Back in a previous incarnation, when I was young and free and used to wear three-piece suits,
bank profits paid my salary. Former biases established, there is patentleather nonsense in the view that these selfsame profits are somehow like ingredients for the wet-eye chemical warfare bomb—put the two words together and a lethal nerve gas results. On one side of the battle is a panoply of critics, from politicians through the misinformed all the way through to the
radical left, forever using the adjective “obscene” to describe profits. Across the moat and up in the golden towers lurk the bankers who spout their bafflegab about return on equity, 10-year moving averages and capital ratios.
The public, watching the battle from a nearby hillock, assumes that such rhetoric rolls from both sides because each has something to hide. The ensuing debate generates enough heat to warm the toes, but not enough light for reading.
Canadians have long had a peculiar love-hate relationship with their bankers. Here we have a clutch of 11 Canadian-owned outfits arguably more efficient than their American counterparts. Daily the banks move seven million items worth $16 billion through the countrywide clearing system. They lose so few cheques in the process that they should run the post office. They are stable; there hasn’t been a failure since the Home Bank went bust in 1923. And respectable; why, with all that marble and glass and granite, they’re almost churchlike.
But this is an oligopoly we’re dealing with, and that’s a tough thing to embrace. Last year’s industry profit was $1.6 billion, up 38 per cent over 1980, while Ford, Inco, International Harvester and a whole lot of little guys were losing money. The high interest rates drove one farmer to dump dead cattle on a branch doorstep and other farmers to form mean-eyed lynch mobs. Even Grant Reuber, Bank of Montreal deputy chairman, told the tale of the man due for a heart transplant. Given the choice between the heart of a beau-
tiful young woman or a banker’s, he surprised his doctor by choosing the banker’s. Explained Reuber: “The
choice was obvious; the banker’s heart would undoubtedly be in better shape because it hadn’t been used very much.”
The bankers became the bad boys of the Western World by taking the place of the Seven Sisters. Remember them? They supposedly hid tankerfuls of oil just over the horizon, awaiting even higher prices. That, coupled with the Bertrand report alleging $12 billion in overcharging by the oil companies, set
off a parade of parliamentary demands, a gush of lash-back newspaper ads and a series of television spots featuring a guy in a sports coat being blown around a drilling rig in the Arctic. When the Beaufort drilling results came out last fall, he had the better pipes, but more of that in a moment.
As that furore faded, the public moved on to the banks, the next target in the shooting gallery that passes for today’s society. The banks argued that profits were up because of higher volume and said that if profits were eliminated loan rates would drop by only one per cent.
And who will settle the debate? Why those same politicians who made bank-bashing a national anthem. A parliamentary investigation is likely to begin this week, the results of which are so fearsome that the bankers have been plumping for it, too. Trouble is, the number of politicians who understand the Bank Act and banking itself could dance on the
head of a pin. And probably do.
Granted, the topic does have more relevance than the brouhaha about Crissy’s departure from Three's Company, but there are two other matters that merit closer scrutiny. First, tax rates. Take the Toronto Dominion Bank, for example. In 1978, on profits of $184 million, TD paid $55 million in taxes. In 1979, profit rose to $189 million, but taxes fell to $29 million. In 1980, profit hit $200 million and taxes bottomed at $18 million. Last year, as taxes straggled back to 1978 levels, profits were two-thirds higher at $308 million. That’s Ottawa’s fault.
The second issue is debt—and not international loans to Poland. That money gets repaid, as was the $125 million owed by an Iran torn apart by revolution. The real crunch is coming with domestic loans. Four of the five big banks may share something else in addition to low taxes and large profits: the same largest borrower—Dome Petroleum. Smiling Jack Gallagher’s dream child in the Beaufort owes maybe $5 ^billion to Canadian banks. Elt probably owes the Com|merce (which has already gtaken a $100-million loss "on Massey-Ferguson) $1.5
billion. TD’s likely in for $1 billion. October test results did not show oil in guaranteed commercial quantity. As the world oil price keeps falling and the oil glut continues, that Beaufort oil looks less and less interesting. How then to pay the debt?
The committee might want to poke into these areas because, as the 1982 first-quarter results began trickling in last week, it was clear that the recession has hit the big boys. Bank earnings, in one case, were down 50 per cent from last year. Another suffered a loss, while a third had a tiny 12-per-cent gain. As other puny numbers are announced this week, interest in the inquiry will collapse and a fickle public will go looking for another target. This time, maybe it will be the media. Communications companies are profitable and high profile. In the coming hard times, the public may decide to head out and shoot the messenger. Well, come and get us. Whip up your huddled masses. As a former flak catcher, I’m ready.
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