Energy, Travel Firms Need More Help, National Bank CEO Says

(Bloomberg) -- Canada’s energy industry needs exceptional measures to deal with damage from the pandemic and “economic warfare” that caused oil prices to plummet, said National Bank of Canada’s long-time chief executive officer, Louis Vachon.

Global oil prices began a historic crash in early March when Saudi Arabia and Russia failed to renew a production-cut pact that had propped up prices since 2016 -- just as Covid-19 worsened the outlook for demand.

“This is an exceptional situation that requires also exceptional measures in terms of capital and liquidity support,” Vachon, 57, said Friday in an interview after his bank’s annual investor meeting.

“The supply side is impacted by what I can only qualify as an act of economic warfare by a foreign government -- a government that’s trying to weaken and restrict and decrease the supply of oil and gas produced in North America by predatory price action,” said Vachon, without specifically mentioning Saudi Arabia.

The CEO of Canada’s sixth-largest bank sees the need for additional measures in Canada to help businesses weather the aftermath of the pandemic. Government programs have helped inject liquidity into the economy, though much has been in the form of loans.

“To help some industries, particularly the discretionary side of the economy -- the airlines and the travel industry and possibly also the oil-and-gas industry -- debt is very helpful but it will require more permanent capital also,” Vachon said.

Avoiding Equity

The Trudeau government has come out with a package of aid for companies -- subsidizing wages and rents and guaranteeing emergency loans to business. But so far it has stayed away from injecting equity or providing bailout packages to specific companies or sectors.

“The best thing we can do is provide credit,” Finance Minister Bill Morneau said in an interview on BNN Bloomberg television on Friday. “That’s the hope -- that we don’t actually have to bail out companies or don’t have to take equity but rather find a way to get people through this.”

While the capital markets can help public companies raise money, small and medium-sized businesses that aren’t publicly listed on exchanges need access to more permanent capital to bridge any longer lockdown or extended period of social distancing, Vachon said.

Vachon is the only CEO who has headed a major Canadian bank through both the 2008 financial crisis and the pandemic, giving him a unique perspective on dealing with crisis.

“A crisis the second time round is not any more fun than the first time,” he said. One lesson he learned in 2008 “is you should manage the crisis and you should not let the crisis manage you.”

During the financial crisis, Vachon created a special team he calls a “crisis cell” to manage through the uncertainty. He has done that again for the pandemic.

“I interact a lot with the crisis cell, but I am not on the crisis cell -- that nuance is something I learned in 2008 and I’m applying that right now,” he said. “That’s working extremely well.”

‘I Have No Life’

Vachon said he’ll release the bank’s post-lockdown policies next week. Any return to work will be progressive and vary from region to region and city to city, he said. Employees who have been working from home may stay home for a longer period than initially planned.

“The bank is functioning very well on a remote basis: we have 13,000 working remotely and 6,500 that have to show up to work,” Vachon said. “People can work effectively from home for a bit longer.”

Those working remotely include most corporate functions, capital markets employees and commercial bankers, and almost all wealth management staff, while those still going to offices include branch employees, those in call centers, and the crisis cell.

“And me, because I have no life,” Vachon added.

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