Conservatives back more competition in banking

Platform tilts to favouring consumers

The Conservative Party of Canada may traditionally be thought of as a friend of big business, but the election campaign platform unveiled this week promises to boost competition and favour consumers, even if it means taking on large, monopolistic businesses including the big banks.

For starters, the platform document, dubbed Canada’s Recovery Plan, contains a pledge to bring in legislation to enact open banking. This is to make it easier for Canadians to use fintech startups for financial products and services, including mortgages, lines of credit and credit cards — the bread and butter of the big banks. Not only are the Conservatives pledging to make rival fintechs more accessible, they say they’re doing so to “ensure that Canadians get the banking services they need at a price they can afford.”

Erin O’toole’s party isn’t stopping there. They’re also seeking to win votes with a pledge to order the Competition Bureau to investigate bank fees, and increase transparency when it comes to investment management fees by “requiring the banks to show invest returns net of fees so that seniors and savers don’t get ripped off.”

Finance isn’t the only sector where the Conservatives are taking aim at David-versus-goliath-style competition concerns and zeroing in on the power of the Bureau. The platform document says the Conservatives’ plans include “reining in big tech companies” — presumably including Alphabet Inc.’s Google, Facebook Inc., and Amazon.com Inc. If they win the election, a technology task force will be created within the Competition Bureau “to examine whether dominance and anti-competitive behaviour of big tech is damaging to Canadian industry,” the document says.

Among the goals of stepped up scrutiny and action on competition across the board are lower prices and jobs, according to the document.

“Canada’s Conservatives will give our competition laws real teeth to prevent a few big companies from dominating whole industries and pushing up prices,” it promises.

“We will also stand up to corporate Canada and reject mergers that substantially reduce competition and lead to layoffs and higher prices.”

But investors in Canada’s Big Six banks are looking beyond the pandemic as reporting season launches on Tuesday.

The banks have weathered the pandemic well, riding on soaring capital markets revenue and sweeping recoveries of provision funds set aside to cover potential losses that never materialized. But as restrictions lift and consumer spending picks up, analysts are watching for a rebound in loan growth, which has been under pressure as Canadians stashed away cash while largely confined to their homes.

The catalysts that could break the banks out of the pandemic loop have yet to appear, “making this quarter feel a lot like last quarter and the quarter before that and making it feel like Groundhog Day,” Royal Bank of Canada analyst Darko Mihelic said in a research note.

“We are waiting for a bounce back in retail loan growth, interest rate hikes, the lifting of government support programs, and the lifting of OSFI’S restrictions on capital distribution.”

Record-level deal-making has helped prop up the banks as investment bankers brought in more fees for advising on financings, mergers and acquisitions, and initial public offerings. While still above pre-pandemic levels, that blistering activity has cooled in the summer months.

Meanwhile, consumers and businesses remain wary of borrowing, even as the economy crawls toward a rebound, and that puts pressure on the revenue banks can earn from interest on debt products, including mortgages and credit cards.

“Some of the same issues that have impacted global rivals, such as excess customer liquidity, supply chain constraints and an uneven reopening are all likely to serve as headwinds,” Bank of America Securities analyst Ebrahim Poonawala said in a note.

Loan balances rose a modest 0.5 per cent last quarter. While growth in real estate lending softened the blow, continued drops in credit card loans, other personal loans, and commercial lending weighed on the banks. Shortly after, loans grew a slim 0.4 per cent monthover-month, according to May data from the Office of the Superintendent of Financial Institutions (OSFI).

“We suspect these trends will generally continue,” Mihelic said.

Bank of Nova Scotia and Bank of Montreal report results on Tuesday, Royal Bank of Canada and National Bank of Canada on Wednesday, and Canadian Imperial Bank of Commerce and Toronto-dominion Bank on Thursday.

MAKING IT FEEL LIKE GROUNDHOG DAY.