The Globe and Mail - 03.04.2020

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OTTAWA/QUEBECEDITION ■ FRIDAY,APRIL3,2020 ■ GLOBEANDMAIL.COM

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CHRISTOPHERKATSAROV/

THEGLOBEANDMAIL

Canadian bank CEOs insist they

will keep paying dividends, even

as banks around the world have

axed payouts under pressure

from regulators to preserve cap-

ital within the banking system.

Concern is mounting about

the sustainability of banks’ divi-

dends after major British and Eu-

ropean lenders suspended

payouts to prepare for an unpre-

dictable health crisis. Banks ev-

erywhere are bracing for a major

shock as measures to curb the

spread of the new coronavirus

shut down large parts of the glob-

al economy, putting millions out

of work and making a painful re-

cession a virtual certainty.

Canadian banks made it

through the last financial crisis

with dividends intact, and they

have built generous capital re-

serves since then.

They have also treated the

payouts as more or less sacro-

sanct: Steady dividends serve as

signals of health in a banking sys-

tem and stopping the payouts

can erode confidence. Dividends

also provide a flow of income to a

wide array of investors, including

retirees, at a time when low inter-

est rates have sapped returns on

bonds.

On Wednesday, the United

Kingdom’s largest banks bowed

to pressure from Britain’s finan-

cial regulator and suspended di-

vidend payments. Several large

European Banks, including Italy’s

UniCredit and Dutch bank ING

Group have done the same after a

request from the European Bank-

ing Authority, and Mexico’s fi-

nancial regulator followed suit on

Thursday, saying that “it’s impos-

sible to estimate how deep and

how long the economic effects of

the pandemic will be.”

Canada’s Office of the Superin-

tendent of Financial Institutions,

has told domestic banks not to in-

crease dividends or buy back

shares, but has made no effort to

reduce payouts.

DIVIDENDS, B

Canadian

banksbuck

worldwide

trendtocut

dividends

JAMES BRADSHAW

MARK RENDELL

D

avid Dodge has some candid things to say

about the powerful weapons that the cur-

rent leadership at the Bank of Canada has

unleashed to fight the COVID-19 crisis.

First, they’re doing the right thing. Second, the

right thing – to “essentially print money” – could

have uncomfortable consequences down the road.

“They’ve done what they needed to do,” the for-

mer Bank ofCanada governor says in a telephone

interview.

“That is to ensure liquidity – that’s the prime job

of the bank at this point in time.

“[But] this is not without consequences down

the line.”

Mr. Dodge is talking about the decision last

week by Governor Stephen Poloz and his deputies

to not only slash the bank’s key interest rate – its

primary tool for monetary policy – to 0.25 per cent,

matching its record low, but to launch a massive

government-bond-buying program that will inject

money directly into financial markets and dramat-

ically expand the central bank’s balance sheet.

The program, which is a form of what central

banks call quantitative easing (QE), is a first for

Canada, although other central banks – most fa-

mously the U.S. Federal Reserve – leaned on QE in

response to the 2008-2009 financial crisis.

Mr. Dodge, who headed the Bank of Canada

from 2001 to 2008, is more qualified than most in

this country to weigh in on such matters – and

more willing than most with his qualifications to

do so.

PARKINSON, B

BoCstrategycorrect,

Dodgesays,butthere

arerisksdowntheroad

DAVID PARKINSON

OPINION

Linda Hasenfratz, chief executive
of auto-parts giant Linamar
Corp., a company from Guelph,
Ont., known the world over for
building engine parts and trans-
missions, is now suddenly and
deeply immersed in the challenge
of producing hospital ventilators.
It’s not a particular business
line she had envisioned for her
firm even a month ago. “We had
identified medical devices broad-
ly as a market that we are interest-
ed in and are looking to expand
into at some point ... we’re ex-
ploring the field but ventilators
were not on the list.”
Amid the novel coronavirus
crisis, Ms. Hasenfratz and her
company are engaged in what
amounts to an unprecedented
project. They are teaming up with
other auto-parts makers to help a
small Brampton, Ont.-based firm,
O-Two Medical Technologies, pro-
duce 10,000 ventilators in a mat-
ter of months for the Ontario gov-
ernment.
The Linamar CEO says, in some
ways, an engine and a ventilator
are not that different. “Both are
complex assemblies full of very
critical, precisely manufactured
parts that need to be assembled in
a certain way – and then the full
assembly needs to be tested.”

O-Two is in charge but Linamar

is spearheading the work by Mag-

na International Inc., Martinrea

International Inc. and ABC Tech-

nologies Inc., which have volun-

teered to bring their expertise to

bear in this rapid escalation of

production.

Plans are still being hammered

out, but Ms. Hasenfratz said the

Linamar’s contributions will in-

clude parts. “We are tooling up a

whole bunch of machined parts,

like 40 different parts, that we can

manufacture for them.”

Auto-parts makers say their in-

dustry is very good at expanding

production quickly, manufactur-

ing extremely precise items, deal-

ing with suppliers to expedite the

shipping of raw materials and

components as well as eliminat-

ing or reducing bottlenecks on

the production line. Plus, these

firms have the financial resources

on hand to quickly procure items.

“We’re used to highly precise

manufacturing with very tight

[measurement ] tolerances ...

and very high standards in terms

of cleanliness,” Ms. Hasenfratz

says.

She said parts makers could al-

so take charge of subassembly –

putting together components

that will then form part of the ven-

tilators – to make it easier for O-

Two to focus on final assembly

and testing.

VENTILATORS, B

Auto-partsandmedicalfirms

teamuptobuildventilators

STEVEN CHASE
MATTHEW McCLEARN

Saudi Arabia is calling on Canada and
other countries to participate in cuts to oil
output to help halt the slide in global
crude prices that is taking a heavy toll on
energy-producing economies already
struggling with the COVID-19 crisis.
The official Saudi Press Agency report-
ed that the kingdom urged members of
the Organization of Petroleum Exporting
Countries, Russia and other countries to

seek an agreement to “restore equilib-

rium” in the oil market.

Crude prices shot up 25 per cent Thurs-

day in response to that and to a comment

from U.S. President Donald Trump that

Saudi Arabia and Russia could be near a

deal to end a price war that has flooded

global markets. A source within OPEC+,

which comprises the cartel's membership

plus Russia, Mexico and other allied pro-

ducers, said non-affiliated countries such

as Canada and Brazil would need to join

in any co-ordinated output cuts.

Canadian officials said little about pro-

spects for participating. The country’s oil

producers have cut output rather than

sell it in a market that has little need for

it, with aircraft and vehicles parked and

refineries slowing operations. In early

March, Saudi Arabia and Russia met with

other OPEC nations in a bid to reach an

agreement to reduce output to compen-

sate for an expected drop in demand be-

cause of the coronavirus.

OIL, B

Saudiscallforoiloutputcuts

tostopplungingcrudeprices

Freelandwon’tcommitCanadatoplan:‘Tooearlytosayhowthissituationisgoingtodevelop’

JEFFREY JONESCALGARY
EMMA GRANEYEDMONTON

Inside the marketIntwodays,$1-billionworth

ofSuncorandCNRwerebought B

EUproposesaidpackagetofarmers,fishers

Plantoshortenwork-weekexpectedtosoftencoronavirusimpact B

A fisherman protects himself from coronavirus while offloading his haul in Fiumicino, near Rome, on Thursday.

ALBERTOLINGRIA/REUTERS

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