[unimaginative2]

The Good News About the Bad Times

If the backroom bureaucrats and bank CEOs have their way, Toronto will profit from the collapse of Wall Street and become a global financial centre. The plan to make everyone rich, rich, rich

By Philip Preville
Toronto Life

AS RECENTLY AS LAST FALL, in the middle of a worldwide credit meltdown that had nations everywhere scrambling to bail out their banks, it still seemed possible that Bay Street—the nerve centre of the Canadian financial system, touted as the most stable in the world—might come out of the crisis relatively unscathed.

Then came October. The job cuts started with GMP Capital, where 37 people were fired. Then AIC cut 53, Canaccord Capital 170 and CI Financial 60. Tip-of-the-iceberg stuff, one top-earning trader told me. We sat at the dining room table of his $10-million Rosedale home, watching the bad news on his wall-mounted, BNN-tuned plasma TV. The trader knew the big banks’ balance sheets were strewn with carnage, the result of declining stock portfolios and exposure to Wall Street bankruptcies. Three weeks later, Scotiabank announced its fourth-quarter profit was down by more than $890 million. Then CIBC confirmed that, after showing a profit of $3.3 billion in 2007, it would post a loss of more than $2 billion in 2008. It was hard to imagine how the big banks would avoid layoffs by the thousands. “Those cocky guys walking around Bymark saying, ‘I deserve a million five’ are finished,†the trader said. “The banks have been trying to reel in the bonuses forever. Now they can.â€

As Bay Street goes, so goes Toronto. That bonus money circulates through the economy—houses, cars, boats, gardeners, nannies and no end of bling. Shrinking bonuses were only part of the problem: people’s investment portfolios, real estate holdings and retirement savings were dwindling before their eyes. This spring, cash-starved executives will all be trying to unload their Muskoka vacation properties, but there won’t be any buyers. And that would be only the beginning. Toronto’s financial sector employs—or did until recently—more than 300,000 people in this city, which makes it the third largest financial services centre in North America, behind only New York and Chicago. One out of every three downtown lawyers and accountants specializes in the industry; their work, and income, will dry up, too. All of which makes you wonder, What is the value of creating the world’s best managed, most stable financial system if it fails to act as a fiscal bomb shelter during market Armageddon?

And yet, even as the layoffs were beginning to pile up, industry representatives were sitting down with provincial officials in November in the Finance Ministry’s Frost Building offices on Queen’s Park Crescent with a plan to dramatically expand Toronto’s position as a global financial centre. The meeting was chaired by Janet Ecker, the former finance minister who is now president of Toronto Financial Services Alliance, a high-powered industry think-tank. They discussed lowering business taxes, making changes to immigration policy, and creating a single, national securities regulator. They even plotted how to make Toronto the headquarters of a new, international regulator, market regulation being the surest antidote to future calamity. If that happened, the world’s finance ministers, central bankers and financial CEOs would flow through this city, making it a true hub of the world economy and endowing Toronto with the prestige it has sought for so long. The global recession, rather than throwing cold water on the idea, made the growth of Bay Street look more promising. Worldwide market turmoil could be our lucky break—kind of like getting your dream home at a bargain price because the previous owner defaulted on his mortgage. Bay Street has the chance to turn the world’s rotten luck into Toronto’s good fortune.

THIS WOULDN’T BE THE FIRST TIME Toronto cashed in on another city’s financial devastation. Though it is synonym*ous with money, power and high rolling in this city, Bay Street was created by a mass stampede away from uncertainty, namely the election of the separatist Parti Québécois in November 1976. Separatism has since become such a staple of Canadian life (with its own political party in Ottawa, its MPs drawing salaries and pensions from Canadian taxpayers) that it’s hard to recall the panic that gripped the country, and especially Montreal’s business community, in the wake of separatism’s first election victory. Sun Life Assurance made a show of its exodus. Royal Bank, Bank of Montreal and others moved out quietly, department by department, over a period of years. Once in Toronto, the industry thrived, and the city now ranks consistently among the world’s top 20 financial centres. The September instalment of the Global Financial Centres Index, which is the industry’s gold-standard ranking of where money and power are located, showed that Toronto had jumped from 15th place to 12th, leapfrogging over Paris (which was in free fall, dropping from 14th to 20th), San Francisco and Dublin. Such financial centres as Boston, Sydney, Frankfurt and even Chicago were now within striking distance.

I met Ontario Finance Minister Dwight Duncan in his boardroom early one November evening. “I think it should be a goal for Toronto to rank among the top 10 in the world,†he said. More than any finance minister in recent memory, Duncan, with his heavy, neckless frame, looks the part of a stereotypical banker—albeit a banker in bad times, with dark circles under his eyes. He’d spent the previous week in the riding he represents, Windsor-Tecumseh, an area heavily dependent upon the auto industry. It’s starting to look like most of the 150,000 manufacturing jobs the province has lost in the past two years are gone for good. Ontario is now experiencing what the U.K. went through under Margaret Thatcher: a final, massive shift from manufacturing jobs to service jobs. In the new economy, Ontario doesn’t make stuff anymore. We let other places do that; our new job is to lend, invest, and manage people’s money.

That’s the idea, at any rate. The day I met Duncan, he had been trying to measure the increasingly faint pulse of an economy on life support: a lengthy morning phone call with his federal counterpart, Jim Flaherty, who updated him on the weekend’s G20 meeting in Washington, was followed by an impromptu afternoon meeting with the premier. Photographed portraits of Duncan’s predecessors hung on the wall. Given the unfolding situation, it wasn’t hard to imagine his face up there with his trademark red tie pulled tight above his head like a noose. But he is all smiles when it comes to the financial industry, which contributes enormous tax revenue. One lowball figure is $9 billion. “We build a lot of schools and hospitals with that money,†Duncan said.

For Toronto to become a bigger financial player, Bay Street must expand its presence outside Canada. (As one senior bank executive put it to me, “We can’t get any bigger within the country, because there’s nothing left to buy.â€) Paradoxically, even as the global banking system was in the crapper, TD Bank was spending $20 million to rebrand recently acquired American branches. It started with a new TV commercial starring talk-show hosts Regis Philbin and Kelly Ripa that was broadcast across America’s eastern seaboard at the height of the crisis. (“Regis doesn’t like change,†says Regis himself, sitting in a plush forest green chaise. “Oh, for crying out loud!†replies Kelly, “What’s not to like?†Then the commercial’s voice-over kicks in: “Commerce Bank and TD Banknorth have become TD Bank…America’s most convenient bank.â€) It wasn’t TD’s idea to hire Regis and Kelly—they were already the celebrity endorsers of New Jersey–based Commerce Bank, and TD inherited their contract when it bought Commerce this past spring—but the pair have come in handy. The rebranding is the largest retail campaign in TD’s history. Over the course of the fall and winter, TD erected new signage for more than 1,100 branches in the United States, the same number of branches the company has in Canada.

 

[unimaginative2]

Part 2

Regis and Kelly weren’t the only ones spreading the word. In mid-November, around the time the G20 leaders were meeting in Washington to discuss bailout plans, TD’s 61-year-old CEO, Ed Clark, flew to New York on a media tour, sitting down with editorial boards at the Wall Street Journal, Financial Times, Bloomberg.com and others. Clark is as tall and broad as a lumberjack, with a personality that seems too small for his build. There’s a touch of grey around the sides of his receding hairline. He speaks authoritatively, but plainly. Clark’s main topic was how his bank, like other Canadian banks, was managing in the downturn, but his talking points were a thinly veiled pitch for new customers. “We have not really been impacted [by the credit crunch],†he told MSNBC. (This was not entirely true: like the other big banks, TD wrote off hundreds of millions in the fourth quarter of 2008. That said, it was still showing a profit on its bottom line, something few American banks could say.) His assessment of the mood among consumers: “I think people are terrified,†and their terror was creating “a movement toward deposits, and a flight to quality institutions.†Planning to hoard cash? TD can help.

“Out of this crisis, we have the potential to strengthen Canada’s brand in financial services,†Clark told me. South of the border, Canadians are seen as polite, risk-averse and boring—in short, a nation of Ed Clarks—just what the whole world suddenly wants from banks. As it happens, according to Clark, “Canadians are very good at retail banking.†This will come as news to the many Canadians who hate their banks, but personal banking in the United States is worse: limited hours, interminable lineups and week-long waits for cheques to clear are the norm. TD purchased Banknorth and Commerce partly because they had both opted out of the sub-prime loan mania, extending mortgages only to people with whom they had a prior banking relationship. “We have made conservative choices with our banking regulations,†Clark says. “TD has made conservative choices with our U.S. acquisitions. And they’ve been the right choices.â€

Until recently, Canada’s financial system—the network of rules that apply to banks, insurance companies, pension funds and mortgages—has been viewed as over-regulated. Only now have the benefits become apparent. Canadian regulators require our institutions to maintain healthier financial cushions to absorb market shocks, and have shunned the kinds of interest-only mortgages that caused the sub-prime mortgage disaster in the United States. Then there are the roads not taken: our institutions are allowed to invest south of the border in things like mortgage-backed securities, but TD, for one, simply chose not to. The other factor is that Canada’s economy is less dependent on foreign money. Iceland, whose growth was based primarily on foreign credit, was once considered a textbook example of economic management. When the credit crunch hit, the money pipeline dried up. Similarly, the credit crunch led Wall Street’s institutions to stop lending to each other—not knowing which company would be the next to fail—but that has not been the case here: when the insurance giant Manulife suffered heavy investment losses last fall, it was able to borrow $3 billion from Canadian banks to shore up its balance sheet.

New York stands to be the biggest loser, dragging other American cities down with it. Days after Clark breezed through town, Citigroup announced more than 50,000 layoffs, on top of the 23,000 the company had announced earlier in the year, to say nothing of the 10,000 employees on Wall Street whose jobs evaporated in bankruptcy and the thousands of other jobs that have been shed. Roger Martin, the dean of the Rotman School of Management, calls Manhattan the supernova of greed and excess. “It’s the place where the number one goal was making money for me, not my clients,†he says. “And because so many people were ill-served, its reputation may never fully recover.â€

SO WHAT HAPPENS AFTER THE RECESSION? In one scenario, this crisis is a recession like any other, and once it’s over, everything will go back to normal, with New York and London the alpha cities of the financial world. Equally unlikely is the opposite scenario: Wall Street and London are finished, and we should all hail the new economic powers of China, India and the Middle East. The more probable result is one in which power becomes broadly distributed, especially in North America.

The geographical shift is already in progress, and Toronto is on the upswing. Last fall, three Canadian banks cracked the list of North America’s 10 largest (RBC was fifth, TD seventh and Scotiabank ninth), a state of affairs no one would have thought possible a decade ago when Ottawa refused to allow bank mergers. Their rise happened partly as a result of prudent investments and slow-but-steady international expansion, but mostly because, since late last year, U.S. banks have been bleeding more red ink than ours.

In other words, Toronto isn’t growing in power and influence; we’re simply shrinking more slowly than other cities. For Toronto to establish a lasting presence in the GFCI’s top 10, the financial sector will have to find new ways to grow. The Toronto Stock Exchange has been especially aggressive at luring in new business and clients. In 2007, it embarked on a 10-city American tour, offering a half-day workshop for American entrepreneurs on how to take their company public on the TSX. Last fall, global recession be damned, TSX markets president Kevin Cowan did it again, sending a team of business developers to Denver, Phoenix, Atlanta, Raleigh and San Diego. “There are certain things we do better than anyone else in the world,†says Cowan, “and one of them is raising money for a company’s early growth.†In the United States, the New York exchanges tend to list only the largest, most established corporations, leaving smaller firms to seek out individual venture capitalists to finance their growth. (Chicago’s exchange deals in derivatives, options and futures; it doesn’t list companies.) But the TSX specializes in smaller firms—that’s the nature of the Canadian market—and it has the numbers to prove it: nearly 4,000 companies are listed on the TSX, an amount eclipsed only by Mumbai’s exchange. It lists more mining and energy companies than any in the world and is second only to NASDAQ in technology firms. Oddly, only 242 TSX companies are from outside Canada (140 of them American), so the exchange has focused on attracting foreign companies to fuel its growth.

The goal of the TSX road show is to get American entrepreneurs to stop seeing the border as a barrier. Cowan’s emissaries point out everything Canada has going for it that America does not: strong banks, no government deficit (until recently, at least), better regulation. The tour brings along investment bankers, patent lawyers and tax accountants—Cowan calls it “thousands of dollars’ worth of powerful advice for freeâ€â€”so that, by day’s end, executives have a detailed picture of what the process of listing on the TSX looks like, and the contacts they need to do it. When the time comes for a company to raise capital, Toronto will be on its radar. This city’s institutional landscape won’t seem so foreign to an entrepreneur in, say, Boston or Philadelphia, now that Toronto-based companies like TD are establishing more prominence in the States. And then you can start to imagine Toronto as a true global player: a city where thousands of American companies list on its stock exchange, hiring Toronto bankers and lawyers and accountants, who in turn hire more staff to handle the crush of new business. Their head offices may still be in Hoboken or Denver, but the money flows through here.

 

[unimaginative2]

Part 3

THE DAY TD ANNOUNCED its purchase of Commerce Bank, the first phone call Ed Clark received was from the governor of New Jersey, Jon Corzine. “Congratulations,†he said. “Here’s my personal cellphone number. Call me anytime day or night if you ever need anything, and I want to meet with you next time you are in New Jersey.†It was more than just a courtesy call: you never know when a company like TD might decide to relocate its accounting department or open a call centre, and politicians want to have personal relationships with the decision makers, so they can get the inside track on new jobs.

Bay Street is not the only financial centre that intends to profit from the turmoil. To do so, it will need political help. Other cities have independent corporations bankrolled by millions of tax dollars dedicated solely to the task of attracting jobs. The New York City Economic Development Corporation can help a company find a location and tap into every available tax incentive and subsidy. (Its slogan: “Make it here.â€) The London Development Agency spends hundreds of millions annually figuring out how to attract more business. The GFCI is actually commissioned by the City of London: they use it to keep tabs on competitor cities and stay ahead of them.

Last fall, Mayor David Miller—who, like Dwight Duncan, believes Toronto could become a top-10 city—created a similar agency, Invest Toronto. It is perhaps most closely modelled on World Business Chicago, a non-profit corporation chaired by Mayor Richard Daly. Miller is allocating $10 million to get the agency off the ground, and he has the near-unanimous support of council. Miller must lead the effort because there is a limit to how far Duncan—who also promotes Windsor and North Bay and Wawa—can stick his neck out for Toronto. The same, obviously, goes for Jim Flaherty. Other levels of government find it far easier (and more popular) to be Toronto’s foe than its friend.

In establishing Invest Toronto, Miller relied on advice from Greg Clark, a former executive director of the London Development Agency (no relation to TD’s Clark) and an advisor to the Organization for Economic Cooperation and Development who travels the world as an independent consultant. He has made frequent stops in Toronto since 2006 as a consultant to the mayor’s advisory committee on economic competitiveness. In essence, he coaches city hall on how to turn Toronto into a global player: his role has been to show Miller what other cities are doing.

One of Clark’s first pieces of advice was for the city to promote Bay Street as enthusiastically as it does its cultural and medical-research industries. Clark contrasts Toronto with Frankfurt, which used its post-war role as the home of Germany’s central bank to lure other German banks to headquarter in the city, and later the European Central Bank, making it among the globe’s most powerful financial centres. Toronto, he feels, could do even better. “Frankfurt’s vision of itself does not extend much further than central Europe,†he says. Clark likes to personify cities in terms of how they see themselves, but also as others see them, and Frankfurt is a bore. Toronto, he says, has a taste for the good life—it’s about more than money.

What lies ahead for Invest Toronto? Other cities will pounce on the opportunity to grab a bigger piece of the global pie. “In the past 40 years,†says Clark, “Singapore has gone through about 150 years’ worth of industrialization and modernization. It has a very strong sense of itself and its place in the world. And New York will defend its position aggressively.†The fight for global supremacy is not for the faint of heart.

Which prompts the question: Does Toronto want to play in the big leagues or not? Do we all want Bay Street to conquer the world? Many Torontonians like the city as it is: a big player but not a high roller, fast-paced but not hectic, vibrant but not chaotic, important but unnoticed. That’s a portrait of Toronto as a shrinking violet. Another vision of the future is emerging: a time when the term “Bay Street†is as globally recognized as “Wall Street†(renowned not as the biggest player, but perhaps as the smartest), when the sector puts a more forceful stamp upon global commerce and becomes the economic engine that keeps Toronto awash in jobs and money for generations. Realistically, Toronto may have no choice but to pursue this path—witness the sunken look in Dwight Duncan’s eyes, the one that says, “I need to find jobs for hundreds of thousands of displaced manufacturing workers.†For too long, the city has lacked a focus for any greater ambition, yet it’s been there all the time. Bay Street already bankrolls the city, the province, the country. Why not the world?

 

[jks]

Wow, that was long, but I had to read all of it. That was a very interesting article. Fingers Crossed lol!

 

[Filip]

Beer's on me.. I've been running all over Ottawa to find a copy of Toronto Life just so I can read this article.

You rock. Truly a wonderful read. My future lies in finance, and I hope it's a good future!

 

[jks]

Beer's on me.. I've been running all over Ottawa to find a copy of Toronto Life just so I can read this article.

You rock. Truly a wonderful read. My future lies in finance, and I hope it's a good future!

Lol, in Ottawa, did you actually find it?? I'd be amazed

 

[Filip]

Lol, in Ottawa, did you actually find it?? I'd be amazed

I'll admit, I haven't had much opportunity to hunt.. I'm sure it's sold in Chapters or many of those convenience stores downtown, but the bus strike keeps me grounded in university.

This article has really given me hope, I was thinking of ditching the finance stream - but now I want to be part of Toronto's future more than ever.

 

[Whoaccio]

The problem with a lot of this is that foreign banks aren't allowed to operate in any meaningful way in Canada. The transition England (mainly London) made under Thatcher wasn't a bunch of Brits just sitting around, London began to aggressively attract American banks to Canary Wharf by selling itself as the financial capital of the EU (and screwing Paris in the process). Toronto would have a hard time selling itself as the financial capital of North America because Canadian financial regulations heavily discourage foreign investment in our banks. If we don't get foreign investment in banks and finance, then the financial sector wont grow any faster than the domestic Canadian market place.

I don't really know what the article was referring to at the very begining about a 'new international regulator,' but it would be a real godsend. Say what you will about government, IGOs are great for local economies. It is a shame Toronto has none. Montreal managed to get IATA. New York the UN. Paris the OECD et cetera.

 

[urbanfan89]

A thousand times no. We don't need to be a world class financial hub because if we do, the Canadian $ will become vulnerable to fluctuations of hot money. It will become so seriously overvalued in good times that the manufacturing sector will be completely killed off, and next time we have a global financial crash the Canadian $ could be like the Icelandic Krona.

 

[jks]

Well, the title is a bit misleading, after all TO wouldn't be THE global financial centre, but rather a major player in the top ten. Manufactuaring is already killed off within Toronto, it's all in Thunder Bay/Oshawa/Hamilton, and there is really nothing you can do about that. So yeah, the Canadian dollar wouldn't be the main world currency, just perhaps more important. As for another crisis, if Bay street keeps on being managed well, and becomes more important on the world stage, it will mean the crisis won't be as deep. And after all, in Ontario, it's the Manufacturing that's dragging down the economy, so technically, having it killed off and replaced by service-based jobs would be a good thing.

 

[urbanfan89]

Well, the title is a bit misleading, after all TO wouldn't be THE global financial centre, but rather a major player in the top ten.

I'm not sure if this is really desirable considering that Canada is not entirely a global powerhouse and is not a gateway to a wider less mature market.

Manufactuaring is already killed off within Toronto, it's all in Thunder Bay/Oshawa/Hamilton, and there is really nothing you can do about that.

Last I checked, Toronto uses the same currency as Thunder Bay, which uses the same currency as Sherbrooke, which uses the same currency as Moncton, which uses the same currency as Fort McMurray, which uses the same currency as Yellowknife.

So yeah, the Canadian dollar wouldn't be the main world currency, just perhaps more important.

We really don't need to, and this only exposes Canada to leverage that it doesn't want. The British Pound has had scary gyrations lately due to its high dependence on finance, and that's something Canada doesn't need.

As for another crisis, if Bay street keeps on being managed well, and becomes more important on the world stage, it will mean the crisis won't be as deep.

WTF?!?!?! It's precisely because Bay Street was not free to play with the big dogs on Wall Street and Canary Wharf that they aren't begging for money.

And after all, in Ontario, it's the Manufacturing that's dragging down the economy, so technically, having it killed off and replaced by service-based jobs would be a good thing.

So killing off the manufacturing sector would be a good thing?!?! Luckily you weren't hired to work in the Nortel Accounting Division.

 

[Whoaccio]

A thousand times no. We don't need to be a world class financial hub because if we do, the Canadian $ will become vulnerable to fluctuations of hot money. It will become so seriously overvalued in good times that the manufacturing sector will be completely killed off, and next time we have a global financial crash the Canadian $ could be like the Icelandic Krona.

Comparing Canada to Iceland is ridiculous. Scarborough has a bigger economy than Iceland. Much bigger. There really is no similarity whatsoever between the two economies. If someone was advocating increasing leverage in the economy by several orders of magnitude and basically relying on nothing but foreign bank speculation to fuel the economy, then maybe there would be a comparison to be made.

Given that nobody is advocating that, I don't know what your point is. A strong financial sector would not somehow destroy manufacturing jobs any more than a strong resource sector did over the past decade. If anything access to credit and lending tends to be one of the major problems facing manufacturers. By allowing more investment to flow into Canada, manufacturers would have easier access to funding to retool their plants. A more profitable business sector would also further increase the tax base, allowing the government to either directly aid manufacturers or just cut taxes to a greater extent than currently possible.

So killing off the manufacturing sector would be a good thing?!?! Luckily you weren't hired to work in the Nortel Accounting Division.

We both know that isn't what jks suggested. It was you that suggested there is some kind of negative correlation between the financial sector and manufacturing sector. Just accepting that for the sake of argument, it is perfectly reasonable to declare that the financial sector replacing the manufacturing sector (given the strength in the former and weakness in the later) is natural and/or beneficial.

 

[urbanfan89]

Comparing Canada to Iceland is ridiculous. Scarborough has a bigger economy than Iceland. Much bigger. There really is no similarity whatsoever between the two economies.

Perhaps Iceland was a bad comparison. A better one would be the UK, which is suffering to a lesser extent from overreliance on the financial sector.

Given that nobody is advocating that, I don't know what your point is. A strong financial sector would not somehow destroy manufacturing jobs any more than a strong resource sector did over the past decade. If anything access to credit and lending tends to be one of the major problems facing manufacturers.

This Credit Crunch is a once in a century event. At any other time access to credit is not a problem to serious businesses.

By allowing more investment to flow into Canada, manufacturers would have easier access to funding to retool their plants.

As far as I know, there are no (or very few in some strategic sectors) restrictions on foreign investment in Canada. Finance is not the same as business.

A more profitable business sector would also further increase the tax base, allowing the government to either directly aid manufacturers or just cut taxes to a greater extent than currently possible.

True, but having a massive financial sector leaves the country vulnerable to distortions in the currency markets, which in turn affect other sectors. When I went to England I wondered what made everything there so ridiculously expensive. The British Pound was overvalued thanks to a continuing flow of foreign hot money investing in the City of London. We cannot have the Canadian Dollar become ridiculously overvalued and squeeze out export-dependent businesses just because of a huge flow of hot money into Bay Street.

We both know that isn't what jks suggested.

And after all, in Ontario, it's the Manufacturing that's dragging down the economy, so technically, having it killed off and replaced by service-based jobs would be a good thing.
I'm not sure, but it appears that this means that killing off the manufacturing sector is a good thing.

It was you that suggested there is some kind of negative correlation between the financial sector and manufacturing sector.

It's overreliance on the financial sector. Any modern economy needs a sophisticated financial industry to function. An economy that is overly reliant on foreign hot money (Iceland being an extreme example) has problems. Any complex machinery needs grease and oil to function smoothly, though a machine that contains more grease than actual parts will not work properly.

 

[Hydrogen]

I'll admit, I haven't had much opportunity to hunt.. I'm sure it's sold in Chapters or many of those convenience stores downtown, but the bus strike keeps me grounded in university.

Don't know if you are at Ottawa U or Carleton, but there are plenty of copies of Toronto Life at the Chapters on Rideau. That's where I found my copies when I lived in Ottawa.



That bus strike must be f*cking insane. Ottawa looks like it's having quite the chilly winter.

 

[Disparishun]

I've always wondered about this -- what international bodies are headquarted in Toronto? The only one I can really think of is the Egmont Group (I'm surprised the Toronto Life article doesn't mention it). Are there others?