Corporate Canada staying alive during current recession: CIBC

    Business bankruptcies down - unlike previous recessions and in the U.S.

    TORONTO, May 19 /CNW/ - CIBC (CM: TSX; NYSE) - While personal
bankruptcies are climbing in this recession, business bankruptcies in Canada
are actually falling - a trend very different from previous recessions and
from what is happening in the U.S., finds a new report from CIBC World Markets
    During the year ending March 2009, the total number of business
bankruptcies in Canada fell by a surprising 4.4 per cent compared to the same
period the previous year. On a year-over-year basis, bankruptcies fell by no
less than 14 per cent during the first three months of 2009. All industry
sectors saw their bankruptcy situation improve, with the exception of business
services, wholesale trade and manufacturing. And even these sectors saw only
minimal increases. By region, bankruptcies in Alberta and Quebec are on the
rise, but other regions are seeing double-digit declines.
    "This trajectory is completely inconsistent with both the experience seen
in any other recession and the current situation in the U.S., where business
bankruptcies are rising at a rate not seen since 1975," says Benjamin Tal,
senior economist and author of the report. "This abnormality suggests that, at
least for now, downsizing as opposed to broadly-based plant closures, is what
defines the response of many Canadian firms to the current economic recession.
If sustained, this response will have significant implications for the nature
and speed of the recovery in the job market."
    Mr. Tal's research found that business bankruptcies rose very quickly in
both the 1982 and 1991 recessions, reaching close to 50 per cent
year-over-year growth rates. He also found that in both recessions, the
incidence of bankruptcies relative to the size of the business pool reached
record highs. Canada registered 16 and 15 business bankruptcies per 1000
businesses in the 1982 and 1992 recessions, respectively. Today the number is
less than 6.
    The current resiliency of business bankruptcies is also inconsistent with
the trend seen in personal bankruptcies. As of March, the number of personal
bankruptcies rose by 57 per cent on a year-over-year basis and by a cumulative
21.5 per cent during the year ending March 2009. "Over the past 30 years, the
correlation between personal and business bankruptcies has been 70 per cent.
Today the correlation is negative," notes Mr. Tal.
    "This disconnect is also very visible when comparing the current
trajectory of Canadian business bankruptcies to the one seen south of the
border. The number of U.S. business bankruptcies is now rising by no less than
40 per cent on a year-over-year basis--completely breaking the otherwise tight
relationship between the patterns of U.S. and Canadian business bankruptcies."
    While some have argued that business bankruptcies in Canada are slow to
react to economic realities and thus tend to move with a significant lag, Mr.
Tal's research found from a timing perspective, this recession is again very
different to the last two. At the same stage of the 1982 and 1992 recessions
(five months in) business bankruptcies were already 15 per cent and 20 per
cent above their pre-recession levels. Today, five months into the recession,
business bankruptcies are 10 per cent below their pre-recession level.
    He concludes that "at least for now, corporate Canada has been able to
tackle reduced demand and increased borrowing costs by rationing and
downsizing as opposed to outright plant closures." He believes this trend will
be key for a recovery in the job market when the economy rebounds.
    "Despite the recent uptick in employment during April, jobs are currently
disappearing at a faster rate than in any other recession," says Mr. Tal. "And
most of these jobs have been lost due to downsizing--not bankruptcies."
    "This distinction is important since re-hiring by downsized but existing
companies during the recovery can occur much faster than hiring by new firms.
So, as opposed to previous recoveries, this time around we may not have to
wait for business bankruptcies to recover before we see employment rising
    In the 1981-82 recession, business bankruptcies soared but the recovery
was swift and bankruptcies returned to their pre-recession levels after only
two years. In the 1991 recession the situation was very different, with the
incidence of bankruptcies remaining well over their pre-recession levels until
the late 1990s.
    "No surprise then that the revival in the job market following the early
1980s recession was much quicker than the jobless recovery of the early 1990s.
Fast forward to today's situation and the resiliency of business bankruptcies
bodes well for the recovery in the labour market in 2010."

    The complete CIBC World Markets report is available at:

    CIBC's wholesale banking business provides a range of integrated credit
and capital markets products, investment banking, and merchant banking to
clients in key financial markets in North America and around the world. We
provide innovative capital solutions and advisory expertise across a wide
range of industries as well as top-ranked research for our corporate,
government and institutional clients.

For further information:

For further information: Benjamin Tal, Senior Economist, CIBC World
Markets Inc. at (416) 956-3698,; or Kevin Dove,
Communications and Public Affairs at (416) 980-8835,

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