Wednesday, April 01, 2009

This has been another edition of Stephen Harper, Economist

Harper made some remarks yesterday to the Financial Times about now being a good time for our banks to scoop up foreign assets, in the U.S. and other countries. JAWL drew attention to this yesterday. Today, the remarks are getting additional critical attention:
Canada's wilderness is renowned for big game hunting. While the country's banks may be tempted for a shot at foreign M&A, now isn't the time to head overseas.

Nearly all of Canada's banks have so far stayed profitable, and their exposure to toxic assets is probably manageable. Encouraged by their resilience, Canadian Prime Minister Stephen Harper has suggested lenders score some international trophies, possibly in the U.S.

That's a strange call. Canada's central bank governor says the economy likely experienced the deepest contraction since 1961 in the first quarter, and unemployment stands at 7.7%.

A weak economy hurts domestic banking operations, with business and consumer borrowers struggling to cope. Canadian balance sheets will likely worsen before they improve. UBS analyst Peter Rozenberg reckons loan loss provisions will rise to 0.73% of total loans in 2009 from 0.44% last year.

Given those pressures, purchases of beaten-down U.S. banks would be seriously risky. Existing U.S. operations are already weighing on the Canadians. Toronto-Dominion Bank, for example, has 30% of its assets in the U.S. Loss provisions on U.S. loans rose 78% sequentially in the bank's first fiscal quarter, while provisions for Canadian loans rose 27%.

True, there are opportunities further afield. But aside from Bank of Nova Scotia, Canadian banks have little experience beyond North America. Changing a fundamental strategy would be distracting at best right now.

Mr Harper should be happy his country's banks are still in decent shape and encourage them to stay that way -- not risk their stability on calling the bottom of the banking crisis overseas.
Apparently the banks know enough to be cautious about Mr. Harper's buy-buy-buy advice, his track record is not good.

It's rather incredible to hear the PM so advising our banks.