The ‘secret’ Canadian bank bailout

You’ve probably noticed lots of eye rolling around here anytime someone mentions how Canadian banks are so different from US banks.  The Canadian Centre for Policy Alternatives is now pointing out in a report that Canadian banks actually received a multibillion dollar bailout from October 2008 to July 2010.  The government is being accused of offering ‘liquidity support’ that is much higher than originally reported.

All told, the study counts $114 billion worth of guarantees and financial aid for Canada’s big banks from government agencies such as the Bank of Canada and the Canada Mortgage and Housing Corp.

MacDonald combed through financial reports from government institutions as well as quarterly reports from the banks themselves.

He says the government has been obfuscating the true cost of supporting the banks.

“A healthy and resilient banking sector cannot operate under a shroud of secrecy. Details of the massive taxpayer support Canadian banks received should be released in the name of transparency and accountability,” MacDonald said.

They also point out that the heads of Canada’s big banks received large raises during the time this ‘liquidity support’ was offered.

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Alum
Guest
Alum

Peh !

McLovin
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McLovin

Canadian Banks up today on this earth shattering unproven report.

Move on.

Anonymous
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Anonymous

Hey McLovin have you read the report? You are the biggest dumbass on here.

Anonymous
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Anonymous

Does anybody know anything about the people behind this report? It looks like they wrote their own Wikipedia article…

Spade a Spade
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Spade a Spade
I have not read the report, but this information was certainly not secret. Whenever I “preach” on RE and the state of our banks, I always point out that during the 2008 “crisis,” our government took the riskiest loans off of the banks books. The number I always use (since 2008) was $75 billion, and that the swap constituted a bailout. I also point out that on a per capital basis, our bailout was on par if not bigger than the bailout in the US. I always say that the Conservatives watched the bailout debates in the US and were more strategic in the bailout spin than their counterparts. Of course, a bailout is a bailout, and I use this to question the credibility of our banks. The number in the report, $114 billion, is certainly a bigger number than… Read more »
Anonymous
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Anonymous

@Anonymous: Unfortunately for you, this information has been out for several years, and only now that the blame game is set to be played it is coming to light in the mainstream media.

I won’t post the dozens of links, because the spam filter will get me, but perhaps the ones on this page will be more credible for you?

patriotz
Member
It was a bailout, but those comparing it to TARP in the US are missing the big picture. The government (through CMHC) purchased billions of insured mortgages from the banks. Now these assets were not distressed, they were the highest quality assets a bank can hold. So the banks had nothing to lose from holding them. They were not being bailed out. So why the purchases? Due to the financial crisis the banks were having trouble borrowing money and raising capital (e.g. BMO common shares were yielding 12% at the time). Although their balance sheets were OK, they were running out of money to lend. So the mortgage purchase was a scheme to get more cash into the bank coffers to lend back out at a time when housing markets in major Canadian cities were over 10% off peak. It… Read more »
Anonymous
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Anonymous

@Anonymous:

“Unfortunately for you,”

What makes you think it’s “unfortunate for me”? I’m just trying to establish if the people who published this report have an agenda or not. I care about the facts, whatever they might be, rather than blindly supporting a particular side of the argument.

jesse
Member

@patriotz: “It was a bailout of the housing market”

Transferring stimulus through the housing market was deemed fast and relatively simple from a policy formulation stand point. The Bank of Canada has no doubt read papers on various stimulus methods and their relative effectiveness including how quickly they can be put into “action”. Causing a construction and renovation boom is no doubt at the top of the list.

I don’t see any conspiracy here; the government felt it needed to juice the economy and the housing market is the tried and true way of doing this. It worked. But I think they made a major mistake by juicing a market already overinflated. And here we are.

Makaya
Member
Makaya

This report is already on Zerohedge… As the french says: “ils boivent du petit lait”.

http://www.zerohedge.com/news/quantifying-big-five-canadian-banks-114-billion-bailout

N
Guest
N

Is my memory foggy, or didn’t the opposition parties all complain that the Conservatives were not doing enough in terms of stimulus back in 2008? It’s weird to hide stimulus while being criticized for not doing enough of it. One might say that it was the wrong kind of stimulus, but then why didn’t they just dress it up as a populist thing (lowering mortgage payments for hardworking Canadian families, promoting investment in home building, etc.)?

Something doesn’t add up for me.

Dyugle
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Dyugle

I’m shocked, SHOCKED that there is bank bailouts in Canada!!!!

frenchy
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frenchy

Here is proof of the insanity of RE prices here

http://tinyurl.com/d2qfrro

2.7% proforma cap rate, meaning that the real cap rate is rather sub 2%.

Who buys such an investment is beyond my mind?

Devore
Member
Devore

@frenchy: 2.7% is pretty good. Most Vancouver apartment buildings I’ve seen before had 1-1.5% cap rate. It would be interesting to know if they found any buyers. Aren’t REITs under some pressure to take advantage of the low rates and spend their cash?

frenchy
Guest
frenchy

A government bond will pay you more interest with zero risk, no hassle other than collecting interest, so buying RE with 3% cap rate is beyond insanity.

patriotz
Member

@Devore:
“Aren’t REITs under some pressure to take advantage of the low rates and spend their cash?”

There is no REIT with a mandate to buy only in Vancouver. There are still a lot of markets in Canada where apartment buildings yield 4 times as much or more.

Although the circular talks about upgrading the building and raising the rent, it seems to me from the asking price that it’s being pitched to speculators who would tear it down and build condos.

jesse
Member

@frenchy: “2.7% proforma cap rate, meaning that the real cap rate is rather sub 2%.”

The only time I see that type of rate rationalized is if investors expect a surge in rents, either because they think the market is strong and in a supply constrained position, or because they think they can raise rents that are below market.

In Vancouver there is little room to raise cap rates, although the usual supply siders will claim different. I’m just not seeing much leverage in raising rents, for the most part. If someone has information to the contrary — that rents are being raised at say 4-5% — please let me (us) know!

paulb.
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paulb.

New Listings 316
Price Changes 179
Sold Listings 124
TI:17530

http://www.laurenandpaul.ca

paulboenisch@gmail.com

Anonymous
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Anonymous

@jesse:

Did you read the link in full? There’s a list of all the units and how much rent each one is currenty paying. They sound on the (very) low side to me. I’d imagine that many of its current tenants have been there for a long time.

VMD
Member

@paulb.:
thank you Paul!
seems like
April 2012 vs 2011
Sales: -13%
New Lists: + 2%

April vs March:
Sales: -2.4%
New Lists: + 2%

*need to wait for official stats for final tally

N
Guest
N

@paulb.:

Nice way to start the week. Thanks Paul!

VHB
Member
VHB
Apr-2012	
Total days	19
Days elapsed so far	19
Weekends / holidays	11
Days missing	0
Days remaining	0
7 Day Moving Average: Sales	145
7 Day Moving Average: Listings	289
SALES	
Sales so far	2804
Projection for rest of month (using 7day MA)	0
Projected month end total	2804
NEW LISTINGS	
Listings so far	5953
Projection for rest of month (using 7day MA)	0
Projected month end total	5953
Sell-list so far	47.1%
Projected month-end sell-list	47.1%
MONTHS OF INVENTORY	
Inventory as of April 30, 2012	17530
MoI at this sales pace	6.25
VHB
Member
VHB
	April		
	sell	list	sell/list
2001	2253	3556	63.4%
2002	3785	5215	72.6%
2003	3095	4139	74.8%
2004	4106	5665	72.5%
2005	4043	5731	70.5%
2006	3345	4452	75.1%
2007	3490	5724	61.0%
2008	3218	7010	45.9%
2009	2963	4649	63.7%
2010	3512	7648	45.9%
2011	3225	5847	55.2%
Mean	3367	5421	62.1%
median	3345	5665	67.1%
patriotz
Member

@Anonymous:
If the current rents in the building were being constrained by rent controls, you’d see a significant divergence in rents for identical units, because they can charge any rent they want when new tenants move in and inevitably you’re going to get some turnover in a building that size.

Do you see that? I don’t.

jesse
Member

@Anonymous: If that’s the case then the play is to jack up the rents.

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