September 8, 2024

Welcome to Letters from CAMP, a newsletter on anti-monopoly activity in Canada and abroad, brought to you by the Canadian Anti-Monopoly Project. In this installment we have:

• RBC’s CEO laments “ruthless oligopoly” stopping banks from hiking mortgages higher
• Toronto tenants push back against secretive algorithmic rent inflation
• The cost of consolidated capital flows to the future of the Canadian economy

Let’s dive in.

Banks Wish Your Mortgage Payment Was Higher

RBC’s CEO thinks your monthly mortgage payment should be higher. At a recent conference hosted by Scotiabank, Dave McKay lamented the “ruthless oligopoly” in Canada’s banking sector stopping banks from passing on more of their increased funding costs as the Bank of Canada’s overnight interest rate headed north.

Forgive our skepticism. Canada’s banks are some of the most profitable on the planet, with their domestic banking arms routinely printing 30% return on equity (ROE). Economic consultancy North Economics has shown that, compared to peers in the UK, Canadians overpay about $8.5 billion annually in bank fees. Meanwhile, the growing spread between lending and savings rates has netted the Big Five an additional $5 billion since interest rates began rising in 2022.

McKay’s comments are particularly rich given that RBC’s recent acquisition of HSBC Canada eliminated a competitor that frequently set the bar for aggressive posted mortgage rates and served as a reference for the price offers of the Big Five banks. Despite 71% of Canadians reporting that increasing debt is a threat to their financial stability, just know that the banks dream of pushing those monthly payments higher.

That the bank’s are feeling a modicum of heat is welcome news, but cold comfort to Canadians. As we push for a dramatically more competitive banking sector, it’s clear the banks will fight tooth and nail to maintain their privileged position. Canadians deserve more than crocodile tears from some of the planet’s most profitable financial giants.

Canadian Tenants Take Action Against AI Inflation

It shouldn’t take a rent strike for Canadians to learn that their landlords are using pricing software at the center of a U.S. price fixing investigation. But that’s just how tenants in Toronto’s Weston neighborhood inadvertently pulled back the curtain on a practice that may be more widespread than Canadians realize.

Dream Unlimited, a Canadian real estate giant with $25 billion in assets, has been found using YieldStar, the same software the U.S. Department of Justice is currently suing its provider, RealPage, for facilitating rent price fixing. The revelation raises questions about how many other landlords are quietly employing similar tools, and why Canadian regulators haven’t been more proactive in investigating these practices.

According to documents obtained by The Breach, at least 13 major Canadian landlords with revenues over $5 billion are using YieldStar software. This suggests the scope of software-enabled collusion could be distorting rental markets across the country.

Like the Competition Bureau’s investigation into similar pricing software used by gas stations, the risk of software enabled collusion is not an isolated incident. Last week, CAMP explored how algorithms are being employed to manipulate markets in other industries like e-commerce. The normalization of these pricing tools across markets leaves open the question of how much our economy is ensnared in this kind of coordination, tacit or otherwise.

The use of these tools in the rental market is particularly concerning as Canadians continue to bear the brunt of a housing affordability crisis. Policy makers need to be looking at every tool they have to reduce the cost of living for Canadians, and using our competition laws to go after software inflating rents should be one of them.

Consolidated Capital Flows Stifle Small Players

An underexplored topic in the monopoly space is the consequences of consolidation of not just markets, but also the capital flows that enable the growth of individual players in those markets. As institutional investors become larger and more consolidated, even sizable businesses will struggle to compete for the attention of entities like pension funds that don’t get out of bed for investments below nine figures.

This week, the Globe reports that the number of TSX-listed companies has shrunk by 40% since 2008, with few IPOs and promising firms fleeing to foreign markets. The piece highlights how financial industry consolidation has decimated support for small-cap companies. The disappearance of boutique brokerages and specialized investment funds has starved many promising firms of the capital and attention they need to thrive amid their often oligopolized competition.

Without a vibrant small-cap ecosystem, innovative companies can’t access the resources to boost Canada’s lagging productivity. That lack of competitive pressure allows complacent incumbents to coast, further weighing down our economic performance. Consolidation of capital flows directly feeds the high concentration of markets downstream.

Breaking this cycle will require bold policy action. We need competition policy enforcement that understands the cost of consolidation in financial markets and policy that brings smaller scale investors back to the table.

If you have any monopoly tips or stories you’d like to share, drop us a line at hello@antimonopoly.ca

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