Author: officebureau
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Is 65 the new 45?
With longer, healthier lives on the horizon for Canadians, retirement can now last 20 to 30 years instead of what it used to be 10-15 years ago. Add in an uncertain economy, and creating future financial security becomes a complex challenge. This infographic explores how today’s 40-somethings can find opportunity and confidence in today’s volatile market through long-term, income-generating investment funds.
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Industry moves this week
Each week, Advisor.ca summarizes notable moves across the financial industry.
- Dan Barclay, CEO and group head of capital markets with BMO Financial Group, will retire on Nov. 1, after five years in the role. He has been with the bank for more than 20 years, and has more than three decades of banking industry experience. He’ll become senior advisor to the CEO. Taking his place in that leadership position, effective on the same day, will be Alan Tannenbaum who’s currently head of global investment and corporate banking with BMO Capital Markets. Tannenbaum took on his current role in 2021 but first joined BMO in 2010, and he has more than 25 years of experience. Brad Chapin will assume Tannenbaum’s role on an interim basis. A release stated that Tannenbaum will aim to “capture new growth opportunities for BMO Capital Markets.”
- Institutional fixed income and alternatives asset manager SLC Management has announced changes to its private fixed income team, based on the retirement of Sam Tillinghast, head of private fixed income, effective Dec. 31. Starting Jan. 1, 2024, the team will be led by co-heads Andrew Kleeman (who’s currently senior managing director and head of corporate private placements) and Elaad Keren (currently senior managing director and head of private fixed income portfolio management). Kleeman will oversee corporate credit and infrastructure debt, while Keren will handle structured credit and portfolio management for the team. The two men first joined SLC Management in 2018 and 2019, respectively. Two other shifts within the team will take place in the new year: Liz Thorne (currently managing director for private fixed income and ESG) will guide the corporate private placements team, while Petra Wendroth (managing director and portfolio manager for private fixed income) will work on portfolio management for clients in the U.S. and Canada. Thorne first joined the company in 2016, while Wendroth joined in 2012.
- Shane Silverberg, senior wealth advisor and portfolio manager, has moved his practice and team to CG Wealth Management Canada in Waterloo, Ont. He has nearly two decades of industry experience and most recently worked with RBC Dominion Securities for more than 10 years, building Silverberg Capital Management. A statement from CG Wealth said Silverberg appreciated its “strategic ambitions” and that his clients include professionals in the oil and gas, technology and medical professionals.
- Annie Sinigagliese, who’s been an advisory board member with Montreal-based Berkindale Analytics for several years has now joined that technology consulting firm as a special advisor. She comes from Croesus where she was vice-president and chief product officer for nearly two years. Throughout her decades-long career, she’s worked with organizations such as the former Investment Industry Regulatory Organization of Canada, the Montreal Exchange, National Bank Financial and the Investment Industry Association of Canada.
- Dean Connor, director of the Canada Pension Plan Investment Board (CPPIB) since August 2021 will be chair of the CPPIB for a three-year term, effective Oct. 27. Director changes include the appointment of Nadir Mohamed as well as the reappointments of Ashleigh Everett, John Montalbano, Mary Catherine Phibbs and Boon Sim; all for three-year terms.
- Mark Podlasly will join CIBC’s board of directors, effective Nov. 1. Podlasly will be the 14th member. He’s the chief sustainability officer at the First Nations Major Projects Coalition, and chair of the First Nations Limited Partnership.
- The Capital Markets Tribunal, an independent division of the Ontario Securities Commission, has named two new adjudicators: Mary Condon, professor of law at Osgoode Hall Law School, York University; and Jane Waechter, who brings more than 25 years of litigation and financial services industry experience that included roles with Royal Bank of Canada, Bank of Montreal and the OSC’s enforcement branch. They’ll each serve two-year terms, effective Sept. 28.
- Julia Mackenzie is now manager of public relations with FAIR Canada, moving from her role as manager of public affairs with the Canadian Investment Regulatory Organization.
- Following Éric Provost‘s recent appointment as president and CEO with Laurentian Bank, further executive shifts have been announced. Sébastien Bélair is becoming chief operating officer, a role that now includes product and digital development oversight. This marks an expansion of his duties; he’s served as chief human resources officer since 2021 and was appointed chief administration officer in September. Thierry Langevin is joining the bank’s executive committee as executive vice-president, commercial banking, but he’ll also remain as president of equipment financing division LBC Capital. Sophie Boucher (who was vice-president, commercial and syndication) has been promoted to senior vice-president, and head of personal banking and small-medium enterprises. This is only “the first step” by Provost, said a release from the bank that promised more strategic details throughout 2024.
If you know of other people moves in the financial industry or would like us to consider your announcement, email Katie Keir at katie@newcom.ca.
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Negative rating action rises for private borrowers
Amid high interest rates and inflationary pressures, private credit borrowers are facing negative credit rating activity and are struggling to reduce leverage — but defaults have remained contained, DBRS Morningstar says.
The rating agency said it is on guard for signs of stress that would drive defaults higher.
In a new report, DBRS examined the landscape of corporate issuers that have secured financing from private lenders. These companies are primarily private equity-backed firms with annual operating earnings in the US$10 million to US$100 million range.
So far this year, DBRS said, those firms have struggled with elevated interest rates and labour costs that are pressuring their cash flows. Pricing power has eroded too,
As a result, interest coverage (the ratio of operating income to interest charges) has declined this year, it noted.
“The persistent high-interest-rate environment and heavy debt burdens have left some private credit companies with limited or negative free cash flows, restricting their ability to pay down debt,” DBRS said.
Against this backdrop, negative credit rating actions have increased too, the report noted, with 65% of rating actions this year coming on the downside. Normally, rating activity would be more evenly split between positive and negative actions.
“Overall, we expect negative credit rating actions to increase in the current environment to the extent that borrowing costs remain near current levels,” it said.
Despite the generally weak credits and negative rating action however, DBRS noted that private credit borrowers have so far experienced lower default rates compared with low-rated companies overall.
“We believe this reflects higher covenant restrictions and a close working relationship among management, private equity sponsors, and private lenders,” it said.
Looking ahead, the liquidity and interest coverage metrics will be important signals of possible distress at these companies, it noted.
“Over the next 12 months, we will be examining projected liquidity for evidence of firms needing to draw on lines of credit to cover capital needs, which could indicate fundamental deterioration,” it said. “Material weakness in other key financial metrics, such as operating cash flow as a percentage of debt and free cash generation, may also reveal rising default risk.”
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Financial stability risks loom, FSB warns G20
The global financial system faces elevated stability risks due to tight financial conditions and an uncertain economic outlook, according to a new report from the Financial Stability Board (FSB).
In its latest annual report, delivered ahead of a meeting of G20 finance minsters and central bank governors in Marrakesh, the global policy group warned that vulnerabilities in the global financial system remain heightened in the current environment.
“The cost of financing has risen substantially, at a time when debt is at very high levels across the government, corporate and household sectors. High interest rates and an uncertain growth outlook also create the potential for higher volatility in asset prices,” it said.
Intensified volatility “could generate significant spikes in collateral and margin calls, inducing fire sales of assets,” it warned. “Liquidity mismatches in non-bank financial entities could also amplify shocks if they lead to simultaneous asset sales across markets.”
At the same time, the high-rate, high-debt environment “is likely to lead to credit quality challenges that may affect both banks and non-bank investors,” it said.
In the report, the FSB also outlined its ongoing work to address some of these weaknesses, including its work to enhance resilience in the shadow banking sector, improve the resolvability of central counterparties and ease cross-border payments.
Yet progress on implementing the G20 financial regulatory reforms developed in the wake of the global financial crisis “remains uneven,” it said.
Among other things, FSB noted that the adoption of the final Basel III reforms has been pushed to 2024 or later in certain jurisdictions. It also said addressing gaps in resolution planning for banks remains a work in progress, as do the efforts to implement resolution regimes for insurers and central counterparties.
Moreover, reforms to the shadow banking sector continue to move “at a slow pace” and remain “at an earlier stage than other reform areas,” it said.
Additionally, the turmoil that arose in the global banking sector earlier this year, which resulted in the failure of several banks, has revealed some new areas for the FSB to tackle, the report said.
“A striking feature of the bank failures was the unprecedented speed and scale of deposit runs,” it said. “The FSB is assessing vulnerabilities from asset-liability and liquidity mismatches and exploring whether technology and social media have changed deposit stickiness.”
Alongside these fundamental financial stability concerns, the report stressed that external threats — such as climate change, cybersecurity and the cryptoasset markets — continue to loom as well.
“Exposure to climate-related vulnerabilities is becoming more evident,” the report said — adding that the materialization of physical risks, and the impact of the transition to a low carbon economy “could have destabilizing effects from increases in risk premia and falling asset prices.”
The FSB said it’s also working to address these vulnerabilities, with ongoing efforts to develop global climate reporting standards, its recommendations for a global regulatory framework for cryptoassets, and proposals for greater convergence in cyber incident reporting.
Looking ahead, it said, “authorities need to stay vigilant as a further deterioration in economic conditions may test again the resilience of the global financial system.”
The combination of higher inflation, lower growth and tighter financial conditions may crystallize existing financial vulnerabilities or give rise to new ones, the report said.
“The March banking turmoil was a stark reminder of the speed with which vulnerabilities can be exposed in the current environment,” it said. Moreover, many governments may have less capacity to intervene in the face of negative shocks, given the effects of tighter financial conditions on their own balance sheets.
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Report warns of crypto sector’s inherent investor protection threats
The fledgling decentralized finance (DeFi) sector gives rise to serious investor protection threats, according to a new report from the European Securities and Markets Authority (ESMA).
The regulator found that the “highly speculative nature of many DeFi arrangements and important operational and security vulnerabilities” pose risks that the industry needs to address.
It said cryptoassets are particularly vulnerable to traditional forms of abusive trading — such as front running, wash trading, pump-and-dump schemes — and that DeFi has “spawned new market manipulation issues and techniques, such as maximal extractable value and flash loan attacks.”
ESMA noted that the DeFi sector remains a relatively small player within the global financial system so financial stability risks aren’t meaningful, but investor protection threats are significant.
“While current overall exposures remain small, DeFi creates important risks to investor protection and has the potential to create negative externalities on the traditional financial system,” the report said.
“New forms of market abuse are also facilitated by DeFi innovative features, something that the industry will need to address for DeFi to ever reach sustainable growth,” it added.
Additionally, the ability of regulators and investors to “understand DeFi and the risks involved is hampered by important data gaps,” it said.
In an effort to start closing those gaps and better identify significant risks, ESMA published a separate report that proposed a methodology for categorizing smart contracts.
“Smart contracts have been claimed to be a major source of financial innovation. Nonetheless, they bring with them enormous technological complexity. Regulators and supervisors need to understand and monitor this complexity to systematically evaluate the risks to investors and financial stability stemming from DeFi,” it said.
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Toronto city council debates vacant home tax hike amid budget and housing crunch
Toronto city council began Wednesday to debate a proposed hike to its vacant home tax, a move backed by Mayor Olivia Chow as a way to help battle a housing crunch.
Chow says raising the tax from 1% to 3% will encourage the transformation of vacant homes into rental units, and otherwise bring in millions of extra dollars to pay for much-needed affordable housing and shelter initiatives.
“We’re seeing speculators sitting on much needed housing, strangling the market, driving the price of rental housing higher, and making it even less affordable for people,” Chow said during Wednesday’s city council meeting.
“No one should be keeping a home empty during this housing crisis.”
A staff report up for discussion at city hall says a 3% vacant-home tax rate could bring in an estimated $105 million in 2025, about double the expected 2024 revenue at 1%, then declining in subsequent years as homes are filled.
The report says 2,161 homes were reported vacant by the owners and another 17,437 homes had been deemed vacant by the city as of August after notices went unchallenged. Staff say the number of homes deemed vacant will come down as those homeowners file complaints or exemptions ahead of an April deadline, but the report still estimates about $55 million in projected 2024 revenue.
The tax hike was part of Chow’s successful mayoral byelection platform. The city’s long-term financial plan, adopted by council last month, also floated it as one of the possible revenue tools to help Toronto tackle a massive projected budget shortfall.
The mayor asked city councillors Thursday to support her motion to direct at least $10 million of any additional revenue from the proposed tax hike to a city housing program that provides grants to non-profit housing operators to purchase private market rental housing.
The proposed tax hike faced pushback from Coun. Stephen Holyday, who said he feared it was about raising more money for the city and not creating more housing supply. He labelled it as an attempt to bring in another variable tax through “the side door” rather than directly through the property tax.
Toronto brought in the vacant home tax in 2021 borrowing from Vancouver’s empty home tax, which has also since been used as a model in Ottawa.
A Toronto staff report said the number of vacant Vancouver properties has dropped by 800 units since the tax was implemented in 2017 and $115 million in tax revenue has been put toward affordable housing initiatives. Vancouver’s tax has been set at 3% since 2021.
Meanwhile, Ottawa’s vacant home tax, unlike Toronto’s, requires owners to submit a declaration for each unit in a property of two to six units. Toronto didn’t bring in that requirement “due to the complexities to bill and assess the appropriate value to each individual unit,” the staff report read.
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Federal Reserve minutes: Officials signal cautious approach to rates amid heightened uncertainty
Federal Reserve officials regarded the U.S. economy’s outlook as particularly uncertain last month, according to minutes released Wednesday, and said they would “proceed carefully” in deciding whether to further raise their benchmark interest rate.
Such cautious comments are generally seen as evidence that the Fed isn’t inclined to raise rates in the near future.
Economic data from the past several months “generally suggested that inflation was slowing,” the minutes of the Sept. 19-20 meeting said. The policymakers added that further evidence of declining inflation was needed to be sure it would slow to the Fed’s 2% target.
Several of the 19 Fed policymakers said that with the Fed’s key rate “likely at or near its peak, the focus” of their policy decisions should “shift from how high to raise the policy rate to how long” to keep it at restrictive levels.
And the officials generally acknowledged that the risks to Fed’s policies were becoming more balanced between raising rates too high and hurting the economy and not raising them enough to curb inflation. For most of the past two years, the Fed had said the risks were heavily tilted toward not raising rates enough.
Given the uncertainty around the economy, the Fed left its key short-term rate unchanged at 5.4% at its September meeting, the highest level in 22 years, after 11 rates hikes over the previous 18 months.
The minutes arrive in a week in which several Fed officials have suggested that a jump in longer-term interest rates could help cool the economy and inflation in the coming months. As a result, the Fed may be able to avoid a rate hike at its next two-day meeting, which ends Nov. 1. Futures markets prices show few investors expect a rate increase at that meeting or at the next one in December.
On Wednesday, Christopher Waller, an influential member of the Fed’s governing board, suggested that the higher long-term rates, by making many loans costlier for consumers and businesses, are doing “some of the work for us” in fighting inflation.
Waller also said noted the past three months of inflation data show that price increases are moving steadily toward the Fed’s 2% target.
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German government forecasts that the country’s economy will shrink by 0.4% this year
Germany’s government said Wednesday that it expects the country’s economy to shrink by 0.4% this year, joining a string of other forecasters in revising sharply downward its outlook for Europe’s biggest economy.
The revised forecast contrasted with the 0.4% growth that the government predicted in late April. The Economy Ministry said in a statement that “the effects of the energy price crisis in combination with global economic weakness are weighing down the German economy more persistently than was assumed in the spring.”
On Tuesday, the International Monetary Fund forecast that the German economy will shrink by 0.5%. A group of leading German economic think tanks last month predicted a 0.6% contraction.
The government predicted that gross domestic product will increase by 1.3% next year and 1.5% in 2025, helped by a decline in inflation. That is expected to average 6.1% this year, but drop to 2.6% next year and 2% in 2025.
The Economy Ministry said it expects the economy to pick up around the turn of the year and then accelerate, helped by recovering consumer demand. It acknowledged that the “necessary fighting of inflation” by the European Central Bank, which has resulted in higher borrowing costs, has been a factor in Germany’s difficulties.
Germany has also been grappling with other issues such as an aging population, lagging use of digital technology in business and government, excessive red tape that holds back business launches and public construction projects, and a shortage of skilled labour.
Last month, Chancellor Olaf Scholz, whose government is grappling with poor poll ratings and a reputation for infighting, urged Germany’s opposition and regional governments to help slash a “thicket of bureaucracy.”
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Statistics Canada reports value of building permits up 3.4% in August
Statistics Canada says the total monthly value of building permits in Canada rose 3.4% in August to $11.9 billion, as gains in the non-residential sector offset modest declines in residential construction plans.
The agency says the total monthly value of non-residential permits rose 14.8% to $5.0 billion in August.
The increase came as permits were issued for hospital renovations in Toronto and North Vancouver, B.C., a new university building in Kelowna, B.C., a new correctional facility in Thunder Bay, Ont., and a new arena in Whitby, Ont.
On the residential side, the total monthly value of permits issued fell 3.7% to $6.8 billion in August as the value for permits for multi-unit construction intentions fell 9.5% to $3.9 billion. However, the value of single-family home permits rose 5.5% to $2.9 billion in August, marking the fourth consecutive monthly increase.
The indicator comes as politicians across the country look for ways to increase the pace of new home construction in a bid to help alleviate the housing shortage in Canada.
On a constant dollar basis, the total value of building permits was up 4.3% in August.