Canadian loonie dives to lowest level since 2004

- During 2015 the Canadian dollar — the Loonie — has lost 17 percent of its value against the U.S. dollar. Yesterday it closed below 72 cents U.S., the lowest value since the spring of 2004.

At the present exchange rate it will cost $1.40 Canadian to buy one U.S. dollar. With service fees it will cost about $1.43. Economist at the Bank of Montreal, Doug Porter, said:

 "The only bigger annual decline was in the extreme conditions of 2008, when the Canadian dollar fell 18.6 per cent — a threshold I thought would never even be approached again."We still have well over a week to go in 2015, so we could get closer to that level.

The decline in the loonie is in part the result of the steep slide in oil prices. Futures on Thursday were down 57 cents to $34.95 a barrel, the lowest price in seven years. Another factor is the recent raising of key interest rates by the U.S. Federal Reserve. In contrast, the Bank of Canada is keeping our interest rate at a lower level and may even lower the rate further in an attempt to stimulate the economy.

Some analysts predict that the loonie could go as low as 70 cents U.S. Canada is not alone in suffering a decline in the value of our currency, however. The U.S. dollar is climbing in value relative to major currencies. The loonie is actually holding up reasonably well compared to some other currencies. The Federal Reserve decision also helped push up the American dollar against the British pound, Japanese yen, Australian dollar and the euro.

Canadian Prime Minister Justin Trudeau said to reporters in Vancouver: "Obviously the economy of our largest trading partner picking up is a good thing, potentially, for Canada, but whenever there are shifts in the value [of the loonie], especially decreases, there are both challenges and opportunities."

Among the challenges will be higher costs for Canadian snowbirds who fly south to avoid the harsh Canadian winters. The costs in the U.S. will be considerably higher in terms of Canadian dollars. Perhaps, the snowbirds should travel further south to Mexico and beyond where the dollar may purchase more. Deputy Chief economist at TD Bank, Derek Burlton said: “Clearly there’s going to be some hurt in some of the traditional snowbird markets.” The bank predicts the loonie will drop to a low of about 71 cents but recover to about 80 cents in the next couple of years. This is still a long way from where it was not that long ago. Burton thought that snowbirds in areas such as economically depressed Alberta might stay closer to home. Others could cut their expenditures while in the US or cut the length of their stay. Many snowbirds, may be well enough off to simply continue on as before.

David Watt of the HSBC Bank of Canada along with others note that the weaker dollar will make out exports cheaper in terms of the U.S. dollar, a prime market for our export goods. However, the weaker dollar also is a symptom of weaker demand for our raw materials and oil both key exports. Watt said:“If you want to be an optimist, you lean on the one side that it will help boost exports.m I tend to lean more to the second side, that it reflects a degree of concern about the global economy.”

Optimists hope the growing U.S. economy and lower prices for Canadian goods will over time result in considerable growth in exports, helping the Canadian economy recover from its present relatively weak performance. The high U.S. dollar may encourage more Americans to visit and shop in Canada where items may now be less expensive than in the U.S.

Six Canadian Banks earn almost $35 billion over last fiscal year

- In a year that has seen a weak economy, slumping development in the energy sector and consumers cautious and debt-ridden, five of the six main Canadian banks had fiscal year earnings better than last year with Scotibank being the single exception.

Three of the six banks also increased their dividends. Total earnings of the six for the fiscal year was almost $35 billion. The Royal Bank was the top earner with $10 billion in profit compared to $9 billion last year.

One of the ways the banks increased their profits was by curbing expenses. This often involves trimming staff and running the operations with fewer workers. TD cut 1,594 jobs this year. Scotiabank dropped 1,140 staff since last July.but this did not increase the profits for this year which dropped to $7.21 billion from$7.30 billion last year. Royal Bank also cut 528 full time jobs but did it mostly by not replacing retirees rather than laying off existing staff.

Some of the increase in profits has nothing to do with the Canadian economy but rather that some Canadian banks have large U.S. operations, and with the low Canadian dollar, U.S. earnings are worth more in Canadian dollars. Some Canadian banks have expanded to such a degree into the U.S. that in the case of TD, it has more branches in the U.S. than Canada. TD had the second highest earnings with $8.02 billion this year as compared to $7.88 last year.

Loan volumes have been rising and deposits growing. The banks also saved money by not passing along the full half percentage point in the loan rate that the Bank of Canada introduced earlier this year. The banks lowered their rate by only 0.30 percent, keeping the other 0.20 per cent for themselves or 40 percent of the total drop in the rate. What many consumers no doubt noticed is bank fees are continuing to increase as well.

Still, banks face problems in the west. particularly in Alberta where there have been many layoffs. The Royal Bank has added eight energy sector companies to its watch list. Equifax, the credit monitoring agency, says loan delinquencies were rising in every province with a large energy component. The economic outlook for 2016 is not that robust and forecasts have been trending downward,

The banks also face pressure to introduce new digital technology to compete with competition from giants such as Apple and Google. Janice Fukakusa, CFO of RBC, said: "We're continuing to invest in our digital channels … and also to invest in automating and simplifying our processes." David Beattie, a bank analyst at Moody's Investor Services, said"They're getting to the point where they're really doing some substantive changes to the way they run their businesses,Digitization is doing that anyway, but the pressure of low interest rates and spread compression and low revenue growth is just making it all that more critical."

The Royal Bank(RBC), with the largest profits, showed an increase in profits of 11,3 percent from last year. In the fourth quarter of this year ending on October 31, it earned $2.59 billion, also up by 11 percent from 2014. The RBC profit per common share was $1.74 in the fourth quarter above estimates by analysts. For the full year it was $6.73. The stock pays a dividend of 79 cents per share, an amount unchanged. Dave McKay, president and CEO of RBC, said: "We had record earnings of $10 billion in 2015, reflecting the strength of our diversified business model and our ability to execute our growth strategy in a changing environment," RBC operations in the U.S. and the Caribbean were profitable this year whereas last year they suffered losses. Not surprisingly there are signs that all will not be well in Alberta. Mark Hughes, risk officer for the RBC, said:"We've noticed a slight — and I would stress the word slight — upward trend in auto and credit card delinquencies in Alberta and while they haven't translated into writeoffs, we are monitoring the performances of these portfolios,"

The Toronto-Dominion Bank(TD) saw its profits increase by 5.3 percent in the fourth quarter to $1.84 billion even though it had heavy restructuring costs. The bank claims its Canadian retail operations experienced growth in loans, deposits, and insurance earnings. At the same time, credit performance was also strong. TD's U.S. banking operations had a net income of $486 million, which was 14 percent above that of last year. In part this was due to the weak loonie. The TD president and CEO, Bharat Masrani, said; "Results for the year reflect good earnings performance from all businesses, driven by good organic growth, strong credit quality, favourable currency translation and positive operating leverage."

Although CIBC profits showed a drop in profits for the fourth quarter, it also reduced its workforce — but by just 124 positions in the fourth quarter. For the entire fiscal year ending Oct. 31, CIBC performed better than in 2014. The bank had $3.59 billion of net income and $7.92 billion of revenue, up from $3.22 billion of net income and $7.5 billion of revenue last year. Victor Dudig, CEO and president said:"In 2015, all three of our strategic business units delivered strong performance,Looking to 2016, I am confident that our client-focused strategy and our investment in innovation and process improvements will add long-term value for our shareholders."

CIBC increased that dividend, paid quarterly, from $1.13 to $1.15.