The world economy continues to feel the ripple effects after U.S. authorities took over Silicon Valley Bank (SVB) last Friday.
SVB was the 16th largest bank in the United States, largely catering to startups and the tech industry in California. It was the largest U.S. bank failure since 2008. On Sunday, regulators also closed New York-based Signature Bank.
But in Canada, a bank hasn’t collapsed in nearly 27 years. While the risk of bank failure in Canada isn’t zero, many of the circumstances that led to the collapse of SVB don’t apply in the Canadian banking sector.
“No bank is immune to a bank run,” Western University’s Cristián Bravo, who is the Canada Research Chair in banking and insurance analytics, told CTVNews.ca over the phone Tuesday. “If everyone goes to the bank and tries to withdraw their money, that is going to cause a collapse.”
SVB had been heavily invested in government bonds and mortgage-backed securities. But as the U.S. Federal Reserve began to raise interest rates, these investments slowly began to lose their value.
“Now, this isn’t a new problem in banking and you can insure against this type of interest rate risk. Clearly SVB didn’t do that. And so this is as much the fault of regulators and stress-testers as it is of the bank itself. This is absolutely something that should have been foreseen,” David Macdonald, senior economist for the Canadian Centre for Policy Alternatives, told CTV News Channel on Tuesday.
SVB, facing a lack of liquidity, announced last Wednesday that it had sold off these investments at a loss and needed to raise capital to fill a massive hole in its balance sheet.
That triggered panic among depositors, resulting in a bank run. On Friday, U.S. regulators took control of the bank.
In the U.S., banks with assets of under US$250 billion are considered small banks and thus subject to looser liquidity requirements. But in Canada, Bravo notes that a bank would “need to be a lot smaller” in order to take advantage of lighter regulations.
The Canadian Bankers Association, the industry group representing the banking sector in Canada, released a statement Monday highlighting the stricter liquidity standards in Canada as a testament to “the resiliency of Canada’s banking system.”
“Canada’s banks are well-capitalized with robust capital ratios, have diversified business models and funding sources, and must meet rigorous liquidity standards set by federal regulators,” the association said. “The Canadian banking system is widely recognized for its prudent lending and risk management practices, diligent government oversight, and sensible regulation based on the core tenets of safety and soundness.”
Macdonald agrees that what happened to SVB is unlikely to occur in Canada.
“In the Canadian context, you know, we don’t really have this type of problem. Our banks are just better regulated, frankly. They’re better stress-tested. And so this type of interest rate risk may well decrease banking profits—that’s certainly a possibility in Canada—but we’re at no real risk of this type of collapse,” he said.
Another factor, Bravo points out, is that the banking sector in Canada is much more concentrated around the Bix Six banks. Small financial institutions do exist in Canada, but these are typically institutions like credit unions that serve consumers who hold deposits of $100,000 or less, which is the maximum amount that is insurable by the Canada Deposit Insurance Corporation.
On the other hand, the U.S. has a plethora of small- and medium-sized regional banks, many of which serve business clients holding more than US$250,000—the maximum insurable amount in the U.S. More than 97 per cent of SVB’s clients had deposits exceeding US$250,000.
“(SVB’s clients) were mostly companies with large amounts of money. So, it didn’t think much of them to get US$1 billion, US$2 billion, US$3 billion out,” Bravo said. “That’s not the case in Canada.”
Despite the fact that these depositors weren’t insured, the U.S. President Joe Biden’s administration announced Sunday his country would be guaranteeing all SVB deposits. The Office of the Superintendent of Financial Institutions, Canada’s banking regulator, also announced it would be taking control of SVB’s Canadian assets.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
