President and CEO of Canadian Western Bank bullish about 2010

There’s no shortage of people willing to share their opinions on the economic slowdown and what lies ahead.

Canadian Western bank CEO Larry Pollock speaks at a Red Deer Chamber of Commerce luncheon on Wednesday.

There’s no shortage of people willing to share their opinions on the economic slowdown and what lies ahead.

But the man who shared his views at a Red Deer Chamber of Commerce luncheon on Wednesday is probably more deserving of attention than most.

Larry Pollock has guided the Canadian Western Bank through 86 consecutive profitable quarters, including during the depths of the financial meltdown. Last month, he was named Alberta Venture magazine’s Business Person of the Year.

“Is it over yet? I don’t think so,” said the Edmonton-based bank’s president and CEO of the economic woes.

“It’s either the end of the beginning or the beginning of the end, but it’s not the end,” he said, loosely quoting former British prime minister Winston Churchill.

Pollock cited reasons for optimism: recent rapid growth in China’s manufacturing sector, strengthening employment numbers, increased housing starts in Canada and rising commodity prices.

But he also thinks economic healing is still required in the United States, particularly its housing sector.

“There could be another dip down in housing prices in the U.S. before they do eventually rebound.”

It was that housing sector where problems began, said Pollock.

Loose credit, tax-deductible mortgage interest, mortgage values that exceeded the prices of homes and adjustable interest rates that allowed homeowners to reduce their payments and capitalize the deficiency into the mortgage all contributed to a bubble.

Meanwhile, the banks were bundling up mortgage debt and selling it in a process called securitization.

“Banks in the U.S. sold about 75 per cent of the mortgages that they took through the door into the securitization market,” he said, with lax lending procedures one consequence.

When the housing bubble burst, it caused capital markets to freeze, stopped banks from lending to each other and prompted a flight of money to government securities.

“We actually noticed trading in the U.S. of T-bills was negative. If you bought a treasury bill for $100, you were going to get $99 back at the end of the day.”

Interest rates fell, bank margins were squeezed and equity markets tumbled.

Although poor regulation of the U.S. financial sector allowed the crisis to unfold, Pollock pointed to another contributing factor.

“You can blame it on the banks all you want, but if people will still sign mortgages that they can’t afford they’re not understanding something or they’re not understanding the process.”

He thinks efforts should be made to improve the financial literacy of young people.

“We really don’t teach that very well, if at all, in most of our curriculum.”

Canadian Western Bank’s continuing profitability during the financial meltdown reflected a commitment to banking basics, said Pollock.

“We never got into the securitization business where we sold our assets off and still had off-balance-sheet exposure.”

Canadian Western Bank also benefited from having capital and liquidity, he added.

Looking ahead to 2010, Pollock expects gold prices to remain high, interest rates to climb and the Toronto Stock Exchange to gain a thousand points. Oil should continue to climb and natural gas to improve somewhat.

He anticipates that the loonie will hit par and Canada’s GDP will grow at a modest one to two per cent.

Pollock is bullish on the Calgary-Edmonton corridor, and thinks Alberta’s economy will be driven by more than the oilsands.

“I think you’re going to see a rejuvenation of conventional oil and gas activity in Western Canada.”

The United Nations climate talks in Copenhagen are reason for concern, he suggested. Pollock compares the current panic over climate change to the Y2K hype that preceded the arrival of 2000.

“Let’s get the science right first here,” he said, expressing fears about the impact of onerous obligations under an agreement on Canada’s economy.

This country, he pointed out, produces about two per cent of the world’s greenhouse gas emissions. Meanwhile, China and India are responsible for about 35 per cent, but won’t sign on because they’re developing countries.

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