Usually a year is a year. However, 2008 turned out to be almost two separate years: before the September financial crisis and after! The good news for Maple Trade Finance is that 2008 proved to be a very successful, profitable year; a year during which we expanded our sales network nationally as well as our head office team. 2008 was also a year during which Maple Trade continued our extraordinary growth, including expanding business abroad, especially within the vast Chinese market.
2008 brought dramatic change for the entire financial services sector late in the summer. This was signaled by the collapse of Lehman Brothers and much of the US investment banking establishment. By September, it was clear that fundamental change was taking place in the world of banking and finance. Lending institutions of all types had to reassess the methods by which they calculate or determine what the actual value of their assets in the new financial and economic environment. As if overnight, the traditional ways of rating credit went out the window.
Compounding the issue, the LIBOR (the London Interbank Offered Rate), which for decades provided the standard by which banks and financial institutions loaned and borrowed money to and from each other, ceased to be accepted as reliable. Banks froze credit – in particular loans to other financial institutions and increased interest rates on a seemingly arbitrary and excessive basis - simply because there was no certainty as to the effectiveness of their due diligence. Major banks also seemed to pay little attention to interest rate levels established by central banks. This was due in large part to the “de-coupling” of the LIBOR rates and central bank prime interest rates.
How has this impacted Maple Trade Finance? We are fortunate that our parent company, the Maple Financial Group, has been cautious and prudent. They remain extremely strong and well capitalized with a large cash position. The Maple Trade leadership team works very closely with Maple Financial in ensuring that our processes are reliable and efficient. As a result, we are confident that the deals that we do will be successful for our clients as well as for ourselves. It is to our advantage that our core menu of products are among the least risky of the menu of various products offered in the broader financial services sector.
What are the prospects for 2009? To begin with we must recognize that to all intents and purposes the old credit rules don’t apply. Obviously, this makes it difficult to plan and run your business. Financial institutions simply will not be operating on the same basis of decision making as they have in the past. There will be new ways of rating credit. The good news for Canadian companies, including Maple Trade Finance, is that the regulatory environment in Canada has shielded us from many of the challenges that have led the world into this crisis.
But we are not immune. We are already seeing an increase in insurance fees as insurance companies are challenged to asses not only the risk of various deals, but with the determination of which companies may or may not survive the challenging times ahead. The costs of all financial deals have gone up accordingly. It is inevitable that there will be more defaults world-wide, including the emerging markets, especially within China. The Chinese situation has been further complicated by the approximately 25% increase in labour costs within the year – ironically, causing many Chinese companies to out-source some of their primary production to even lower cost production centres like Cambodia, Bangladesh and Vietnam.
The banks, it could be said, have become ‘hyper-risk averse’. Consequently, they have either raised the standard of the deals they will approve, or are charging significantly higher interest rates than such deals would normally attract. All in, all companies in the financial services sector will have to be very careful in pricing all new deals owing to the volatility of currency exchange rates and the cost of funding.
What does all this mean for Maple Trade Finance in 2009? There are new opportunities before us. As banks tighten up their credit criteria, new opportunities result for Maple Trade in just about every sector. Companies can no longer turn to capital markets to meet their growth needs; instead, they may find their solutions at Maple Trade Finance. As with other companies, our challenge is to make the best of the opportunities created by the credit crunch of the last few months. The financial world is in a holding pattern until such time as a new ‘normal’ is established and new international regulatory rules are developed.
Some see this as a scary time; others see it as a time of opportunity. At Maple Trade Finance, we see great opportunity for our company and for our team to continue to grow, to serve our clients even more efficiently, and to continue our progress along the path of business success. We look forward to working with you in the upcoming year and in providing innovative financial solutions to your unique needs in what will be a year of change.
Michael Miller
Chief Operating Officer
Maple Trade Finance Inc.