Come on down Jean, your toaster oven awaits!

Will Chrétien take the credit for CIBC having 15th highest losses worldwide?

With my Thursday Financial Post came news that the Canadian Imperial Bank of Commerce has posted the 15th highest losses worldwide for 2008. “CIBC has been heavily involved in capital markets in the U.S., which are high risk,” said Colin Cieszynski, an analyst with CMC Markets.

What is more deserving of a beating than the CIBC’s bottom line, however, is Jean Chrétien’s attitude of smug self-congratulation about refusing to allow bank mergers, an attitude that he paraded before the media like Adam Lambert in a silk suit more than once in the past year.

At the height of US bank failures and bailouts a few months ago, Chrétien reached out to CTV’s Bob Fife and granted a rare interview across his paper-free desk. The purpose of the interview? For Chrétien to once again crown himself the saviour of Canada’s banking system (sorry, could not find a clip or link). This echoed Chrétien’s braggadocio to the Globe and Mail last October:

“While everybody’s in turmoil, Canada is not in turmoil,” Mr. Chrétien explained in a brief interview.

“And the two big reasons are that we balanced the books in ‘95, and we said no to the merger of the banks.”
--Globe and Mail, October 8, 2008

Neither reporter noted that at the time, the Liberal government’s rationale for refusing the mergers was to ostensibly protect consumers, not to protect the banks themselves. In fact, the terms that then finance minister Paul Martin set out for allowing mergers betrayed no concern for the banks’ ongoing health, Instead, they were:

• A guarantee there will be no jobs lost.
• A reduction in consumer charges.
• An assurance that smaller businesses and towns will benefit from the merger.

Now I won’t hold my breath that Chrétien is going to summon Bob Fife, Joan Bryden or any of his other favourite reporters to his office for an explanation of how CIBC’s losses could have happened after he heroically stopped the bank mergers. Neither will I hold my breath for any reporter to hold him to account for CIBC’s losses after he was so eager to take credit for the entire industry’s health.

Implied by both Chrétien and Fife was the assumption that Canada’s newly-merged banks would have abandoned a century or so of business practices to risk their entire institutions on sub-prime mortgages and other high-risk ventures: an assumption that is not only dubious but entirely hypothetical. Not surprisingly, the former head of TD Bank did not share this assumption:

“If we had been allowed to merge, we might have thought that we were big characters and played more aggressively,” he said. “But I think it’s more likely we would have played by the same lending standards we have now.”
--Charles Baillie, Globe and Mail, October 8, 2008

Of course, Chrétien’s credit-taking is further undermined by the obvious fact that Canadian banks did not need to be merged to invest in risky US financial instruments, because that is exactly what the un-merged CIBC did. And it is what the un-merged Royal Bank did not do, having ranked number 10 of the 25 most-profitable banks in 2008.

Once Fife had entered the realm of the hypothetical, it would have been only fair to list other plausible hypotheticals that could have followed any bank mergers, such as this one: Canada might have had one or two huge, globally-competitive banks with the capacity to participate in huge deals, bringing that business and all its spinoffs to Toronto, Montreal and/or Vancouver.

But we will never know, because Jean Chrétien was steadfast in his determination that Canada’s banking industry remain a moss-covered rock in the rapids of globalization, to preserve the illusion of competition in storefront banking. No doubt Toronto’s underemployed lawyers and accountants regularly raise a glass to Chrétien for that service.

Chrétien’s crowing over stopping bank mergers points to a theme in his political career. As with his decision not to participate in the Iraq invasion, and refusal to allow a succession of disgraced ministers to resign, Jean Chrétien was at his most steadfast when his decision was to do nothing.

I suspect that CIBC will recover from 2008 and continue to be a strong bank (though of course this is hypothetical). And Canadian politicians will continue to learn from Jean Chrétien’s example: in politics it is usually better for one’s own career to be a caretaker than a risk taker. That’s how you keep your desk nice and clean.