Business torrents

With European banks getting propped up almost daily, unimaginable U.S. bank and insurance failures and growing economic uncertainty, Canadian bank investors have a back seat on the global roller coaster.

Canadian banks are not likely to tap directly into a U.S. government bailout plan, assuming lawmakers can eventually agree to a rescue package. Even so, Bay Street institutions are likely to feel the fallout from widespread uncertainty about the global financial system that is expected to persist, no matter what Congress does to alleviate the stress.

The Canadian banks are caught up in severe swings in investor sentiment and rising concerns about their business prospects in a weakening North American economy. While some analysts think they have a rare opportunity to make U.S. acquisitions at bargain-basement prices, deals may not occur until some of the dust settles.

“There’s a growing recognition of the impact of the credit crisis on the global economy. We’ve got some major economies on the verge of recession, if not in recession,” said Patricia Croft, chief economist at money management firm Phillips, Hager & North in Toronto.

Canada is not expected to escape an economic downturn, meaning consumer and business demand for loans will slow and credit losses will rise.

Canadian financial stocks were hammered on Monday, led by a 9.3 percent drop in Bank of Montreal (BMO.TO: Quote, Profile, Research, Stock Buzz), which closed at $42.00 a share, and Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research, Stock Buzz), which dropped 8.5 percent to C$56.90.

Some of those declines were reversed on Tuesday morning, with bank stocks springing back 500 fast cash. The S&P/TSX financials index, composed of banks, insurance companies and asset managers, rose 3 percent.

“We are in uncharted territory, unprecedented events, and so I think volatility is going to continue until we get some sense of resolution around the credit crisis,” Croft said. 

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