Lehman aftershocks ripple through Canadian markets
But Canadian financials shake off effect of traumatic bankruptcy
Canada’s big banks largely shrugged off the weekend bankruptcy filing of Lehman Bros. Holdings, but the thirdlargest Canadian life insurance company said Monday it will take an unspecified hit to third-quarter earnings because of its Lehman bond holdings.
Canadian bank and insurance stocks fell after a dramatic weekend during which Lehman Brothers sought bankruptcy protection, Merrill Lynch agreed to be bought by Bank of America and insurance giant American International Group was waging a fight for survival.
The S&P/TSX financial index fell 1.9 per cent Monday, while the broader benchmark, the S&P/TSX composite, tumbled four per cent as mining, energy and materials stocks were hammered.
Canadian banks are seen as relatively strong because they have solid deposit bases and the large Canadian investment banks are also part of the regulated commercial banking system, said Darren Dansereau, a portfolio manager at QV Investors in Calgary, which owns shares in three Canadian banks.
But uncertainty about Canadian stocks lingers because of the unknown ripple effects from the woes of U.S. investment banks, he noted.
Canadian insurer Sun Life Financial said Monday it expects to take a quarterly charge on Lehman debt, but it said the amount will depend on a number of factors, including expected recoveries and actuarial cash flow testing that will not be done until after the quarter ends on Sept. 30.
Sun Life said it holds $334 million par value of Lehman bond securities and about $15 million net value of Lehman derivative instruments.
A spokeswoman for the country’s biggest bank, Royal Bank of Canada, said that it had been working over the past several months to reduce risk related to Lehman.
Lehman is one of RBC’s trading and transactional counterparties, particularly in securities financing activities and derivatives, RBC spokeswoman Beja Rodeck said in an e-mail.
“We are well within our single name limits and are well-collateralized,” Rodeck said.
Toronto-Dominion Bank spokesman Simon Townsend said that the Lehman situation has “no material impact” on TD’s overall operations.
CIBC executives, speaking at an investor forum on their bank’s operations, said that CIBC’s mark-to-market loss on various Lehman-related positions was about $25 million as of Friday.