Canada Bank Layoffs
Table of Contents :
QUIET LAYOFFS.
US BANK LAYOFFS.
HIGHER RATES.
HIGHER MORTGAGE COSTS.
BANK CONSOLIDATIONS.
TROUBLING SIGN.
FOMO in Housing
Disclaimer.
If you are concerned about recent banking layoffs in Canada, you are not alone.
Banks are core of any economy, therefore any sign of distress there, could potentially hurt millions of households and businesses.
QUIET LAYOFFS
Recently, Canadian banks have been quietly laying off employees.
Some experts believe, that might be to avoid public or government scrutiny.
Banking layoffs have been a touchy subject, so drawing least attention could be a strategy.
Rather than firing hundreds of people in a day, letting go off small numbers here and there, could just do the trick.
Specifically after 2008 financial crisis, people believe banks are about privatizing profits for shareholders, while socializing losses when they need taxpayer bailouts.
That might be the reason, banks seem to be laying off quietly these days, to improve shareholder returns.
Hope you get my point.
US BANK LAYOFFS
Like Canadian banks, American financial institutions too have been laying off employees this year.
Economists are predicted challenging economy going forward, and largest US banks have already laid off close to 20,000 people, this year alone.
I know, most of this could be attributed to job hopping.
As it has slowed significantly, hence banks are left with extra employees.
Over hiring during COVID be another possible reason.
But I believe, banks might be using this time to trim their workforce, while improving their bottom line.
Just keep in mind, this is just the beginning in my view and more is yet to come.
HIGHER RATES
The Canadian financial system has proved to be remarkably resilient till now, as rates are on the rise.
But increase in borrowing cost and credit losses, have started to increase for banks.
Surely, Canadian banks have so far remained solvent, unlike some American banks.
But surely, balance sheets of our banks have started to show some financial stress.
Most banks have started to put money aside in case of defaulting borrowers, thus affecting their profitability.
Cost of living crisis, high inflation and borrowing cost is hurting Canadians.
Moreover, banks are not timely passing on high interest rates to savers, thus making profits.
HIGHER MORTGAGE COSTS
Often human success is projected by the house we live in, and the car we drive, both of which are financed in most cases.
Unfortunately, in a higher interest rate environment, borrowers are witnessing a significant increase in payments, in relatively shorter period of time.
If your mortgage renewal is coming up, you would have to pay higher mortgage for the same loan, whereas your home equity has gone down in a declining housing market.
In most cases, your income is not paying you enough to cover this increased financial burden.
Therefore, this higher cost to service debt is reducing quality of life for Canadians.
BANK CONSOLIDATIONS
Consolidation is beneficial to the company, and in most cases consumers pay in long term.
Royal bank agreed to buy HSBC Canada, which is awaiting final regulatory approvals.
Furthermore, this proposed merger will increase banking concentration in too few players, which I believe will curtail competition.
But Canada's competition watchdog has already approved this deal.
When consumers are facing cost-of-living crisis, reduced banking choices will be detrimental to a common man’s interest.
Until the final regulatory approvals are obtained, all companies tend to send out right signals.
But after that, the hard-core capitalism kicks in, where shareholder interests are paramount.
TROUBLING SIGN
As Bank rates go up, financial stress in Canadian household is on the rise.
Bank of Canada is worried about rising household debt, coupled with jump in mortgage payments recently.
Surely many household's will face financial challenges with mortgage renewal, that too at higher rates.
With declining house prices, home equity also gets crushed.
Banking sector is now feeling the heat, where it’s key financial parameters are being flagged.
Naturally, they are forced to make provisions in their balance sheet, in case of a default.
All this is indicating stress in the financial system, like we saw in other financial crisis.
TRUSTING
Canadian banking system might be monopolistic, but more risk adverse than American.
I believe, having five year mortgage term discourages too much speculation, unlike 30 years in America.
Since 2008 financial crisis, no Canadian bank has failed.
Surely, conservative banking regulations have played a key role, as our economy remained more stable.
But I believe, the worst is yet to come for Canadian financial system, as we witness rapid rate hikes, and how too much housing froth unwinds.
I do trust capitalism, where there should be no socializing of losses, as banking profits are private.
Hope you get the idea.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.