You can almost feel the simmering outrage against Canada’s big banks in the comments at the bottom of a recent CBC Go Public article on rising bank fees.
But this week, as the banks revealed another set of stunning results, the news was a reminder that despite the disruption of the pandemic, the impact of COVID-19 did not lead to the economic disaster that so many feared. at the time. Some say the banks were partly responsible for this positive result.
And while the bank fee story drew anger online, comments under CBC’s reports on bank earnings were much more nuanced.
Love them and hate them
“You know, it’s interesting. People seem to love and hate banks at the same time,” said Hilliard MacBeth, longtime Edmonton-based financial advisor and author of the dark book on Canadian real estate. When the bubble bursts.
MacBeth has met many people doing business with Canadian financial institutions over his 42 years in the personal finance industry. He says Canadians are surprisingly uncritical of banks as long as they get loans when they need them. He also thinks Canadians could be more critical if they were better informed.
WATCH | Customers talk about the increase in bank fees:
“I don’t think the public is very aware of it,” he said. “They just hear ‘you are approved for this loan’ and they are happy.”
Among the people who like Canadian banks this week, there are certainly those who invest in them. And whether you know it or not, there is a good chance that you are also an investor. The pension plans of Canada and Quebec have big stakes in the banks. The same goes for mutual funds, life insurance companies, and other financial groups that promise future payouts based on the money you put aside today.
Strictly from an investor’s perspective, Jim Shanahan, financial equities analyst at Edward Jones, said the banks had proven their worth, bouncing off last year’s lows to hit new highs. As you can see by clicking on the graphic above, it was as if the pandemic had never happened. He said taxpayers should be thankful.
“The patient and long-term investors have been rewarded by owning the stocks and they are trading mostly at or near record highs,” Shanahan said.
He works at the Edward Jones headquarters in St. Louis, Missouri, where Canadian banks are known for their prudent risk management. This paid off during the 2008 financial crisis, when they did not need American style bailouts, and also during the crisis caused by the pandemic.
“I think Canadian taxpayers, businesses and other stakeholders should be happy with the performance of the banks, which have provided very strong support in a very weak Canadian economy and have performed exceptionally well,” he said. declared in a telephone interview.
Despite the wall-to-wall advertising of how much they love you, banks are not your mother. Like any other for-profit business, they’re there for the end result. It doesn’t mean that they ignore reviews about fees or other things that we complain about if we complain loud enough. And certainly, as people who spoke to Go Public pointed out, raising fees while making astonishing profits doesn’t sound particularly good for their valued customers.
Frequent suggestions from readers that disgruntled customers switch to credit unions or one of the low-cost alternatives (owned by the big banks) illustrate how people determined to stick with the big banks have options. The fact that we continue to use them seems to confirm MacBeth’s position that Canadians remain tolerant of the behavior of banks.
“The only way Canadians can lose their love affair with the banks right now is if the banks start foreclosing homes and bankrupting people for their credit cards and HELOCS and everything. rest, ”MacBeth said. “It doesn’t seem to be happening.”
Some people are complaining about overpayments from the government during the pandemic, fearing it could lead to tax increases. But MacBeth believes that without that support Canada was really close to this kind of collapse.
“It was about to happen a year ago and then the Government of Canada came in with massive transfers of income and dollars to households which, if you think about it, are essentially a transfer to the banks,” he said. he declared.
As the banks reported this week, their loan losses were negligible as Canadians paid off their non-mortgage debt.
Taxpayers Get Credit
As many banking experts will point out, Canadian banks are successful not only because they are so prudent and so wise. It’s also because taxpayers have their backs and because government regulators keep them online.
As Shanahan pointed out, Canadian banks had much higher reserve requirements than their US counterparts to help them and borrowers survive the downturn. He said as those demands rise, expect higher dividends and share buybacks. Executive bonuses will be back on the table.
But with so much at the heart of the Canadian economy these days, banks have been riding a wave of rising house prices as Canadians borrow and spend on real estate, while paying off real estate. other loans. Many Canadians don’t think much beyond the bank that loaned them the money to buy, but again the taxpayer is there for the banks with what is in effect the mortgage subsidies.
“In Canada, CMHC is the biggest risk taker and the bank manages to keep all of the profits,” MacBeth said. “They take loans away from something that could be productive and give more loans to households that buy real estate that they can’t really afford.”
And as many, including our central bankers, have said in the past, if this trend continues, diverting much of our wealth to inflate the price of unproductive real estate may not be the best thing. for Canada, or for its banks, once the pandemic is over. In comparison, the effects of rising fees, while clearly annoying, are of little economic importance.
Follow Don Pittis on Twitter @don_pittis