Ottawa needs to keep companies solvent: RB C

• The chief executive of Canada’s biggest bank says the economic crisis caused by the coronavirus pandemic is worse than the global financial crisis a decade ago, and that the country’s priority should be to protect jobs and avoid corporate bankruptcies in order to enable a faster recovery.

“This is much more severe than the financial crisis that we went through in ’ 08 and ’ 09, which was really mild for Canada,” Royal Bank of Canada CEO Dave Mckay told reporters on Wednesday, following the bank’s annual shareholder meeting, which was held remotely due to COVID-19 concerns.

During the financial crisis there were a few weeks of liquidity challenges and a spike in unemployment, but the earnings of RBC, Canada’s biggest bank, didn’t really fall that much, Mckay said.

“This is completely different,” he said.

For starters, the current crisis is not confined to just the financial sector. Basically every industry is being affected, from workers trying to keep a safe distance to companies suddenly forced to close their doors and lay off employees because there’s no money coming in.

“It’s a different crisis than 2008,” CIBC CEO Victor Dodig concurred, in an interview with the Post on Wednesday. “Revenue and income has disappeared for many.”

Canada’s big banks are uniquely positioned as observers of the economic effects of the pandemic, given their lines of sight into consumer borrowing and spending. Moreover, the federal government has been enlisting lenders to help with the response to the crisis, and Ottawa has prodded banks to cut customers some slack. The banks have responded by allowing for hundreds of thousands of deferrals of loan payments.

Yet even with the help, and even though the extent of the damage remains hard to predict, the economy appears headed for a recession.

“Our national priority must be to help companies remain solvent and people employed,” Mckay said during the shareholder meeting. “We need to move with urgency, in days and weeks, not months. This will keep our economy primed, and help speed up the recovery once the health crisis is in check.”

Tens of billions of dollars in support for consumers and businesses is already being rolled out by the government, such as the $73-billion wage- subsidy program and the $2,000-a-month Canada Emergency Response Benefit. Banks have also been working with the federal government on setting up the new Canada Emergency Business Account, which is to provide interest-free loans of up to $ 40,000 to small businesses and not-for-profits.

But some businesses are hurting now, and people and companies were already finding themselves increasingly unable to pay their debts even before the coronavirus and the recent drop in oil prices really hit home. Total insolvencies rose by 2.1 per cent month- over- month and nine per cent year-overyear in February, according to the Office of the Superintendent of Bankruptcy.

Even when the immediate crisis ends, it seems likely there will be lingering effects on the behaviour and spending of consumers and corporations, such as their willingness to gather in big groups or make big investments. This could lead to a slower recovery and require a longer period of support, Mckay told reporters. “I don’t think citizens are going to discard all these tools that they’re learning how to use and getting better at using right away,” Mckay said.

Dodig sees progress being made against the pandemic. “The month of April will be a very telling month in terms of how we can get the healthcare crisis contained, because the sooner we can get it contained, the sooner we can start talking about getting the world back to normal again,” Dodig said.