U.S. regulators could learn from Canada’s banks – USATODAY.com

By leroyg | Published: July 3, 2009

In 2005, for example, Ed Clark, CEO of TD Bank Financial Group, which operates a U.S. retail subsidiary, grew increasingly worried about the complexity of some of the securities in the bank’s portfolio.

Clark didn’t fully understand how the derivatives would behave in different market environments, and he suspected no one else did either.

So he did something almost no one on Wall Street had the foresight to do: He ordered his traders to ditch the risky but highly profitable positions. Over the next nine months, TD gradually unwound its derivatives holdings at a cost of more than $200 million in write-offs, which looks like a bargain compared with the $2.2 trillion in losses that U.S.-originated derivatives are expected to incur this year and next, according to the International Monetary Fund.

Still, at the time it was a controversial move, even within TD’s own ranks. “I actually said internally, ‘I’m not going to be proven right in my career,’ ” Clark recalled. “I didn’t see it blowing up that fast.”

Clark is happy to take a little credit for getting a big call right. But he says far less dramatic factors at the core of financial industry operations also explain Canada’s stability. Canada’s Big 5 banks, which account for about 85% of industry assets, didn’t make subprime loans to customers with weak or non-existent credit ratings. And rather than package their mortgages into securities for sale to other investors, as U.S. banks did, Canadian banks held onto the loans. Limits on the banks’ use of borrowed money to goose their investment returns further insulated them from the woes suffered by their American counterparts.

While Canada has avoided the more than $1 trillion the U.S. has at risk in its financial industry rescue, it hasn’t been able to dodge the economic fallout. Thanks to its close links to the U.S., unemployment is 8.4% and total output in April was 3% less than one year ago.

via usatoday.com

Makes you wonder at what point did some of Mr. Clark’s counter-parts down south choose to avoid a $200M write-off while closing out some profitable trades in order to keep chasing the alpha monster…

Posted via web from leroygardner’s posterous

This entry was posted in personal. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

U.S. regulators could learn from Canada’s banks – USATODAY.com

Post a Comment

Guts | Hustle | Progress