Poor Canadian banks still sulking as feds continue to ban merging
An article in today's Ottawa Cititzen chronicles the devastating effect that not being allowed to merge is having on Canadian banks. Evidently, the federal government preventing BMO (were they not once known as the "Bank of Montreal"?) from merging with ScotiaBank, for example, results in their not being able to be competitive on the global market.
Who cares?
Should their goal not be raising the level of competition on the domestic market? Or are we, the mere plebes who own piddly bank accounts rather inconsequential in the grand scheme of things?
I wrote in March that in 2002, TD Canada Trust seemed content to have quarterly net profits in the $200 million range. In the first quarter of 2006, net earnings exceeded $800 million. That's more than four times the "good results" of only a few years earlier. Now that we are in Q4 of 2006, I'm fairly confident that the major Canadian banks will unveil total profits in the $4 billion range for the year. I could do the research to get the exact numbers, but I believe that all but one cracked the billion dollar mark in Q3.
When is enough enough?
Looking back at my March column, I pointed out how a letter received at my office from TD Canada Trust explained to me how TDCT had to "remain competitive" and thus had to start charging me for depositing cash and cheques. Again, as stated nine months ago, I thought that is what I was supposed to do at a bank. Years ago they started punishing us (I mean charging fees) for withdrawing money. Having jacked up "convenience charges" as high as they morally felt they could at that point (though nothing will stop them from hiking them again next September, I'm sure), they came up with the bright idea that depositing cheques into business accounts should result in a charge of about sixteen cents each and that depositing cash into these same accounts should cost, on average, $2.10.
Oh yeah - and these fees are coming about in order to "remain competitive". Hmmm... in my other business, remaining competitive means providing more service than a competitor, preferably at a lower cost to the customer. Not in megabank language, though, competitive means that profits at "bank X" are bigger than at "bank Y". And if Y exceeds X, X will have to do something else to level the playing field or tilt it back in its favour. How does X do that? Well, they cook up some other scheme. I think they should start charging us $5 just to walk into the stupid building starting in May of 2007. Yeah. Imagine how much more money they could make then.
For those of you who may not know, I help run a non-profit charitable organization. Some of my reasons for railing against the banking industry in March was because I knew that this new "fee structure" (remember, so that TDCT can remain competitive) would cost this charity way more. Did those who read that column think I was nuts? Here is how much we paid in bank charges in October 2005: $23.75. In October 2006? $86.14. No change in service, no changes in typical transactions. What did we get for the approximately 3.5 times the price?
Sweet precious nothing.
So for you bank executives who are crying in your Corn Flakes this morning because you are not allowed to merge in order to become competitive on the global market, stick it in your ear. Charity starts at home - and until you show Canadians how further mergers, degradation of service and service charge increases will benefit Canadians, shove the merger plans where the sun don't shine. Oh yeah, and who will be the first "poor Canadian bank" to raise the profit threshold to $2 billion? Better not be mine.
Then again, what will I be able to do about it? Oh yeah. Never mind.
posted by Michael Mason @ 8:27 AM
3 comments
3 Comments:
Obscene bank profits are a direct result of government over-regulation; not a lack of competition. Considering how lucrative the banking business is, why don't you or I start a bank? We can start small, but seeing how profitable it can be, we'll make buckets of cash within a few years, right? Wrong. You or I can't start a bank because the free market is really just a myth.
When government gets involved in business, they prevent free market forces from solving natural "problems" like greed and profit because they make it nearly impossible for an entrepreneur to enter segments like banking, insurance, gasoline, telecom and health care. Take NAFTA, or any "free trade" agreement: men are inherently free-traders but government jumps in and imposes a mountain of rules and regulations. We had free trade a few hundred years ago but now we have a mountain of bureaucratic nonsense called "free-trade". This is Orwellian doublespeak is it not?
In banking and telecom, for example, the government decides what fees can and cannot be charged, the extent of those fees, and it compels the banks to abide by a mountain of regulation, again under the premise of protecting the consumer. I hate my bank but I also know that none of the others are any different, at least not in any meaningful way.
In a free market economy, buyer beware is the key, and this concept naturally forces consumers to be educated, diligent and vigilant before entering into any business arrangement, be it to open an account or to buy a pack of smokes.
And while the free market does offer the opportunity for scamming, such opportunity already exists in our current system. Why do we have, why do we need, why do we want two parallel avenues to corruption? The complexity of the regulations and licensing provisions required to operate a bank make it a closed club, except for the already grossly wealthy or politically-connected. In a free market, the big banks would have pressure coming at them from all angles and collusion amongst the big three just wouldn't be possible, at least not long-term.
"Government is not the solution to our problem. Government is the problem." (from Ronald Reagan’s first inaugural address, 1981)
Interesting points and I certainly cannot disagree with many of them. I cannot, however, accept the fact that it is the government that should be blamed for the blatant pillaging of Canadians.
It is the incessant need to play the non-stop game of "I'm big... you're small... I'm bigger, no, I'M BIGGER!"
The main fact is that our banks are held hostage by shareholders. It is the shareholders who seem to be steering the ship, not the clients. Given the ebb and flow of the stock market, any earnings "warning" that forecasts anything less than what, 20-50% net earnings growth over the previous year's numbers is simply unacceptable.
Corporate directors, therefore, must do what the people who vote them into their positions want.
You know what? I'm as big a fan of accumulating ridiculous profits. But what irks me about the banks is that they are doing so under the pretense that they must "remain competitive". I will restate: they want to remain competitive in that their profits are bigger than their rivals. Stock holders demand nothing less. They do not wish to remain competitive as far as service levels or cost to the consumer is concerned.
Don't blatantly lie. Don't use technical babblespeak that 90% of the people out there don't understand.
My branch manager told it like it was - to a point. She invited me last March to check out the competition. Just like the petroleum doesn't fix pricing (but try to find a retailer who is selling their wares at even a mere percentage point or two below someone else... the banks all fell into line and started their new "service packages" throughout late 2005 and early 2006.
If the industry is as regulated as you claim it to be, then when will the government step in and say that enough is enough? Sure, I'm treading on borderline communism here, but will we draw the line at $10 billion in quarterly profits? $100? We've cracked one psychological barrier and anything less will only be deemed as uncivilized by the mucky mucks on Bay Street.
The bottom line is this - there are so many people out there who are a property tax increase away from having to move out of their home of 40 years. How long will it take before people won't be able to afford to own bank accounts any longer?
The government is not the cause of this problem. It is tolerating it and not doing anything about it. It can't be because bank CEO's are in bed with the the PMO or the finance minister of any given day. Had banks been able to buy the votes of federal politicians by now, we'd all be served by one megabank as the feds would have bowed to the merger pressure. So it can't be that.
The banks haven't bought the silence of politicians, it is the shareholders and the whole stock market game that are holding virtual guns to the temples of bank policy makers and profit generators.
The government, therefore, must step in to ensure that we not be further victimized by these Bay Street Bullies. Either that or deregulate and allow Mike and Steve to start up Smike Bank Inc. and let the real "competition" begin. THEN we'll see a bank or two striving to use the real definition of competition when it comes to its customers. Ask Nolan Ryan in Arlington Texas. I think he gets it.
This says it all:
It is the incessant need to play the non-stop game of "I'm big... you're small... I'm bigger, no, I'M BIGGER!"
It's actually the fault of the people who keep buying there, is it not?
They do not wish to remain competitive as far as service levels or cost to the consumer is concerned.
So why do mass hoards of (most/all) people still bank there?
If the industry is as regulated as you claim it to be, then when will the government step in and say that enough is enough? Sure, I'm treading on borderline communism here, but will we draw the line at $10 billion in quarterly profits?
Why do we always need them to solve our problems? Every drop of personal responsibility that we give up (i.e. please Mr. Gov't, can you help me make sure my bank is safe?) is also one lost liberty. If we put someone in charge, we have to also give them the authority to make decisions for our own good.
I don't think the bankers are in bed with the PMO, per se, but government, banking, energy and insurance, when combined, create a massive thing that's designed to take as much money as possible from all of us, and repeatedly.
Bye bye middle class.
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