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The Road Ahead Leads to Fewer Banks
Tuesday, November 26, 2002
Get set for some Canadian bank mergers. A few weeks ago it almost happened, except for a well timed wrench thrown into the mix by the Prime Minister's Office. The Bank of Montreal and Bank of Nova Scotia were on the fast track to getting together. Now they will have to wait until the political winds change. Or until the right person gets into the Prime Minister's Office.The idea of bank mergers send chills through the collective souls of many folks. Even though "banks" are part of the infrastructure of any successful economy, their reputation precedes them. Nobody seems to like dealing with banks. The spectre of dealing with fewer of them only makes some of us crazy.
The unfortunate part of this resistance to bank mergers is it's a fool's game. No, you're not a fool if you are against bank mergers. But all of us are a fool to believe it will be delayed into perpetuity. There is just too much money to be made by the people who have the greatest political influence. Combine that with the competitive nature of the global financial system and the need to merge will be difficult to resist. You should fully expect to wake up one day with news of the first Canadian bank merger since Toronto Dominion swallowed up Canada Trust.
That will probably have a lot to do with the political atmosphere of the day and foreign banks aggressively seeking higher ground. The latter is a big issue. I'm no bank apologist, but the big American and European banks are in no mood not to take prisoners. With an insatiable appetite for profits, banks believe the only way to compete is get bigger and bigger. In the end, Canadian banks won't have anywhere to turn unless they gather together their resources.
The problem for consumers is they aren't part of that equation. Consumers deposits represent a cash cow to banks. In other words, banks have got proficient at charging small fees for the most mundane of services. The more detached one is from a bank, the more profit a bank makes from you. This practice is widespread, making Canadian banks some of the most consistently prosperous businesses in Canada.
Canadians have the option of grumbling or investing in these banks. Most people choose grumbling. Others invest in Canadian mutual funds which invariably include some type of blue chip bank stock. Still others invest and grumble. The bottom line is Canadians banks are used to being a "whipping boy". They have the money and the majority of Canadian don't . It's the classic grumbling scenario.
The nuts and bolts of bank mergers will have a real effect in a place like Chatham-Kent. In towns like Dresden, Wallaceburg and Blenheim, bank mergers would cause job losses and building closures. The branches that are there now would merge. After that, whatever's left would eventually turn into a bank machine. And at the end of the day, there is always the internet.
The internet is making the old fashion bank teller obsolete. If you haven't banked on the internet, it's well worth a look. It's open 24 hours a day with no bricks and mortar. If you are willing to deal with the internet's security issues, it's one of the best ways to go. You might be playing into the bank's hands, but I guess, everybody's got their price.
Surely, that will be the case in Ottawa. This week the Canadian Senate is starting hearings about possible bank mergers. The Senate hearings will see a roster of witnesses that includes four bank chief executive officers -- Gordon Nixon of Royal Bank of Canada, Peter Godsoe of Scotiabank, John Hunkin of Canadian Imperial Bank of Commerce, Edmund Clark of TD Bank and Tony Comper of BMO. You'll notice, you and I aren't there. That will come. The big guys at the banks obviously have a merger agenda.
The problem is this won't translate into getting capital into consumers' hands. That is one of the biggest limitations to personal economic growth. Our politicians all know it. That's one reason why Paul Martin nixed the first bank merger attempts a few years ago and the Prime Minister's Office the same a couple of weeks ago. The other reason is our politicians know the political will simply is not there to let the banks have their way.
But the political winds are changing. In February 2004, Prime Minister Jean Chretien is leaving and my bets say Paul Martin will be the new PM. Remember, he's the guy who originally spoiled the bank's party. But not next time. Something tells me Paul Martin when he gets to be Prime Minister will find the bank merger religion. When that happens, like it or not, Canadians will have another thing to grumble about.
Philip Shaw, farms 830 acres near Dresden, Ontario. He holds a Masters of Agricultural Economics and Business Degree from the University of Guelph and is a well-known commentator on agricultural issues in print, on radio and over satellite in Canada and the United States. In the Chatham-Kent Times, Phil will use his frank and forthright writing style to address political and economic issues from the local to the international stage. He is a keen observer of political life at all levels, reads widely and has travelled the world to gather fodder for his column. See what's At Issue this week.
