More Canadians are worrying about the economy and over half are cutting discretionary spending

 TORONTO, June 29, 2020 /CNW/ – COVID-19’s impact on the economy is causing many Canadians to worry about the future: 79 per cent of respondents in CIBC’s Financial Priorities Poll say they are concerned about continued recessionary times next year, compared to 55 per cent who said they feared an economic downturn in a December 2019 survey.

Economic worries may be a factor in why many Canadians are adjusting their financial habits.

Many respondents (63 per cent) say they have significantly cut down on discretionary spending and more than half (55 per cent) agree they need to get a better handle on their finances this year.

“It’s understandable that Canadians are worried about the economy and are feeling uncertain about the impact on their ambitions, but this is a time when good financial advice conversations are most valuable, including assessing your overall situation, looking at opportunities to improve cash flow, and adjusting your financial plan if necessary,” said Laura Dottori-Attanasio, Group Head, Retail and Business Banking, CIBC. “It’s a positive sign that many Canadians are taking a responsible approach to the situation by making changes to their spending and working to limit unnecessary debt. Good cash flow management now can help you through the current situation, and over the longer term free up funds to divert towards savings or other goals.”

The survey also found that 46 per cent of Canadians say the economic impact of the pandemic has adversely affected their finances and a similar number (47 per cent) feel it will take more than a year to get their personal finances back on track. Canadians are prioritizing building an emergency fund in 2020, citing this as a top goal for the remainder of the year, followed by steering clear of adding on debt. Of the 22 per cent of respondents who’ve had to borrow more in the past 12 months, the number one reason was for day-to-day items (38 per cent) followed by a loss of income (28 per cent).

“The impact of the pandemic will be felt by Canadians for some time. While we have a long way to go to get back to a normal economy, taking charge of your finances now with a savings and debt management plan is an important step towards putting your personal finances back on track,” added Ms. Dottori-Attanasio.

The survey also found:

  • Top financial goals for the remainder of 2020 are: generally saving as much as possible (37 per cent), and avoiding taking on more debt (36 per cent)
  • Close to three-fourths of Canadians (74 per cent) say the uncertainty of the current environment makes it difficult to plan ahead, and over half (54 per cent) are generally worried about their financial future
  • The number of people who say they’ve taken on more debt is lower (22 per cent) than in December 2019 (28 per cent). Among those who have taken on more debt, 38 per cent say they did so to cover day-to-day expenses or due to loss of income (28 per cent) and job loss (18 per cent, +9 per cent from December 2019)
  • Regionally, the poll found differences in how Canadians are tightening their wallets. Residents in the Prairies say they are cutting discretionary spending the most, led by 76 per cent of those in Saskatchewan and Manitoba, and 69 per cent of Albertans, compared to the national average of 63 per cent
  • At 58 per cent, taking on more debt to pay for day-to-day items was the highest in British Columbia, 20 per cent higher than the national average of 38 per cent

Disclaimer

From June 8th to June 9th 2020 an online survey of 1,517 randomly selected Canadian adults who are Maru Voice Canada panelists was executed by Maru/Blue. For comparison purposes, a probability sample of this size has an estimated margin of error (which measures sampling variability) of +/- 2.5%, 19 times out of 20. The results have been weighted by education, age, gender and region (and in Quebec, language) to match the population, according to Census data. This is to ensure the sample is representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.

About CIBC

CIBC is a leading Canadian-based global financial institution with 10 million personal banking, business, public sector and institutional clients. Across Personal and Business Banking, Commercial Banking and Wealth Management, and Capital Markets businesses, CIBC offers a full range of advice, solutions and services through its leading digital banking network, and locations across Canada, in the United States and around the world. Ongoing news releases and more information about CIBC can be found at www.cibc.com/en/about-cibc/media-centre.html.

SOURCE CIBC

www.cibc.com

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Desmarais brothers to step down as CEOs in overhaul of Power Corp

Massive reorganization at one of the country’s largest financial services firms

By David Scanlan | Bloomberg.com

Billionaires Andre Desmarais and Paul Desmarais Jr. are stepping down as co-chief executive officers of Power Corp. of Canada as part of a massive reorganization at one of the country’s largest financial services firms.

The Desmarais brothers, sons of the family who runs the Montreal-based firm, will stay on as chairman and deputy chairman. Jeffrey Orr, current CEO of the Power Financial Corp. unit, takes the top job at a new entity combining the two main units of the insurance and asset management company.

“The reorganization is a natural step that reflects our evolution from a diversified holding company into one that is primarily focused on financial services,” Andre Desmarais, 63, said in a statement Friday.

Shares of Power Corp. surged as much as 7.5 per cent, heartened also by a 10 per cent increase in the dividend, while Power Financial was up as much as 9.4 per cent. Both were the biggest intraday increases in a decade and handing the brothers an immediate payoff. The family was worth $8.38 billion in 2018, putting them seventh among Canada’s wealthiest families according to Canadian Business magazine.

By combing the two companies, Power Corp. says it will simplify its corporate structure, eliminating the dual-holding format and reducing costs. That may help unlock shareholder value. Neither Power Financial nor Power Corp. have regained their pre-2008 financial crisis highs, unlike the country’s big banks.

Power Corp. also said the new structure should allow the company to focus on financial services, where it faces relentless pressure on fees from ETFs and robo advisers, and from declining interest rates for its life insurance business. Power businesses include insurer Great-West Lifeco Inc. and money manager IGM Financial Inc.

“Canadian banks have been able to take advantage of their booming individual, or retail, businesses in Canada to substantially grow their earnings and balance sheets,” Paul Desmarais Jr., 65, said in a May 2018 speech. “By contrast, during the same 10-year period, the individual businesses of the three major Canadian life insurance companies – including our subsidiary Great-West Lifeco – have more or less stagnated.”

PAUL’S SON

As part of the reorganization, Power Financial shareholders will receive 1.05 Power Corp. subordinate voting shares, or $33.50, and some cash for each share they own. That’s little more than the $32.77 Power Financial last traded at. Power Financial is currently controlled by Power Corp.

“There’s change but it’s evolutionary change and it’s continuity,” Orr told analysts on a conference call. “It’s just part of an ongoing strategy that we’ve been pursuing to create shareholders value.”

The shake-up makes no mention of Paul Desmarais III, 37, son of Paul Jr. and a senior vice president of Power Corp. who oversees the company’s startup strategy, which includes majority-owned robo adviser Wealthsimple Inc. He is also the executive chairman of Sagard Holdings, a subsidiary of Power Corp. which has invested in public and private equity since its founding in 2005 and has moved into private credit last year.

The Desmarais family will continue to control the company through its Pansolo Holding Inc.

With assistance from Sandrine Rastello, Paula Sambo and Doug Alexander

Bloomberg.com

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Brookfield acquires mortgage insurer Genworth Canada in $2.4-billion deal

BANKING REPORTER | The Globe and Mail

Brookfield Asset Management Inc.’s private-equity arm is making a long-term bet on Canada’s mortgage market with a $2.4-billion deal to take control of Genworth MI Canada Inc., the country’s second-largest mortgage insurer.

Brookfield Business Partners LP, a publicly-traded subsidiary of the global asset manager, is acquiring a 57-per-cent stake in Genworth MI Canada from the mortgage insurer’s American parent company, Genworth Financial Inc.

Brookfield will pay $48.86 a share for nearly 49 million shares in Genworth MI Canada – a 5-per-cent discount to the price at Monday’s close on the Toronto Stock Exchange, but an 18-per-cent premium compared with the date when the company was formally put up for sale.

The deal appears to relieve a headache for Richmond, Va.-based Genworth, which has waited years for regulators to approve a separate deal that would see the American company acquired for US$2.7-billion by a privately held Chinese buyer, China Oceanwide Holdings Group Co. Ltd. That transaction, which was first announced in October, 2016, has stalled while awaiting approval from Canadian regulators and federal officials, who are required to consider the potential impact on Canada’s mortgage industry and have held the deal up over national-security concerns, even after U.S. regulators gave it a green light.

Earlier this summer, Genworth Financial announced it was considering “strategic alternatives” for Genworth MI Canada, seeking to break the deadlock. That raised the prospect that, absent a suitable buyer, Genworth Financial’s stake in its Canadian subsidiary might have to be sold into the public market at a discount. But Brookfield emerged with deep pockets and the industry expertise needed to take control.

“We are pleased to find such a high-calibre buyer for our interest in Genworth Canada,” said Genworth Financial president and chief executive Tom McInerney.

Genworth Financial’s share price shot up 15.8 per cent on Tuesday, and Brookfield Business Partners shares rose 2.7 per cent, but stock in Genworth MI Canada fell 1.7 per cent.

The Canadian arm of Genworth is a rare asset. It is Canada’s largest private-sector mortgage insurer, providing a backstop against defaults to residential mortgage lenders, and it trails only the government-owned Canada Mortgage and Housing Corporation (CMHC) in size. Its only privately owned competitor is Canada Guaranty Mortgage Insurance Company, which is jointly owned by Ontario Teachers’ Pension Plan and financier Stephen Smith.

Genworth Canada currently has a 33-per-cent share of the country’s mortgage-insurance market, while CMHC holds half and Canada Guaranty the remaining 17 per cent, according to data from RBC Dominion Securities Inc. But the federal housing agency has been ceding its share to the private insurers.

Genworth’s improving position in a highly consolidated market made it a logical target for Brookfield Business Partners, which seeks to acquire and manage companies in sectors where the barrier to entry is high. Brookfield also has extensive expertise in mortgages and housing: It is one of the largest residential real estate developers in North America, active in real estate financing, and owns the Royal LePage brokerage.

Brookfield Business Partners managing partner David Nowak described Genworth Canada as “a high-quality leader in the mortgage-insurance sector,” in a statement.

The total share of mortgages that are insured has been falling, from 57 per cent in 2015 to 41 per cent in 2019, according to a recent CMHC report. The shift toward uninsured mortgages comes as regulators have tightened rules on mortgage lending, requiring borrowers to meet stricter tests to qualify for mortgage insurance.

Even so, the housing sector as a whole has continued to grow, adding a steady stream of new demand for mortgage insurance, particularly from first-time home buyers. And Brookfield is betting that Genworth can grab a larger share of the market, making full use of Brookfield’s deep relationships with banks that do the lion’s share of Canada’s mortgage lending.

The deal is expected to close before then end of 2019, subject to approvals from Canada’s banking regulator and Minister of Finance.

Brookfield is not currently looking to acquire the 43 per cent of Genworth MI Canada’s shares that are owned by other investors. But Jaeme Gloyn, an analyst at National Bank Financial Inc., said that prospect “is not entirely off the table” and “would likely unfold at a premium” to the price Brookfield is paying for control.

Ratings agency DBRS Ltd. called the deal “positive for Genworth Canada,” which has been more stable than its U.S. parent.

Oceanwide Holdings consented to the transaction and extended the deadline to finalize its own deal with Genworth Financial until Dec. 31.

Source: The Globe and Mail

Swap These Financial Stocks to Reduce Risk

Victoria Hetherington

Rising household debt, falling house prices, slowing credit applications – it’s a wonder anyone is still buying shares in Canada’s Big Six banks. Indeed, from financing weed suppliers to exposing itself to a potentially volatile American market, big Bay Street bankers may be too rich by half for the low-risk appetites of domestic investors looking to them for stability.

Take Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), with its exposure to the U.S. economy, for instance. Scotiabank does substantial business south of the border, and as such may have left itself vulnerable to the potential of a widespread market downturn in the U.S. Even with this leg up, though, it still managed to underperform the Canadian banking industry as well as the TSX index for the past year.

More shares have been bought than sold by Bank of Nova Scotia insiders in the past three months, though not in vastly significant volumes. The usual boxes are ticked by its value, indicating P/E of 10.6 times earnings and P/B of 1.4 times book, while a stable dividend yield of 4.88% is augmented by a good-for-a-bank-stock 6.6% expected annual growth in earnings.

Again, overexposure to the United States market is an issue with Bank of Montreal(TSX:BMO)(NYSE:BMO). Specifically, this comes from BMO Harris Bank, a large personal and commercial bank; BMO Private Bank, which offers wealth management across the U.S.; plus BMO Capital Markets, an investment and corporate banking arm of the parent banker.

With year-on-year returns of 8.1%, BMO outperformed the industry and the market, and as such seems a safe bet on the face of it. Its one-year past earnings growth of 24.6% shows rapid recent improvement given its five-year average growth rate of 6.1%. Meanwhile, a P/E of 11.3 times earnings and P/B of 1.5 times book show near-market valuation, and a dividend yield of 3.9% is matched with a 3.6% expected annual growth in earnings.

Try the “insulated” alternatives

An example of domestic alternative on the TSX index would be Laurentian Bank of Canada (TSX:LB). Although its one-year past earnings dropped by 4.2%, a five-year average past earnings growth of 14.3% shows overall positivity, while a P/E of 9 times earnings and P/B of 0.8 times book illustrate Laurentian Bank of Canada’s characteristic good value. A dividend yield of 6.3% coupled with a 9.2% expected annual growth in earnings gives the Big Six a run for their money.

Alternatively, Manulife Finanical (TSX:MFC)(NYSE:MFC) offers a way to stick with financials but ditch the banks. This ever-popular insurance stock was up 2.33% in the last five days at the time of writing and is very attractive in term of value at the moment, with a P/E of 10.3 times earnings and P/B of 1.1 times book.

Manulife Financial’s 3.5% year-on-year returns managed to beat the Canadian insurance industry, but just missed out on walloping the TSX index’s 4.2%. In terms of the company’s track record, its one-year past earnings growth of 138.1% eclipsed the market and its industry, though its five-year average is sadly negative. Its balance sheet is solid, however, with its level of debt reduced over the past five years from 60.2% to the current 41% today.

The bottom line

Sidestepping banks may be a shrewd move at the moment, with other forms of financials offering a more insulated route to a broader space. While more regionalized banks like Laurentian Bank of Canada are one option, stocks like Manulife Financial, with its dividend yield of 4.17% and 11.3% expected annual growth in earnings offer a similar but less risky play on the TSX index’s financial sector.

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