Personal credit line balances up 61% since 2007
July 26th, 2010
Is the consumer up to his/her eyeballs in debt? Depends upon whether you are thinking on a gross or net basis.
Looking at the corporate loan books of the Canadian banks (see prior post “Canadian corporate bank loans hit three year low” July 24-10) might give you the wrong idea about the banks’ proclivity to lend capital. Just look at what the consumer borrower has been up to over the past three years, according to data from the Bank of Canada:
June 2007
Personal loans: $42.2 billion
Credit cards: $42.3 billion
Personal lines of credit: $132.3 billion
Other: $22.1 billion
Residential mortgages: $441.8 billion
June 2010
Personal loans: $52.5 billion
Credit cards: $55.2 billion
Personal lines of credit: $213.3 billion
Other: $27.8 billion
Residential mortgages: $490.3 billion
And the asset side? Personal deposits in June 2007: $509 billion; June 2010: $658.8 billion
Personal debt may have grown by 23% over the past three years, even as corporate debt stayed flat. But, with personal deposits rising by 29%, the national consumer balance sheet is actually deleveraging as far as our banks are concerned; even if these deposits aren’t spread evenly across the customer base.
The scariest number in the dataset? The 61% growth in personal lines of credit compared to the 11% growth in residential mortgages. I’m convinced those are the Home Equity lines that have come to replace many a convential mortgage. And, as long as you stay at 75% loan-to-value, there’s no net amortization required from year to year. Sure, you have to make the monthly payment, but unlike a traditional mortage, which should be paid to zero in 25 years, these home equity lines are far less likely to wind up at zero. You can just borrow the money back the day after you’ve made the payment.
Relative to the nation’s personal bank deposits, the gross consumer bank debt situation has dropped from 1.34x to 1.27x over the past three years. But the 61% increase in personal credit lines, to almost half of the entire bank mortgage pool, is exactly the kind of trouble that the U.S. subprime market got into circa 1997-2006: “no am” mortgages.
MRM
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Canadian corporate bank loans hit three year low
July 24th, 2010
According to data released by the Bank of Canada, commercial and corporate lending by Canadian Chartered banks has dropped to depths not seen since June 2007. The category is “Business loans to Canadian residents for business purposes”:
December 2008: $191.563 billion
January 2009: $185.679 billion
February: $183.759 billion
March: $184.089 billion
April: $181.811 billion
May: $180.191 billion
June: $177.865 billion
July: $176.164 billion
August: $175.318 billion
September: $172.652 billion
October: $172.592 billion
November: $169.928 billion
December: $170.930 billion
January 2010: $169.423 billion
February: $169.604 billion
March: $170.959 billion
April: $170.663 billion
May: $167.878 billion
June: $166.869 billion
Commercial and corporate lending by chartered banks to Canadian-based businesses is down $25 billion since December 2008, but that’s old news if you are a regular blog visitor. Back in 2007, it took the chartered banks about nine months to add $25 billion of corporate loans to their balance sheets. Wonder how long it’ll take them to put that business back on the books this time.
Either the lenders aren’t lending, or the borrowers aren’t borrowing. Who’ll blink first do you think?
MRM
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The Irish lead the way
July 15th, 2010
This isn’t a post about The Open. Something bigger than chasing the white ball around a course in Scotland.
Courtesy of AltAssets, I’ve come to learn that the Irish Government has re-launched a 500 million euro venture capital fund:
The Irish government has initiated plans for a €500m venture capital fund to help finance innovative small companies in the country.
Half of the capital for the Innovation Fund is to come from the state, with the intention being to raise the other half from private funding. Irish Prime Minister Brian Cowen launched the fund at the New York Stock exchange earlier this week, with the US presented as one of the key targets for fundraising.
The fund had been on the government’s policy books since 2008, but was put on hold as a result of the downturn. Ireland was particularly hard-hit by the global economic downturn, with real GDP falling to -7.5 per cent in 2009, and predicted to contract by a further three per cent, according to the IMF.
Venture capital has been presented as a solution for funding the growth and start-up of new companies in a difficult economic environment. Funding for Irish technology firms increased by 18.6 per cent in 2009 according to the Irish Venture Capital Association, to €288m.
Cowen said, “Venture capital is an essential ingredient for supporting entrepreneurs and ensuring that businesses can scale and create jobs. Lack of finance consistently emerges as a key impediment for innovative firms.”
As a sum of money, this is huge for a nation with about 4.5 million people — 111 Euros a person, or C$147 (of which half will come from the private sector). If you add up all of the Federal buckets of venture capital in Canada (BDC, EDC, SODA, SDTC, etc.), you might math your way to $1.6 billion; and much of those funds were invested years ago.
For a population of 34 million, we are garnering merely $47/head; Canada needs to procure an additional $2.2-$3.4 billion of new venture capital just to match what the Irish Prime Minister is trumpeting at the New York Stock Exchange.
Representatives of the CVCA had a great first meeting with our Prime Minister last May (see prior post “Venture Capital gets on PM’s agenda” May 25-10). Let’s take the next step as a Nation, and declare that the Innovation Economy is important.
MRM
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Not seeing the dark clouds
July 14th, 2010
Is the world ending? Not from this perch.
As any long time reader will attest, we are a “glass half full” shop. We never worry about things working out; just about what happens if they don’t. The U.S. unemployment rate came out at 9.5% the other day, dropping 10 bps solely due to half a million Americans dropping out of the workforce.
The recent Canadian private sector jobs report was released earlier this week, and it was sufficiently positive to put the wind back in the sails of the Loonie. This report confirms the satisfactory signs I’m seeing from our corner of the universe.
Within our portfolio, and the new opportunities we see each and every week from both sides of the border, business continues to be done. Private software and hardware firms, in particular, are seeing year-over-year revenue growth rates of between 20 and 30%. Existing Fund III portfolio names, such as Healthscreen (MDU:TSXV) and Biorem (BRM:TSXV), continue to announce new contract wins. Others are raising new capital, such as CriticalControl Solutions (CCZ:TSX) and Nightingale Informatix (NGH:TSXV). Within our world of private names, none of the dark clouds we saw in mid-2008 appear to be on the horizon.
This might relate to our transaction choices, but the financials we see via new opportunities in the pipeline speak to a good first half of 2010 across many a sector of the North American economy.
We’ve all read about the “corporate cash hoarding” going on within the Fortune 500 world. I used to think the lack of new lending was due to stingy banks, and that may in fact be true (see prior post “Bank loans stagnant for 6th straight month” May 26-10). According to the most recent Bank of Canada data, Canadian corporate and commercial bank borrowings are at their lowest point since the financial crisis began: $167.9 billion.
This one month $3 billion drop is significant, but anecdotal evidence suggests this is not entirely the fault of the banking world’s credit officers. It may well also have something to do with the tenuousness that CFOs have about the 2011 economy.
Consumers don’t seem to have any qualms about travelling or spending money. Just try to get a hotel room in New York City this weekend at the Fairmont Plaza for less than $700/night. Even the W, which bills itself as a four star spot, will set you back $450.
There are many reasons to be conscious of what 2011 will bring, but a re-living of The End Of The World As We Know It just isn’t on that list.
MRM
(disclosure – Fund III owns shares/warrants in Biorem, CCZ, Healthscreen and Nightingale)
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If the TPA would only trade me to MLSE….
July 9th, 2010
Taxpayers, sports fans, back seat drivers. They all share a sense that if only THEY were in charge, things would be running more smoothly. Right or wrong (almost exclusively the latter), that’s one of the small pleasures in life for many.
This comes to mind today as the news of Chris Bosh’s departure sinks in. It’s not like the Toronto Raptors didn’t know this might happen. We suggested last December that it was time to trade CB4, while we had the chance to get something of value — anything — in return (see prior post “Bye Bye Bosh” Dec. 2-10):
It is time for fans to admit that CB4 will be moving on. Had the off-season player moves turned out differently, perhaps, just perhaps, Mr. Bosh’s prediliction to re-sign with the Raptors would have been higher.
There’s no choice but to trade our allstar, despite the fact that he’s a crowd draw and every 5-year old Toronto girl’s favourite player. We get zippo for him in April. Now, and least we can begin to craft a longer term strategy.
And then again in April, when our friends were thinking they had the chance to re-sign Bosh for a max. contract, I suggested medicinal hemp must have been in use at the ACC (see prior post “If I were to take a big haul on the pipe….” Apr 20-10):
I see in my DTM that the Front Office at the Toronto Raptors is intent on signing Chris Bosh to a six year, US$130 million contract. It appears, at least in print, that they also believe that he will seriously consider staying here for the balance of his useful career.
If I were to throw on Pink Floyd’s “Pigs on the Wing”, take a big haul or three on the pipe, and stare at the ceiling long enough, I could probably see a scenario where that might actually happen (see prior post “Bye Bye Bosh” Dec 2-09).
Perhaps the silly Collective Bargaining Agreement and fake salary cap are part of the problem, but every team suffers in equal proportions to the one-sided deal we the fans currently have with NBA players. But we’re not in charge.
MLSE has done a great job of drafting talent: Tracy McGrady, Vince Carter, Chris Bosh to name three obvious stars. Let’s develop a 10 year plan to build a winner, part of which will be easier when we figure out how to keep these people. The Blue Jays landed in Toronto in 1977, and had a crown by 1992. Exactly 15 years. John Labatt Ltd. seemed to have a plan, and it came together.
The Toronto Raptors franchise is now 15 years old, and the 2010-2011 season may well look like an expansion team. Professional sports teams can’t win their league’s championship very often; that’s a reality. But MLSE needs a clear “oncourt” plan. That’s all the fans are asking for.
As for “The Big News Event” of last evening, I don’t think these players understand the damage they are doing to their relationship with the NBA’s fan base. I know that we stand and essentially throw rolls of $1,000 dollar bills at you each and every game night. But don’t prance around like some Conquistador.
Right now, you’re looking at lot like Wall Street circa 2007.
MRM
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