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Royal Bank chief executive McKay defends HSBC deal as bank reports profits up

TORIES HATE THIS DEAL

Ian Bickis, The Canadian Press

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RBC chief executive Dave McKay made some of his most forceful comments yet on the importance of the federal government approving the bank's $13.5-billion takeover of HSBC Canada as the deal attracts rising opposition.

Speaking during a conference call to discuss the bank's fourth-quarter earnings after reporting a rise in profits, McKay said that a rejection of the deal would be a bad look for the country.

"It would be a very bad signal to foreign investors to not move forward with this, as we have to attract capital into this country," he said.

"Everybody understands that HSBC is leaving, has made a choice to leave, and it would look horrible on Canada if you didn't allow the free flow of capital."

His comments come after the finance committee of the House of Commons in early November called on the Finance Minister to block the deal over concerns it will hurt competition, though Liberal members abstained from the vote.

Conservative Leader Pierre Poilievre in October also called for the deal to be blocked, pointing to the Competition Bureau's finding that the bank was a rate disrupter on mortgages so its loss could leave Canadians paying higher rates.

A coalition of anti-monopoly, environmental and Indigenous groups also launched a campaign on Nov. 23 in an effort to stop the deal.

McKay emphasized on the call Thursday that the deal was good for Canada with increased taxes, increased dividends staying in the country, and that it had been thoroughly studied by the Competition Bureau that cleared the deal.

"They put enormous diligence through an extended process with tens of thousands of documents. We have to respect the process. And therefore, I remain confident given that everybody, at all levels, understand the benefits and why this is good for Canada, and why not doing it is very bad for Canada."

The bank has already been working to prepare for integrating the acquisition, reporting $203 million in spending related to it in the fourth quarter.

The spending added three percentage points to its 13 per cent expense growth from a year earlier. Other expense drivers included severance costs as it worked through the layoffs it had announced at the end of the third quarter.

Compared with end of the second quarter, RBC has cut 3,000 full time employees or about 3.2 per cent of staff.

The bank also increased its provision for credit losses to $720 million, up from $381 million a year earlier, over concerns on the macroeconomic environment.

The increase comes as McKay said an economic slowdown is already being seen. The indicators mean rate hikes are likely done even as borrowers will still be under pressure, he said.

"Given the easing pricing pressures, we believe central banks have reached the end of the tightening cycle and will pivot to rate cuts in 2024, albeit rates are expected to remain higher than pre-pandemic levels."

His comments come as StatCan reported Thursday that Canadian GDP has pulled back 1.1 per cent on annualized basis in the third quarter.

Despite rising expenses and provisions, RBC reported a fourth-quarter profit of $4.13 billion, or $2.90 per diluted share for the quarter ended Oct. 31, up from $3.88 billion or $2.74 per diluted share a year earlier.

Revenue totalled $13.03 billion in the bank's most recent quarter, up from $12.57 billion in the same quarter last year, while the bank's provision for credit losses jumped to $720 million, up from $381 million a year earlier.

On an adjusted basis, RBC earned $2.78 per diluted share in its latest quarter, unchanged from the same quarter last year.

Analysts on average had expected an adjusted profit of $2.62 per share, according to estimates compiled by financial markets data firm Refinitiv.

At the end of the call, McKay emphasized the strong liquidity of the bank, its efforts at expense cutting and its readiness to take over HSBC Canada.

"You can see the clear path toward being able to absorb HSBC, continue to build capital, and allocate capital for growth and to start returning capital to shareholders in the near future."

The bank also on Thursday announced a dividend increase. It will now pay a quarterly dividend of $1.38 per share, up three cents from $1.35.

This report by The Canadian Press was first published Nov. 30, 2023.

 

Google realized 'inevitability' of Online News Act and struck a deal, expert says

Ben Cousins, BNN Bloomberg

In the wake of Google’s deal with the federal government to support Canadian news organizations, one expert is suggesting big tech companies are starting to see the writing on the wall. 

On Wednesday, the federal government announced it reached a deal with Google under the Online News Act to cap payments made to Canadian news organizations at $100 million, down from the original proposal of $172 million. 

While Meta chose to block news content from its products, Richard Lachman, associate professor at the RTA School of Media at the Toronto Metropolitan University, believes Google may have been more inclined to make a deal.

“I do think the tech companies are realizing there’s an inevitability to this,” he told BNN Bloomberg in a television interview Wednesday.

“(Google) knew it was coming. There was going to be governments saying: ‘Hey, we need to actually support other sectors and social value here, the question is going to be how much.’”

Lachman said it remains to be seen how the money will distributed between media organizations and whether it will just go towards journalists, or other positions within media as well.

“We don’t yet know how that money’s going to be spent and an unnamed organization is going to be in charge of negotiating with Google to determine that,” he said. “We don’t know what that organization is yet, so there’s more details to come.”

Google to pay $100M a year to Canadian news publishers in deal with Ottawa

Mickey Djuric , The Canadian Press

Signage on the exterior of the Google campus on Brandschenkestrasse in Zurich, Switzerland, on Tuesday, Sept. 19, 2023. Photographer: Pascal Mora/Bloomberg , Bloomberg

Ottawa has agreed to set a $100-million yearly cap on payments that Google will be required to make to media companies when the government's controversial online news legislation takes effect at the end of the year. 

The announcement Wednesday has the Liberals bending to the tech giant's demands after Google threatened back in February to remove news from its platform.

The Online News Act compels tech giants to enter into compensation agreements with news publishers for content that generates revenue for companies such as Google by appearing on its sites.

Broadcasters and French-language and Indigenous news organizations would join newspapers in being eligible for the deals, with draft regulations suggesting the amount of money would be linked to the number of full-time journalists on staff.

A formula in the government's draft regulations to implement the bill would have seen Google contribute up to $172 million to news organizations. Google balked, saying it was expecting a figure closer to $100 million, based on what it said was a previous estimate from Canadian Heritage officials.

The company appears to have got what it wanted after an extended period of negotiation.

Still, Canadian Heritage Minister Pascale St-Onge called it a "historic development," insisting Wednesday that the agreement was ultimately a win for the government and for the local news publishers it is seeking to support.

"We have found a path forward to answer Google's questions about the process and the act. Google wanted certainty about the amount of compensation it would have to pay to Canadian news outlets," she said on Parliament Hill. 

"Canada reserves the right to reopen our regulations if there are better agreements struck elsewhere in the world," she added.

Google's president of global affairs, Kent Walker, thanked the minister for "acknowledging our concerns and deeply engaging in a series of productive meetings about how they might be addressed." 

He said in a statement that the "extensive discussions" addressed the company's "core issues" with the bill.

"While we work with the government through the exemption process based on the regulations that will be published shortly, we will continue sending valuable traffic to Canadian publishers," Walker said.

The deal will allow Google to comply with the legislation by paying into a single collective bargaining group that will serve as a media fund.

Meta, on the other hand, complied simply by blocking all news content from Canadian users of its largest platforms, Instagram and Facebook. A statement from the company Wednesday suggested that hardline approach hasn't changed.

"Unlike search engines, we do not proactively pull news from the internet to place in our users’ feeds and we have long been clear that the only way we can reasonably comply with the Online News Act is by ending news availability for people in Canada."

Prime Minister Justin Trudeau said he was satisfied with the agreement with Google and held out hope that Meta would eventually come around. 

"Unfortunately, Meta continues to completely abdicate any responsibility towards democratic institutions and even stability," he said, "but we’re going to continue to work positively in those areas."

Last month, News Media Canada — a lobby group for hundreds of Canadian newspapers and magazines — said it agreed with many of the issues Google raised during the back-and-forth over how the bill would be implemented. 

The group said there should be a cap on how much the search giant would have to pay under the law.

But Friends, an advocacy group for Canadian broadcasters, said the deal doesn't deliver the kind of support for journalism that it had been hoping to see. 

"We will be looking to the regulations to ensure that smaller, independent, and equity-seeking media groups are assured access to funding," executive director Marla Boltman said in a statement.

An official with the Canadian Heritage Department said the final regulations for the law, which are due by mid-December, will also address Google's other concern that the law establishes linking to news sites as the basis for payment.

The official said final regulations will clarify that Google's payment is to help news publishers and broadcasters, and not for news links. 

CBC and Radio-Canada will also get a portion of the $100 million, but that will be determined once regulations are finalized. 

In addition to its financial contribution, Canadian Heritage said Google will continue to make programs available for Canadian news businesses, such as training, tools and resources for business development and support for non-profit journalism projects.

Google said Wednesday that the deal means there will be immediate changes to existing agreements it has with publishers in Canada under its Google News Showcase agreements, which were part of a $1-billion global investment.

The company said it will review its ongoing investments in Canada when the final regulations are published.

Google wouldn't say how much it is already paying publishers under existing contracts, saying such agreements are confidential commercial arrangements. 

Companies that fall under the Online News Act must have total global revenue of $1 billion or more in a calendar year, "operate in a search engine or social-media market distributing and providing access to news content in Canada" and have 20 million or more Canadian average monthly unique visitors or average monthly active users.

For now, Google and Meta are the only companies that meet those criteria.

This report by The Canadian Press was first published Nov. 29, 2023.

Online streamers should direct 2% of Canadian revenues to local content: Rogers

Sammy Hudes, The Canadian Press

Online streaming giants should be forced to contribute two per cent of their annual Canadian revenue to support Canadian and Indigenous content and help level the playing field for local broadcasters, executives from Rogers Communications Inc. told a CRTC hearing Tuesday.

The Toronto-based media and telecommunications company said Rogers and its Canadian competitors are being held back by a "kind of oppressive" regulatory structure that doesn’t apply the same rules to newer digital companies which have disrupted the industry.

In the short-term, it urged the commission to establish a temporary news fund to help subsidize private TV and radio news stations using 30 per cent of the contributions it wants those online services to make.

"We operate in a heavy … regulatory environment on news," Rogers Sports and Media president Colette Watson said.

"It's really difficult to keep planning for the future when we're stuck in 1995 with a framework."

The company's presentation came in the second week of the federal broadcasting regulator's public consultations in response to the Online Streaming Act, which received royal assent in April.

It is meant to update federal legislation to require digital platforms such as Netflix, YouTube and TikTok to contribute to and promote Canadian content.

The commission is exploring whether streaming services should be asked to make an initial contribution to the Canadian content system and if this would help provide equal footing for local companies, which are already required to support Canadian content.

Dean Shaikh, Rogers senior vice-president of regulatory affairs, said the company is losing subscribers and audiences to online competitors.

"The outcome we want here is that we can compete with online streamers," he told commission panellists.

"We're not looking for protections, we're looking for the same flexibility that might be provided to the online streamers."

He said Ottawa's passage of the Online Streaming Act, and the law's implementation being hammered out by the regulator, "presents a long overdue path to modernizing Canada’s broadcasting regulatory framework."

"Our proposal is premised on the clear expectation that the commission will take meaningful steps to lighten Canadian ownership groups’ direct financial obligations," Shaikh said.

"It is no longer fair or sustainable for Canada’s broadcasting industry to be the primary source of funding for all stakeholders in the system."

Rogers' proposed two per cent contribution would apply to "foreign and unaffiliated Canadian online undertakings that are having a material impact on the Canadian broadcasting system." It defined those as online video and audio streamers making at least $50 million and $25 million, respectively, in annual Canadian revenues.

The company clarified it's not looking for any mandated contribution to apply to social media creators, but rather the platforms hosting them.

Shaikh also said Rogers is not necessarily hoping the CRTC's review will result in "hundreds of millions of dollars in new direct subsidized funding of Canadian content production." While he said that's not an area of crisis for the company, its local news division is in a more dire situation.

"The importance of local news cannot be overstated," he told the commission.

"Not only is it critical to our democracy, but it actually is a key differentiator between the traditional system and the online system. It's one of the things that we hope will keep Canadians within the system."

That echoed a presentation last week by Bell Media-owner BCE Inc., which also called for the CRTC to create a news fund providing money to broadcasters through contributions from foreign streamers.

Last month, Rogers closed its CityNews Ottawa radio station and laid off newsroom staff, citing dwindling audiences and regulatory challenges.

The CRTC hearing, which is expected to take three weeks, is set to hear from companies such as Spotify, Netflix and Amazon in the coming days.

This report by The Canadian Press was first published Nov. 28, 2023.

CANADA

Payment companies share Black Friday, Cyber Monday sales data


Ben Cousins, BNN Bloomberg

Canadians spent more money this Black Friday and Cyber Monday than they did a year ago, according to data from retailers, as shoppers searched for deals in advance of the holidays.

Financial payments company Square has reported that Canadians made 70 million transactions with businesses that use Square’s services between Black Friday and Cyber Monday, a 14-per-cent climb from last year.

“We found that the holidays aren’t just for traditional retailers, as businesses across industries like restaurants and beauty lean into the major weekend,” Saumil Mehta, head of point of sale and omnichannel at Square, said in a news release.

“Given consumer sentiment has been positive around the holidays, and we know this weekend is often just the beginning, businesses should continue to expect an influx of shoppers, and be ready to meet them wherever they prefer to shop.”

Meanwhile, Shopify reported US$9.3 billion in sales over the Black Friday and Cyber Monday weekend, a new record and a 22-per-cent climb from a year ago.

"Our merchants spend all year building relationships with their customers and earning brand trust,” Shopify president Harley Finkelstein said in a written recap of the sales weekend.

“This weekend was a testament to how they consistently deliver experiences and products that global consumers are looking for."

Overall, Shopify peaked at 12:01 p.m. EST on Nov. 24, with $4.2 million in sales for the minute, while 61 million people made purchases through Shopify products over the weekend.

SPENDING CLIMBS

Square’s report showed its customers spent 1.34 times higher over the sales weekend than the average purchase compared to the rest of the year, as consumers focused more on hot-ticket items.

Consumers also appeared to be increasingly looking at “buy now, pay later” options with inflation taking a toll on spending money. The plans give customers the option to pay for their purchases in monthly installments.

Square found that transactions using Afterpay – Square’s buy now, pay later product – climbed 29 per cent compared to a year ago, as the cost per transaction climbed 10 per cent.

METHODOLOGY

SQUARE

All data presented are unaudited and subject to adjustment. Black Friday and Cyber Monday: Square and Afterpay analyzed millions of transactions across all seller industries globally in 2023 from November 23, 11:00 UTC to November 27, 23:59 UTC. All monetary metrics are displayed in USD. Countries include the United States, Canada, United Kingdom, Australia, Japan, France, Ireland, Spain, and New Zealand.

SHOPIFY

Shopify’s 2023 Black Friday-Cyber Monday data is based on gross merchandise volume (GMV) by Shopify merchants around the world from November 23 11:00 UTC to November 28 8:00 UTC. GMV represents the total dollar value of orders facilitated through the Shopify platform including certain apps and channels for which a revenue-sharing arrangement is in place in the period, net of refunds, and inclusive of shipping and handling, duty and value-added taxes.

All data presented here (including worldwide sales) is approximate and is based on various assumptions. All data is unaudited and is subject to adjustment. The methodology underlying the data may vary year on year and prior year results are not directly comparable to current results. All financial figures are in USD. Data represents online and offline sales made by Shopify’s global merchants.

Crop receipts rebounded from 2021 drought: StatCan

Ben Cousins, BNN Bloomberg

A 70-year-old drainage ditch that runs through a canola field near Grenfell, Sask., Friday, July 7, 2023. THE CANADIAN PRESS/Michael Bell

Crop receipts for the first three quarters of 2023 are up 12.1 per cent compared to a year ago, as the Canadian agriculture sector rebounds from severe drought.

Statistics Canada reported on Tuesday that crop receipts from January to September reached $41.4 billion as marketings for Canada’s top three crops – canola, wheat and durum wheat – each climbed by more than 30 per cent.

Marketings is a term referring to everything needed to bring a product from the farm to the consumer.

“The increase in marketings was due to a return to normal production levels in the 2022 crop year, following the severe drought in Western Canada in 2021,” the report states.

Prices of the three crops sharply declined as well, as canola prices dipped 15.5 per cent, while durum wheat saw a 17.9-per-cent price drop.

Receipts in the livestock sector climbed 8.9 per cent to $27.2 billion, as cattle receipts accounted for more than 80 per cent of the increase, StatCan said.

“These price increases were caused by strong demand in Canadian and U.S. markets and higher input costs for producers,” the report said.

Industries more exposed to first AI wave saw job gains: report

Jordan Fleguel, BNN Bloomberg

New research is challenging fears that artificial intelligence technology will displace a large portion of the world’s workforce, with data from Europe finding occupations exposed to AI over the past 20 years actually saw an increase in employment.

Stefania Albanesi, one of the authors of a report published Tuesday by the European Central Bank, noted that while the data referenced only covers AI advances up until 2019, it demonstrates how the technology has interacted with the labour market so far.

“The study covers the 2000s and 2010s, where the kind of AI that was implemented was basically deep learning and machine learning models,” Albanesi, an economics professor at the University of Miami, told BNN Bloomberg in television interview.

That form of AI is different from large language models such as ChatGPT deployed in the last year, she noted, but the data is still an informative look at the possible future of work.

BUCKING THE TREND

The report found that in the “deep learning boom of the 2010s, occupations potentially more exposed to AI-enabled technologies actually increased their employment share in Europe.”

The study of 16 European countries found that the jobs created were primarily for younger, high-skill workers – mainly college graduates.

Albanesi said that these findings are a break in a pattern from the last major technological advance – the launching and diffusion of the internet – which caused a decline in routine administration and production jobs.

“Instead, for this wave, which was associated with the early phase of expansion in AI in the last 20 years, we saw a growth in employment.”

The report found that for occupations requiring “low and medium-skill” workers, AI exposure didn’t have a significant effect on employment numbers.

But for occupations requiring high-skill workers, it found “a positive and significant association.” AI exposure appeared to boost employment share by 3.1 per cent using one measure cited in the report, and 6.7 per cent using another measure.

TECHNOLOGY AND JOB FEARS

The researchers said that historically, technological advances have been accompanied by fears about potential job losses.

“This apprehension persists, even though history suggests that previous fears about labour becoming redundant were exaggerated,” the report said.

Albanesi said that until recently, AI technology has been limited to replacing routine and repetitive labour tasks.

However, she cautioned that new large language models could potentially replace non-routine jobs, which make up a larger portion of the workforce.

“That is sort of the risk,” she said.

“But that does not mean that in the aggregate, there will be a net decline in available jobs because new jobs may be generated in response to these abilities we are granted because we have access to this technology.”

AI won't pose immediate existential threat but 'safety brakes' needed: Microsoft

Tara Deschamps, The Canadian Press

Microsoft’s president says he doesn't think artificial intelligence poses an immediate threat to humanity's existence, but governments and businesses still need to move faster to address the technology's risks by implementing what he calls "safety brakes."

"We don't see any risk in the coming years, over the next decade, that somehow AI is going to pose some kind of existential threat to humanity, but ... let's solve this problem before the problem arrives," Brad Smith said in an interview with The Canadian Press.

Smith — a stalwart of Microsoft who first joined the company in 1993 and now doubles as its vice-chair — said it's important to get the problems posed by the technology under control so the globe doesn't have to be "constantly worried and talking about it."

He feels the way to address potential problems is through safety brakes, which could act like the emergency mechanisms built into elevators, school buses and high-speed trains.

They should be built into high-risk AI systems that control critical infrastructure such as electrical grids, water system and traffic. 

"Let's learn from art," Smith said.

"Every movie in which technology imposes an existential threat ends the same way — human beings turn the technology off. (So) have an on-off switch, have a safety brake, ensure that it remains under human control. Let's embrace that and do it now."

The remarks from Smith come as a race to use and innovate with AI has broken out in the tech sector and beyond following the release of ChatGPT, an AI chatbot designed to generate humanlike responses to text prompts.

Microsoft has invested billions into ChatGPT’s creator, San Francisco-based OpenAI, and also has its own AI-based technology, Copilot, that helps users create drafts of content, suggest different ways to word text they've written and helps create PowerPoint presentations from Word documents.

But many have deep concerns about the pace of AI advancement. For example, Geoffrey Hinton, a British-Canadian deep learning pioneer often referred to as the “godfather of AI,” has said he feels the technology could lead to bias and discrimination, joblessness, echo chambers, fake news, battle robots and other risks.

Several governments, including Canada's, have begun devising guardrails around AI.

In a 48-page report Microsoft released Wednesday, Smith said his company is supportive of Canada's push toward regulating AI.

Those efforts include a voluntary code of conduct released in September whose signatories — including Cohere, OpenText Corp., BlackBerry Ltd. and Telus Corp. — promise they will assess and mitigate the risks of their AI-based systems, monitor them for incidents and act on issues they develop.

Though the code has detractors such as Shopify Inc. founder Tobi Lütke, who sees it as an example of the country using too many “referees” when it needs more “builders,” Smith said in the report that by shaping a code Canada has “showed early leadership” and is helping the globe work toward a common set of shared principles.

The voluntary code is expected to be followed by Canada’s forthcoming Artificial Intelligence and Data Act, which would create new criminal law provisions to prohibit “reckless and malicious” uses of AI that cause serious harm to Canadians. 

The act, known as Bill C-27, has passed its first and second reading but is still being considered at committee. Ottawa has said it will come into force no sooner than 2025.

Asked why he thinks governments need to move faster on AI, Smith said the globe has faced an "extraordinary year" since ChatGPT's release.

"When we say move faster, it's frankly not meant as a criticism," he said.

"It's meant as a recognition of the current reality where innovation has taken off at a faster rate than most people expected."

But he sees Canada as one of the countries most prepared to handle the pace of AI because universities have long emphasized the technology and cities such as Montreal, Toronto and Vancouver have been hotbeds for AI innovation.

"If there is a government that I think has a tradition on which it can build to adopt something like this, I think it's Canada. I hope it'll be the first," Smith said.

"It won't be the last if it's the first."

But as Canada's AI act faces "thoughtful deliberation," Smith thinks Canada should consider how it can adopt additional safeguards in the meantime.

For example, during the procurement process for high-risk AI systems, he thinks partners seeking contracts could be compelled to use third-party audits to certify that they comply with relevant international AI standards.

In the report, Smith also threw his support behind an approach to AI that will be “developed and used across borders” and “ensures that an AI system certified as safe in one jurisdiction can also qualify as safe in another.”

He compared this approach to the International Civil Aviation Organization, which uses uniform standards to ensure an airplane does not need to be refitted midflight from Brussels to New York to meet varying requirements each country may have.

An international code would help AI developers attest to the safety of their systems and boost compliance globally because they would be able to use standards that are internationally agreed upon.

“The model of a voluntary code provides an opportunity for Canada, the European Union, the United States, the other members of the G7 as well as India, Brazil, and Indonesia, to move forward together on a set of shared values and principles,” he said in the report.

“If we can work with others on a voluntary basis, then we will all move faster and with greater care and focus. That’s not just good news for the technology world, but for the whole world.”

This report by The Canadian Press was first published Nov. 29, 2023.