People walk by the New York headquarters of Credit Suisse on March 15, in New York City. After its largest shareholder said it could not provide further support, Credit Suisse shares fell by as much as 30 per cent on Wednesday as global concerns over the stability of major banks continued to spread.Spencer Platt/Getty Images
Credit Suisse will borrow up to 50 billion Swiss francs ($74-billion) from the Swiss central bank under emergency credit lines, following a sharp drop in the lender’s share price Wednesday that added to concerns about the health of the financial system on both sides of the Atlantic.
Earlier in the day,the central bank had promised to provide Credit Suisse, Switzerland’s second-largest bank, with liquidity “if necessary,” essentially guaranteeing the lender would have access to cash in the event of a bank run. The move is reminiscent of the central bank supports provided to major global banks during the 2008 financial crisis.
At this point it is unclear how much Credit Suisse will actually borrow of the 50 billion Swiss francs made available. The bankalso announced plans late Wednesday to buy back U.S.-dollar and Euro-denominated bonds worth up to US$2.5-billion and €500-million, respectively. Buying back debt will ease the bank’s financial burden as it completes apreviously announced restructuring.
Global investors are on edge after two U.S. regional banks – Silicon Valley Bank and Signature Bank – failed in the past week. The fear is thatrapidly rising interest rates have irreparably damaged certain corners of the global financial system. Because there is so much uncertainty, every new development is scrutinized and fretted over, even when problems have been publicly known for years, which is the case at Credit Suisse.
Before Wednesday’s woes, which resulted in the bank’s shares plummeting by as much as 30 per cent, they were already down 98 per cent from their record high in 2007, owing to never-ending scandals, financial losses and restructurings.
Investors are dumping shares in even the biggest banks, which have the largest capital backstops. JP Morgan Chase & Co.’s JPM-N shares fell 5 per cent Wednesday, and are now down slightly this year. Shares of Royal Bank of Canada RY-T, the largest Canadian lender, are down 5 per cent over the past week – but are still up 2 per cent this year.
In a joint statement, the Swiss central bank and the country’s financial regulator asserted that “the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets.”
“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” they said in explaining the decision to backstop the lender if need be.
Wednesday’s sell-off began afterAmmar Al Khudairy, chair of Saudi National Bank, which is Credit Suisse’s largest shareholder, said he would not boost his organization’s ownership stake. He later clarified that boosting the stake above 10 per cent would impose extra regulatory burdens.
Credit Suisse has struggled for years, plagued by scandal after scandal. It was damaged by massive trading losses after the implosion of Archegos Capital, and by links to the collapsed finance firm Greensill Capital. Once a dominant name in global finance, the bank’s stature has plunged with its market share.Its shares hit a record high of US$74 each in New York in 2007. The stock closed at US$2.16 Wednesday.
The key question for regulators and investors is whether the failures of the two U.S. banks stemmed from idiosyncratic factors, such as poor risk management decisions, or whether they auger deeper problems in the financial system.
With everyone on edge, one saving grace is that global banking watchdogs have forced systemically important banks to beef up their capital reserves – that is, cash and other liquid securities that serve as buffers when things go bad. Canada’s banking watchdog, the Office of the Superintendent of Financial Institutions, has been at the forefront of this effort, and Canada’s banks are praised globally for their stability and risk management.
But those buffers could now be tested.
“We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the US regional banking sector … with more seizures and shutdowns coming,” BlackRock chief executive Larry Fink wrote Wednesday in his annual public letter. He described Silicon Valley Bank’s collapse as the “price we’re paying for decades of easy money.”
The rapid rise in interest rates has cratered bond prices, leaving large unrealized losses on the balance sheets of many financial institutions. This proved to be a landmine for Silicon Valley Bank, which was forced to sell a portion of its bond portfolio at a loss, sparking a bank run. The U.S. Federal Reserve announced a $25-billion liquidity facility on Sunday, giving regional banks the ability to swap their illiquid assets for cash in the event of bank runs.
In its funding announcement late Wednesday, Credit Suisse hoped to differentiate itself from Silicon Valley Bank by noting that its bond portfolio is “fully hedged for moves in interest rates.” In other words, if anything has to be sold, Credit Suisse should not incur losses.
Concerns about a broader financial crisis have quickly changed market expectations for future interest rate hikes. A week ago, markets were pricing in another percentage point of rate hikes from the U.S. Federal Reserve in the coming months, and no rate cuts until 2024. On Wednesday, markets were pricing in only a 50-per-cent chance the Fed would raise rates again at its next meeting, on March 22, and a high probability that it would start cutting rates this summer.
Banking sector woes have made bond prices swing at their fastest rate in decades. The yield on two-year U.S. Treasuries has fallen 120 basis points in the past five trading days.
Stock markets fell sharply Wednesday morning, although they recovered some ground through the trading day. The S&P 500 ended down 0.7 per cent, while the TSX Index dropped 1.6 per cent, dragged down by plummeting oil prices. The EURO STOXX 50, an index of large European companies, fell 3.46 per cent.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
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