Canadian Banks Get Set For Another Merger Run

In our society we tend to take our Canadian banks for granted.  Having a Canadian bank fail is about as far away for Canadians as no food in our grocery stores.  It’s simply preposterous.  Nobody ever gives it a second thought.  Meanwhile our Canadian banks are laughing, yes, all the way to the bank.

If you are looking for a rant against the Canadian banks this will not be it.  I long ago gave that up.  Our Canadian banks are what they are.  Almost every year minus the occasional Enron gaff, they rack up zillions of dollars of profits.  Consumers armed with their debit cards; lines of credit and low expectations are like sheep on a New Zealand slope.  It all looks the same from here.

So you think the Canadian banks are too profitable?  How about the following quote from a Canadian press report concerning our old friend Bank of Canada chairman David Dodge.

“Still, the six-biggest banks — the Royal, CIBC, Bank of Montreal, Scotiabank, TD and National — are awash in cash as they profit from a strong Canadian economy, growth in mortgage and consumer lending and brokerage-related and wealth management fees.  In the just completed 2006 fiscal year, the banks earned a whopping $19 billion in net profits, smashing the previous record by nearly $6 billion.” (Canadian Press, Dec 11, 2006)

Wow, think about that.  What is $19 billion?  I like to see it this way, $19,000,000,000.  Doesn’t that look even bigger?  It’s mind boggling.  Meanwhile, ever try to phone a Canadian bank.  Even my small CIBC branch in the small town of Dresden answers their customers with a cousin of “Emily”, Bell’s helpful robotic assistance.  I guess even with $19 billion in profits nobody likes to pick up the phone.

I’m joking, I think.  My mind is still wobbly thinking about all of that money.  However, that big sucking sound is our banks raking in big profits and at the same time laying off employees and finding ways of avoiding the public.  It is what it is.  Living in a society without a good banking system is not an option.  I’ve traveled in some of those societies.  Seeing your money one day and not the other is no fun.  In some societies, that’s just the way it is.

So what’s up with the banks these days?  Earlier this week in that same Canadian press report we learned that our buddy David Dodge thinks that maybe its time to let Canadian banks merge.  This is what he was quoted as saying in the Canadian Press report.

“What our research has clearly demonstrated is that there are economies of scale to be gained in the banking sector from having larger institutions,” “It is more difficult to know how you precisely bring that about because you need larger scale for our institutions.” (Bank of Canada Governor David Dodge)

Ok, everybody say it all together.  “What’s he thinking?”  Can you imagine Canadian banks getting bigger, more profitable and more customer oriented?  I don’t think so, but in the never, never land of official Ottawa, the spectre of bank mergers always lurks in the background.  Former Prime Minister Paul Martin kyboshed the idea. It would seem Dodge might be softening up the political landscape for another attempt to merge the banks.  The pro-business Conservatives might look like an easy tap compared to their Paul Martin forebears.

Of course it’s all about the money.  Our Canadian banks operate in a “global economy” where big bank players from Europe compete for the world’s wealth.  Now, it might be even more of a concern because China has opened up its doors to foreign banks.  15.6 trillion yuan (the Chinese currency unit) is up for grabs.

HSBC Holdings, Citigroup, Standard Chartered Bank, Bank of East Asia, Hang Seng Bank, Mizuho Corporate Bank, DBS Bank and ABN AMRO Bank have already applied to the Chinese government to open up shop. Can the CIBC, TD-Canada Trust and the rest of the Canadian banks be far behind?  Can they compete in this market against those big players from the rest of the world?  Should it matter to the ordinary Joe from Chatham-Kent who has a few bucks to deposit?  Do Canadian jobs lie in the balance?

Answers to those questions are yes, yes, yes, and yes again. The problem is it’s a vicious cycle.  Banks make money and want more money.  Government regulators are reticent to say no because of the real importance of the banking industry to any domestic economy.  More and more technology pushes these banks away from their customers in the streets.  In the Canadian case, $19,000,000,000 later some people wonder if there is a better way.  Clearly, there is.

However, despite a growing informal financial sector among Canada’s recent immigrant population, most of us are like sheep to the slaughter when it comes to the banks.  So David Dodge thinks they should merge and get bigger?  At the end of the day what difference would it make?