Bank bosses talk up tech spending amid financial sector ‘arms race’

The leaders of the biggest banks in Canada said Tuesday that they are still spending billions on transformative technologies as the financial sector’s digital “arms race” shows no signs of abating.

“Quite often I say that we’re in the technology business, and our product happens to be financial services,” Brian Porter, Bank of Nova Scotia president and chief executive officer, told the audience at the RBC Capital Markets Canadian Bank CEO Conference in Toronto.

Porter said his bank increased its spending on technology last year by 14 per cent — to $3.1 billion. Of that, he said, 60 per cent was to help run the bank, and the other 40 per cent was tapped for “change-the-bank” and “aspirational”-type projects, including those involving blockchain, the digital ledger that supports bitcoin and other cryptocurrencies.

Royal Bank of Canada president and chief executive officer Dave McKay said RBC is spending about $3 billion a year on technology, and has increased the share devoted to transformative projects to about 30 per cent from 20 per cent.

“I think we’re still in the early stages of seeing the benefit from that, and deploying these technologies, but they’re coming and they are making a difference,” McKay told the conference, which saw chief executives from the country’s top lenders each take a turn discussing their businesses.

The spending on the development of new technologies comes as the banks are still enjoying strong earnings, but are also dealing with the rise of decentralized and digital currencies, fintech upstarts trying to cut into their businesses, and the migration of customers towards mobile and online banking platforms. There is also the once-unthinkable prospect of direct competition from a tech giant, such as Amazon.com Inc. or Apple Inc.

“The arms race is definitely heating up,” said Darko Mihelic, research analyst at RBC Capital Markets, to open the conference.

Hours earlier, TD Bank Group had announced its purchase of Toronto-based Layer 6 Inc., a “world-renowned” artificial intelligence company, for an undisclosed price.

“We think it can accelerate our journey using artificial intelligence, which we feel is critical in delivering evolving customer expectations as we go forward,” said TD president and chief executive Bharat Masrani.

A few years ago, only around 25 per cent of the bank’s spending on technology was on changing-the-bank-type investments, while the rest was earmarked for ensuring systems were up to date and other operational aspects, he said.

“We’ve been able to shift that, to now where 40 per cent of our spend is geared towards changing the bank through innovation, new functionalities using various new technologies such as artificial intelligence, to connect with our customers,” Masrani said.

The RBC conference also came a day after Canadian Imperial Bank of Commerce unveiled a new innovation banking business that aims to serve North American technology clients “from start-up to IPO and beyond.” To that end, CIBC also announced it had bought Toronto-based Wellington Financial, a privately-held venture fund that targets early and mid-stage tech companies in Canada and the United States.

“CIBC wants to be seen as a relevant bank in the technology and innovation sector broadly speaking,” Victor Dodig, CIBC president and chief executive, told the conference.

Dodig also said that CIBC has been consistently spending around $1 billion a year on tech, but is not spending blindly.

“What really matters? What really moves the dial forward on earnings, client satisfaction, client growth, and what is simple another shiny object?” Dodig said. “We’ve become disciplined about where those shiny objects are and really disciplined on where we invest in that regard.”

While the digital evolution continues, the banks are not yet ready to untether themselves from the bricks-and-mortar branches they operate throughout Canada and the U.S.

Asked if Bank of Montreal would consider an online retail bank in the U.S., BMO chief executive officer Darryl White downplayed expectations of the lender making a “big splash” with a digital-only acquisition.

“Anything’s possible, never say never, but we don’t want to disenfranchise the customer franchise that we have right now,” he said.

White also said that BMO increased their tech spending by 13 per cent last year, and would “probably” increase it again by double digits this year, though not without losing focus on growing earnings.

“It’s not a ‘let’s-increase-our-tech-spending-and-take-an-earnings-holiday,’” he said.

gzochodne@postmedia.com
Twitter: @geoffzochodne

At least six dead in Southern California flooding, mudslides

LOS ANGELES (Reuters) – At least six people died and thousands fled their homes in Southern California on Tuesday as a powerful rainstorm triggered flash floods and mudslides on slopes where a series of intense wildfires burned off protective vegetation last month.

H-1B visa extensions for workers waiting on green cards are safe for now

 The Trump administration appears to be creating distance between itself and rumors that it might end the practice of extending H-1B visas during the green card application process. The rumored change would have a large impact on foreign tech workers in the U.S., but the United States Citizenship and Immigration Services (USCIS) is offering assurances that no such policy change is underway. In… Read More

GOP senator says she’ll vote to restore net neutrality rules

A Democratic effort to reinstate net neutrality rules has won support from a Republican senator and could pass in the Senate if just one more Republican breaks with the GOP.

A Congressional Review Act (CRA) resolution from Sen. Ed Markey (D-Mass.) to reverse the Federal Communications Commission’s net neutrality repeal would need votes from all Democrats and two Republicans in order to pass through the Senate. Sen. Susan Collins (R-Maine) today became the first Republican senator to pledge support for the repeal reversal.

“Senator Collins does not support the FCC’s recent decision to repeal net neutrality rules, and she will support Senator Markey’s legislation that would overturn the FCC’s vote,” a spokesperson for Collins told The Hill and other news outlets today.

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Salvadorans say going home not an option after U.S. axes protection

RED BANK, N.J. (Reuters) – Three decades after fleeing civil war in his native El Salvador, Luis Munoz has built a life for himself in the New Jersey coastal town of Red Bank, working as a mechanic and raising three children with his wife.

Wynne might still win, Morneau likely out by the year and NAFTA will be just fine: NP panel predicts

As Donald Trump told reporters on Tuesday afternoon he’d beat Oprah Winfrey if she runs against him in 2020, Canadian pundits and experts made their own predictions about the year ahead at the National Post and Canadian Club Toronto’s annual Outlook Luncheon.

They mulled over the political futures for Trump, Ontario Premier Kathleen Wynne and federal Finance Minister Bill Morneau. When it comes to the economy, the North American Free Trade Agreement and pipelines dominated a cautiously optimistic conversation.

Here’s what they predict for 2018:

Trump is more bark than bite

 J.F. Perrault, Scotiabank senior vice president and chief economist

Trump will continue to be more of a distraction than an actual threat to the economy, Perrault predicted.

“It’s easy to worry, it’s easy to think there’s going to be war in Korea, NAFTA’s getting ripped up, corporate tax reform is going to be terrible for Canada,” he said. “In reality, as we’ve experienced over the last year… a lot of this really isn’t impacting us to the extent we thought it would. We had a really good year.”

Canada has suffered from uncertainty around NAFTA – its future is the number one risk factor to the country’s economic performance – but should be fine no matter what happens given half of trade with the U.S. is done outside of NAFTA, Perrault said.

He’s also “reasonably sanguine” about the corporate tax cut in the U.S., adding corporate tax rates don’t matter nearly as much as economic fundamentals that continue to be strong.

“Generally what’s good for the U.S. is good for Canada.”

He predicted the Bank of Canada interest rate will be 75 basis points higher at this time next year.

‘Entitled rich kid’ optics and pipeline politics

Andrew Coyne, Postmedia columnist

The controversial expansion of Kinder Morgan’s Trans Mountain pipeline from Alberta to B.C. will come to a head, Coyne predicted.

“It’s going to be from all appearances a knock down, drag off fight,” he said, with environmentalists apparently prepared to physically block construction.

This leaves the Liberals with a balancing act between pipelines proponents and environmentalists. If Prime Minister Justin Trudeau “sticks to his guns and gets it built,” that could change the way voters in Alberta and Saskatchewan see the Liberal party, Coyne said.

Coyne said that Trump will still be president at this time next year, but the same doesn’t stand for Canada’s finance minister.

“I suspect he may be gone in a year,” he said of Bill Morneau.

Morneau can’t seem to shake the scandal over muddled small business tax reform. The Liberals and Trudeau are vulnerable when it comes to the “entitled rich kid thing,” Coyne said, and Morneau is a constant reminder of that.

But Coyne wouldn’t make the same prediction about the Ontario Liberals in a provincial election year. While the Liberals have earned a spot in the opposition, he said, Wynne has thrown “everything but the kitchen sink” at voters including rent control and a minimum wage hike. Plus, he said, “The Conservatives have a history of finding ways to beat themselves.”

The audience looks on the pannel of speakers at the Canadian Club of Toronto which held the National Post’s 41st Annual Outlook 2018 at the Royal York Hotel, Tuesday, January 9, 2018.

NAFTA will be ‘just fine’

Diane Francis, Financial Post columnist

Canada should forget about incorporating Mexico into NAFTA and focus on a separate trade deal with the U.S., Francis said.

Trump is a protectionist, but he largely means Mexico when he says he wants to get rid of NAFTA, she said.

“The strategy in Ottawa to side with Mexico is beyond foolish, it’s actually dangerous,” she said.

Either way, she added, much of the business between Canada and the U.S. doesn’t involve NAFTA and is done through inter-corporate transfers. The relationship is longstanding and critical for parties on both sides of the border.

“I think the NAFTA thing will work out and Canada will be just fine,” she said.

First Nations a ‘game changer’

Claudia Cattaneo, National Post Western business columnist

Claudia Cattaneo.

The “one good thing” Trump did last year was approve the Keystone XL pipeline, but the Nebraska commission’s decision to re-route the pipeline will make it difficult to get built, Cattaneo predicted.

“I think Keystone will go ahead but it’s going to be a fight every step of the way,” she said.

Cattaneo expects this will be a big lift for the Western economy and a political win for Trudeau and Alberta Premier Rachel Notley, both of whom could use a boost in Alberta.

When it comes to NAFTA, Cattaneo said Alberta is already thinking beyond the agreement given its resource economy is “way too dependent on the U.S. market.” “That’s’ why there’s a real push to get to Asia,” she said, pointing to the Trans Mountain pipeline.

She expects oil prices to increase globally, though that won’t solve Alberta’s oil transportation problem. But she expects the game changer this year will come from First Nations.

“I think we’re going to see them become supportive of projects as opposed to opponents.”

Trump’s in, Bitcoin’s out

Amanda Lang, business journalist and author

Amanda Lang.

Donald Trump will still be president at this time next year, whatever may come from the Mueller investigation into Russian interference in the 2016 U.S. election, Lang predicted.

“But I think he will have a fight. There will be a real challenge to his presidency,” she said.

The stock market’s enduring rise is “long in the tooth” and will inevitably correct at some point, Lang said. But she wouldn’t pinpoint when she expects the fall given the uncertainty from U.S. tax reform, which could prolong the market’s hot streak.

When it comes to Bitcoin, however, Lang didn’t pause before comparing it to the internet stock bubble in 1999.

“It’s an overvalued flash in the pan,” she said. It has some seriously important underlying technology, she added, but as an investment has “zero fundamentals.”

ejackson@nationalpost.com