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.

Like I said, I'm mixed, but certainly agree that market cap is meaningless in terms of how the business is managed and profits delivered, unless it is looking at M&A activity (which is an opportunity to grow - not one I like).

I look at all of these matters as a shareholder and I only care about future earnings. So greater earnings lead to higher stock prices (market cap) - I'm sure that you can see my point and motivation.

There are many zombie banks out there today, so my comment is in the context of our current situation, and not what happened earlier in the business cycle. I'm making investment decisions now, not four years ago (back then, I was sitting on cash because the pending crash was pretty obvious to objective observers).

And generally, I agree with much of what you have added to this thread.

Specific to Canadian Banking, I think that the industry is flawed because competition is limited. I don't know how we grow to become a tier one player with an oligopoly in place. That said, I am happy to line my pockets with dividends and capitals gains from an industry that fleeces Canadians who patriotically defend the entire process.

[oceanmdx]

Originally Posted by InTheBeach

Ever heard of CMHC?

Of course, but the cost of insurance is figured into the interest rate of the mortgage.... so CMHC is not a government subsidy.

[LEAFS FANATIC]

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. Instead, Canadian financial centres will need to rely on domestic wealth. This will greatly hinder foreign banks from expanding in the country. They'd rather invest their funds to the emerging markets where there is far more market potential.


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. 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.



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

Finally someone who gets it.

[InTheBeach]

Originally Posted by oceanmdx

Of course, but the cost of insurance is figured into the interest rate of the mortgage.... so CMHC is not a government subsidy.

If people start defaulting on their mortgages, CMHC will be the backstop, not the banks. And taxpayers are the backstop for CMHC.

If you took what happened in the US and applied it here, the result would be very similar, but instead of bailing out banks, the risk would flow directly to CMHC, and if the numbers are too high, it would need a bail out.

The ultimate risk lies with the taxpayer. I can't imagine a bigger subisdy.

It's still a good system, but let's not pretend that we are not taking on risk.

[Black Cat]

With all due respect to Toronto and its growth as a finance centre, it has a long way to go before it will match or overtake London. You cannot simply compare national banks centred in their respective cities, its essential to look at international banks and other financial companies also in these centres. Most of the world's largest financial companies have a significant presence in London, some with very large trading floors. Can this be said of Toronto? That said, its great to see Toronto growing and taking its place as one of the world's great metropolis with a business centre to match.

[oceanmdx]

Originally Posted by InTheBeach

If people start defaulting on their mortgages, CMHC will be the backstop, not the banks. And taxpayers are the backstop for CMHC.

It isn't true that the taxpayers are the backstop. Here, read this:

http://www.cmhc.ca/en/co/moloin/moloin_010.cfm

The CMHC essentially is an insurance policy on mortgages for the lenders... the cost of the premium is paid by the lender who typically passes the cost on to the person obtaining the mortgage... and not by the taxpayer or the government... just like I said. If there is a default, CMHC will reimburse the lender.... just like they should because they paid out an insurance premium to begin with.

If you took what happened in the US and applied it here, the result would be very similar, but instead of bailing out banks, the risk would flow directly to CMHC, and if the numbers are too high, it would need a bail out.

The ultimate risk lies with the taxpayer. I can't imagine a bigger subisdy.

It's still a good system, but let's not pretend that we are not taking on risk.

Look, you can't just take what happened in the US and apply that to Canada. The rules and housing market are totally different. Canada has had real estate crashes before... the taxpayer didn't bail out the banks or anyone else! How about you stop mixing your misinformed opinions with the facts?

[InTheBeach]

Originally Posted by oceanmdx

It isn't true that the taxpayers are the backstop. Here, read this:

http://www.cmhc.ca/en/co/moloin/moloin_010.cfm

The CMHC essentially is an insurance policy on mortgages for the lenders... the cost of the premium is paid by the lender who typically passes the cost on to the person obtaining the mortgage... and not by the taxpayer or the government... just like I said. If there is a default, CMHC will reimburse the lender.... just like they should because they paid out an insurance premium to begin with.



Look, you can't just take what happened in the US and apply that to Canada. The rules and housing market are totally different. Canada has had real estate crashes before... the taxpayer didn't bail out the banks or anyone else! How about you stop mixing your misinformed opinions with the facts?

I'm quite informed on the subject, and am not going to waste my time reeling you in from left field.

You might want to read the CMHC Act for starters:

http://laws-lois.justice.gc.ca/PDF/C-7.pdf

Or if you are feeling lazy, here are some basic articles from our daily rags:

http://www.nationalpost.com/opinion/...e-5e468913e8be

http://business.financialpost.com/20...g-fewer-loans/

And here is a sampler on how CMHC is back stopping securitized mortgage pools:

http://www.policyalternatives.ca/pub...gage-time-bomb

And maybe you would also be interested in taking a few years of finance at a well respected university. Just saying.

And last but not least, I always recommend the following book for friends who say "that will never happen":

http://en.wikipedia.org/wiki/The_Bla...n_(Taleb_book)

Cheers!

[oceanmdx]

Originally Posted by InTheBeach

I'm quite informed on the subject, and am not going to waste my time reeling you in from left field.

You might want to read the CMHC Act for starters:

http://laws-lois.justice.gc.ca/PDF/C-7.pdf

The CMHC is an agent of the government, but saying that taxpayers would be on the hook is more theoretical than plausible. Some mortgages in Canada go into default every week... and CMHC has to make the lending institution whole if those mortgages were insured.... Why not? They paid a premium for the insurance.

Or if you are feeling lazy, here are some basic articles from our daily rags:

http://www.nationalpost.com/opinion/...e-5e468913e8be

That is an opinion piece that you have cherry picked because it supports your opinion... Let's agree to differential opinions from facts... No where is it written that the Government/taxpayer will be on the hook (in the form of a bailout) if mortgage defaults become an issue in Canada.... CMHC will be on the hook... and there is no realistic scenario where it would become insolvent which would have to happen before the issue of a taxpayer/Government bailout of CMHC would ever arise in the first place.

Garth Turner has been predicting doom for Canada's housing market for many years now... it turned out that he didn't know what he was talking about... why any newspaper would want to quote him for an article is beyond me considering his record.

http://business.financialpost.com/20...g-fewer-loans/

And here is a sampler on how CMHC is back stopping securitized mortgage pools:

http://www.policyalternatives.ca/pub...gage-time-bomb

The rules have been tightened on "sub-prime" mortgages in Canada... since that outdated 2009 article. So much of what was stated in it is no longer much of a worry and both articles are full of factual errors (see my last link to set the facts straight).

And maybe you would also be interested in taking a few years of finance at a well respected university. Just saying.

And last but not least, I always recommend the following book for friends who say "that will never happen":

http://en.wikipedia.org/wiki/The_Bla...n_(Taleb_book)

Cheers!

How would taking a few years of finance in university make me (or you) any more qualified to discuss this issue? Answer: It wouldn't (hasn't) since you don't even know that a "subsidy" is. So we can just add that to your list of non sequiturs. You just say a lot of things that don't really prove your statements.

Perhaps you should watch the documentary "Inside Job":

http://www.huffingtonpost.com/2010/0..._n_703445.html


http://www.imdb.com/title/tt1645089/

It explores what fueled the US housing bubble and things like unregulated, and unlimited credit default swaps. You'll see how corrupt the US financial and political systems are to the core and then you might understand how things differ markedly from the situation in Canada.... which isn't the US with colder weather. "Inside Job" is essential viewing for anyone comparing the US housing market to that of Canada's.... because it shows you how different the US is from the way mortgages are financed in Canada.

What you are predicting is extremely unlikely to happen... The mistake you are making is assuming that the housing market in Canada can get into an endless downward deflationary spiral like in the US which is being fueled by an endless supply of foreclosures. Canada's housing market could correct at any time - I'm not denying that - but I disagree that the government (rather than just the CHMC) will end up on the hook to the banks (or have to "bailout" CHMC), or that we will see a deflationary spiral in housing prices fueled by a seemingly endless supply of foreclosed properties. The US housing market is no model for predicting what may occur in Canada.... Australia is a much better model... and if we want to reform CHMC, perhaps we ought to look toward Australia to see what they are doing.

More reading on the relevant facts (as opposed to offering an opinion from some newspaper editorial quoting Garth Turner):

http://www.danheon.com/Can%20mortgages%20vs%20US.pdf

There is no reason to call CHMC a government subsidy because it insures mortgages since the banks are paying the premium... not the government.

[InTheBeach]

I'm enjoying your cross-your-fingers view of things.

The inside job didn't do a good job of explaining what had happened, but did cover many key issues specific to ABCP and CDOs. Sure does look dirty, and 90% of Canadian mortgages are organized in a similar fashion.

The ultimate issue in the US is that the structure was predicated on housing prices not dropping. Yes, more dangerous than here, but us having a similar event is not out of reach of reality.

While I think that a housing correction is a certainty in Canada (in time or price), I am not predicting that there will be a CMHC meltdown that tax payers will need to backstop. I am merely stating that this is a risk that does exist, so let's not pretend the risk does not exist, or that the banks are not benefiting from this arrangement.

And concerning what a subsidy is, let's go with the following definition:

"A sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive"

Let's see now. The government has created an agency with a large float of capital that allows an industry (the banks) to guard itself against high risk lending practices in order to increase profitability in that industry.

Sounds like a subsidy to me.

Anyway, clearly we are going to disagree on this matter, so continuing to bicker about it is not going to be productive.

Cheers!

[oceanmdx]

Originally Posted by InTheBeach

And concerning what a subsidy is, let's go with the following definition:

"A sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive"

Let's see now. The government has created an agency with a large float of capital that allows an industry (the banks) to guard itself against high risk lending practices in order to increase profitability in that industry.

Sounds like a subsidy to me.

That sounds like a subsidy to me too... The problem is that's not what the government or CMHC does for the banks... and you know it.

The CMHC doesn't just hand the banks money so they can offer cheaper or risk free mortgages. CMHC charges the banks a premium to insure mortgages. CMHC no more subsidizes the banks than an insurance company subsidizes a home owner for risk against fire. You pay a premium for coverage, if the house burns down, you're not getting a subsidy from the insurance company to rebuild when they pay out. Like an insurance company, the CMHC is financed by the premiums they collect... and the CMHC was not created to increase bank profits as you purport. It was to facilitate home ownership by making mortgages more available to the public.

I agree that at some juncture housing prices in Canada will drop, and currently prices are somewhat inflated. I also agree that there is no point in continuing this discussion because you are saying things that you know are not true rather than concede the point regarding subsidy.

[large]

Originally Posted by Black Cat

With all due respect to Toronto and its growth as a finance centre, it has a long way to go before it will match or overtake London. You cannot simply compare national banks centred in their respective cities, its essential to look at international banks and other financial companies also in these centres. Most of the world's largest financial companies have a significant presence in London, some with very large trading floors. Can this be said of Toronto? That said, its great to see Toronto growing and taking its place as one of the world's great metropolis with a business centre to match.

to be honest, having come from the UK and escaped the destructive effects of living near a global financial hub, I'd be quite happy if Toronto never caught up with London. You're from Brighton aren't you BlackCat? Me too. I had a well paid job, but couldn't afford more than a grotty little two bedroom flat. I have the same job in Canada, live about the same distance from Toronto as Brighton is from London, and for the same price as my grotty two bed flat in Hove, I have a four bed house, basement apartment and pool...and I can still walk to the pub or the corner shop. I can even walk to a beach...and there are no frigging stones!

Financial services are necessary and vital to any modern economy, but in the UK the industry's importance is out of proportion to the value it brings to society as a whole. I'd hate to see the same happen hear...think I'd move to New Zealand!

[current]

Why Toronto based banks are growing - Yahoo News online article:
Canadian Banks Play "O Canada" Card to Grow Abroad

By Cameron French
Reuters – 4 hours ago
Feb 26 2012

When Royal Bank of Canada created advertising for its European wealth management business last year, it built some ads around the image of a shimmering gold maple leaf, playing on Canada's reputation for financial prudence. Embarking on an aggressive expansion, Canada's largest bank wanted to emphasize its roots in a country whose banking sector wins plaudits as the soundest in the world. With Europe's debt crisis dominating the headlines, it was a message designed to resonate with prospective customers.

"We actually restructured some of the launch ads to dial up the Canadianness, because all of the research was demonstrating that is a value to the consumer right now," said Jim Little, chief brand officer with Royal Bank . "If instability is sadly the word of the day in Europe, then stability in Canada is a good message to lead with." Royal's ad strategy is just one example of a shift in tactics by Canadian banks, which were once seen as a backwater bastion of stodginess. Far from hiding their roots, now Royal and other Toronto-based banks believe the strength of the Canadian brand can help them close foreign expansion deals and win over Europeans and Americans who have lost faith in local lenders....

....Rick Waugh, CEO of No. 3 lender, Bank of Nova Scotia, said that reputation has helped Scotiabank as it expands into its preferred markets of Latin America and Asia. The bank recently closed its $719 million acquisition of a 20 percent stake in China's Bank of Guangzhou to win a strong presence in China's third most populous city. "It was an open process, but they wanted Scotiabank, a successful international bank from a successful financial sector. They wanted Canadian over American or European," said Waugh....

Read More: http://ca.news.yahoo.com/canadian-ba...220804426.html

[Taller, Better]

Interesting point from that article:

"London-based BrandFinance, which releases an annual bank brand survey, said four Canadian banks were among the five global bank brands which gained the most value in 2012."

[hkskyline]

The brand value may increase, but I'm curious how Switzerland fared on that survey, and whether there was a major shift of assets out of Switzerland in favour of Canada.

[duff+eglin]

It should be clear to all that Toronto can't even begin to approach London as a global center of finance. Nothing not involving a nuclear bomb will accomplish that within the next 75 years.

hkskyline seems to be very concerned that people in Canada think their banks are doing better than they are. Clearly, if people in Zimbabwe thought like this he would not take so much time to address the issue. To the extent you care at all what some anonymous person on the internet says about Canadian banks, take it as a compliment.

Also, several people here seem to be far too focused on the importance of bank headquarters. The vast majority of the volume traded in any asset class in London is not traded among or between headquarters. People who focus so much on this issue really come across as amateurs which, in any event, is surely the case.

Canadian banks are outperforming the large majority of banks based in G7 countries and are only going to expand and strengthen over the next few years relative to most of their peers. Any claims less broad than that before a resolution emerges in Europe reflect a tenuous grasp of the complexity of the current climate, or inherent bias, one way or the other.

[hkskyline]

Ironically, HSBC announced today they made 13.8 billion pounds in 2011 (+15% year on year), which missed analyst forecasts. The eurozone debt crisis was bad, but their geographic diversification as a truly global bank has offset those losses.

[LEAFS FANATIC]

Originally Posted by duff+eglin

It should be clear to all that Toronto can't even begin to approach London as a global center of finance. Nothing not involving a nuclear bomb will accomplish that within the next 75 years.

hkskyline seems to be very concerned that people in Canada think their banks are doing better than they are. Clearly, if people in Zimbabwe thought like this he would not take so much time to address the issue. To the extent you care at all what some anonymous person on the internet says about Canadian banks, take it as a compliment.

Also, several people here seem to be far too focused on the importance of bank headquarters. The vast majority of the volume traded in any asset class in London is not traded among or between headquarters. People who focus so much on this issue really come across as amateurs which, in any event, is surely the case.

Canadian banks are outperforming the large majority of banks based in G7 countries and are only going to expand and strengthen over the next few years relative to most of their peers. Any claims less broad than that before a resolution emerges in Europe reflect a tenuous grasp of the complexity of the current climate, or inherent bias, one way or the other.

My friend, you clearly know what you are talking about and I agree.
The problem is, many of the Torontonians on here falsely believe that Toronto is the global leader in many categories. Most of these people have not travelled outside Toronto to truly see what constitutes a true world-class city both from infrastructure and financial relevance points of views.

Don't get me wrong, Toronto is an amazing city but it pales in financial relevance to London. Toronto is the financial center of Canada and home of the TSX. Canada's economy, however, is largely based on natural resources and this is largely reflected in the companies trading on the TSX. It simply is not as diversified as the other financial hubs of the world.

[ACT7]

Originally Posted by LEAFS FANATIC

Most of these people have not travelled outside Toronto to truly see what constitutes a true world-class city both from infrastructure and financial relevance points of views.

I've been silent on this topic for a while now and I'm not going to comment on what has clearly become a city vs. city thing as these types of conversations invariably do, but I will take personal offence to the claim that MOST people on this forum have not travelled outside of Toronto. First of all, I'm not sure you can make that claim without knowing most people personally on this forum. Second of all, I would venture a guess that a good chunk of people on this forum are well travelled, including myself, and can make educated comments about other cities.

The original article was specifically about BANKERS and numbers of jobs. It's been turned into something completely different and it's probably about to devolve into a world-class city bullsh*t debate.

[hkskyline]

I don't think LEAFS FANATIC was trying to generalize across the whole population, referring only to a subset of people who had very specific thoughts, and offering a possible reason as to why they think that way. There's quite a mix of opinions in this thread so far on either side. While some clearly show a lack of understanding of how the global banking system works, they still debate and challenge in a civilized way.