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The head of one of Canada’s largest financial companies tells BNN that the world is working its way through a process of deleveraging that will likely play out for years to come.
“What we’re all going through is a deleveraging phenomenon…it is not a matter of a couple years and then you bounce back -- there is no [quick] bounce back…we’re in a ten year-phenomenon,” Paul Desmarais Jr., chairman and co-CEO at Power Corp. (POW-T), tells BNN. “It takes awhile for the deleveraging to be complete and absorbed.”
Desmarais says that in the wake of the financial crisis, the deleveraging process was passed from the balance sheet of the banks to sovereign countries. Nowhere is this more evident than in the euro zone, where the region is battling through a sovereign debt crisis.
Desmarais believes the euro zone’s problems may be far from over.
“In Europe…a normality is another five to ten years from today…to a level where people are comfortable both with debt-to-GDP levels and the banking system,” he says.
He also says that an uncertain global backdrop is behind the company’s decision not to raise its dividend -- the last time it did so was in 2008.
“We would love to raise the dividend…I don’t think Europe is stable…we’re looking at the stability of the world and we want to make sure we have the most stable group we can think of,” he says. “We feel we’re in a very strong position and positioned for difficulties to come.”
Power Corporation has stakes in a number of financial companies in Canada, including insurer Great West and IGM Financial. It also has stakes in European financial companies such as the Pargesa group.