Blogs & Comment

Market euphoria in New York—and some set sights on Canada

Canadians rejoice! The U.S. banks’ stress tests are over, the results are in. And though U.S. bank finances remain, erm, stressedto the tune of US$75 billionthe wacky math of the new economy means the stressed banks are apparently not quite as stressed as everyone feared. (Most stressed: Bank of America, which needs to raise US$34 billion. U.S. banks getting a clean bill of health include U.S. Bancorp, J.P. Morgan Chase, and Capital One.)
Discussions of relative stressedness aside, US$75 billion is a lot of money. That’s probably why Nouriel “Dr. Doom” Roubiniwas on CNBCat market close Friday, attempting to put a lid on the market euphoria that’s bubbling up all around him.
Meanwhile, Dow Jones Industrials closed up 165 points, capping a strong week. That indicates for this week at least, much of Wall Street has been getting back to what it likes doing best: piling into stocks, bonds and everything in between.
Likewise, the Bureau of Labor Statistics reported earlier today that the U.S. economy dropped 539,000 non-farm jobs in April. This is also apparently something to celebrate analysts were expecting far worse.
Best of all, however, at least for the regrettably small number of us who despair of the lack of genuine competition in Canadian banking, is tidings of a new force heading north this year. Its mission: to boldly go where few international investment banks have gone before. Its goal: to set up a profitable I-banking business in the foreign-bank-averse Great White North. Its name: Barclays Capital.
The path BarCap is embarking upon is one littered with failure. But BarCap’s leader, Jerry Del Missier, is good at spotting opportunity where most see problems. He’s the guy whose deal-making skills helped BarCap eat Lehman Brothers’ most profitable divisions for lunch last September. And he’s Canadianoriginally from Sudbury, ON. He’s worked in Toronto and understands the proclivities and eccentricities of our marketnot to mention the profits to be had in such an uncompetitive environment.
All of which explains why JDM, as he’s affectionately known by his staff, is coolly confident BarCap will succeed.
Del Missier laid out the basics of his Canada strategy on a day that saw his parent bank, Barclays LLC, report eye-popping first quarter results (income up 42%, largely driven by the division he runs.) The core of their value proposition is global financing products and services available to Canadian businesses on all five continents. It’s to be an incremental build-out, with offices in Toronto and Calgary. More details will come to light later this summer.
Of course, it wasn’t so long ago that BarCap’s parent, Barclays ,was selling off the crown jewelsin the form of iShares,a profitable and valuable exchange-traded funds divisionin order to shore up its capital cushion and keep nosy British regulators out of its business. Analysts warn that the very real possibility of fresh shocks to Barclays’ businesssay, more losses to the 77 billion in UK mortgages it holds on its booksbode ill for the parent bank’s prospects.
But with Barclays’ stock closing today at 161 pence, up from 95 pence just one month ago, investors are apparently willing to give the bank the benefit of the doubt. Which, of course, helps when planning new initiatives in places like Canada.
The other major risk in BarCap’s plan is that international capital won’t want to play. Historically, international capital has avoided making direct investments in Canada. That’s because our patchwork of securities regulators, lack of enforcement of securities laws, and all-around bad reputation as the Wild West of North American financial markets means it has historically been hard for Canadians to guarantee the security of such investments. Presumably this reputation could pose a problem to any investment bank looking to come into the Canadian space.
Many have treaded this path, only to retreat from the Canadian market in shambles. It’ll be interesting to see how this particular effort fares. More news this summer.