Bank earnings recap

Another earnings season for Canadian banks has come and gone, and the credit crisis picture doesn't appear to be getting any clearer.

Results were a bit of a mixed bag. Scotia, Royal, BMO, TD and National Bank all saw their profits dip a little, while CIBC squatted down and unloaded yet another $1-billion loss for the quarter. The bank that I own, BMO, didn't exactly knock my socks off, but based on analyst and shareholder reaction, the news was not quite as bad as it could have been (or indeed has been in recent quarters) so I took their numbers as muted good news.

All in all, though, we're not out of the woods yet. When a bank like Royal, which has so far managed to keep its hands pretty clean in the subprime mess, starts announcing hundreds of millions of dollars worth of writedowns, it's clear this isn't over.

Banks are as good a proxy for the economy as a whole as anything, so today's news that the Canadian economy actually contracted during the first quarter shouldn't be much of a surprise.

I have no idea how all of these credit problems are going to play out, but it's clear they haven't worked their way through the system yet.

Blogroll update

Slowly getting around to updating my blogroll on the right hand side of the page.

I must admit, I was embarrassed to discover that I hadn't already linked to these blogs, as I've been reading them all for a while. Still, it's never too late to throw someone a little link love.

Nancy Zimmerman's blog can be found here. Nancy's a Vancouver-based money coach (NOT a financial planner, she'd hasten to add) who wants to engage Canadians to take care of their financial health. Sounds like an admirable goal to me. The fact that she works for Citizens Bank of Canada is another feather in her cap, as far as I'm concerned.

Wooly woman's blog is more debt-related (as opposed to investing, I mean) and even though I've managed to sidestep a lot of major debt pitfalls so far in my young life, I still find blogs like hers inspiring and informative.

Strictly speaking, JanePlain is a Canadian, which is why she gets primo placement in my coveted blogroll. :) But she's actually an ex-pat living on the West Coast, in silicon valley I believe, in a high-tech, high-paying industry, in an expensive city. Those are several things I have no frame of reference for, which goes part of the way toward explaining why I find her blog so interesting. Hers is such a different perspective from my own, yet we seem to think alike. Hers is one of the newest personal finance blogs I've stumbled upon, but I like what I see so far. And speaking of California, I'd like to share the funniest description I've ever heard of silicon valley. My sister, upon returning from a trip to San Jose/Cupertino, was asked how it felt to live in a part of the world with such a high percentage of single, successful bachelors. Her synopsis? "The odds are good, but the goods are odd."

I'm sure she probably ripped that off from somewhere, but it always made me laugh.

At any rate, welcome to the newbies and blog veterans alike. I've heard rumours that a good friend of mine who recently discovered my blog is thinking about starting a pf blog of her own (hint, hint) to help get her financial house in order. I hope she does. There's a space waiting on my blogroll whenever she does.

Tipping the scales

Gratuities. They're popular fodder in a lot of financial blogs, with opinions raining in on all sides with personal takes on the fundamental question -- who gets it, and how much.

Me? With apologies to Malcolm Gladwell (and Mike from Four Pillars who similarly absconded with the pun for his lede) I reached my own particular tipping point this weekend.

After a very nice steak dinner with some friends on Saturday night, I excused myself to use the men's room. Which was where I encountered my own particular tipping-related white whale: the bathroom attendant. After using the urinal, I moseyed over to the sinks, searching for the soap. The smiling elderly gentleman in the corner who was holding it insisted upon squirting it into my hands, before flicking the tap on for me. 30 awkward seconds later, I was looking around for some paper towel, when he sauntered up from the opposite side and threw one over my hands with a smile. Noticing the tip jar, and feeling guilty, I threw in a loonie and excused myself as fast as possible. Where I come from, $1 for holding soap hostage and spouting inane weather-related banter is pretty good non-work if you can get it. But I'm just relieved he wasn't around for the follow-up jiggle.

Having received both notably good and notably bad service in my life for a variety of tasks, I'm generally a pretty decent tipper. Barring some sort of calamity, waitresses, cabbies and barbers can be pretty much assured of a little something extra in the neighbourhood of 10-20%, after taxes, from me, for going above and beyond. But I draw the line at jobs being made up for unnecessary middle men in the service assembly line. Is this really a service somebody needed? Was anyone actually out there thinking "Boy, that was a great meal. The only thing that would have made my evening better was if some old dude was there to blow my hands dry after I peed, because I'm a deeply insecure big shot."

I don't even begrudge him his entrepreneurial spirit, but the restaurant? It seems like an asinine way to run a business. It's particularly mystifying in that there's no way this is a profit centre for the establishment. At best, it costs them nothing as the attendant is paid entirely via gratuities. But I certainly don't see how it's making any money for the restaurant or bar. Couldn't one make the argument that that's money that might have otherwise ended up in the bar's cash register had it not been taken by the bathroom attendant? What other business dreams up ways for its customers to give away money to other people while inside their location?

If the intention was to make patron's start budgeting their bathroom breaks, and deciding to go home early after calculating the ROI to be had from urination, mission accomplished. But in general, I think I'll frequent those Luddite places with do-it-yourself soap dispensers from now on. I love the retro.

Anyway, just had to share. If you liked this post, send me some money. It's rude not to.

Artis hikes distribution

Discolure: I own AX.UN

I guessed, when Artis announced yesterday they'd roughly doubled their annual revenue and profit that there might be another shoe to drop in the near future, and today, it did.

Artis upped their distribution today by 3 per cent, to 9 cents or $1.08 per year. In the last year, Artis has managed to lower their FFO ratio to a very impressive 65% (FFO stands for Funds From Operations, a key metric for REITS that basically indicates how much of their total cash flow gets paid out in distributions every month. The lower the ratio, the better, as it generally implies the distribution is safe, and in fact could probably stand to increase.)

I'd written recently about how I was thinking about selling my profitable stake in Artis, so this news is certainly welcome while I mull it over some more. Ultimately, I need to decide if those funds might be better spent somewhere else, but in the interim, it's nice to own a company that seems dedicated to growing dependably and profitably.

The contrarian view on dividends

Fun as it can be to read mainstream media stories about why your particular investing style is the one true faith, destined to bring you riches and a happy retirement, for me, one of the best things about the personal finance blogosphere is when you stumble upon something that calls into question some fact you've always taken for granted, and forces you to either rethink your strategy, or confirm you're on the right course.

Take me, for instance. In general, I like dividends. I'm becoming more of an indexer the more I play this investing game, but I'm still partial to companies that generate healthy amounts of dependable cash, and have a tendency to spin off some of that to me in the form of dividends.

That bias means I frequently miss out on gains from fast-growing, sexy stocks like Google, Lululemon, and RIM in favour of old economy stalwarts like Royal Bank, Canadian Pacific and BCE. I generally don't start kicking the tires on a company until it's reached a mature level where it doesn't need a ton of cash to reinvest into expanding the business, and can instead divert a fair chunk of profits towards investors in the form of dividends. I like companies that pay me to own them, essentially, and this always struck me a as a fairly conservative way to invest.

Andy Kessler disagrees. Far from being safe and staid, Kessler thinks I'm an idiot for buying companies stupid enough to admit they can't think of anything better to do with their money. In a piece that first ran in the Wall Street Journal and is now expanded on his blog, far from saying companies that pay dividends offer investors a margin of safety, Kessler lambastes them for essentially acknowledging they have little room to grow. As he puts it: "If they won’t invest in themselves, why should I?"

I actually interviewed Kessler once for a feature I was writing on investing in nanotechnology (sadly, it's since been lost on the cutting-room floor) and he's a colourful character. So I'm not surprised to hear him espousing such a contrarian view on something as seemingly benevolent as a dividend cheque. Indeed, it's not the first off-the-wall thing he's ever said: he might be the only man in America who doesn't think Warren Buffett's the kindly old Cherry-Coke-swilling genius we all assume him to be. According to Kessler, Warren Buffett hates your guts. (Of all the things he accuses Buffett of, I'm guessing he'd begrudgingly like the fact that at least Berkshire Hathaway doesn't pay a dividend...)

All in all, I don't think I'll be changing my style too much. I still like the fact that dividends have some sort of downside protection. It's all well and good to ride Google as it increases 600% from its IPO. But what goes up must ultimately come down. And I'd feel a lot better thinking about all the quarterly dividend cheques I've cashed in over the last decade when it dawns on me that my Biovail shares are worth half as much as they were 5 years ago.

Unions sue for EI overhaul

Some interesting news on the bete noire of this particular blog (and a few others) today: Ottawa's egregious $54-billion Employment Insurance surplus.

Click here to read my previous thoughts on EI, but the latest chapter is that a number of powerful labour unions are taking Ottawa all the way to the Supreme Court to complain that the government is knowingly taking too much in EI premiums, and using the funds to pay for other government programs.

From the CBC's story:

"The surplus has been used to pay down debt, It's been used to give tax cuts to large corporations and oil companies, it's been used for all sorts of other purposes but not for unemployment insurance," said Byers. "That's money that comes from workers and employers for unemployment insurance. It's not an extra tax, it's not to be spent on other things."

I doubt this will lead to any sort of substantive change, but it's nice to see this issue maintaining traction in the media.

Don't get me wrong -- by and large, I like what Paul Martin did to overhaul the system in the 1990s. And in principle, it's a program I'm glad we have, to give people peace of mind for when life throws them that 10-ton bag of lemons every once in a while. So it's exactly the type of program I don't mind paying for, per se.

But based on the number of people I know who work, pay into the system, and then have their payouts denied or ridiculously delayed, it's clear something has gone amiss. It's not supposed to be another level of taxation imposed upon anyone with the audacity to hold a job. But with a $54-billion surplus that grows larger every day, that's exactly what it's becoming.

I sincerely doubt this lawsuit is going to result in Canadians getting some sort of lump-sum refund cheque, but anything that makes the system closer to what it's theoretically designed to be is OK by me. I'll keep you posted on future developments.

Every little bit helps

I've gotta say, it's rare that one of the Big Banks comes up with a promotion that doesn't immediately make me raise my suspicious eyebrows, but I'm pretty impressed with Scotiabank's recent savings-incentive program, Bank the Rest.

Essentially, the program takes extra cash every time an enrolee makes a debit transaction from their chequing account and puts the difference into a high-interest savings account where it accrues a lot more interest that it would otherwise have done. The program can be set to round up to the nearest $1 or $5. If you spend $6.23 on lunch, for example, Scotia would take an extra 77 cents, round the transaction up to $7, and deposit the difference into a savings account for you. Best of all, it's free of charge. The net result? A banking customer who wouldn't otherwise have the discipline to save some rainy day funds gets an automatic savings account that build in tiny increments over time. In exchange, Scotiabank no doubt gets a few new members for its Money Master High Interest Savings account.

Obviously, this isn't the sort of program that a regular saver would find much use for. But I'm inclined to applaud Scotiabank's attempt to turn a few compulsive spenders into accidental savers.

If you find it difficult to find the will to put away a little excess cash every month, I'd encourage you to consider this program (especially if you're already a Scotiabank customer.) I promise, you won't notice the extra 90-odd cents every time you make a debit transaction. And you'll be amazed how quickly it can add up.