Royal Bank

Royal bank is in a PR catastrophe. It wants to outsource the IT Dept to an off-shore company and wants those who will be fired to train those who will take over!

Of course record profits never stops a company from looking for new ways to cut costs, but this one may have been a step too far. I suspect the Royal sees the end of the RE/HELOC/CHMC feeding frenzy, and is looking for some quick savings to try and shore up earnings. The executive suite have a lot of  their compensation tied to the earnings and stock price. 

The CEO owns $33 Million of shares in the company and the rest of the executive suite isn't hurting:

Summary total compensation table

G.M. Nixon

President and Chief Executive Officer 

2009- $12 Million 2010 $11.8 Million 2011 $$11.1 Million and 2012 $12.6 Million

J.R. Fukakusa

Chief Administrative Officer and Chief Financial Officer 

2009 $4.4Million 2010 $3.4Million 2011 $4.5Million

D.I. McKay

Group Head, Canadian Banking 

2009 $3.6 Million 2010 $4.3 Million 2011 $4.8 Million

A.D. McGregor

Co-Group Head, RBC Capital Markets 

2009 $12.9 Million 2010 $10 Million 2011 $8.2 Million

M.A. Standish

Co-Group Head, RBC Capital Markets 
2009 $14 Million 2010 $10.3 Million 2011 $8.3 Million

This does not include severance or pension benefits which will run into many Millions for each of the above.

A few things that I find interesting:

The CEO is not even the most highest paid executive. It is always the head of trading that garners the biggest pay-cheques. In fact there may be RBC traders that make even more that these folks and are not on the reporting list.

In 2009, the executives got the highest pay 12 + 4.4 + 3.6 + 12.9 + 14 = $46.9 Million for the five of them. You remember 2009, the year of the fiscal crisis. 

That was the year that the Government came to the rescue of the big banks, big time. Interest rates where slashed, and CMHC was doubled (I believe late 2008) allowing banks to pass off risk to the tax-payer, and portfolios of consumer debt were purchased to free up bank funds.

SO...while $47 Million is not a huge sum in the self-entitled corporate world, were a single US CEO will pay himself that much in a bad year, the Canadian banks are different. 

Public policy is changed so that they CAN make huge profits, even if that means the risk is moved off their balance sheets to that of the Government (ie us!), so they have some degree of social responsibility. That means not pushing debt to the degree that Canadians are in trouble. It also means not going for the cheapest option at every turn, if it effects the incomes of ordinary employees. I would say they have failed in both capacities.

If things are THAT bad at the bank, how about the capping everyone's salary and benefits at say $3 Million. I mean that is a good chunk of money, unless you are trying to build a dynasty. Then the recipients of pink slips might feel less violated. 

BTW the way all the Executive suites justify their income, is to say.."we have 76,000 employees and so we run highly complex organizations"

For comparison:

The PM of Canada earns about $317 K

The President of the US $450K

The Head of the Salvation Army $130K

Fraser Valley

Summary 

20% less sales than last March

11% less listings than last March

3% less inventory than last March

MOI  is  8.4

Benchmark, the number that keeps on giving...  up a fraction of a % for SFH and Apartments and DOWN 1.7% for attached.

I suspect the criticism of the cannot-go-down-benchmark must have reached the Top brass. 

The President says in his statement..“Inventory levels are not as high as they need to be to put significant downward pressure on prices of the benchmark, or ‘typical’ home. These are homes that have characteristics most common to houses in a given community."

Hmm..with an MOI of 8.4 and sales 70% of the typical March I would suspect there is some downward price pressure. Any Fraser Valley readers out there wanting to comment on what they have seen?

The details are here.

Who has the money to buy?

Lots do!

The median Van West home is a cool $2 Million now. There is a misconception that only wealthy Chinese or those with 'hot' off-shore money can afford these prices.

There are lots of people locally who have an income big enough, say $700K, to be able to afford buying even at these lofty levels.

Some are business owners, but many are professionals who may even be paid by the tax-payer. Eg while the average doctor makes a lot less than this, I hear from my medical buddies (and in fact you can check on-line) that some Cardiologists , Opthalmologists and skin docs are well into this bracket. 

There are many high prices lawyers in this range too, and I am sure the lawyers who got to take the tax-payers largesse in this case and never get audited are in the exclusive club.

In fact the top producing Realtors probably have membership too and there are quite a few stock-brokers who run large 'books', pushing them easily to this level.

My point is there is enough local money power to keep buyers coming in alongside our off-shore arrivals. Not enough however to eat into the 7-8 MOI.

And don't even get me started on some of the over-paid padding that goes on in parts the corporate world. 

This has little to do with RE but humor me please, I lost a good chunk of money on it...

Yellow Media....

The CEO Marc Tellier is leaving after 12 years. He will get a $4.3 Million package, and $450,000/ year retirement pay on top of that when he turns 65 (he is 45 now). Last year his salary and bonus added up to over $1.4 Million. So he is a wealthy man.

Ok you say that's not a big deal. 

A CEO is God's anointed on this earth, they walk on water or at least they think they do, and the Rogers and TD CEOs who are retiring will likely get 4-5X MORE than this guy. 

Also compared with some US or European CEOs who rape their companies, this is loose change!

However I was a share-holder in Yellow media, and I know what happened. Since 2002, Yellow Media has seen it's share-price decimated from several dollars to a few cents. Even the BNN staff reporting it yesterday could hardly contain their shock and amazement at the package.

The Chairman put out a semi-apologetic news release saying they had to pay it per the contract that was signed at the time. There was apparently no clause that stated..'if share-holders are completely whipped, abused and trodden into the dirt, then no severance will be payable to you Mr CEO."

I have a better idea...why don't the Board of Directors who agreed to the contract and the lawyers who advised the company dig into their deeep pockets and pay it themselves.

As for Mr Tellier, this sums it up best. 

Whistler Downhill Slalom

We know Whistler has been in bad shape for a long time. Americans left a long time ago, Chinese are not interested yet, and baby-boomer demographics are working against the lofty prices.

It is a great winter resort but there is no reason to pay $1000/foot to get a few two-by-fours there.

Well things have gone a lot further downhill than I had thought. MINUS 11% , 12% and 43% are the 5 year benchmark returns according to the REBGV stats for detached, attached and apartments.

The media has also woken up to the carnage:

Whistler real estate prices plummet up to 68 per cent from CTV (hat tip Sothseacompany on Vancouver condo)

Interesting that they go to Tsur Sommerville for analysis and commentary and explanation. Why the media go to the same few names baffles me. Did Tsur say Whistler is going to take a big fall? Maybe he did and I missed it and I stand to be corrected.

But if he didn't, THEN WHY GO TO HIM FOR ANALYSIS NOW??

If a guy didn't call the big fall, then how valid is his opinion? Much more valid to contact a David Madani or Garth Turner who have been calling for this, than the guys who have taken the other side IMVHO.

This is how it ends:

Whistler realtors told CTV News they’re seeing momentum in some areas, and Sommerville said there could be a resurgence in prices as the U.S. economy picks up steam.

“If we’re having this conversation in a year or two from now it would be a different dynamic,” he said. “We would be talking about Whistler’s recovery rather than Whistler being in the doldrums.”

OK Tsur, we will revisit this annually and see if your prediction is right and I for one am willing to eat humble pie if I am wrong.

Lets hope it is a happy Easter for the everyone, and especially for the bears

At a MOI of nearly 7, we should see some price pressure. We should know in the next few days how March went for us.

Larry should have his averages out and I am hoping we won't see the shocker of last month, when a few very big sales skewed detached prices while attached and apartments drifted down.

I have completely lost faith in the various HPI brought out by the RE Boards, and I will looking to the median price for my next metric to watch.

If I had to guess...I would say a small drop in median price- say 1% or so and all 3 segments moving down in the averages.

The lay of the land...

As we head into the last week of March, there are many diverse forces pulling our RE up and down. Here are some of them.

For the Bears:

1) We are at high levels of inventory

2) the MOI, even with the recent up-tick in sales is comfortably over 6.

3) Inter-Provincial Migration is negative

4) The CMHC is on the defensive, and is probably past the most reckless days. 

5) It looks like houses are now selling at Assessed. The bidding wars are a thing of the past (almost)

6) Prices are probably down 5-8% yoy. 'The top is in' - for now!

7) There has been a moratorium on Entrepreneur class and a cap on Investor classes entrants into Canada. These were announced some time ago but are likely now having more effect.

8) Crack down on tax-evasion. Which means the many loop-holes for tax-avoidance and local avoiders,  as well as the satellite families:

On the international front, the CRA will be able to make use of a new Stop International Tax Evasion Program, giving it major new powers of oversight and information collection. It will be enabled to pay individuals with knowledge of major international tax non-compliance a percentage of tax collected as a result of information provided. Certain financial intermediaries, including banks, will be required to report their client's international electronic funds transfers of CAD10,000 or more to the CRA. 

The CRA's process for obtaining information concerning unnamed persons from third parties, such as banks, will also be streamlined. In a more explicitly administrative vein, the Foreign Income Verification Statement will be revised to require reporting of more detailed information, and the reassessment period for taxpayers who have failed to report income from a specified foreign property on their annual income tax return, and failed to properly file their Statement, will be extended.

Of course one of the largest tax avoidance areas in BC is our Billion dollar drug industry. Not sure if that will be targeted or not.

9) The NDP are likely to win the next Provincial election and that may change the speculation psychology somewhat.

For the Bulls:

1) Bond yields are still super low.

2) The banks are still trying their best to keep the party going, eg the super low 5 years rate at BMO, and Flaherty had to phone Manulife to tell them to withdraw the 2.89 % 5 year rate. Kudos to Flaherty (who has belatedly become a financial conservative). And to his critics - you know as soon as it hits the fan and starts to unravel the banks will be lining up at the tax-payers door, bleating and whining for bail-outs.

That's what they did in 2009 and that is what happened in the US.

Better to bring this party to an end, while it will still be a a huge bust and not BK of the Government.

3) Seen the winter they had out North? Sure we have had all rain and grey skies, but the trickle of Eastern Baby boomers coming here to escape the winters could increase as they hit their retirement years (also increases our healthcare costs)

4) As a Realtor told me recently.." when I pick up an investor from Shanghai at the air-port, they are here to buy. Not waste my time or theirs. Over the week-end they will find something". 

Just Shanghai BTW has the a population which is 70% of all Canada's. 

171 cities in China have a population over one Million people.

We have 5, with Edmonton near enough to make it 6.

5) rates are still VERY low historically and unlikely to move any time soon. Every day there is a new debt crisis somewhere. 

6) The Government can talk tough now, but what happens if the market starts to drop. can they withstand the pressure from the lobbyist and from home-owners? Of course there isn't much else we can do. We are now in a deficit position, rates are near zero, and the CMHC has already mortgaged the taxpayer to the hilt. But never rule out political foolishness.

So where does this all get us? Close enough to make it interesting. No crash and enough pulling and pushing to make every month's data worth pouring over for clues. So far I would have to say the bears have a slight advantage, lets see if it keeps up.

The ides of March

What do have to compare with? From the REBGV stats:

In March 2012, there were 2874 sales, 30% less than March 2011, and 8% less than March 2010.

March 2012 had the second LOWEST sales of any month since 2002. It was 17% below the 10 year average.

Listings were up 15% from March 2011.  

What does this all mean? It mean March 2012 was a very weak month and the bar is set very low.

If we go under March 2012's sales we really are in a correction.