Analysis - Nationalism casts shadow over Canada after TMX deal

Wed Jun 29, 2011 5:17pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - When Canada's big banks and pension funds needed sizzle to combat the steak offered by the London Stock Exchange's bid for the Toronto Stock Exchange, they looked only as far as the Canadian flag.

The iconic red maple leaf -- and sweet syrup from the trees -- conveyed in a word what the Maple Group consortium of big financial firms wanted to tell TMX shareholders: We don't want foreigners controlling our markets, do we?

Whether the appeal to nationalism worked or whether it was just a matter of money may be debated forever. But foes of the proposed tie-up of the LSE and TMX are already billing the death of the friendly transatlantic deal as a triumph of home-grown heroes.

"I think this is Canadians asserting themselves and, in fact, fulfilling the promise of free trade, that we will specialize in certain areas and lead in the world, which we are in financial services," Ontario's Finance Minister Dwight Duncan told reporters.

Duncan, whose Liberal party governs Ontario, Canada's most populous province and home to the Toronto Stock Exchange, has been one of the most vocal opponents of the LSE-TMX deal, citing the proven track record of Canadian banks during the financial crisis.

But economists and analysts worry that patriotism is trumping pragmatism, pointing to another big merger that was squashed last year on concerns about ceding control of Canadian assets: BHP Billiton's bid for Potash Corp.

"We've seen a great deal of nationalism lately, particularly with the Potash deal and the idea that mergers should act in the national interests," said Mike Moffatt, a lecturer at the Richard Ivey School of Business.

"That's going to raise concerns about investing in Canada ... Canada is now seen as riskier than it would otherwise be."   Continued...