It's not a stampede, but bank failures trouble western Canada
Prince George, British Columbia — The first bank failures in Canada in more than 60 years have demoralized businesses in the western provinces of Alberta and British Columbia. The banks were not only based in the west; that was also where they had almost all of their loans. One disheartened businessman is John Brink. He arrived in this lumber town 20 years ago this month with $25.75 in his pocket. Mr. Brink spoke only Dutch and wore a suit that had the local lumberjacks falling about laughing.
Today he owns a sawmill that does $10 million a year in sales. Brink has carved a niche in the struggling lumber business in the northern interior of the province; while others fail, his business has doubled in size during the slump of the past four years.
Brink takes substandard lumber, the stuff the big sawmills don't want, and cuts out the defects. Stacks of neat, clean 2-by-4s and short bits of wood for packing crates and pallets line his lumberyard.
The Northland Bank, the latest one to go under in western Canada, was where Mr. Brink did his banking, and he was not happy to see it fail. He liked the friendly local managers, dealing with western Canadians who understood his business.
``If we had a problem we could call the head office in Calgary. That's impossible with the big banks,'' Brink says. The big banks are the five giants, all centered in Toronto, that do 83 percent of the banking in Toronto. ``Because of the slump out here, those technocrats in Toronto just write off everything west of the Saskatchewan border,'' he complains.
It is easy to see how business here feels isolated. It is a nine-hour drive from Vancouver, a seven-hour trip to Edmonton. Toronto is half a continent away.
Northland and the Canadian Commercial Bank are the two Alberta-based banks that went under in the past month. This has caused furor in Ottawa, the Canadian capital. For one thing the government bailout package covers deposits of $60,000 and less, under the Canada Deposit Insurance Corporation.
But Ottawa is going to cover all depositors, raising the bill from $300 million to as much as $3.8 billion.
Eastern bankers say the collapse of the two banks was ``inevitable.'' They were friendly, to be sure, but a little too friendly, lending money to shaky businesses.
One Toronto banker said his organization had not lent money to the two western banks for a year and a half. ``We realized they had a lot of poor loans, so we left them alone,'' said the banker, who asked that he not be named.
Last spring the federal government announced a rescue package for the two Alberta banks.
That trumpeted that the banks were in trouble, and depositors big and small abandoned the banks. Bad loans continued to mount.
Mr. Brink, however, never missed a payment. He has almost $2 million in loans with the Northland -- long term on his buildings, and operating loans for day-to-day expenses such as the payroll and cash to stockpile trees. ``We cut trees in the winter and we need cash to pay for men and equipment.''
Ottawa's signaling that the banks were in trouble, and the former Liberal government's energy policies, combined to break the banks, according to Brink. ``The National Energy Program did in the west,'' says Brink of a 1980 plan to ``Canadianize'' the western-based oil and gas industry. The program had the effect of drying up oil and gas activity in Alberta and British Columbia for several years.
The Big Five banks will probably be the big winners. There has already been a shift away from other, smaller banks; there is a total of 12 Canadian chartered banks.