Canada’s banks have long been considered highly cautious. Until recently, that description could have been construed as a criticism. Now, in the aftermath of the global credit crisis, Toronto Financial Services Alliance (TFSA) president Janet Ecker calls their stodginess “the new sexy”. Toronto’s financial sector is being hailed for its stability, attributed largely to Canada’s conservative regulatory policies and an ingrained aversion to risk.
“This [situation] could change as the markets adjust,” acknowledges Sandra Pupatello, Ontario’s minister of economic development and trade, but in the meantime Canada is enjoying its ‘I told you so’ moment and making hay with its strengthened competitive position. “Canadian banks are leaders in risk management,” says Ms Ecker. In fact, a global risk management institute is being established in Toronto that will be networked to universities throughout Canada. Ms Ecker describes its aim as being “to provide thorough leadership for best practices”.
Canada’s newly attractive cloak of cautious conservatism, coupled with uncertainty and corporate concern over tax policies in the US, has provided an opening for Toronto, Canada’s financial services hub, to press ahead with its stated goal of becoming the leading financial centre in North America and one of the top five in the world. “With a focused strategy and disciplined execution, this goal is well within reach,” says Ms Ecker.
In its investment-promotion arsenal, Canada already has business taxes that are lower than any other G7 country, thanks to recent federal and provincial tax cuts and reformed tax laws. Ontario has gone one step further and introduced a 13% harmonised sales tax, effective from July 1, 2010 – the greatest single change in the province’s tax law in 30 years. This will halve Ontario’s sales taxes and save businesses some C$100m ($97m) a year, the government claims. Another change in Ontario has been the introduction of tax credits for costs incurred during production. Bureaucrats hope this will free cash for investment in new equipment and create 600,000 jobs over the next 10 years.
Toronto is home to Canada’s top five domestic banks, five of its largest pension plans, six of its top insurers, seven of its 10 largest retail brokerage houses, and 90% of all Canadian mutual funds. Also present in the provincial capital are international financial services companies such as American Express, Citigroup, HSBC, ING, Morgan Stanley, UBS, State Street Bank and Bank of America.
Toronto-based Royal Bank of Canada (RBC) and TD Bank already have a significant US presence. “We are truly the first North American bank,” says Colleen Johnston, CFO of TD Bank. “We have as many branches in the US as in Canada.” TD Bank expands through acquisitions and takes no risks, she says.
RBC, meanwhile, has global capabilities in capital markets and wealth management. “Because RBC has the right mix of businesses and geographies, it can generate significant returns throughout the economic cycle,” says Barbara Stymiest, group head of RBC treasury and corporate services.
This bullish mood is reflected in its home city. Toronto’s skyline shimmers with new bank buildings. Five-star hotels and high-rise condominiums are under construction. Even the waterfront is receiving a facelift and city planners boast that it will rival any in the world by the time Toronto hosts the Pan American Games in 2015.