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Canada Orders Wealth One Bank Shareholders to Divest
September 14, 2023
4:48 pm
Loonie
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There is a big difference between "insurance companies" and CDIC. CDIC is is a crown corporation whose purpose is to protect the public. If a member FI fails, they pay, no negotiations required by the customer. The terms are easy to understand although sometimes not read thoroughly.

Insurance companies exist to make a profit by charging you as much as they can get away with and doing their level best avoid paying out. On average they make enormous profits and, in Canada at least, are considered very safe stocks.

Unfortunately there are some people who are so determined to be suspicious of anything related to government programmes that they extend this even to things like CDIC which exist solely for their own protection.

September 14, 2023
5:07 pm
mordko
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My fault; Bernstein is talking about government guarantees to cover annuities issued by insurance companies in case they go bust. So the difference here is between a crown corporation and the crown.

September 14, 2023
9:26 pm
Loonie
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As far as I know, the Canadian government doesn't offer any guarantees of annuities. And the US government doesn't offer any crown corporations.

Bernstein is an American, not an authority on the Canadian Deposit Insurance Corporation. He's a neurologist, self-educated in financial matters, and most of what he writes is common knowledge if you follow the kind of self-help books that he writes.

But, if he has any well informed insight specifically about CDIC, by all means let us know.

September 15, 2023
5:19 am
mordko
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Annuities are guaranteed up to a certain level in case of providers going bankrupt. In Canada its through Assuris. Assuris is set up by the Minister of Finance under the Insurance Companies Act of Canada. Assuris has a website which explains how everything is secure.

Its called “a parallel”.

We agree that what Bernstein writes is basic common sense, and that guarantees are not going to work under certain scenarios. In your own words: “It's actually the larger banks that CDIC would have the greatest difficulty covering, although i am aware that most people on this forum think they could never fail. Maybe so, but how many times have you heard the word "unprecedented" in the last year? I'm guessing an "unprecedented" number of times!”

My point isn’t complicated. While CDIC is probably going to cover your losses if W1 goes bankrupt (unless other economic problems are happening at the same time), testing this assumption and putting money into a dodgy bank is unwise.

September 15, 2023
7:46 am
RetirEd
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Most, if not all, of our contributors who have experienced financial institution failures have reported they were paid promptly and fully. I was holding a small National Trust fund decades ago, when they took over failing Victoria Trust and Grey Trust; nobody in the two failed institutions lost any cash. (I did, though, because the fund was crap, and I got out after only two months - about 2.5% down. It didn't recover and was wound up. Never bought a mutual fund again.)

RetirEd

September 15, 2023
8:14 am
Bill
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mordko said
Personally, I can’t imagine knowingly dealing with a bank on the brink of bankruptcy for a few extra dollars. Makes no financial sense, CDIC or not.  

mordko, are you saying in post #18 that Wealth One is on the brink of bankruptcy? Or are you just making a general comment?

I know someone here (maybe canadian.100 - ?) indicated a while ago that this bank has been losing money since day one, any update would be appreciated.

September 15, 2023
8:49 am
AltaRed
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You may be thinking Motus Bank not making money. Wealth One is private and does not need to disclose* its financials to the public.

The discussion here regarding the soundness of and confidence in CDIC is well off-tangent to the subject of the thread and appears to be based on some 'down the rabbit hole' ideology. The real issue in this thread is the ethics of doing business with an entity where 'something obviously nefarious is happening' since Ottawa had to take unprecedented measures to ring fence the organization.

* But clearly does to the regulator and agencies such as CDIC.

September 15, 2023
11:04 am
Bill
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AltaRed, I don't know what ringfence means but google says it's "when a portion of a company's assets or profits are financially separated without necessarily being operated as a separate entity".

I read (in Sept 3 National Post article, quoting portions) that Freeland made 3 of the founding investors divest, made Wealth One put in place security measures to guard against money laundering and unauthorized sharing of information, get national security vetting of all the bank’s employees, relocate its Toronto headquarters to new secure premises, sweep its corporate property for surveillance devices, is prohibited from using the WeChat for banking business, has to appoint an independent third-party monitor and hire two compliance officers (one for security compliance and one for anti-money-laundering and anti-terrorist compliance).

I saw nothing about separating assets or profits in the National Post article. The Sept 2 Globe article was more detailed, indicating the 3 divested investors can have zero future dealings with the bank, but also said nothing about separating assets or profits.

In short Freeland's measures seemed solely about national security, not financial stability, concerns.

September 15, 2023
11:12 am
mordko
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People are sharing their opinions which may differ and its fine.

That certain someone dislikes “foreigners” and “foreign” institutions regardless of place of registration, actual ownership, Canadian citizenship, residency, etc isn’t new. I don’t think ideological dislikes (or worse) passing as “ethics” are relevant at all in a financial forum.

The fact the bank in question has extraordinary measures placed on it is relevant and is often a prelude to further developments. Opinion on whether its a 100% certainty that clients will be bailed out or not seems far more pertinent than someones aghm “ethics”.

September 15, 2023
11:37 am
Loonie
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mordko said
Bernstein is talking about government guarantees to cover annuities issued by insurance companies in case they go bust. So the difference here is between a crown corporation and the crown.  

mordko said
Annuities are guaranteed up to a certain level in case of providers going bankrupt. In Canada its through Assuris. Assuris is set up by the Minister of Finance under the Insurance Companies Act of Canada. Assuris has a website which explains how everything is secure.

  

I think you misunderstand Assuris. It is not funded by government; it is funded by the industry itself. The government doesn't provide a guarantee, only the framework for one.

September 15, 2023
12:07 pm
AltaRed
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Bill said
AltaRed, I don't know what ringfence means but google says it's "when a portion of a company's assets or profits are financially separated without necessarily being operated as a separate entity".

I read (in Sept 3 National Post article, quoting portions) that Freeland made 3 of the founding investors divest, made Wealth One put in place security measures to guard against money laundering and unauthorized sharing of information, get national security vetting of all the bank’s employees, relocate its Toronto headquarters to new secure premises, sweep its corporate property for surveillance devices, is prohibited from using the WeChat for banking business, has to appoint an independent third-party monitor and hire two compliance officers (one for security compliance and one for anti-money-laundering and anti-terrorist compliance).

I saw nothing about separating assets or profits in the National Post article. The Sept 2 Globe article was more detailed, indicating the 3 divested investors can have zero future dealings with the bank, but also said nothing about separating assets or profits.

In short Freeland's measures seemed solely about national security, not financial stability, concerns.  

I used 'ring fence' in a generic way to minimize having to use many words to describe it otherwise. IOW, what the NP article said. What is required of Wealth One is a rather tight leash which the G&M said was unprecedented.

I also didn't focus on whether Wealth One might be, or become, insolvent. That is speculation by others. My posts #5, #9, #12, #17, #27 never focused on that. I did address later there might be headwinds on their business model given the news (#32) and I did say there should be no concern about CDIC paying out insured deposits with my posts regarding the robustness of CDIC. I have complete and full confidence in CDIC and their processes.

My focus in this thread is on the ethics of doing business with an entity that has a distinct odour to it and that I wouldn't have anything to do with such an entity. Nothing more and nothing less.

September 15, 2023
12:55 pm
mordko
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Loonie said

mordko said
Annuities are guaranteed up to a certain level in case of providers going bankrupt. In Canada its through Assuris. Assuris is set up by the Minister of Finance under the Insurance Companies Act of Canada. Assuris has a website which explains how everything is secure.

  

I think you misunderstand Assuris. It is not funded by government; it is funded by the industry itself. The government doesn't provide a guarantee, only the framework for one.  

Picking two different paragraphs has nothing to do with “understanding”. Bernstein isn’t talking about specific system in Canada and its mechanics. He is making a general point that no government guarantee is 100% secure. Ever. Also applies to other mechanisms involving corporate quangos and government entities. And that’s something to consider. Or to ignore. Also fine.

September 15, 2023
3:01 pm
Loonie
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You are backtraacking on your original claim about alleged "government guarantees to cover annuities issued by insurance companies", an understanding that you attribute to Bernstein. This is false, at least in Canada, and probably also in the US. Endos story.

So, now you have backtracked to saying Bernstein is talking in generalities. These genrealities are irrelevant with no specifics to bak them up.

It is essentially meaningless to say that government guarantees, along with other corporate guarantees, are never completely secure. That's hardly news. Nothing in life is certain. However, it is not a reason to be particularly distrustful of CDIC, which does provide an extra level of protection beyond that of the FI itself.

I never heard of a quango before. Thanks for this addition to my vocabulary!

September 15, 2023
7:36 pm
savemoresaveoften
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Find it interesting some would blindly trust CDIC will provide 100% protection coverage, yet doubt the ability of our government to be able to make whole and ringfence say a big5 failure. A government has ‘unlimited’ power, if extreme measures need to be taken at extreme times,

September 15, 2023
8:36 pm
mordko
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So, now you have backtracked to saying Bernstein is talking in generalities. These genrealities are irrelevant with no specifics to bak them up.
It is essentially meaningless to say that government guarantees, along with other corporate guarantees, are never completely secure. That's hardly news.

Nope. I did not “backtrack”. Of course Bernstein made a general point and that’s exactly how I used it. Canada is 3% of world GDP. Likelihood of him even knowing what “CDIC” stands for is about the same as me knowing about the Philippines version of CDIC. In this and other books (like Deep Risk) Bernstein is talking about high consequence low probability scenarios, such as governments not meeting obligations to annuity holders when insurance companies fail (and other similar cases) in general. Not mentioning Canada by name (I typed that slowly) but referring to all governments.

We agree that its not completely secure nor news. And its not meaningless.

Future is never certain, everything is an an event tree. A series of unfortunate events could lead to a bank going bankrupt. Another series of even more unfortunate events could lead to CDIC not honouring the promise. Probability of the first type of event with W1 isn’t particularly low. 5%? 20%? 30%? Insiders and auditors might know more. Which means that mathematically one is taking extra risk (compared to saving with an unsanctioned company) of not getting money back for the sake of a few basis points. Seems unwise.

If I want high returns then I buy stocks. HISA is for safety. Buying HISA from a dodgy bank counting on CDIC is like knowingly taking nuclear waste across a dodgy bridge on the basis that even if the bridge fails, the cask spec says waste won’t spill out. And I don’t mean that anyone literally does it, nor that CDIC is a literal cask; its a parallel. W1 is a dodgy bridge, nowhere near good enough for my money.

September 15, 2023
9:26 pm
Loonie
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savemoresaveoften said
Find it interesting some would blindly trust CDIC will provide 100% protection coverage, yet doubt the ability of our government to be able to make whole and ringfence say a big5 failure. A government has ‘unlimited’ power, if extreme measures need to be taken at extreme times,  

Of course, government can do whatever it likes, in theory. That does not, however, mean that CDIC, with its current budget and borrowing capacity, has the ability to bail out accounts at RBC, let alone RBC + TD + ??.
As I understand it, CDIC operates at arm's length from gov't.

However, I think the question is moot. If CDIC were ever called upon to do this, and gov't sent them bags of money to do so, those dollars wouldn't be worth much. None of us would want to go there.

As for mordko's comments, I find them riddled with contradictions in view of his previous comments and offering no alternative except... the stock market! - probably the most unprotected place you can put your money. And this is another reason why it's all irrelevant.
I don't see any point in trying to continue this debate. It was a waste of time for me to take it this far.

September 16, 2023
4:49 am
mordko
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Blatantly obvious that unsanctioned banks provide the real alternative to a sanctioned bank for ones cash. That would be most banks.

Stocks are not the alternative for the portion of the assets allocated to cash. Stocks are a portion of the overall portfolio where higher short term risk and higher reward should sit. Taking risks with cash by putting it into W1 is against the whole logic of having a cash cushion.

Stocks are only the alternative for the portion of assets designated for higher long term returns. In the long term a diverse stock portfolio is safer than cash but putting your short term safety cash cushion into a dodgy bank is silly and this point shouldn’t be controversial.

September 16, 2023
6:17 am
COIN
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Remember the lesson of PACE.

September 16, 2023
7:29 am
savemoresaveoften
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COIN said
Remember the lesson of PACE.  

Well depositors make
whole and no issues. Shareholders got wiped and expected

September 16, 2023
10:51 am
Norman1
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Depositors didn't need to be made whole. PACE CU was never insolvent. Assets exceeded liabilities, including deposit liabilities.

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