Thomas White Global Investing
Global Players

Global Players

May 2010

Mark Carney, Governor, Bank of Canada


“We don’t do optimism. We don’t do pessimism. We do realism at the Bank of Canada.”

— Mark Carney, 2009


Canada has been in a buoyant mood over the past two years, at least compared to most. While other countries were busy administering financial painkillers to their ailing economies, Canada has emerged from the recession relatively unscathed. For this, the country has not stopped thanking Mark Carney, the governor of the Bank of Canada. But Carney’s not celebrating yet.

Canada, though, does have reason for cheer. In 2008, the World Economic Forum’s Global Competitiveness report declared that Canada had the soundest banking system in the world. The land of the maple leaf received a near perfect score of 6.8 on a scale of 7, drawing attention to its rosy balance sheets.

Canada exited the recession in the third quarter of 2009 with an honor badge – the country had undergone the mildest and shortest recession among the G7 countries. The partnership of Carney and Finance Minister Jim Flaherty ensured that Canada had a stockpile of savings to finance spending, unfettered. Early in 2009, the Canadian Parliament approved a stimulus package worth $32 billion to bolster the economy over the next two years.

Perhaps Carney’s years of corporate grooming had paid off. Earning a PhD in Economics from Oxford University, Carney spent 13 years at Goldman Sachs honing his investment skills. Switching gears to become deputy governor at the Bank of Canada in 2004, the then barely 38-year old Carney was elated. It seems that economic policy, rather than business investment had always been close to his heart.

It wasn’t long before Carney became somewhat of a hero at the central bank. He helped carve out a practical budget in 2005, earning the nickname “budget driver.” And to much applause, Carney then went on to broker one of Canada’s biggest share deals through the $3.1 billion sale of Ottawa’s stake in Petro-Canada.

At 45, Carney is the youngest central bank governor in the Group of Seven rich nations and one of the youngest ever in the history of the Bank of Canada.

By the time Carney stepped up as governor of the Bank of Canada in 2007, the sails of the financial crisis were gathering wind. Canada was teetering close on the edge of recession, grappling with credit shortages. The country was also in the middle of its biggest expansion in six decades. But a soaring loonie, which touched 19% against the dollar at one point in 2007, reached parity for the first time since 1976.

Carney set to work immediately. In one swift decision after another, the central bank governor negotiated emergency rate cuts, and let liquidity flow into Canada’s big banks. He even played a conciliatory role during the tense Group of Seven (G7) meetings. The same year, in 2008, the subprime mortgage industry lost its bearings, and the Asset Backed Commercial Papers (ABCP) market had frozen. Carney oversaw a restructuring deal of ABCP worth $35 billion. His prudent and timely intervention not only helped avert a homemade fiscal disaster but also prevented Canada from spiraling deeper into the global financial crisis.

However, it’s not that Canada had not undergone its share of recessionary trauma. Between December 2008 and February 2009, more than 100,000 Canadians were left jobless and the stimulus package resulted in Canada’s first budget deficit in 11 years.

But the “True North Strong and Free” emerged shining from the crisis as the only developed country with no distressed bailout calls and no bank failures. Carney was supported by Canada’s already well fortified financial foundation, bearing12 straight years of budget surplus and a well structured pension system.

Now, this former national league hockey player is working to renovate the systems within the central bank. Layers of management have been peeled off and some fresh thinking individuals from private banking have been brought in to serve as stronger bridges between the central bank and the markets.

Even though he has issued a growth forecast of 3.8% in 2010, Carney feels that Canada cannot afford to be content with celebrating its victory over the recession too soon. According to Carney, the country has to step up efforts to improve productivity and innovation. Flaherty agrees. Speaking to the Wall Street Journal, the Canadian Finance Minister warned, “I think we still have to be cautious. We are on our way to recovery.” And Carney, a steely man from the Northwest Territories, is the perfect candidate to ensure that Canada’s steady path continues uninterrupted.

 

 

 

 

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