Liberals shift target to Big Banks from Big Oil, but there’s little relief in oilpatch

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CALGARY – Liberal leader Justin Trudeau’s move to put the Big Six banks in his crosshairs instead of Big Oil, his previous favourite target, is causing some transitory relief in the Calgary oilpatch, but also some anxiety that energy as well as additional sectors may be targeted as the federal election campaign continues.

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Trudeau on Wednesday announced plans to slap large financial institutions, including banks and insurers, with an additional three-per-cent tax on profits of more than $1 billion.

But Dan Tsubouchi, principal and chief market strategist at Calgary-based investment firm SAF Group, said he expects oil and gas executives will suffer “additional hits” from Liberal rhetoric during the current campaign.

“Not for one moment do I believe that he has shifted away from Big Oil, in particular, the oilsands,” he said in an email, adding that oil and gas producers have also posted large profits this year and could be in line for the same tax proposed for the banks.

Others in Alberta also believe that the Liberal campaign’s focus may shift back to either the energy sector, or to a different sector of the economy, which could put a chill on investment confidence and competitiveness just as the broader economy is trying to recover from the COVID-19 pandemic.

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“We are an ongoing project, which is the nation of Canada, we’re struggling for competitiveness globally and the last thing we should be doing is fighting amongst ourselves, whether it be regions or sectors,” said Adam Legge, chief executive of the Business Council of Alberta. “Other countries will see that and just fly right by us.”

Legge said the temptation to win votes by campaigning against corporate “boogeymen” in any sector detracts from a more fulsome conversation about policy.

“The optimal way to go is to really address the fundamental underlying issues. If it’s CO2 emissions, then talk about CO2 emissions rather than one sector,” he said. “If it’s outsized profits, then talk about competition as opposed to just the banking sector.”

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So far, the banks’ response to Trudeau’s election promise has been tepid and mostly channelled through their industry lobby group.

“The proposed tax increase would reduce income that would otherwise benefit the majority of Canadians who are bank shareholders, either directly through share ownership or indirectly through pension and mutual funds, including the Canada Pension Plan,” the Canadian Bankers Association said in a statement.

Canadian Imperial Bank of Commerce chief executive Victor Dodig, on a Thursday earnings call, said, “Banks have always been in the crosshairs.”

But executives in the energy sector don’t believe the banking sector has always been in the crosshairs, noting that Trudeau’s last two campaigns singled out oil and gas as his target.

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During the 2019 election campaign, Trudeau caught the attention of English-speaking oil executives in Alberta when he said that he would “stand up to Big Oil” during the French language television debate.

The 2015 election campaign forced oil and gas executives and workers to deal with “a storm of issues,” including the merits of oil pipelines such as Energy East and the integrity of the pipeline regulator, said Glen Schmidt, the retired chief executive of oilsands producer Laricina Energy Ltd., which has since been acquired by Canadian Natural Resources Ltd.

“In 2015, we certainly saw a change in investment flow,” Schmidt said, adding that he’s worried that campaigning against specific sectors of the economy damages the country’s reputation for attracting foreign direct investment.

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“The outcome is that many companies no longer exist,” he said. “There’s less employment and less income to all governments.”

Tsubouchi said the Liberals may propose new policies targeting the oil and gas industry in an effort to boost flagging polling numbers, which show the Conservative Party closing the gap.

“I suspect sooner rather than later, as they need to stop the bleeding,” he said. “Don’t forget, Prime Minister Trudeau’s kickoff speech said, ‘We think more ambition on climate change is needed now.’”

Others don’t expect climate change will play the same major role in the 2021 election as it did in the 2015 and 2019 elections.

“It’s a change in tone from the Liberals to just focus on the Big Banks,” said Duane Bratt, political science professor at Mount Royal University in Calgary, adding that he believes the change is in response to housing affordability becoming a major issue.

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“Energy and climate is not as big an issue in this campaign as it was in 2019,” he said, pointing out that the other big issues in this campaign are COVID-19, health care and Afghanistan.

Bratt said the Big Six banks, like Big Oil, are an easy target during and attacking both industries was a favourite campaign tactic of late NDP leader Jack Layton, something Trudeau has now emulated.

“Who’s going to come out and defend big banks? All sorts of companies lost money during COVID, but the banks were not one of them,” he said, adding that he expects bankers and finance professionals will try to avoid the spotlight until the election wraps up on Sept. 20.

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However, Trudeau’s pledge to slap an additional tax on massive bank profits comes at the end of earnings season for the Big Six, all of which, except for National Bank of Canada, posted net income well in excess of $1 billion in their most recent quarter. National Bank earned $839 million.

CIBC on Thursday reported a quarterly profit of $1.7 billion, while Royal Bank of Canada, the country’s largest bank, on Wednesday announced a record quarterly profit of $4.3 billion.

But National Bank analyst Gabriel Dechaine said the banks will not delay further reports or investor presentations in an effort to avoid attracting more political attention.

“I don’t think they’re going to make any antagonistic remarks in the public sphere,” he said. “At most, I think they would provide some argument against a move to increase their taxes and I think the arguments around that would revolve around what they did to support Canadians during the financial crisis by deferring mortgage payments or reducing interest rates on certain products.”

With a file from Bloomberg

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