The takeover of , but there is no question that it is embarrassing for sa国际传媒 and is a major setback for sa国际传媒
It will be sorely missed, but not for the reasons cited by Conservative Leader Pierre Poilievre. sa国际传媒 and sa国际传媒 are losing a top-tier global bank with capabilities and a focus on business banking that is not found in any of the Canadian banks.
sa国际传媒 does not need more banks competing to get over-leveraged Canadian households to take on more Canadian Housing and Mortgage Corp.-insured debt to buy houses at inflated prices.
The loss of HSBC sa国际传媒's head office in Vancouver will hit the city particularly hard.
RBC will not need to add much in the way of local management or back office to absorb HSBC's customers. With the going on at the same time, Vancouver is losing two of its most significant head offices.
HSBC was a big supporter of events and causes as well as local businesses. Senior executives were very active in the community. It was a full-featured head office built on the foundation of the old Bank of British Columbia that had the unique cachet of being both more local and more international than any of the Toronto-based banks.
WAC Bennett created this Bank of sa国际传媒 (the second one) in 1966 because he knew it was important to have the chain of command for at least one major financial institution making decisions where the view out the window was not Bay Street and the Toronto skyline, where the assumptions and lived experiences’that informed decisions made every day could reflect the reality and complexity of the sa国际传媒 economy.
While RBC's CEO has said it would be embarrassing if the deal did not close, the real embarrassment is that a top-tier global bank had to abandon a profitable operation because the government and regulator favour a cloistered group of domestic banks over foreign competition.
In 1998 Canadian banks were embarrassed when their mergers were blocked by then finance minister Paul Martin and the Liberal government.
They have been frozen ever since, with similar multiple lines of business, not allowed to merge or be bought. Over the past 25 years they have evolved into a comfortable oligopoly with muted competition that sucks energy and profit out of the Canadian economy.
We know that costs of supply-management systems are borne by consumers who have the fewest alternatives. If cheese was vital to the health of Canadian cheese eaters, there would be many unhealthy – not just unhappy – cheese consumers in sa国际传媒.
Businesses in sa国际传媒 do not have practical alternatives to banks. As a result, small and medium-size enterprises (SMEs) in sa国际传媒 are not healthy.
Commentators have been pointing, with increasing alarm, to lagging productivity in SMEs as a national problem that is not being addressed.
Recent statistics confirm the negative trend.
The Organization for Economic Cooperation and Development (OECD) reported in 2022 that . It’s closer to New Zealand at $43.70 than the G7 average of $64.70, and lagging further behind the U.S. at $74.
There is little impetus to change among Canadian banks. Over the past decade they have been consistently profitable but restricted from dividend or bonusing out the accumulating profits.
Threats of having their profits taxed away has driven them to focus on risky acquisitions in the U.S. and elsewhere, where they have had mixed results.
The divergence of focus and fortunes between sa国际传媒's banks and SMEs has been going on for a long time. Over the 10 years that the banks have been generating an average return on equity of 14 per cent, the OECD’s annual Scoreboard for Financing SMEs and Entrepreneurs ranked sa国际传媒 the worst of all advanced economies in terms of availability and cost of financing for these businesses.
How are SMEs in sa国际传媒, where the economy depends on trade, supposed to compete in foreign markets when a key part of their own supply chain – access to financing – is protected and not supporting them to the degree their peers and competitors in other countries are supported?
Our interests are more aligned with our SMEs that employ 90 per cent of Canadian private sector workers than with banks that are shedding staff today and will shed staff faster as their heavy investments in artificial intelligence bear fruit.
For the Canadian economy to break out of a downward spiral in productivity and competitiveness, those SMEs with vision and drive must have access to financing to invest in better technology, train employees and consolidate to reach scale.
It will not be coming from sa国际传媒's frozen banks. They have other lines of business – capital markets, wealth management, residential mortgage lending, retail banking, insurance, trust management – that generate higher returns with lower risk than business lending.
To the banks, SMEs are valued as sources of deposits, not as customers for loans.
For loans up to $2 million, sometimes $5 million, all the banks have moved to AI-enabled credit scoring that focuses on the personal credit of owners and liquidation values of tangible assets, and pays little attention to the actual business.
Companies who match borrowers with lenders on either side of the border say the requirement for personal guarantees in support of business loans is more common in sa国际传媒 than in the U.S. These are just personal loans with a business label.
The situation got worse very fast during the pandemic. While supports to individuals in sa国际传媒 were as robust as in the U.S., support for businesses in the U.S. was materially greater, more varied, continues as a feature of Biden’s economic plan.
As a result, the two economies are on diverging paths: continuing robust growth in the American economy while sa国际传媒 is in recession.
The Canadian economy does not need an even more concentrated banking sector to suck out more of the energy and profit than it does now, but that is what we’re going to get.
We need new approaches and institutions to enable SMEs we desperately need to up their game. They need to push through the obstacle to growth sa国际传媒’s boxed-in banks have become.
Open banking and modernized payments, both areas where sa国际传媒 lags, would be a start.
Requiring banks to make pooled and anonymized data regarding credit approvals and trends, as well as financial benchmarks of the few companies they are lending to, would be help to figure out the best way to fill the gaps that exist between the financing available to SMEs in sa国际传媒 compared to what is available to SMEs in the U.S. and the rest of the OECD.
We need to fill these gaps with new players and strategies, but it will not happen if provincial and federal governments sit on their hands, letting the big banks get bigger and watch sa国际传媒's economy fall further behind.
Guy Heywood, a former banker and CPA, is principal of Corporate Banking Advisory. He advises companies on financing strategies and technology.
