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BMO CEO Discussion: Understanding the Impact of COVID-19

 

On the heels of BMO Financial Group’s 2020 Annual Meeting of Shareholders on March 31, 2020, Darryl White, CEO of BMO Financial Group, led a roundtable to discuss the various impacts the COVID-19 pandemic is having on the world. Joining him were Doug Porter, Chief Economist of BMO Financial Group, Kristi Mitchem, CEO of BMO Global Asset Management, and Albert Yu, CEO of BMO Asia. Special guest Dr. John Whyte, Chief Medical Officer of WebMD, was invited to talk about the latest medical developments of the pandemic.

China Forever Changed

Hints about what the rest of the world can expect can be found in China, which appears to be emerging from the grip of COVID-19. BMO Asia CEO Albert Yu has managed through the crisis since it took hold soon after the Chinese New Year.

“So much has changed in the last two and a half months in terms of how we work and how we live. Since mid-January, the entire country felt like it was going through a horror movie,” he said.

“Unfortunately, now this seems to be unfolding in North America and in Europe, but based on what I've gone through here, I know that there's a recovery, things are going to get better. And I'm confident we're going to come out of this stronger together.”

Yu explained that, while China implemented draconian measures to stop the spread of the novel coronavirus very early on, people and businesses drew their greatest strengths from being able to ask for help and to help one another. For example, he said, “I would have not got through this without specific help from within the global BMO family and through business we also got tremendous help from the local Beijing City government to get us through this.” The Chinese financial markets have been resilient throughout the crisis, he said.

“The state has adopted a forensic approach to help targeted sectors, specific geographies and also specific segments of the population.” 

The challenge now, though, is getting society back to normal.

Asked by Darryl White what’s it like on the “other side of the [coronavirus] bridge”, Yu said one of the biggest changes is an increased focus on workplace health and safety. “People will likely be demanding more from their employers and government to keep them healthy and safe,” he said.

COVID-19 will likely change much of the China business landscape, he said, and many companies will not survive the crisis. While retail and leisure businesses are reopening, for example, foot traffic remains at a trickle as people prefer not to venture too far from home. A country that has long resisted a remote work culture is now learning to embrace it in the face of lockdown, and there may be no turning back.

“We don't know how some of those changes will evolve and whether it's going to stay permanent,” he said. “But obviously in the leisure business, in retail, and even in healthcare, I think we're going to see some profound change.”

Mitigation Showing Results in North America

With North America still in the eye of the storm with respects to COVID-19, Dr. John Whyte, Chief Medical Officer of WebMD, said there are signs mitigation measures to contain the virus are having an impact.

“Most experts are predicting that in North America, our peak will be in about two weeks … Mitigation might be starting to have an impact, albeit small,” he said. “We're probably going to see things get a little worse, because we're going to see many more cases because of increased testing over the next two weeks, and then I think we're going to start to see how we emerge in four to six weeks from that.”

As of March 31, there had been 7,474 cases of infection reported in Canada, and 92 deaths. The United States had 163,565 cases and more than 3,000 deaths reported.

While a vaccine against COVID-19 is still as much as 18 months out, Dr. Whyte said there are reasons for optimism that healthcare will advance in treatments of the disease. One potential advance, he said, could come in the use of convalescent plasma, or antibodies from patients who have recovered from infection, to treat those suffering from the virus.

Healthcare officials are also making progress in testing, which will allow them to further mitigate according to risk, including a potential transition to antibody (blood) testing that will help identify people who have had the disease, have developed immunity, and who can potentially return to work.

“This virus is going to be here for a while, but how do we take mitigated risk based on evidence and based on data? And how do we start to think about our businesses and the economy and our communities?” he asked. A targeted, almost surgical approach, like the ones used in Singapore and South Korea, where they did not close schools, may be the answer.

Data from improved testing will also be critical down the road, as the outbreak starts to recede and Canada and the United States move to put the economy back on track.

“We're going to see mitigation strategies that are based on the dynamics of the infection locally,” he said. “We need an off-ramp to all of this … So I think businesses have to start to think about how do they prepare, based on this idea that some folks and some areas, may be able to return to a more sense of normal sooner than others.”

For the time being, Dr. Whyte said, we can take comfort in the fact that the rate of increase in fatalities due to COVID-19 is decreasing, and that there are no signs that the virus has mutated.

Bracing for Severe Economic Impact

For BMO’s chief economist, Doug Porter, the economic impact of COVID-19 will clearly be severe, but he said understanding how the rebound will come is more important than putting a specific number on the downturn.

“The focus should be on the speed, the shape of the coming recovery, and maybe most importantly, when does it begin?” he said.

Porter is confident the rebound will be strong when it comes, but cautioned against predicting whether the overall economic recovery will be L, U or V shaped, because it will vary by sector and by region. He forecast a healthy rebound in the second half of 2020, but predicted the economy will not see a full recovery until next year.

“I can tell you that I'm quite confident that activity will see a big bounce in the third quarter,” he said.

While he praised government stimulus to shield the economy during the downturn, he did caution that stimulus packages are more a replacement of lost income than actual stimulus. “I don't view it as stimulus in the traditional sense. It's really just keeping incomes and revenues as stable as they can be, to hopefully help reinforce a recovery when the shutdowns are through.”

There will also be a long-term cost to government intervention, including larger debts, “pretty much across the board.” The impact of heavy government borrowing will be offset, however, because governments can borrow at rates of less than 1 percent for ten years, meaning they won’t be taking on significantly more debt in terms of annual interest, and will not be under pressure to pay back the accrued debt quickly.

Lessons Learned in 2008

Kristi Mitchem, CEO of BMO Global Asset Management, said that, while the COVID-19 crisis is unique for anyone who’s watched the markets over the years, governments are taking what they learned from 2008 and applying it to the COVID-19 pandemic, particularly as it relates to liquidity and the unfreezing of financial market conditions.

“The response of the Fed and the US Treasury has really been so impressive, both in terms of its swiftness as well as in terms of the expansiveness of the types of programs that they've actually pulled out,” Mitchem said in describing the interventions as the foundations for future market stability.

Mitchem said there are two fronts on which the war against COVID-19 will be fought: market stability and the real economy. Actions taken by governments and central banks will have the intended result of bringing stability, she said, but work on the real economy will be the tougher slog. “I don't think we can emphasize enough the importance of reigniting the economy post crisis as a critical enabler of a return to normalcy.”

As with every crisis, Mitchem said the COVID-19 crisis will also bring opportunity for investment, including in telecommunications and technology innovations to keep people and businesses connected in conditions of social distancing.

“(But) I think some of the more interesting stuff really comes from price dislocations that are much more broad, and, in many cases, that relate to those things that we consider sort of ‘losers’ in the COVID world,” she said, pointing at heavily discounted retail real estate as an example that individual and institutional investors were taking advantage of.

“I think the key here is really about, you know, keeping your lens pretty wide, looking at a number of opportunities, keeping some powder dry,” she said, “and then of course, not being afraid to be contrarian when the time is right.”

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Darryl White Chief Executive Officer, BMO Financial Group
Douglas Porter, CFA Chief Economist
Albert Yu CEO Asia, BMO Financial Group



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