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Bank on Blackberry

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EDMONTON — News from the BlackBerry front lines is ever more depressing. It seems that Lenovo, the Chinese company that bought IBM’s personal computer business a decade ago, is attempting to acquire Canada’s technology leader.

Lenovo is not alone. BlackBerry has an existing $4.7 billion bid on the table from Fairfax Financial Holdings while sitting on the sidelines, biding their time, are RIM co-founders Mike Lazaridis and Douglas Fregin.

The question is why would BlackBerry even consider such trifling offers? BlackBerry’s cash holdings and investment reserves have soared past the $3 billion mark. Industry insiders assure me that BlackBerry has a fortress balance sheet, and continues to generate significant amounts of cash.

Selling a global brand like BlackBerry for little more than the value of its cash would catapult BlackBerry into the same category as Nortel and the Avro Arrow — the greatest flops in Canadian technology history.

What could be done to save the company and Canada from another embarrassing failure? Why not use BlackBerry’s unique assets to create Canada’s first Technology Bank. It’s not as far-fetched as it sounds.

But surely Canada’s solid and well-considered commercial banks are better positioned to capitalize the technology sector than a tech company like Blackberry? Regrettably that’s not true. It’s an open secret that Canadian banks avoid the technology sector like the plague. Even worse, Canadian banks are slowly getting out of the lending business; today they make most of their profits from fee-generating services like credit cards.

The modern economy has changed dramatically since Canada’s banks were chartered and, as a rule, they have not adapted well. Like many other institutions, Canada’s banks were designed for an industrial economy. The industrial state was underpinned by tangible assets like land, industrial plant, machinery and inventory. Today’s modern economy is driven by intangibles like services, software, patented inventions and network applications of various kinds.

Canada’s economy is in trouble today because intangible assets, which are largely unrecognizable by banks, make up 80 per cent of Canada’s GDP.

The truth is, Canadian banks couldn’t finance the new economy if they wanted to. As a group, they lack the internal systems and expertise to deal with intangibles, and are hopelessly out of touch with the realities of the global technology business.

But, is there any historical precedent for a nonfinancial business becoming a successful bank? Yes, many. In fact it’s the norm in times of radical change like we’re experiencing today. Consider that the Medici’s and the Rothschild’s, two of the most successful banking dynasties in history, began life as commodity traders, not bankers.

What was the secret to their success? Both the Medici’s and Rothschild’s capitalized on the Commercial Revolution, an asset transformation that traditional bankers could not (or would not) adapt to.

Their success lay in recognizing that a new trading regime was being constructed upon the ruins of an older feudal economy. Both learnt the ropes of this new business reality from the inside out and in so doing helped establish the credentials of a new class of commercial assets. As early-movers, these banking innovators leveraged these new assets on a fractional reserve basis and built giant financial empires, while the more traditional banks expired, often collapsing spectacularly.

The fact of the matter is we’re in the throes of another historic asset revolution. A new knowledge-based economy is being constructed upon the ruins of our older industrial economy.

BlackBerry has all tools to replicate the Medici and Rothschild’s success: they have the capital base, an insider’s perspective on the world of technology, as well as the channel connections and brand strength to become an integrated pathway for Canadian innovation. Furthermore, obtaining the ability to fractionally reserve like a bank would help BlackBerry create a credit base that is many times larger than their underlying cash position.

The BlackBerry Bank would have significant competitive advantages over existing commercial banks.

They are already experts in identifying and managing knowledge-based assets. Blackberry could seed its own business in future by educating their technology-rich customers on best practices for managing and capitalizing non-traditional assets, and then (perhaps) issue non-interest bearing equity loans, securing their principal against the collateral value of the intangible assets, earning a royalty return when the company is successful.

Such a bank could be just the tonic that Ontario and Canada needs to trigger a Renaissance in Canada’s under-capitalized technology sector and maybe, just maybe, save BlackBerry from becoming another feature presentation in the Canadian Hall of Shame.

 

Robert McGarvey is an economist and co-founder of Genuine Wealth, a Canadian enterprise whose mission is to help businesses, communities and nations mature into flourishing economies and enterprises of wellbeing.

 

— troymedia.com

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