Prime Minister Justin Trudeau briefed Canada’s top bankers in the days leading up to an 11th-hour breakthrough in talks that sealed the terms of a new, long-awaited U.S.-Canada trade deal.
A series of calls the Prime Minister made to the chief executive officers of Canada’s five largest banks to provide updates and seek advice marked the culmination of months of back-channel communications between banks and government officials.
Mr. Trudeau has had occasional contact with bank CEOs throughout Canada’s long-running negotiations with the U.S. and Mexico to revamp the North American free-trade agreement. But amid a last-minute push to agree on a deal before a U.S.-imposed Sunday deadline, the Prime Minister turned to a select group for counsel, tapping the banks' leaders to glean quick insight from a cross-section of their clients in key industries.
Banks have a major stake in both the outcome and the fine print of the new trade deal announced late Sunday, even though few had expected substantial changes to provisions directly related to financial services. The Big Five Canadian lenders earn the lion’s share of their revenue and profit from the highly concentrated domestic market, so any shock to the Canadian economy could be expected to have an immediate impact. Had there been no agreement, banks might have expected higher losses on credit card and mortgage debt, and reduced revenue from loans and advisory services to businesses – particularly in key industries such as steel and aluminum, energy and automotive.
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At least 16 per cent of Canadian banks' profits come from the U.S. and Mexico, where they collectively hold more than $1.3-trillion in assets, according to the Canadian Bankers Association. And that share is growing thanks to ambitious international expansion plans that rely on good trade relations.
On Friday evening, Mr. Trudeau took the unusual step of revealing his discussions with banks at a crucial juncture, tweeting his thanks to three CEOs – Royal Bank of Canada’s Dave McKay, Bank of Montreal’s Darryl White and Victor Dodig from Canadian Imperial Bank of Commerce – for their “advice and support” on NAFTA. A day later, he added a companion tweet after speaking to Bank of Nova Scotia’s Brian Porter and Toronto-Dominion Bank’s Bharat Masrani, in an effort to show a united front with business leaders.
For many months, banks have separately kept in direct contact with an array of government officials, including staff in Foreign Affairs Minister Chrystia Freeland’s office, members of the negotiating team, and two PMO officials: Brian Clow, director of U.S.-Canada relations, and the Prime Minister’s principal secretary, Gerald Butts. The flow of information has been regular, but had no fixed rhythm, according to three industry sources familiar with the back-and-forth.
At the same time, Ms. Freeland’s team at Global Affairs Canada consulted with an informal, bipartisan network of Canadian executives with experience in Washington who have acted as unpaid advisers, according to two sources with knowledge of the consultations. The executives include two former Canadian ambassadors to the U.S. who now work for banks: Michael Wilson, chairman of Barclays Capital Canada Inc., and TD chairman Frank McKenna.
In public, Canadian bank executives were staunchly hopeful that Canada, the U.S. and Mexico would ultimately reach an agreement, but avoided weighing in on specifics. On Saturday, Mr. White described a successful NAFTA deal as “the single biggest economic opportunity for all three nations.”
Privately, some Canadian executives had expressed concerns to the Prime Minister’s Office that Canada was spending political capital by tabling issues in trade talks that seemed unlikely to resonate with U.S. President Donald Trump, such as gender, workers' rights and climate change, said three sources in business and government who were not authorized to speak about the discussions.
Some bank CEOs also raised other issues they consider vital to Canada’s competitiveness with the Prime Minister, including the government’s stance on energy and pipelines.
At an investment conference hosted by TD Asset Management in mid-September, Mr. McKenna argued that Canada needed to stand its ground to maintain the Chapter 19 dispute resolution mechanism. “The United States cannot come to the game and bring their own umpire calling balls and strikes … especially when we see that Trump is so capable of arbitrary behaviour,” he said, noting that the U.S. President has already cited what Mr. McKenna called “laughable” security issues as rationale for recent tariffs.
At the time, Mr. McKenna also said supply management should not be a sticking point, adding: “We have to give on dairy.”
Other current and former bank executives stressed the importance of reaching a new deal to lift the uncertainty hanging over businesses trying to make decisions about where to invest.