As the world braces for a possible economic storm, a pair of banking executives brought a message of calm to Red Deer on Wednesday.
“For those of us who have a reasonably long time horizon ahead of us, we’ll get through this latest crisis,” said Paul Taylor, chief investment officer with BMO Harris Private Banking. “On average there’s a crisis, I think, every seven years.”
Taylor and Doug Porter, deputy chief economist with BMO Capital Markets, are speaking to BMO Harris Private Banking clients across Canada.
They were in Red Deer as part of a cross-country tour that’s taking them from Victoria to St. John’s.
“Generally speaking, people are cautious,” said Porter. “But I’d say they’re cautiously optimistic.”
The European sovereign debt crisis is reason for concern, acknowledged Taylor, explaining that a default by Greece — or worst still by bigger countries like Spain or Italy — could have far-reaching consequences.
“There could be a run on the European banks and their lending would freeze up, and that would have ramifications on the global financial system and/or there could be some collateral damage in terms of the impact on the global economic recovery.”
But, added Porter, the shock waves in Canada would probably be less severe than followed the 2008 collapse of U.S. investment bank Lehman Brothers. There’s not a strong link between the European and Canadian banking systems, he said, and Europe accounts for only about eight per cent of our exports.
A greater consequence would likely be the hit to Canadian equity markets. And since the EU represents one of the world’s biggest economies, the price of Canadian commodities like oil and forest products would be sure to fall, said Porter.
He believes a greater threat is brewing south of the Canada-U.S. border, where rising debt and a foundering economy show no signs of improvement. But that danger isn’t as imminent as the European debt crisis.
“It’s more something that’s rolling slowly but surely towards us, and policy-makers really do have to address that in the years to come.”
Taylor said BMO Harris Private Banking has reduced the equities content in its portfolios. But there are still plenty of well-capitalized companies on the market with strong business plans and good management.
He cautions against panic selling.
“To react emotionally to what’s happening right now would be short-sighted.”
hrichards@www.reddeeradvocate.com