Canadians and Our Banks: Billion Dollar Profits Forever

Canadian Banks 510!     Canadians of my generation loathe their banks.  It is almost a blood sport and I think it’s largely due to the special place that Canadian banks hold in the Canadian economy.  The Canadian Bank Act ensures that the 6 major banks have great economic power and limited competition.  Billion-dollar profits are almost passé.   So when I heard about more billion-dollar profits this past week, my mind turned toward our Canadian banks.

It is so different than our American friends.  I made some comments last week regarding Canadian banks and one of my American followers asked exactly what I meant.  He said he was not very familiar with the Canadian banking sector and needed a little bit more information.  Compared to our American friends, who have more community-based banking and a much poorer record of strength, the specter of Canadian style banks in the US is a nonstarter.  Needless to say, even in the economic turn down of 2008 our Canadian banks didn’t stagger.  Those billion-dollar profits are good for something and that is economic stability.  As much as we loathe our banks at times, their strength is good for Canada.

Canadian banks reported their third-quarter results last week.  The Royal Bank of Canada posted a record third-quarter profit of $2.3 billion.  The Bank of Nova Scotia was next at $1.77 billion followed by the Toronto Dominion Bank at $1.53 billion in the third quarter.   The Canadian Imperial Bank of Commerce and the National Bank of Canada pulled up the rear at $890 million and $419 million respectively.  Those are third-quarter results people.  Not only do our Canadian banks keep our money but they make a tonne of money too.  Canadians after all this time have grown numb to it.

I say that about Canadians of my generation, but I’m not so sure about younger Canadians.  For instance, my first demand loan on the farm was for 23% interest.  I was a young man at the time and I suppose I should’ve been thankful that the bank manager gave me a loan at all.  Things got better after that time because interest rates dropped below 20% and I paid for many of my farms at 14%.  At the time and even up until the last few years I found banks very difficult to deal with.  The old saying went that once you don’t need a bank, then they are always glad to talk to you.

I think that is why attitudes can be the way they are because at one time money was much harder to come by.   Getting money from a bank was extremely difficult almost to the point of the bizarre.  For instance, I remember buying a farm once where my own bank demanded a certified cheque for the down payment to get a mortgage with them.  The check was drawn from the bank where I was going to get the mortgage.  So why did it need to be certified because it was obvious to everybody the money was there.  Needless to say, that explanation was shot down in 2 nanoseconds.  So years later I remember those things.

It is so interesting for me to look back on that.  Last year I was speaking about farmland prices across Ontario and I recounted some of the stories to some of the audience.  After I had stopped speaking I had 2 younger farmers come up to me and ask what it was like “back in those days of 23% interest rates!”   I kind of recoiled when I started to tell them about it because it took all my body language to hide my incredulous feelings about the question.  They had no trouble getting money lent to them to invest in agriculture, while I was recounting a day where I had to prove that I had enough money in the bank, which was giving me the mortgage.   Canadian banks and finance companies represented something so much different to them.

I also think Canadian banks are so much different to everybody else.  For instance, in the rural community of Dresden where I live there are actual people that you can talk to in the bank.  In fact, Dresden is even seeing a bit of construction in the bank to make it better for both customers and staff.  On the other hand my former college roommate who lives in Toronto has no idea what that kind of bank is like.  Banking to him over the years was an ATM machine and now it’s online. I suppose in many ways that explained some of these billion-dollar profits.

Banks would argue that they are in competition with US and offshore banks for investment dollars.  Of course they also operate under a regulatory environment in Canada, which is very good for them.  At a time when agricultural prices have been fairly buoyant and interest rates low lending to agriculture has been easy.  The hard part will be when it all turns around someday.

When will that be?  In my opinion certainly not for quite some time as our friend US Federal Reserve chairman Ben Bernanke says interest rates will stay low until 2015.  However, the bottom line is that rates will be going up; it is just a matter of time.  At that time our Canadian banks may find it somewhat more challenging to make those billion-dollar profits.  However, it’s not like I have taken a silly pill and I am worried about our Canadian banks not making any money.  Something tells me they’ll always find a way.

It would be good if they raised the pay of their workers and even hired a few more.  Heck, maybe even answer their phone when you call. The challenge for the rest of us in Canadian agriculture is to take advantage of our financing options within the agricultural economic environment we find ourselves in.  One constant will be our Canadian banks.  Rest assured, your money will be safe.  They’re likely to continue to make mega billion dollar profits and at the end of the day, Canadians will still loathe them.   As time goes on, who knows, maybe even that will pass away.

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