Canada’s big banks looking south?
With bloated capital reserves not seen since 2013, Canada’s Big Six banks are said to be considering U.S. acquisitions. It isn’t going to happen. Acquisition prices for U.S. banks are far too high. Actually, that same quandary has been a fact of life for the past two generations of Big Six CEOs.
The U.S. might boast more than 7,000 independently owned banks, but what’s on offer among them are second- or third-tier lenders.
And the most affordable among those are poorly run. Or they are hopelessly overpowered in their markets by the local operations of giant “money-centre” banks like Citigroup Inc. and Bank of America Corp., and by superregionals like PNC Financial Services Group Inc.
That’s how Royal Bank of Canada came to grief with a U.S. eastern seaboard chain of banks in the 2010s that RBC has since sold.
RBC’s acquired banks were fixeruppers, and RBC’s foray was ill-timed for the epic collapse in the U.S. housing bubble.
The U.S. banking consolidation that followed the Wall Street meltdown of 2008 now finds every lucrative U.S. market dominated by giant U.S. lenders.
That includes the markets served by the only two sizeable Canadian franchises in the U.S. industry, owned by Toronto Dominion Bank and Bank of Montreal. Even TD and BMO would best serve their shareholders by selling those franchises to the U.S. giants with which they compete, rather than to attempt further growth of them.
That’s a medium-term proposition. In the short term, the most likely use for the Big Six’s estimated combined $14 billion in excess capital will be share buybacks to appease investors disappointed with the performance of Canadian bank stocks versus their U.S. peers.
An Ottawa-Beijing impasse on Aecon:
Diplomats are supposed to smooth the waters. But last week, China’s ambassador to Canada, Lu Shaye, poured gasoline on the fire that is Aecon Group Inc.’s controversial $1.5-billion proposed takeover by China Communications Construction Co. Ltd., a 63-per-cent-owned arm of the Chinese government.
Lu Shaye said last Tuesday that Canadians are “too sensitive” about issues such as an Aecon takeover. He ran down Aecon by calling it “just a construction company.” China’s chief Canadian representative also linked an Aecon takeover with Ottawa’s hoped-for Canada-China free trade agreement. Lu Chaye managed in one press conference to insult Canadians’ character. (Canadians have not balked as their steel, aluminum, forest-products and base-metals industries have passed into foreign hands.) And to reveal his ignorance of Aecon’s critical role in building Canada. And to use some extortionate talk on trade.
Aecon’s contracts have national-security implications. They have included work on the Halifax shipyards that are building Canada’s next-gen warships, the Darlington nuclear power plant in Ontario, and the proposed Gordie Howe bridge at the DetroitWindsor crossing.
National security issues loom large, given China’s long-running practice of rampant theft of intellectual property.
And that Beijing would hold Canada-China trade talks hostage to gaining access to sensitive Canadian nationalsecurity information via Aecon is reason enough to block this takeover.
If the Trudeau cabinet approves this deal, it will have to brace for a caucus revolt. If it rejects the deal, it will have reminded Beijing that such setbacks are to be expected, absent genuine reform in China’s espionage and trade practices —including its dumping of steel in the Canadian market — and, of course, its sordid human rights record.
Awarning on infrastructure from Mississippi:
Last week, Mississippi’s governor abruptly ordered that 102 bridges in 16 of the state’s 82 counties be closed immediately. Phil Bryant, a Republican, said the decrepit spans “create extreme peril to the safety of persons and property.”
Challenges in the Magnolia State reflect those of the entire U.S., where an estimated 54,560 of 615,002 bridges across the country are “structurally deficient,” according to the U.S. Federal Highway Administration.
Fixing those structures would be a job-creating bonanza.
The Trump administration has proposed a $200-billion (U.S.) investment in infrastructure. But legislative passage is unlikely ahead of this fall’s midterm Congressional elections.
Watch some advocates of a North American renaissance in infrastructure reframe the issue as one of global competitiveness. China, whose global competitive prowess increases by the hour, has built the world’s most modern infra- structure. That is to say, 21stcentury airports, superhighways, and rail networks.
That puts China at an advantage to rivals constrained by aging infrastructure.
Properly understood, Amazon.com Inc., Wal-Mart Stores Inc. and their peers are logistics firms as much as they are merchants.
Corporate North America invests scores of billions of dollars each year upgrading its computer-controlled supply chains.
But for all their logistical sophistication, those supply chains are still reliant on creaky infrastructure — on highways, bridges and rail lines that in some cases predate the U.S. Civil War.
Even the Trans-Canada Highway and the U.S. interstate system are each more than half a century old. “Just in time” delivery of supplies the moment they’re needed is central to North America’s economic efficiency. And it is jeopardized by our failure to keep up with the ever-modernizing infrastructure of China.
We’ll pay a competitive price for that, sooner than later.