Banking on Real Estate in Canada, but is it sustainable?
Real estate has been a traditional way to bank your cash privately as a rising long term asset protection. Many investors also see this as an income producing asset with rents returning better than what the banks can provide.
Banking on Real Estate
In the second quarter of 2009 Canada’s real estate activity and prices has risen significantly especially in the larger urban centers like the Greater Toronto Area (GTA). Canada and most of the rest of the world is in a deep recession But sales of real estate has been much higher than expected. In fact, the surging activity has Ottawa and the Bank of Canada talking about putting on the brakes, but a mild one at that.
First-time buyers attracted by historically-low interest rates sent the number of sales much higher than expected in several markets. But is it any wonder when the faith in the equities market has taken such a beating, those with some cash to spare will also turn to real estate as a wealth preserver?
In some markets, prices returned to pre-recession highs. The Canadian Real Estate Association says stronger sales in higher-priced markets have skewed the average price higher.
They revised its sales outlook twice during the year to reflect the stronger activity. It suggests the number of sales and average prices will continue to rise in 2010.
Reasons for Real Estate Price Rise
Even cautious investors have decided to take the plunge and buy real estate. The most important reasons appear to be based on the larger urban areas like the GTA.
* Large steady population increases creates a steady rise in demand for real estate.
* Commuting wastes time and resources, so many are now buying closer to work. That creates more local area demand for larger population centres.
* Interest rates are historically low for mortgages.
* Large first time real estate buyer pool. (Mum, Dad and grandparents may also be shelling out financial support for first time buyers).
* Large net immigration (from other countries or even from other parts of the country) into large population centres like the Greater Vancouver Area and Greater Toronto Area.
* Even with the retiring baby boomer population, their more active lifestyle and longer life span may simply create a different kind of housing demand.
Money and the exchange of value has been around since very ancient times. But the concept of a central banking control – a Federal Reserve Bank or Central Bank – is always dreamt up by a central control powerhouse (emperors, greedy usurpers, kings, presidents,…but really, the big bankers). Also since ancient times, this practice of monetary control was prevalent as a method of power and control – not to mention greed.
Take a look at the ancient cultures of Greece, Rome, China, India, Persia…etc. What makes any same person think this can’t happen today? I’ve got news for the doubting ones. It Happens! Banks run the planet we now live on. Even the flush of your toilet has a price on it in society…you pay for it don’t you?
Talk about creating your own bank. And how. They’ve done it in the biggest way possible.
Imagine banks being run by mega wealthy magnates and private financial houses (read as private banks).
In the distant past, at least it is doubtful anyone working today can remember when that was really so. Most banks were started by some rich so and so and run the way he or she wants (men were mostly the owners).
But having your hard earned savings run by one single person has its drawbacks. The owner’s business directive may not be for the best interests of anyone else. Historically, around the world, that has been found to be true.
Banking Business year end rush. Last minute Banking. People rushing in to get their shiny new loonies and toonies for the kids. Fresh and crisp bank-notes are being ordered and handed out as requested by customers at the tellers. ATMs running out of cash and shutting down. Bankers going nuts to fill their end of year portfolio on a high (bank) note. Holiday goodies are in every bank branch to entice customers (they still don’t get it – treating customers as retail walk ins is marketing folly).
Is the Banking Scrooge Present for You?
I just wonder how many customers have felt slighted this year, the year of mass econimic turmoil and dreaded loss in Canada have remained faithful to their bank. After-all, many mortgagees have taken flight to other cheaper and better deal makers who would treat them as “valued clients” and not just “retail customers”.
It’s time for the Holidays…Christmas to many, Hanukah to some, time to kick back for others, get completely whacked with friends and for kids this is simply a time to get parents feel guilty about the type of presents the big red and white guy is supposed to bring. Unfortunately for many, this is the year for cutbacks and the double digit bankruptcy rise makes no bones about that.
In fact, I know of many who would dearly do with food bank canned food stuffs and a warm place to stay. But what about their kids? I was told by some that there are also social welfare programs getting caught in the extra demands of time and energy. I’ll bet that this year, emergency shelters and motels will run out of much needed space. Expect the government budget for shelters to rise steeply in 2010 to make up for shortfalls this year.
The news on bank bonuses in Canada appear to be quite muted compared to the huge outcry south of the border – especially those involved with Wall Street. Does this assuage the consumer? They shouldn’t be so complacent. Yes, it’s great having powerful banks but do consumers realize they are likely paying far too much on service fees? Service fees should include all the ATMs, chequing, cash transfers, NSF, search, application, credit cards, investment management, etc. Add them up and you will be appalled. Oh yes, you know those bank workers? They are still being downsized too – though only occassionally (you could call it a strategic reduction in employee requirements as system efficiencies advance).
Real Estate and Mortgages Stay Big
Real estate mortgages has been a powerful driver all year and appear to power the Canadian economic engines well into 2010. Investors spooked by the dismal equities markets have switched their thinking into something more tangible- Real Estate. So, you’re not an investor, but hey, how about helping your grown kids with some downpayment for their first home? Grandparents have bought houses with their retirement income and rented them out. Others have formed investment groups and invested in promising properties in great locations.
Very low interest rates and easier to get mortgages have also helped drive the property market skywards. In the best locations in the GTA, like Markham, Ontario for example, most decent properties are snapped up within hours of their supposed listing…Many good homes are simply sold by eager buyers within days of getting on the MLS. But there are still those overpriced ones that sit for months without a nibble. And a few simply will not sell considering their poor condition vs price.
That is not to say all the properties in the GTA are selling like hotcakes. The real estate wisdom of location, location, location plays a huge role here. Sure, the prices have gone up across the board, but it’s hot in only the Best locations. The others will have a longer wait ahead of them.
It’s been a long time since I posted anything about banking on this site. My apologies to all you good readers. And thank you all for reading and visiting. Please come back for even better banking ideas in 2010.
The big banks are mighty indeed and when they fall the echoes reverberate all over the globe. They reach well into every aspect of our daily lives and the CEO of Goldman Sachs, Lloyd Blankfein says banks do God’s work. And so is the size of the Banks’ bonuses.
Banks Paying Big Bonuses
Where the banking industry is perched right now in the scheme of business and the functions of world commerce, it’s hard to argue they are indeed the dominant force in financial and political policies. But being closer to God is something that dosen’t go down quite well even with champagne washing down that caviar.
So, they are all powerful in getting loans, moneys that oil the machinery of businesses and hence lead the politicians a little closer to holding the hand of the almighty.
Goldman Sachs made $3Billion and are expecting to hand out $20Billion in bonuses. Now that are some choking numbers. In fact, I already hear gaging from the shareholders and the tax payers just getting stuck with paying off their bills and mortgages.
Obviously, they are firm adherents to squeezing every last dime from somewhere…you, the clients…to benefit some great financial performers. Does it work? Well, Lloyd says it is necessary to remain at the forefront of the business against their many competitors who are not doing quite so well but are also offering mega bonuses. How does it go down with you?…read more.
The financial industries of both Taiwan and China move closer with negotiations on their agreement almost completed announced Chiang Pin-kung, chairman of the quasi-official Straits Exchange Foundation of Taiwan.
The Straits Exchange Foundation and the Association for Relations Across the Taiwan Strait of China have been authorised separately by their governments to handle exchanges in the absence of official contact between the two sides…read more.
Taiwan and China move closer financially
Is this an auspicious sign heralding the coming year of the Golden Tiger in 2010?
The China – Taiwan realtions have been improving by leaps and bounds since 2008 and holds much hope for the end of any hostilities that may have remained for decades. In fact, much of Taiwan’s investments have been in Chinese manufacturing and projects the past decade.
It only makes great sense for both economies to further cooperate financially. Each side have their own strengths and expertise. This must be good for the banking business on both sides too.
It will be interesting to see how this plays out – China still considers Taiwan, once called an “Asian Tiger” a breakaway province and Taiwan has claimed independence with the help from the US. But truth be told, they are really 2 Chinas coming back closer together.
Downsizing the megabanks is becoming more than just gossip. The talk and public gripes of cutting megabanks down to size is becoming public and coming into prominence.
Megabanks are like Immovable Mountains
Paul Volcker, the former Federal Reserve Chairman has been delivering broadsides and salvos for the breakup of the megabanks because they have demonstrated the capability to be destructive to the world financial markets. He’s got an ally…Mervin King, the current Bank of England Governor.
But they are up against significant immovable mountains in the shape of their respective governments. Is this pair simply making political points? They must know what they are up against. Governments have been and are very much allied and support these monster sized banks. “Control the money and control the world” is a mantra not easily given up.
Perhaps these gentlemen are appearing to be too old fashioned for the fast boom and then bust cycles of controls and rules that govern banks’ activities to ensure economic stability.
U.K. Finance Minister Alistair Darling said, “You regulate according to risk”. “The greater the risk, the greater the capital requirement. I don’t think an arbitrary split would deal with the problem.” And that seems to be that!
So, it appears that the likes of Bank of America, Citigroup, J.P. Morgan Chase & Company,…still have some breathing room. In any case no government after bailing out the biggest banks and then shoving many untenable assets to them are going to turn around and tear them down to size now are they? They’ve probably been spooked by the failures of some of their largest financial institutions during that worldwide financial meltdown.
Some Basic Private Banking Requirements to Create Your Own Bank
An integral part of banking to create your own bank is to have a system of private banking services preferably all within the operating control or influences of that financial institution because this is especially critical when you need to build your financial assets. You’ll need to be able to invest internationally to get the best that your money can offer you. You’ll also need a really good money manager and an investment management system in place.
An Offshore Malaysian Tropical Island Resort
Think of it as offshore investment and banking as opposed to tax havens. This is really about maximising your financial returns, protecting your asset values and ease of financial transactions worldwide especially if you travel.
Think about it…In these days of international travel, and cash transfer restrictions, it can be hell to try investing in global opportunities (Have you ever tried carrying more than about $10,000 while traveling? It can be fraught with restrictions and questions by the customs…). And when in a certain part of the world you find a great piece of real estate or perhaps a business that’s just too good to pass up…and you have no way of getting hold of the required downpayment.
Something that happened to me;
I had transfered a sum of currency to a local bank’s main branch in another country which also has great financial resources to purchase a condo with a fantastic price…but the money took 30 days to arrive (just a couple of years ago, this would have been an easy overnight transfer)…well after the deal had slipped away and my trip over there was over. Of course the fine print made the bank immune from prosecution. Yet, this was my own money deposited at the bank and transfered in the same currency.
Checking Today’s Private Bankers Out
Yesterday’s interviews with several Private Banks’ Bankers says it all. They typically are masters of their own piece of allocated work. In fact, none of them are very savvy in terms of being a full service banker by themselves. It seems, only the top guys…the senior VPs and perhaps the CEO or a Managing Director has all the marbles.
The employees by and large remain employees…even those with over 10 years of banking experience. They get very good at what they do in their little cubicle or office and that’s that. In fact, they are so good at offering packages, they often forget the entire scope of what their banks offer worldwide.
Here’s the story:
I played the role of a returning customer (which was true in most of the cases – I’ve tried many banks’ services in the past) and queried some banks about International Private Banking - I got largely blank stares. So I had to delve into what I required as a client…not a mere customer.
Note:I made some requirements which are fairly typical of a financially independent person (not necessarily ‘filthy’ rich) who travels and has family on the other side of the planet. Mature Private Bankers will tell you these are a fairly large cross section of the private banking population with very useful disposable cash. They make up the most valuable customer base a bank can have.
1) I enquired about a bank that can set up an account here in Canada or USA and then an account over in the other side of the globe – or in any other country they may have a branch.
- This is critical when you want to be able to take advantage of that country’s investments…for example, China right now. Or perhaps a simple business trip and you need not go through the hassle of transfering that much cash.
2) The Bank services include all manner of investment management – no, not just buying and selling local stocks, bonds and mutual funds, but actually will operate a system of global investment like access to the forex, the futures and also the foreign equities like the Chinese markets for example. And how about the very favourable Gold or precious metals futures?
- Where you bank is unlikely to offer these investment services to take advantage of where it’s prfitable immediately. You want a bank that can do so immediately without administrative “problems”.
3) An easy way to transfer your own money via wire transfer or better yet, being made available through the bank’s global pool of deposits/funds like the HSBC has.
- Therefore you’re not really transfering any money, merely using your own anywhere in the world. Imagine the peace of mind and the hassle from “the banking police” (at your banker’s mercy) being averted.
4) A money and investment manager to take care of your investments according to your needs. And I mean a well trained team that can and will manage your foreign investments and options, and other equities, not merely dealing with the local equities.
- This allows you to invest most forms of investment vehicles or hedge your assets. You’re not stuck with using a single market – remember the terrible losses not long ago?
5) The stable and great relationship building that bankers on the job for many years have with their clients. The vast majority of retail banks run their so called “private bank division” like a high priced offshoot of their retail side banking with much higher margins involved.
- It frustrates the hell out of me that each time I visit a bank intending to do a minor portfolio shuffle that should have taken only 10 minutes cost me the better part of an hour as the “new” guy tries to shuffle my papers trying to figure out who the heck is this guy that just popped in to his bank. All that before a few simple adjustments on the computer. Most banks still have no clue about the part of private banking that really means “Know Your Client”.
6) The bank and bank branches have international acceptance and a good reputation for fiscal expediency. This will expedite your foreign transactions. Well worth considering as a must have.
- Imagine having a bank that is thought of as possibly insolvent or known to launder money…would any other bank want to deal with such a financial institution?
The World is Your Oyster
These days, to get the very best from your money takes more than a little effort. You need to sit down and figure out what you want. Check out this site posts first and a future e-book or course to help you decide what you should do. Every jurisdiction in your area will have differences. In the US there are Federal and State banking and investment laws to consider. In Canada or the UK or Singapore or China there are banking and investment laws to consider.
But then when you do have all these services at your disposal, the world truly is your oyster. You can “travel” via the information highway and many banking functions which used to require a trip or two with tons of documentation half way around the world and then back…When accomplished, you can safely travel across the globe and have your piece of mind that your financial resources are cared for, well protected and well within easy reach.
Now, how about a holiday in a warm sunny tropical shoreline on your own villa or sailboat while winter rages on anyone?
One of the easiest countries in the world to start a bank bar none is…drum roll…surprise!
THE USA!
Surprised? What with all that debacle on Swiss Bank Privacy, Bank bailouts, making it difficult for private investment in banks…one would think the country was anti-banking. Yet the USA is probably the easiest place to create your own bank.
Did you realize that the USA had the most banks of all G20 countries – ever? 12,000+ in 1985. And then after many losses and downturns, it’s now about. 8,400. But by 2010 the numbers may be 1,000 smaller than that…read more. Bank failures are rife today.
USA Banking Hotspots
But then you might think investors have shied away from this banking business due to the heavy risks of failure involved. But surprisingly, more banks are springing up. 78 new banks have already been given their lisences to operate in the US so far this year, according to the FDIC. That is on top of the long ques of interested private investment companies waiting to snap up the failing banks’ assets and liscences – if the FDIC would let them.
Last year, there were 173 last year despite the huge crash of the US financial industry with Lehman Brothers causing a tailspin in the world’s financial markets that has still yet to end. One reason cited for the slowing down of bank approvals is becuase of new legislation that requires banks to have the necessary credibility such as between 10 – 25% of shares and the necessary paid up capital. But the requirements are far and away much less stringent than the European, Canadian or even the so called bank secrecy havens of Singapore and Switzerland.
What’s typical in a period of uncertainty and this time it’s a massive one, people – living breathing human beings – move their assets into the safety of secure assets like cash.In times of war, my grand parents used to hide their cash under their matresses. Who can blame anyone when the hurt and insecurity of the stock markets drive people in droves to hold large amounts of low interest paying bonds or certificates of deposits with banks?
[The Garden City Park, N.Y., bank was swamped with customers, and a push to lure $20 million in cash by selling certificates of deposit attracted $43 million. As investors fled the stock market, some brought Hanover as much as $1 million at a time according to bank officials.]…wsj.com.
But What of the Impending Bank Failures?
At best, it’s a love hate relationship. In good times, bankers can make a huge payoff. But in bad times, banks fall like pins in a bowling alley. You might think, “I feel for those investors -the bankers and share holders must have had it bad.” If that bank has been running for some years and it went down, very likely you’re dead wrong!
In fact, whether the bank has been around for a long time or have been profitable, the real victims are the depositors and depositors who have not either not kept their individual accounts to below the FDIC insured amount ( currently $250K in the US) or they have lost all their money in investment products. When the bank goes, all interest and investment money goes with it. Yes, shed a tear. Many life savings are lost this way. But wait, it doesn’t end there. Customarily, an unhealthy bank’s assets are then divided up into performing and non-performing.
Non-performing assets like defaulted credit card balances are sold, often for pennies on the dollar to debt collection agencies. Very suddenly the debtors will find life getting a little more complicated as very aggressive debt collectors are not so easy to deal with as the bank.
Other performing loans – like overdrafts may be taken over by a healthy bank. So, how may this be bad for a store owner? He or she may suddenly find that he has to deal with very different sets of circumstances. The overdraft may suddenly shrink to too low a limit for the business’ daily operations for example.
Then other businesses or or people trying to make loans, often find circumstances have changed for the loan criteria. Imagine you’re used to one system and then find that you are required to “tune” your loan application in another way. It can happen to your car loan for example. People with their deposits covered by the FDIC will get their principal covered but they notice their interest has gone up in smoke. Business owners who have had a long relationship with the old bankers will suddenly find that they have to do this all over agan. The banks afterall operate in a certain neighbourhood.
Investors’ Mecca
The investors who start up banks know these issues intimately. The potential for making it big far outweigh the dangers of failing. It’s like a business Mecca, the Holy Grail of business. Did you realize that banks do indeed create money? Your money becomes many times the amount allowed under the current climate of very high multiples. So, for a certain deposit, the banks stand to make a huge gross profit.
Therefore, within some countries, the financial risks are truly minimized especially when they operate in bad times, and in periods of allowed high multiples and the bankers’ own financial wizardry. Once you understand this, you can see that it is very much a worthwhile venture. Also, another big payoff is when a big bank eats up the little one and pay a premium doing so. It’s big pay day time to the investors, but not necessarily for the depositors.
Another thing that bank investors know is that the US is also relatively flush with capital despite the losses and destroyed lives from the financial disasters. Relatively speaking, when compared to many so called tax havens (which really is a DoDo) people with cash are everywhere. People no longer hide their money under their mattresses any more – they go to the bank. If you gat a social security check, it goes to a bank. When you get paid the company sends the paycheck to the bank. You pay your utility or credit card bills through the bank…Therefore there is always operating capital available in a country with a significant population base, which frequently use the bank like a utility.
I could go on on the beuaty of the technicailties involved but you get the picture by now why the USA is actually one of the easiest countries on the planet to start a bank.
Disclaimer: Do I necessarily encourage investors to start a bank in the USA? Not necessarily. In fact, there are many arguments why you should not – especially if the bank does not have significant competitive advantages. We’ll discuss this issue in another installment.
China Life, the largest Life insurance company in China is on an acquisition trail strategically buying up larger and profitable companies. Their long term plans would then include access to significant banking expertise hence the China Development Bank Corp acquisition offer.
China Life Insurance Project
China’s largest life insurer China Life Insurance Co. plans to acquire a stake in China Development Bank Corp (CDB) to match its long term liabilities and achieve a better synergy in resource allocation, China Daily reported Thursday.
“The final deal and final pricing and terms is subject to regulators’ approval,” citing China Life’s chairman, Yang Chao.
Talks are almost complete, and terms are “very favorable” to China Life, Yang said, but he didn’t give the size of the stake.
The insurer is also actively seeking equity investment opportunities in other big, unlisted corporations, according to Yang.
China Life’s wooing of CDB is its latest attempt to make it a financial holding group with a strong core business and a diversified financial business, the newspaper said.
On Aug 26, Yang said the company was considering becoming the pre-IPO investor of the Agricultural Bank of China (ABC) and the Asian unit of American International Group (AIG).
CDB received a 20 billion U.S. dollar government capital injection in December 2007 and is seeking to transform itself from a policy bank into a commercial lender.
ING Groep NV, the biggest Dutch financial-services company, is seeking to raise as much as 8 billion Euros selling assets which includes their prized private banking division to boost capital.
ING logo
Their most recent asset sale has been some prized ones:
1) Raised 1.4 billion Euros in February by selling its 70 percent stake in ING Canada Inc. Canada’s largest property and casualty insurer.
2) An agreement to sell its annuity and mortgage businesses in Chile to Corp Group Vida Chile SA in July for about US$350 million according to Santiago-based newspaper Diario Financiero.
3) And now, ING has asked for final bids for its private banking operations and is seeking about US$1.8 billion, two people familiar with the matter said. The Amsterdam-based bank has selected companies to enter final bidding as early as next week, handled by JP Morgan as adviser.
ING received a 10 billion Euros (US$14.3 billion) lifeline in October from the Netherlands Government is seeking to reduce its outstanding commitment. Assets under management has declined to 11.4 billion Euros in the first quarter of this year from 13.1 billion Euros a year earlier.
Obviously, the Asian unit being a truly prized proposition and is considered a growth business in Asia is something ING must be trying to get a good offer for. And to sell this prized possession, things must be quite dire on the financial front for this company that has seen tremendous growth in recent years.
According to ING’s website, their Asian private banking division has offices in Singapore, Hong Kong and the Philippines.
