P4Capital reviews your questions and answers in this special edition of the Round Table discussions!
Amanda: Hello everyone, welcome to another edition of the P4Capital round table discussions. Now for those of you that don’t know, the P4Capital group releases a bi-monthly newsletter every other Tuesday. In these newsletters we address major concerns in the Capital Markets, specifically how those concerns affect Toronto Markets. This week, since a valued member of our executive team is away and somewhere hot, those of who are here, Shaheerah, Archana, Jim and I, will instead be going over the top questions and answers we receive in response to our newsletters. As usual, stay tuned and enjoy.
Amanda: Without further ado, let’s begin. The first question is this: Which Canadian banks will be the first to merge and why?
Jim: I believe CIBC is the first of the Canadian banks that will either be merged or sold. Historically, they were up for sale some years ago, very closely aligned with Manulife, which made some sense at the time. They struggled with revenues, they struggled with direction, they have been in kind of a ‘what are they up to mode’ for the last 20 years. So if I was to pick one of the five, that would be my first pick.
Archana: I would actually second Jim on that. I also think that CIBC would probably be one of the first to merge. Yeah, most of these banks sort of started operations around the same time, it’s also over the years where each of our Canadian banks are right now with respect to when they started, and I think that CIBC has a lot of catching up to do. Until an analyst, they would revamp many of their systems that they are still sort of operating on and using, I would definitely see CIBC as the first to merge.
Shaheerah: Well, I don’t know which banks will be the first to merge, but I do think it’s not a good idea for the banks to merge. Back in the late 1990s, RBC and BMO wanted to merge, and TD and CIBC wanted to merge, and both of those were rejected by Paul Martin. I really agree with that because then there would just be too much power in the hands of too few banks. It would reduce competition, and there would be problems for the government.
Amanda: We’ve posed this question to our audience as well, and the best response came from David. He said that this has always been the ultimate question. “There was a time when BMO and TD thought of merging, but it always come around to whether or not the government would allow it. TD has been the more aggressive one in that they are in the United States and internationally as well. Scotia is the oldest international Canadian Bank, which has taken on some of the trust of companies as it has grown. In the long run, and I do mean long run, perhaps there could eventually be a merger between TD and Scotia, but that is a big thought and a plan for many years ahead.” Which brings us to question two, which city will be the financial centre of the world in a decade and why?
Shaheerah: In our Podcast that we had regarding JP Morgan, I had listed a whole bunch of changes and products that were customized specifically towards the Hong Kong and Asia Pacific region. That’s really the region that has the most growth.
Archana: The far east definitely stands out for me as well. A case in point would be the recent epic IPOs that the market has witnessed and I think there’s a lot of money out there, so far east Hong Kong being one of the major trading hubs would be one of the areas on the globe that we need to watch out for.
Jim: And I’m going to go the opposite way and I’m going to say the traditional city of London, which is the home of the open traded market not only in capital but in produce and all sorts of goods if you will, so that would be my tick in the box.
Amanda: That’s a surprise Jim you usually talk about the rise of the east and BRIC countries. Why London?
Jim: 100% agree with the comments both Shaheerah and Archana made as well. The rise of the east is not really the rise of the east, they’ve been a powerful faction of wealth countries for millennia, it’s just that the western conscious was somewhat narrow and did not realize indeed, how the rest of the world was aligned. But as that consciousness has come into the reality, I still believe that they will generate tremendous volumes and as Archana pointed out, the recent IPOs, the epic IPOS was the proper wording of it will continue. But at the end of the day, the good old BRICs educate the rest of the world on finance and I can’t see them losing their grip. That’s kind of my idea.
Archana: To me, the far east being a younger market compared to Europe, I think they’re much more poised, or in a better shape to sort of latch on to the technology changes that are happening out there just in terms of modernizing their systems. So that’s why I am definitely in favour of the far east leading the back here.
Jim: To agree with Archana, but slightly at the same time through alternative thought out there, we still see the innovations of technology primarily coming out of silicon valley, so the adaptors of those innovations, very much are going to the west side of the pacific, as the sun goes if you will, but the leadership in what’s coming out is still America. So therefore, my compromise, London.
Amanda: Sorry Jim, but our listener Crispin seems to agree more with Archana than with you. He says “I think it will be Hong Kong. There are too many regulations in the Americas and European region. China is already the second largest economy in the world; it’s ripe for a take over. I don’t think New York or London stand a chance even if they update their technologies. It’s a game of numbers – how many people does the west have left in its middle class? China is the future.” Growing off of China and the future of technology, do you think Canadian trading platforms need to be modernized for global purposes?
Archana: There are a lot of changes happening in the trading markets as we are witnessing today. A lot of external factors obviously come into play, the regulatory changes and it’s just a game of numbers, the need for speed. It does become imperative for companies to adapt or else just fizzle out. So yes, I think Canadian trading platforms need to be modernized, and just with the advent of so many other players in the market right now, so it is very important for Canadian companies to ramp up their show.
Shaheerah: Well, we all need to keep up with technology, and the focus with trading platforms is that they need to incorporate real time data faster, and make the system more efficient, more secure, and also easier to use. For example, TD has what they call their advanced trading dashboard, and that combines from all market feeds and makes it easier for you to trade.
Jim: Interesting question, I’ve watched kind of an organizational change. The folks at Scotia have put in people dedicated in fast algorithms The royal bank has re-hauled its whole executive management team in its capital area. CIBC is right at the top, they’ve changed and put some focuses in it. The big question in my mind is are they shuffling the deck chairs, or are they actually going to do real change. Everyday their falling behind, everyday we’re running with technology. I modernized the capital markets in 1985/86. That’s a long time ago – that’s 30 years ago. I swear if I walked into some trading floors right now I’d see some of the technology we integrated into it three decades ago. I look at it and say to myself, I think they realize they’re in a race for time, but the mores of the enterprise itself is somehow not allowing them to move at lightening speed and everyday they fall behind.
Amanda: Our listener Jen said this. “I’ve never thought of Canada as a world leader in banking or trading. We always seem to come in second to New York, London and now China. If Canadian citizens aren’t seeing Canada as a world leader, how can we expect other countries to view us better than we view ourselves? Modernizing our trading platforms would not only make us better able to compete, but it would help us become more of a recognized power in the world. Especially if we’re among the first.
Amanda: That was the P4Capital team reviewing some of the top answers we’ve received in response to our newsletter questions. if you want to joint he conversation, or answer or ask your own questions, please visit our website at http://www.planet4it.com You can also tweet us @planet4IT or @pfourdigital Thanks and see you next time.