The Bankwatch

Tracking the consumer evolution of financial services

BMO first in laying the groundwork to mitigate against sub prime

I  have been awaiting specifics on how the sub prime crisis would impact Canada specifically, and these stories at noted by ‘Canadian Banks’ indicate BMO is one of the first out of the gate with significant balance sheet restructuring in advance of rumoured impacts from the US situation. 

The restructuring involved a 6% boost in Assets and liabilities, using new wholesale and commercial deposits to repurchase its own Asset Backed Commercial Paper.  Translation …  the articles speculate this is in anticipation of significant writedowns in the 4th quarter.

Who is next ?  Watching and waiting for RBC, CIBC, Scotia information.

Canadian Banks & Insurance

Mr. Mihelic said his analysis may show BMO raised funds by borrowing from other banks and by attracting commercial deposits, possibly in anticipation of problems in the ABCP market. “BMO may have been ahead of the curve and prudent with respect to funding,” he said

… … …

Most recently, BMO has been dragged into the ABCP quagmire and has also been exposed as a significant player in the U.S. sector of the global credit crunch focused on structured investment vehicles or SIVs. The bank said this week it is not part of a group of top U.S. banks that has organized a US$80-billion fund to deal with the problems around SIVs, but said it is “following closely” developments regarding the proposed fund.

Relevance to Bankwatch:
Writing about the financial situation is not on topic for this blog.  My thinking though is this, and input welcome! 

‘Which Banks get the Web Lifestyle’ is the tagline for Bankwatch.  Implicit in that tagline is the view that the web brings the customer back into full focus, and that it forces, firms to look carefully at their customer positioning, because the transparency that the Web brings cannot be avoided. 

I won’t take advantage of the situation, and plug social lending/ open source banking here.  I will though use as an example that provides a nice example of the other extreme in customer transparency.  Banks need to think through the participation in all markets, which include retail customers, commercial customers, as well as the wholesale markets of commercial paper, commodities, and trading for their own account in any market. 

The degree of risk increases in that list towards the end.  In a world of transparency, the potential gains from such participation needs to be weighed against the potential for customer backlash.  I wonder if there will come a time, when analysts might reward Banks for a purer market participation, and if the gains might come from customer growth as a reward to the Banks’ greater responsibility to them (the customers).

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Written by Colin Henderson

October 19, 2007 at 20:11

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