By Guest Blogger Ryan Lewenza
Canadians have a strong love-hate relationship with their banks. It’s up there with the Toronto Maple Leafs and visits to the proctologist. The hate is particularly acute at the end of the month as we see our monthly bank charges, which only seem to go up, along with their profits. In the last quarter alone, the “Big 6” Canadian banks raked in over $10 billion in profit.
While rising bank fees and huge profits help to reinforce our resentment of the banks, we still deep (deep) down have a sense of nationalistic pride in our banks. And why not? Unlike many of their US and European peers, the Canadian banks did not need to be bailed out by the government during the financial crisis due to bad loans and being overleveraged. Despite this, there is a growing chorus of investors who believe the Canadian banks are heading for trouble. We disagree.
Readers of this blog know well our view of the Canadian housing market, and the significant risk we believe it poses to our economy. Given this view we are increasingly asked by readers and clients whether the Canadian banks are destined to decline like the US banks did following the collapse of their housing market in 2007/08. In fact, some investors are going one step further by shorting the banks in anticipation of steep price declines as the housing market bubble begins to unravel. We believe this view is misguided and misinformed. Here’s why.
First, we believe, like many other organizations, that the Canadian banks are the strongest in the world. According to Global Finance, an organization that ranks the world’s safest banks, five of the “Big 6” (TD, Royal Bank, Bank of Nova Scotia, CIBC and Bank of Montreal) rank in the top 50 of the safest global banks, with TD in the 10th spot and Royal Bank at 16.
The World Bank also sees the Canadian banks as the safest in the world citing: 1) the country’s stringent regulatory regime; 2) their reliance more on deposit funding versus debt or wholesale funding (this was a major factor in what brought down Lehman Brothers); 3) the banks are stable and well capitalized; and 4) as already mentioned, they did not require a government bailout. In our view, it’s hard to debate the strength and resiliency of our banks.
Second, the Canadian banking industry is highly concentrated and faces little competition, especially from foreign competitors. Let’s face it, the Canadian banks are an oligopoly. Sure competition is fierce among the major banks, but unlike in the US which has thousands of banks, the Canadian market is dominated by the “Big 6”. This provides a large moat around their businesses and profitability.
Third, the Canadian banks are well capitalized and conservatively run. Currently, the “Big 6” have Tier 1 capital ratios (a measure of a bank’s equity to its assets) of roughly 11%. By most global standards this is quite high, and is well above the minimum Tier 1 ratio requirements of 9.5%.
Even if they do face headwinds from an unwinding housing market, they have the balance sheet and capital to withstand it.
Fourth, the Canadian banks are very diversified both geographically and across their business units. Often investors just focus on the mortgage lending business, overlooking all the other business units which contribute to the bottom line. For example, all the major banks have multiple business units ranging from institutional (trading and investment banking), to wealth management (what we do), to insurance and credit cards etc. Moreover, following the financial crisis the Canadian banks used their strong capital position to make acquisitions, thus diversifying further into other areas.
For example, TD Bank acquired a few large US banks with BMO, and Royal Bank doing the same. Many are unaware of this, but TD Bank now has more bank branches in the US than they do in Canada. So, it’s important to look at the entire operations of the banks rather than just focusing on the mortgage lending arm.
Lastly, the Canadian banks have a long track record of performing well through challenging times. We’ve already mentioned how they performed during the financial crisis, but let’s look at a comparative period when the Canadian housing market went through a downturn. In the early 1990s the Toronto housing market endured a significant downturn, with prices declining roughly 40% in inflation adjusted terms from 1989 to 1996.
With Toronto being the biggest housing market in Canada, one would think that this would have negatively impacted Canadian bank share prices and earnings. However, over this period the S&P/TSX Bank Index rose 136% or 11% per year with bank earnings rising 75% from 1990 to 1996. Previously having worked for a large Canadian bank, and analyzing them for well over a decade, I have seen first-hand how they can navigate through difficult times and continue to earn incredible profits.
To be sure, Canadian banks could experience some weakness if the Canadian housing market really deteriorates over the next few years. But we believe they will be able to weather any storm and betting against them could prove to be a costly investing mistake. We’re happy to maintain our exposure in them through our ETF holdings, and continue to earn those juicy dividend yields.
166 comments ↓
You mean Banksters
The Meeseeks have made it onto Greater Fool. I feel like some kind of circle has been completed.
TD’s advance in to the US has been so gradual, and they are now so ubiquitous that most Americans think it is a US bank.
The banks didn’t have to get bailed out during the financial crisis??? Oh really as that is news to me. Good afternoon Sir Lew.
InfLewenza…good to see you switched to a semi professional photo supplier.
Is the cheque in the mail…
M42BC
Anagram fun fact:
Garth Turner = Truth Ranger
Ryan Lewenza = New Analyzer
the Canadian banks did not need to be bailed out by the government during the financial crisis due to bad loans and being overleveraged.
They actually received more per capita than Wall Street.
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100% inaccurate.
http://www.cbc.ca/beta/news/business/banks-got-114b-from-governments-during-recession-1.1145997
RBC must have learnt a thing or two during the last financial meltdown .
The PGA tour which is professional golf in North America did not lose one tournament sponsor during the last meltdown/ recession.
Over the last few years they have slowly built up a stable of the worlds best golfers that wear there badge on there clothing and gear.
They sponsor two tournaments as well with multi million prize money.
Just like TD ,they are becoming more visual in the states as well…
M42BC
“Unlike many of their US and European peers, the Canadian banks did not need to be bailed out by the government during the financial crisis due to bad loans and being overleveraged. ”
You must have missed the memo, the banks got bailed out bigtime. Your credibility is lost, I stopped reading after that line. This blog is going downhill fast.
Banks got $114B from governments during recession
Support for banks ‘more substantial than Canadians were led to believe’: CCPA report
http://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997
I remember the day that a Board Member came to see me in 1981 who was a sitting member on the Toronto Municipal Pension Fund as needed my investment advice. He said guess what we did as they went all in on the big 6 at about $10.00 per share.
While rising bank fees and huge profits help to reinforce our resentment of the banks, we still deep (deep) down have a sense of nationalistic pride in our banks.
+++++++++++++++++++++++++++++++++++
And uh……where did you obtain this information that “we” love our banks?
I think I speak for “most” Canadians that when banks are raking in “record” profits at a time when 70% of “working taxpaying” Canadians are living paycheck to paycheck “LOVE the banks” is beyond laughable.
http://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997
Our record breaking mega fee ripping off Canadians banks…..got a 114 billion dollar bail out from the same people they are ripping off.
The global storm against banks, corps and govt…..is a coming……
Most people forget that the strength of the banks is due to regulations put in place by the previous Liberal government pre Stephen Harper.
Harpercons pre 2008 meltdown pushed for deregulation U.S. style. No need to explain how that turned out.
Harper did nothing to steer us through that time, he inherited what ultimately protected us.
Thanks Martin and Chretien for saving us.
pathcontrolmonk on 09.10.16 at 2:48 pm
TD’s advance in to the US has been so gradual, and they are now so ubiquitous that most Americans think it is a US bank.
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…with the word “Dominion” in it?
That’s hilarious.
Great article Lewenza. Waaaay better than your first case of Lewenza.
Banks got $114B from governments during recession
http://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997
“Canada’s banking system is often lauded for being one of the world’s safest. But an analysis by CCPA senior economist David Macdonald concluded that Canada’s major lenders were in a far worse position during the downturn than previously believed.
Macdonald examined data provided by the Canada Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions and the big banks themselves for his report published Monday.
It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada, and also to seven per cent of Canada’s gross domestic product in 2009.
The figure is also 10 times the amount Canadian taxpayers spent on the auto industry in 2009.
“At some point during the crisis, three of Canada’s banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company,” Macdonald said.
“Without government supports to fall back on, Canadian banks would have been in serious trouble.””
I don’t have bank fees
but for those that use a debit card.
grab a prepaid visa card called zoompass
use your bank to transfer funds to zoompass at no charge.funds are transferred..about two days.
card is imprinted with your name and works just fine.
even at the apple online store.
zoompass charges you no fee,even for a tims coffee.
top up as needed.
used the same as a debit card but with no fee.it’s a decling balance until topped up, so no credit card fee.
Canadian company
The Big 6 maybe ok.
What scares me are Credit Unions in the Lower Mainland.
VanCity and Blueshore Financial, in particular.
They are pushing mortgages like crack dealers on the street corner.
Talked to a parent on my sons hockey team.
He’s fairly well off. Like you gotta be when your kid is playing hockey.
Said VanCity gave him a mortgage of 1.5 mil simply over the phone.
Mr. Lew, remember you boss’s famous phrase “this will not end well”
When you can make money out of nothing, creating credit without assets, its not that hard to be profitable.
Especially if you can avoid being ‘too’ greedy.
As in 33 to one leverage on shaky assets like Lehman and other banks.
Banks may be profitable. Ethical is another story.
The Canadian Banks are backstopped by 600 billion in CMHC insured mortgages.
Distribute the default risk associated with this mortgages from the taxpayers back to the banks.
And then let’s see what happens.
See also: Moral hazard.
I seem to recall one of Garth’s posts way back spoke of the Insured Mortgage Purchase Program – was this not essentially a form of bail out during the 2008 financial crisis in a Canadian style. Yeah I don’t think your representation in this post is correct.
Big story going around Vancouver:
http://www.theglobeandmail.com/real-estate/vancouver/out-of-the-shadows/article31802994/
Should we move to a US model where primary residences are taxable and you can write off mortgage interest? This would prevent shadow games of trying to figure out who lives where?
#16 Alex:- You didn’t have to that so soon as was giving Sir Lew a pass because he mentioned two great banks that I deal with. The TD has the better service and love their easyweb.
A Reminder On Leverage=FEAR THE BANKS
So 25 basis points (which is now “anticipated”) is good for a ~300 point DOW selloff?
No. What’s good for the selloff is the recognition that is slowly seeping into people’s minds that 40 years of generally declining interest rates are over.
Here’s why it matters.
Let’s say the rate of interest is 10% (and it was not all that long ago — the 1980s.)
You borrow $1 million. Your interest payments are $100,000 a year.
Now the rate of interest drops to 5%. Your interest payment is now $50,000 a year, which sounds great. But what sounds even better is borrowing another million dollars for the same $100,000 a year, and so that’s what you do.
The additional “money” (actually credit) chases prices (houses, stocks, cars, etc) higher — this is simple supply and demand.
In point of fact we have gone from almost 16% on the 10 Year Treasury rate (9/1981) to 1.54% today, a reduction of a literal 90%. This in turn has resulted in ten times as much leverage in the financial system and every product and service that is priced based on debt — which is damn near everything in some form or fashion.
This in turn means that the same $100,000 in interest now allows you borrow not $1 million (in fact in 1981 you could only borrow $650,000 for $100k in interest) but almost $6.5 million.
Get this through your head folks: The DOW traded at about 1,000 in 1981 and the S&P 500 traded at roughly 120. It is not even close to fanciful to believe that since a very large percentage of this price appreciation — roughly half — has come from ever-increasing leverage in the system when the continuation of that trend stops being possible a large percentage, perhaps as much as 80% of it, is likely to come right back out of the price of all of these items in the economy — whether The Fed, the Government or anyone else likes it or not.
This is basic math, not politics.
I like my bank, TD, at least at the branch level. They employ a whack of friendly, young people, aways take the time to answer my questions, my fees aren’t high, I have a pretty good rewards system on my credit card, and they make it easy to access credit. It’s not every day I have something nice to say either.
Rogers & Bell can go stuff themselves though.
First off, love-hate is accurate. While a few posters have pointed out that our banks received a quiet bail out in 2008/9, the feeling on the street of the average Canadian at the time was that we were protected and more secure. At my place of work isly was business as usual all through the crisis. The fact this bubble is so big also has a lot to do with the confidence the average person has in our banking system.
My parents, who have been with BMO for decades and decades, use BMO Nesbitt Burns for their portfolio and are quite happy.
In other news,
http://www.cnbc.com/2016/09/10/donald-trump-supporters-spar-with-clinton-over-basket-of-deplorables-remark.html
Clinton just gaffed. She called 50% of GOP supporters “deplorabales” and has since apologized. Could be another turning point and surge for Trump. More and more people are now considering a Trump presidency. Even the MSM reported it this time. That alone is telling.
MF
Fed-up “They actually received more per capita than Wall Street. 100% inaccurate.”
I love this. One group writes an article claiming banks were bailed out and now its fact. I disagree with the CCPA’s position that the banks were “bailed out”. During the worst financial crisis since the great depression the credit markets completely seized up. As a result governments and central banks stepped in by opening up credit facilities and providing short-term loans. Keep in mind they have done this for years so this is nothing new. So the Canadian banks tapped these facilities by getting loans. Also the CHMC bought $69 billion in mortgages from the banks to further improve the banks liquidity position. BUT this is very different from a bailout IMO. Did any Canadian bank go under and needed to be nationalized? Did any bank receive direct capital injections from the government whereby the government became shareholders/investors in the banks, like they did in the US and Europe? NO! I’m sure you’ll disagree, but direct capital injections due to banks being insolvent is not the same as banks utilizing lending facilities (during the worst economic downturn in a century) to help improve their liquidity position. So I believe my statement that they were not bailed is accurate. So does the World Bank and numerous other organizations. – Ryan L
http://www.latimes.com/nation/politics/trailguide/la-na-trailguide-updates-hillary-clinton-on-some-donald-trump-1473519946-htmlstory.html
According to Hillary and her wallstreet ilk all of us Trump supporters are a bunch of low class great un-washed boos…..
Sorry criminal Hillary…..I would rather be a person member of the great un-washed than be one of your wallstreet dogs any day of the year.
@Brazil ex-pat, post#11
Are you suggesting that these 70% of working Canadians, living paycheque to paycheque, blame the banks for it? It would be anywhere from politically incorrect to outright heresy to suggest they share at least part of the blame.
I agree that Canadian banks are not in danger if housing market collapses, as their ultra-subprime irresponsible loans are ‘insured’ with CMHC/aka the taxpayer at no cost to them, so they reap the profit and have no risk associated with it. Privatise the profit, socialise the risk at its best. This is where the 10 billions in net quartely profits are coming from.
If not for the the CMHC ‘insurance’ their profits would be 25-30 % of that amount.
The author conveniently does not mention that Canadian banks are not yet required (Bazel 3) to have any deposit reserves and they have almost none, e.g. everything is landed. Having the idiot at BOC in their back is quite convenient. In other regulatory environment (e.g Germany, US) banks have close to 10 % deposit reserves.
We know that banks own this place but at least show some regard for the intellectual abilities of the few of us that see the whole picture, please.
At #3: Pathcontrolmonk, TD’s presence is hardly ubiquitous in the U.S. at 1.83% of total market share, especially compared to the U.S. big 3. TD has less than 1/5 of any of the big three. Also, Americans are well aware that TD is Canadian.
And forgot, to mention, despite the hefty banking fees (as the banks do not need you savings any more due to the unlimited backup by the idiots at BOC) and to the total outsourcing of their workforce,
lenders are responsible along with idiotic quasi-government bodes (e.g. CMHC) for the inflation that we witness daily (due to extreme lending which would not be possible without CMHC), to the allocation of capital to unproductive activities (e.g. FIRE sector) and to constant deterioration of our industry or whatever is left of it.
In simple words – your kids will have have the future of over educated debt slaves with crappy jobs (so no real future) due to their greed, sponsored by idiot politicians.
Truthmatters “You must have missed the memo, the banks got bailed out bigtime. Your credibility is lost, I stopped reading after that line. This blog is going downhill fast.”
See earlier response. One organizations view does not make it fact. Besides the CCPA article, can you cite another respected organization that believes the Canadian banks were bailed out? The banks utilized credit facilities to improve their liquidity but that is different than the government, using taxpayer money, making direct capital injections and becoming a shareholder. More importantly, the reason they did not need to do this is because they were not insolvent.
That aside, what about the other points I made and how numerous international organizations see the Canadian banks as the safest in the world. Does this not mean anything? Probably not, since it doesn’t align with your view or narrative. – Ryan L
One wonders how CMHC can have realistic working risk pricing models when they have no real statistical data on sales (it is owned by the real estate cartels and not available to the public).
How come nobody is asking thit questions?
Looks like the banks have a fair bit of exposure to the YVR real estate Ponzi scheme. I hope they have some debt collectors based in China because that is where they will have to go to get their money back as the YVR RE market blows up. Good luck with that.
http://www.theglobeandmail.com/real-estate/vancouver/out-of-the-shadows/article31802994/
Hey InfLewenza,I checked out the 2015 list of the worlds safest banks.
The first thing that I checked for was to see if the major Australian players were on the list ,as they seem to have similar regulations to Canada.
I guess that they also would have similar mortgage exposure as well to overpriced real estate.
The other thing that I was surprised to see was Barclays and HSBC not on the list.
What do they have going on that makes them unsafe?China? Global demand problems?
Today’s post was a little like your first ,lots of numbers and facts( the bank bailouts seems disputable)but there was no humour in today’s post.
Was the Headmaster busy…
M42BC
https://www.rabobank.com/en/images/Safest%20Banks%202015%20-%20Global%2050.pdf
Fleabitten Monkey ‘I seem to recall one of Garth’s posts way back spoke of the Insured Mortgage Purchase Program – was this not essentially a form of bail out during the 2008 financial crisis in a Canadian style. Yeah I don’t think your representation in this post is correct.”
I personally don’t view that as a bailout. First, the mortgages that were sold to the CMHC were already insured by the CMHC. So the banks could have just kept the mortgages and any that went bad would have just been covered by the CHMC. Therefore no real risk in holding them. Second, I saw that program as a tool to simply help the banks improve their liquidity rather than save them from insolvency which is what many of the US banks were on the cusp of. Did the banks get help during the worst economic downturn in a century? Yes. Was it a “bailout”? I don’t think so. – Ryan L
#27 Ryan Lewenza
__________________________________________________________
Right, so my distribution business is underwater and then someone comes along and pays full value for a pile of inventory on my shelf that I cannot get rid while I have zero in my pocket with someone else’s money I might add, and I won’t consider myself bailed out.
oh and any reason why they accepted 44 billion dollars from the American government?
Rationale that only someone who works on Bay Street could come to terms with.
Whatever.
I asked this young lady about 27 years old to attend a party with me on the 29th and she agreed as long as I got my hair cut and wore a fine suit. She is so excited and went to Holt and blew $4,500 on new clothes and told me to be at her place at a certain time. I will never understand women, but she has the money. So will take the subway or a taxi to her residence worth over $1 million and tells not to be late because she has booked a limo. Its only a 10 minute walk north and turn right, so she says limo there and back as need to make my entrance and exit in style as all will be there.
#33 Ryan Lewenza on 09.10.16 at 4:20 pm
Truthmatters “You must have missed the memo, the banks got bailed out bigtime. Your credibility is lost, I stopped reading after that line. This blog is going downhill fast.”
See earlier response. One organizations view does not make it fact. Besides the CCPA article, can you cite another respected organization that believes the Canadian banks were bailed out? The banks utilized credit facilities to improve their liquidity but that is different than the government, using taxpayer money, making direct capital injections and becoming a shareholder. More importantly, the reason they did not need to do this is because they were not insolvent.
That aside, what about the other points I made and how numerous international organizations see the Canadian banks as the safest in the world. Does this not mean anything? Probably not, since it doesn’t align with your view or narrative. – Ryan L
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Ryan,
It is hard to make a decent case on this one (the situation with the banks in 2009) so I would advice on simply ignoring the topic. Do not put your reputation on the line on this one as you may lose it.
It is quite clear I believe that:
– At that time there was large number of subprime loans, that went south.
– The lenders did not have the money nor the capital (collateral to pledge for emergency loans) to cover the losses as they were clearly under-capitalised (the amount of government help exceeded their capitalisation) and had almost no (and still do not have_ deposit reserves (note that this is still optional Bazel requirement).
– The emergency mortgage rules implemented by Jim Flaherty (40 years, 0 down) turned back some of these mortgages into ‘good’, not to mention that the government officially purchased bad mortgages from the lenders to the tune of over 100 billions (officially).
– without that help some banks might have failed (e.g our Lehman moment here)
So I would be a little more modest with praising our lenders as the ‘safest banks in the worlds’ .
If their were that, they would be taking their own risk and not relying on the taxpayer/CMHC for it without even paying premiums for it.
Precisely because we have oligopolies everywhere – banking, telecoms, insurance etc. established with the sole purpose of extracting wealth is why we are now in this unsustainable situation with deteriorating economy and very bleach outlook going forward.
We should be ashamed of these monopolies, not praising them.
During the worst financial crisis since the great depression the credit markets completely seized up. As a result governments and central banks stepped in by opening up credit facilities and providing short-term loans. Keep in mind they have done this for years so this is nothing new. So the Canadian banks tapped these facilities by getting loans. Also the CHMC bought $69 billion in mortgages from the banks to further improve the banks liquidity position. BUT this is very different from a bailout IMO.
—-
Let’t say the labor market gets into the worst position since the Great Depression and my employment income stream “completely seizes up”.
Let’s say the industry in which my company operates gets into the worst position since…. And the sales revenues completely “seizes up”.
What “credit facilities” will open up?
If the banks were completely OK, why couldn’t they just use their own reserve money? Why did they need external “credit facilities” to step in?
Who financed the cost of the “short-term loans”?
By the way, how easy is to be profitable by having access to capital at 0.5% rate and lend it at 10-18+% for credit card holders, for example?
Ryan – what sort of dividend growth guidance can we expect going forward for Canadian banks? 3-5% per year? 5-7% per year?
How is it possible that at the age when all your accounts are hooked up to Internet access, you can make payments, transfer funds, etc. there is one transaction you can not execute online: increased or additional mortgage payment. The bank requires you to email or call every single time, to make it as inconvenient as possible.
MF “First off, love-hate is accurate. While a few posters have pointed out that our banks received a quiet bail out in 2008/9, the feeling on the street of the average Canadian at the time was that we were protected and more secure.”
Thank you MF! This is was one of the key points I was trying to make. We all dislike banks a little bit, whether its the rising fees, the long wait times for a telephone banking specialists or the insane profits that they make. But I think most Canadians also feel some pride that our banks are more stable and held up much better than most during the crisis. My other key point was that they will continue to make huge profits which will allow them to navigate through the expected downturn in the Canadian housing market. – Ryan L
Looking forward to buying back some TD after the housing bubble unravels.
Wonder how those shorting home capital will make out?
Methinks Sir Lew is protesting too much but makes a good comeback to support his position. Is the glass half full or half empty says my muse.
Top 5 short positions on the TSX …
http://shortdata.ca/largest-short-positions/
I think you missed a point – handing their trash off to the CMHC.
Ryan, what is your opinion on how the big 6 will transition (bricks and mortar) to the digital age? Thousands of branches and employees in Canada where wages/benefits are higher than other countries who could provide outsourced services? What will they do with the real estate they own in small towns across the country? The newspapers detail the staff cuts they have already made (RBC slashed tellers), but costs associated with keeping doors open in unprofitable markets must be on their minds…
JSS “Ryan – what sort of dividend growth guidance can we expect going forward for Canadian banks? 3-5% per year? 5-7% per year?”
The Canadian banks have been growing their dividends pretty consistently in the high single digits for years. Given our cautious view of the housing market, Canadians being over leveraged, and the commodity outlook remaining challenged, economic growth and in turn bank profits should decelerate in the coming years. So I think we should expect dividend growth to slow in the coming years, but I still see it in the 5-7% range. – Ryan L
39 Context on 09.10.16 at 4:48 pm
I asked this young lady about 27 years old to attend a party with me on the 29th and she agreed as long as I got my hair cut and wore a fine suit. She is so excited and went to Holt and blew $4,500 on new clothes and told me to be at her place at a certain time. I will never understand women, but she has the money. So will take the subway or a taxi to her residence worth over $1 million and tells not to be late because she has booked a limo. Its only a 10 minute walk north and turn right, so she says limo there and back as need to make my entrance and exit in style as all will be there.
===
God bless her, she is creating demand for labor and sharing her wealth with others.
Many people don’t seem to realize that major financial institutions including banks are very reliant on extremely short term financing including overnight loans.
When a financial panic starts, the short term loans dry up immediately leaving banks with lots of longer term assets but no cash. The central bank steps in and lends against the assets taking a fee for making funding available. This is job one for a central bank and has been since the Bank of England pioneered the model in the 19th century. This is not a “bail-out”, just how the system is supposed to work.
Americans hated central banks so much they closed their first one and attempt to go private. The big New York banks were supposed to act as lender of last resort but would have collapsed in the financial panic of 1907. J.P. Morgan managed to organize a squeaky rescue but the financial community was frightened by the near death experience and accepted the formation of the Federal Reserve in 1913.
The new federal reserve system was built on the bones of the old private banking system which is why participating banks still own stock in the various Fed regional banks. Unless of course I am just naive and don’t realize the Illuminati engineered the whole thing to control the US financial system. I saw that on the net so it must be right.
I just read the Globe and Mail article that a few of you guys posted.(Out of the shadows)
I did not read it at first as I didn’t think I would learn anything that I hadn’t already been told or seen.
The house that is pictured is on 33rd avenue near Granville.
I drove by that house daily for the whole time the saga was going on and wondered what the deal was with it.
It is a big painted brick house with a laneway/ loft conversion looking structure beside it.
As the article stated it was on the market for a long time with both properties being sold separately.
From what I have observed since I think they were bought by the same family or group.
It was my guess that they were quite happy to have it on the market and if it went for their crazy number so be it ,but it appreciated a lot during the 3 years as did the whole Westside.
During the time it was on the market it seemed to have a lot of different realtors trying to sell it and some of the feedback must of been on the aesthetics of the house as it had multiple renovations during this time.
As I have stated on this blog before I would not be surprised if a similar thing is going on with a house on 33rd and Oak.
Don’t worry Metrosexual Messiah I will pay all my taxes this year and gladly will give you the extra for my CPP.
(The Cons and BC Liberals are no less guilty in this department)
Just like you it’s the least I can do…
Ryan, I basically laid out the same case in a post last week. That not only will the banks survive, but they’ll *thrive* in an environment of falling house prices.
Basically a sort of re-run of the 1990s when the big-5 mostly quadrupled despite the RE market falling and stagnating for most of the decade.
what sort of dividend growth guidance can we expect going forward for Canadian banks? 3-5% per year? 5-7% per year?
I’m not Ryan, but without the need to expand the balance sheets at the banks, payout ratios can continue to climb, and even exceed 100% of earnings (banks, for the past 15 years, have been only paying out between 30 and 40% of earnings typically, so there is significant retained earnings on the balance sheet which will eventually flow to the owners).
Combine such with a population that is increasingly desperate for retirement assets and dividend income (the BoC will be in no position to raise policy rates for much of the next decade), and banks should experience a rather handsome total return.
“During the worst financial crisis since the great depression the credit markets completely seized up.”
I disagree with this characterization. Credit was still available. It just came at a price that had “sticker shock” because the borrowers were insolvent. The banks wanted liquidity in their mortgage portfolios, not because they needed it, but rather, because they saw opportunities to acquire assets “on the cheap”. They threatened the government with significant increases to “retail” interest rates, ie: “Prime”, as they are legally entitled to adjust. The government, not wanting the CMHC subprime mortgage portfolio to melt down and the economy to slip into systemic collapse, extended credit against 100% guaranteed CMHC subprime mortgages rather than see them (and the rest of the CMHC portfolio of guarantees) called upon.
In doing so, the GoC/CMHC set the stage for a continuation of the housing bubble that was already well underway. Peaking in 2013, as most of us know, when Flaherty (RIP) finally cracked down at the CMHC. Stagnation ever since.
Two things to be aware of with Banks in general. The first is known as ” off balance sheet banking.” Large headaches can be hidden in there. Other posters have eluded to this already so no need to go all blue pumpkinny.
The major threat IMHO is someone inventing an “UBER” app for banking and it takes off…… goes viral…. Geo Synchronous etc.
Pretty sure Apple and Facebook and Google are all trying to get this app built.
It is game over for the banks if this app every comes to light and goes …..”wooosh.”
P.S. Ryan if you ever post a photo of you smoking a bong or something, I will buy Smoking Man’s book.
6 months ago heading to Vegas to play for a week, I walk into Rbc, been a customer since I cut my first lawn when I was 7 and deposited 3 bucks lol, I walk
In and tell the teller I want 150k bank draft made out to me(had just bought another rental with little cuz) I also ask the teller for 9999 cash, she looks stunned, I say ante up sweetheart, she walks away and next thing 3 women are starting at me, and it’s not my looks I’m one ugly son of a bitch. Teller walks over and says what’s the money order for and the cash? I ignore her and continue checking out the strip joints in Vegas on my iPhone, she asks me again and I ignore her again. Next thing I know the bank manager is standing next to me (not bad looking for a 50 year old bimbo) mr. …… What are you purchasing? What about the cash? Now I’m late to pick up the ex wife(what a body & she’s broke another story) I ask her is it your payday today and she says yes it is, I say you think I Care what your doing with ur pay cheque? Give me my cash and bank draft honey! Went and sat down and 25 mins later got the draft and no cash. I walked back up to same teller said Empty all 5 accounts and give me a draft for all of it. Couldn’t empty other 3 accounts cause in wife’s name. So now the bimbo walks back up to me and starts asking me why I’m doing that? I said please get me a water and one of those mints at the front counter. She’s back in 20 seconds lol, it was bottled to. I told the teller please leave 1 dollar in each account. Get the other draft and walk out, ex was late to her party but whatever. 5 days later I walk into kitchen wife says u got a purolator package to go pick up and u have to sign for it. Next day I go get it, I’m on the throne and open it up And what do u know Rbc has terminated me as a client, hahahaha u know what i did with the letter, only the bottom half, kept the top for proof to show the boys…. 2 weeks later wife and kids get same letter. I have nodebt so if I would of owed a pile and had fat mortgage I assume they would of kept me lol, seen the manager last month, she sure had put weight on…. True story smoky
#51 supply / demand:- You wouldn’t have TV or the internet if it weren’t for her grandfather who left her a bit of money in trust which at 21 years old had complete access to spend. She has no mortgage and a younger gal on my arm keeps me from falling.
#43 Accelerated mortgage payment on 09.10.16 at 5:25 pm
i dont know what bank you are dealing with, but mine orange one, allows me to make online: prepayment “up to”, change payment frequency, and once a year increase a payment “up to so many %”. Only thing that i cant change is, i cant decrease payment below minimum for agreed amortization.
—-
what is your bank?
Sorry Ryan, but I’m afraid you sound like a Wall Street analyst
Had an email from the [email protected] telling me changes to RBC’s Royal Managed Portfolio (RMP) coming.
After Oct 16th, higher fees will in place (currently a tiered rate scale based on $ invested).
My understanding is the minimum 1% fee, applied to the largest investors, is going to be a thing of the past come Oct 17th.
Gotta believe rest of the banksters will follow — possibly even Turner Investments et al — so may be quite prudent, at this point, to actually fear the banks.
Just like everyone else, they are after your $$$.
I do not work for a bank, and there is no increase coming. Ryan is already paid for. — Garth
This is the problem with retail investors who overweight their positions in the tsx composite/60.
It’s better known as concentration risk since our wonderful economy is a meek 4% of the world economy. Shitfest anyone?
Ryan L makes a good point. Here’s mine.
https://www.blackrock.com/ca/individual/en/products/239697/ishares-msci-world-index-etf
I’m Mr. Meeseeks, look at me!
#31 The American
I am an American too, screw the monarchists. I would guess that less than 20% of Americans know what country Toronto is in. But I digress, I was thinking of TD Ameritrade.
Invention ideas and buyer’s remorse:
– Robotic tattooing machine which can ink complex patterns better than human. Just strap arm down and let it run.
– Robotic tattooing removal machine which can de-ink complex patterns better than human. Just strap arm down and let it run.
IT’S MAGIC!
#61 espressobob:- $33 billion is parked in over 1000 class A corporate bonds now as have been looking in the US site.
#56 sounds crazier than a smoking man tale, so it must be a genuine RBC tale. Thanks for the entertainment. ‘night guys.
#43 Accelerated mortgage payment
What’s your bank?
—
Bmo
I do not work for a bank, and there is no increase coming. Ryan is already paid for. — Garth
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That is good but acknowledging the difference between liquidity and solvency is a must for a financial adviser/manager.
GDP of Los Angeles is greater than Canada…so it’s a smaller sandbox that our banks are playing in. It’s like comparing a 10 yr. pro to a decent junior hockey player..the same kinda stuff but far less real pressure to perform and compete…
Let’s get the terminology straight.
If the problem was with liquidity a loan would have been sufficient in 2009.
If the problem has to be solved by marking vs model vs. marking to market of crappy assets then it is definitely a solvency issue.
back to you Ryan,
As for the profit of the banks, the story is very simple.
If they had to borrow at market money prices/interest and take the whole risk on all the mortgages they underwrite, the lenders would have been losing money big time in the last 7-8 years.
Instead they got cheap money due to the idiotic central bank policies and were relived from the risk by CMHC which allowed them to lend additional 50-72 billions a year than unregulated/free market conditions would allow for plus to capitalise on the nice artificial spread between money borrowed and lended.
Keeping profitable low ratio loans on their books and packaging high ratio mortgages as MBS to be sold to your pension fund. Backed by CMHC, the securitization is actually encouraged by CMHC.
No lender should be allowed to make 100 k + on loan by underwriting a mortgage that he/she is not responsible for and repackaging and selling it immediately to investors. I will do it for 10 k.
So a loss is transformed into 10 billions a quarter profit.
But to brag on top of it how stable lenders are is adding insult to injury.
This is how is possible to see prices of crappy semi on Britannia road in Mississauga for 650 k+ and for a glass small noisy condo in downtown To on mortgages granted to low income (50 k annually with 2 kids are cases that I know of).
What is really certain is that the real estate market can not be allowed to tank and there for sure would be some rationalisation/management for failed mortgages as to hide the real situation from the public, don;t expect the real picture to me made public.
Ryan Lewenza, don’t you know how to use Google? Noticed how many individuals found the same story of the banks getting 114B$ CDN? Poor research. Wow
#27 Ryan Lewenza on 09.10.16 at 4:05 pm
“…..Also the CHMC bought $69 billion in mortgages from the banks to further improve the banks liquidity position. BUT this is very different from a bailout IMO…..
_________________________
sooooo…..massive intervention ≠ bailout
I feel so much better now. Ever consider changing your surname to Semantics?
No officer, I wasn’t speeding, my vehicle’s relative position to the face of the earth was altering itself at a much greater rate than the vehicles around me. I just happened to choose to enclose myself with this particular vehicle.
Canadian banks received ‘secret’ bailout in 2008, Canadian Centre for Policy Alternatives
http://business.financialpost.com/news/fp-street/did-canadian-banks-receive-a-secret-bailout
#72 Sheane Wallace:- You can bet the farm the real estate in Condo City is going to tank. It will come as an earthquake with numerous after shocks spreading into the economy like a wildfire. The crime over the last few days is escalating, but you haven’t seen nothing yet.
#29 Doug in London on 09.10.16 at 4:09 pm
@Brazil ex-pat, post#11
Are you suggesting that these 70% of working Canadians, living paycheque to paycheque, blame the banks for it? It would be anywhere from politically incorrect to outright heresy to suggest they share at least part of the blame.
+++++++++++++++++++++++++++++++++++++
Banks are NOT a private business. If they were, they would not have multiple layers of Govt licensing and oversight….yet they seem to be able to FEE the crap out of people, get 114 billion dollars in bailouts and institute super high interest rates that do not co-inside with the record low BOC interest rates. This constitutes fascism where private business/govt share the same bed.
Your right. It’s politics…..and its downright dirty and rotten to the core. Watch out…….the future is going to rout out these people.
#74 MSM-Free Zone
correct, purchase of under-performing assets at artificial non-market prices is the very definition of bailout. It should be made illegal.
As are non-colaterized loans (not covered by assets with real market value equal or above the loan given)
It is one thing to be politically correct and something very different to broadcast incorrect information from a position of authority.
Let’s show some responsibility here, OK?
I agree that banks are stable and good investment but let’s stick to the facts when justifying investments in them.
When the facts are speaking, even gods are silent.
Don’t fear the banks, don’t fear the reaper, fear the cowbell which just rang at the top.
and of course all this loans creating false sense of wealth resulting in flow of cash towards un-productive economic subjects, all these MBW s and Mercedes on lease, beer at CLBO at 2.80 (40 % of that in Europe), idiots driving sports motors dangerously on the street without police noticing, it will all come to an end when housing market stagnates. Then the fun will begin.
#44 Ryan Lewenza
I would say if you don’t like banks wait for a low stock
price and load up.Dont get mad get even.
So, if if in the first place a bank makes a loan with a
government guarantee, and then the government
makes good on the guarantee, is it a bailout?
In the second place, if the vast majority of the mortgages were still being repaid (evidence to the
contrary?), is it a bailout?
If I buy investment grade bonds, which pay a coupon, but need cash to fix my roof, and have to sell the bonds, is it a bailout?
Its 104F in Laughlin, Nevada and no joking as there is a power outage affecting numerous customers as at September 10, 2016 there and in Vegas too.
Toronto is classic example of failed Kommunist Kanada city.
Transit system is broken and beyond repair:
http://www.postcity.com/Eat-Shop-Do/Do/August-2016/Trains-at-capacity-but-condos-keep-coming/
Yet we’ve had decades of Sunshine List and Elite Party Faithful city planners running this show, taking 50% of our income in taxation and for what? Scams and graft can be only conclusion reached.
– Also I heard new Bike lanes om Bloor street have reduced it to gridlock. Just like news ones on downtown streets. All part of Agenda 21 plan to take away our right of movement. The new soon to me mandated People’s Kar will be electric and with limited range rural travel – with shared public charging stations – will become off limits. Cottages and rural area…housing will be decimated. Herded into cities.
Not kidding. The VW diesel recall over fluff showed how with the STROKE OF A PEN overnight the world’s largest car company may be brought to its knees. 1001 new laws coming to change our free way of life they hate; the devil is in the details you know.
Context, might be of interest this legendary place is being kicked out in favour of a fast food chain. Building is sold for well over 5.5m: Gentry, fie,
I went only once and was sufficiently frightened by its edgy crowd, gritty nave and friendly owners (J & D) to have fondly remembered it all.
http://www.thehideouttoronto.com/venue.html
There are some very inaccurate statements being presented as truth today. Just because your angry doesn’t make it real.
I’m up almost 15% this year on my all bank portfolio and in a bad year I make $43,250 in dividends. Invest tomorrow in something you have confidence in. The world is not coming to an end. LIFE IS GOOD!
“Unlike many of their US and European peers, the Canadian banks did not need to be bailed out by the government during the financial crisis due to bad loans and being over leveraged.”
Really Ryan, no bailout? I suppose if you are relying on semantics…
So when CMHC bought 69 billion in mortgages from the lenders during the financial crisis, to free-up some capital since they were frozen, that wasn’t a bailout? Do you really think that if CMHC came to the lenders with 69 billion to buy mortgages, that the lenders would sell their best performing products? Of course not, they would sell their worst mortgages.
http://www.huffingtonpost.ca/2012/04/30/canada-bank-bailout_n_1466219.html
You are probably right that the banks will not fail, and will not get a bailout. Because when a Canadian bank gets in trouble and becomes capital impaired, there will be a bail-in. This is what people with significant savings should worry about, but then again, if you lend your money to the banks via deposits for 0.05% then you are the sucker anyway.
I think that Garth should apply his “DELETED” sticker for this Ryan’s blog
#24 Ron on 09.10.16 at 3:56 pm
A Reminder On Leverage=FEAR THE BANKS
So 25 basis points (which is now “anticipated”) is good for a ~300 point DOW selloff?
.
.
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Ron, you quoted Karl Denninger’s post verbatim without even an acknowledgement?
@#49 the Jaguar
Re: banks being able to keep staffing up
A few points.
I am starting a new job as a telephone banking specialist. It’s 10 weeks of full-time training. I really question how well trained an “outsourced option” would be. The ABSOLUTE NUMBER ONE priority for banks is to ensure their customers feel SAFE putting their money with them. (This is why credit card fraud is quietly taken care of by the banks extremely quickly.) Calling a banking rep that doesn’t know their stuff won’t cut it.
As for keeping physical branches open, I do recall reading somewhere that the banks increase sales of mutual funds, TFSA’s, etc, by having tellers available to people off the street who have some money for this kind of thing. But having said that, my small city has seen 2 of the banks close 1 out of the 2 branches they each had in town.
When banks stopped using deposits to back loans they lost their usefulness to society and became a regulated oligopoly of parasites.
#73 Farris Sabbagh
From what Ryan’s responses today have been it seems clear why he need to look up that article. Looks like he had already done his research and doesn’t view the findings of the article in the same way many seem to. If you read the responses it’s easy to see.
* why he didn’t need to look up that article
I suspect the survey of Canadian finances might be masking the problem – thus reality might be considerably worse than the survey results. Reasons:
1) self-reporting rather than objective analysis, always risky; people lie, deny, exaggerate, underplay
2) those reporting spending greater than 100% of their paycheque may be an even higher percentage; people who don’t track their spending may not be aware that they are spending more than they earn
3) not to dwell on the point but how well does this survey capture people with impaired finances who are oblivious to their situation?
I’m not sure the level of personal balance sheet impairment is fully captured by these surveys which brings us back to the banks…
I agree with the premise that the banks are built to whether any storm however this doesn’t necessarily mean they won’t be touched vis a vis share price. I can see bank shares dropping significantly in fear of an earnings disaster.
I just don’t see the earnings disaster actually panning out. Certainly revenue may drop, maybe even significantly as banks start tightening on HELOCs, credit cards etc. However they will cut expenses rather quickly as they have never been shy about layoffs and their operations have become increasingly automated.
So short term bets against bank stocks may pan out quite nicely for those inclined to gamble and a decent entry point to buy more dividend churning shares for those inclined to invest.
Many posters have mentioned the “assistance” the banks received during TGR so I won’t belabor the point, but would add a couple observations.
Arguing whether the gov’t support was “a liquidity injection” or a “bailout” is a mental exercise best left to people who actually get paid to reach those conclusions…if I need money to keep my business afloat the difference (if any) is moot, period.
Secondly, there’s not much social utility in placing a “middleman” between the guarantor of a loan (CMHC) and the recipient of that loan; especially when the potential profit only seems to concentrate with the middleman…and all the risk is borne by the underwriter and homeowner. Think it works this way with BDC loans as well.
(I noticed in one of those charts that mention was made of the rebound of bank profits fairly quickly after the recession of the early 90’s…I seem to remember Canada’s interest rates being just a tad bit higher – haha – than the USA, or just about anywhere else in the western world. Good management, indeed!)
Bottom line is that despite bad economic times or bad judgement or bad management the Big 6 have continued to thrive. I’m unsure that simple fact is something Canadians should be “proud” of.
Their social histories are what most Canucks will remember, not their financial ones.
Mr.lew.
How much of your portfolio is invested in bank shares?
By the way, you are boring as hell.
And your lucky that Garth deletes most of the negative comments.
I have no love/hate relation with the banks.
I just hate them.
Jesus, I ovet stayed my welcome on crap table here in Laughlin California. 32 minute roll my dogs. I’m drinking jack on the rocks and I can still spell. Ha. I’ve had about 10 doubles. I’m real writer now. I can’t even read my post or dugs words I only see the headers.banks or something like that.I’ll read it in the morning. Ad my 2 cents.
It’s only 10:30 here and I have no idea where the room is nor do I care..
The night is young. On the flight over today. I had the muddle seat wife has the window. Complete asshole in the isal seat…wife sends me to the window seat, experience I’m thinking.. she didn’t want us to get kicked off the plane. Smart move.
60 year old pervert, grey haired pony tail. He’s staying here. Let’s hope we don’t cross paths epically if we’re into the jack.
“#10 Context on 09.10.16 at 3:05 pm
I remember the day that a Board Member came to see me in 1981 who was a sitting member on the Toronto Municipal Pension Fund as needed my investment advice. He said guess what we did as they went all in on the big 6 at about $10.00 per share.”
What nonsense as no pension fund ever went to some fool asking for advice as it would be as suicide. No pension fund anywhere ever went all in on any one asset class again suicide. Who the hell are you trying to impress with these lies?
Then let us add this bullshit comment
“#83 Context on 09.10.16 at 10:19 pm
Its 104F in Laughlin, Nevada and no joking as there is a power outage affecting numerous customers as at September 10, 2016 there and in Vegas too.”
And I rest my case that Context and Smoking Douchebag are one in the same idiot as talking same nonsense as everyone else is not as stupid as him. Maybe he just forgot that the Smoking Asswipe character was going to Nevada while the Context character continued to dissect the Toronto condo market without any apparent point, reason, purpose or any basis in reality.
Jesus Christ get a life or at least some mental health assistance. Take Mark with you if you can get him out of his Mom’s basement.
Man some of you people lead rich fantasy lives. The ones who either believe or go along with their bullshit may be worse.
Just like the get to know you post most recently, very much like the last time, over 900 comments, wow records broken. 99% of respondents make vastly in excess of what statistics show. What did Garth say less than three hundred true 1%ers and a third of them read a blog that advises them what to do with their money and real estate. Completely believable by a four year old.
So many of you posting here are so full of shit I wonder what you’re (yeah that’s how you spell that not your and I hear what you are saying is not here, their is not there) yet to you self proclaimed wealthy posters this is your (note the correct use of your) use of the English language. Now possibly for some of you English is not your first language and therefore one can understand some faux paus but so many of you have made it clear that this is not your situation which makes one question how you could be so successful as you claim while being so illiterate. I know it’s been done but not in the numbers represented by the claims posted here.
I left school way to young and to soon for a combination of reasons and I’m not nearly as stupid as some of you people who brag about high learning and earnings reveal yourselves to be in these braggadocios posts. You aren’t even smart enough to avail yourselves of the provided spellcheck feature.
Christ I’ll stick to my paper routes and great little spot under the bridge instead of being involved with you idiots on a day to day basis.
#83 Context on 09.10.16 at 10:19 pm
Its 104F in Laughlin, Nevada and no joking as there is a power outage affecting numerous customers as at September 10, 2016 there and in Vegas too.
……..
The only powet out here is my metal GPS. Androids don’t know where the room is. You would think someone , a geek would anticipated a drunk in a casino trying to find the room.
Do I need to build it in vba.
-In the uninsured loans category, 24% of total loans had loan-to-income ratios of over 450%, compared to only 19% in 2014.
-54% of Royal Bank’s domestic residential mortgages are uninsured with an average loan-to-value ratio of 70% for newly originated mortgages in 2016.
-These mortgages could withstand a 30% decline in housing values before Royal Bank wouldn’t be able to recover the full value of the loan by selling the underlying property.
-Royal Bank has the highest exposure to uninsured mortgages and HELOCs in Ontario and British Columbia, currently Royal Bank has 20.7% of total loans as mortgages and HELOCs to these regions.
And I quote:
“In the early 1990s the Toronto housing market endured a significant downturn, with prices declining roughly 40% in inflation adjusted terms from 1989 to 1996.”
_____________________________________
Well Ryan, we will just have to wait to see what happens to RBC if history repeats itself at 40%.
Forgot to conclude:
No CMHC to rescue Royal Bank with uninsured mortgages going underwater.
#39 Context
Sounds like you are her arm candy. Think about charging a fee for your escort services. This woman is just using you.
For myself, I never phone women, and I tell them so. I simply give them my #. When they call me, I ask them to take me out. They love it, whether they take me out or not. My life, my rules. Perception and attitude.
Yes. I love the Banks. I have paid 0 fees for decades. I own 2 Financials preferred’s ETF’s. Dividends between 5% & 6% plus capital gains. If they drop in price again, I will buy more. I love to balance & re-balance. Keeps my Financial stress level at 0. As it should be. Life need not be a Burden. Unless you like it that way.
My life, my rules. As always, my Freedom First.
http://www.uncoverdiscover.com/humour/most-hated-professions/bankers/
Bankers – number one most HATED profession in the world.
Garth, you have to admit Kathy Tomlinson’s “Out of the Shadows” Globe & Mail article must even give you some pause about tax evading YVR RE foreign investors.
Thank you #22 Frank! You are your ever prescient self.
After reading that article, livid is an understatement.
I am stupefied at CRAs lack of action and T2s selfie-genic response, more pearly whites and no more than that. CRA good at chasing after the poor, bad at chasing after the criminal rich.
PRC using BC Supreme court to prosecute these people and doing the CRAs job for them. Where is our Government/CRA in all this?
If you believe in free play (and do not fear being audited), tweet how you feel at CRAs twitter site, @CanRevAgency, and let them know as I did how livid you are. While you’re at it, take a good swipe at Hon. Diane Lebouthillier, Minister of National Revenue and remind her that:
deeds and actions speak louder than words…
Garth, I am p***ed beyond words at this and it seems from the article to be the tip of the iceberg.
#51 supply/demand
39 Context on 09.10.16 at 4:48 pm
I asked this young lady about 27 years old to attend a party with me on the 29th and she agreed as long as I got my hair cut and wore a fine suit. She is so excited and went to Holt and blew $4,500 on new clothes and told me to be at her place at a certain time. I will never understand women, but she has the money. So will take the subway or a taxi to her residence worth over $1 million and tells not to be late because she has booked a limo. Its only a 10 minute walk north and turn right, so she says limo there and back as need to make my entrance and exit in style as all will be there.
===
God bless her, she is creating demand for labor and sharing her wealth with others.
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An example of “trickle down” economics at its finest!!
A = L + E
If A drops by $60 B, so must L + E; therefore, Book Value goes down; otherwise, Amatino Manucci rolling in his grave.
I/S:
If non-performing mortgage income, then Revenue down, but Expenses down as well.
Acid Test Ratio where A/R down and Current Liabilities down by same amount (A = L + E). Marketable Securities impact = 0 as by virtue they are non-performing securities; thus, not marketable.
Cash and Cash Equivalent impact probably lower as to offset Book Value decrease, more Dividends are paid to maintain/increase share value; otherwise, Acid Ratio decreases (recall, Acid Ratio a measure of liquidity).
So, tell me again, how did the Bank to CMHC $60B asset transfer increase liquidity with money shovelled out the door in dividends to main/increase share value?
It was a bailout, plain and simple.
No liquidity argument.
Simple transfer of non-performing assets/liabilities to CMHC. I will grant you that loan losses decrease and no write-offs; hence, I/S Net Income up but admin. expenses to service each of those loan decisions high (i.e., many people and many man hours involved in the decisions, not just cheap software), enough to wipe out losses?
Labour not cheap nowadays…even at a bank.
Thinking inside the box – the central banks buy stock to prop the value….so therefore to avert a crash the central banks will now commence to purchase residential real estate – to prop value.
They will bundle it in to REIT’s and Ryan will recommend it highly as an excellent place to send our funds to play.
Whoops, that is already what is going on. Bingo!
1) the country’s stringent regulatory regime; ha ha ha
Come on sir, you must be smoking some really good stuff in your office at Scotia Tower !!!
Allen Stanford’s house of cards: How TD banked the 2nd-largest Ponzi scheme in U.S. history
http://globalnews.ca/news/2485811/allen-stanfords-house-of-cards-how-td-banked-the-2nd-largest-ponzi-scheme-in-u-s-history/
I really have some very good experience on what happened there, I used to work in a department at this bank that was processing payments from Stanford. Every single Canadian law related to money laundering was violated when it came to payments from Stanford. People who questioned this were laughed at by the management. Audits were a complete joke, I always wondered how they were able to do this. I still work in the financial services industry and I know these are the biggest criminals who prey upon the poor Canadians.
#56 No Debt
Can’t believe I had the same experience last week, with much less money thou. My husband and I bank at two of the big banks, so I write a cheque from one to the other for $5,000.. Teller asked me what are you going to be doing with this money? I kid you not! Shocked and surprised I looked at him and said are you actually asking me how I’m going to spend my money? Somebody in line behind me started laughing. Been with this bank for over thirty years, not much longer thou.
Accounting 101 “So, tell me again, how did the Bank to CMHC $60B asset transfer increase liquidity with money shovelled out the door in dividends to main/increase share value? It was a bailout, plain and simple.”
The loans were already CMHC insured so the loans were guaranteed. Therefore if they went bad the CMHC would have had to cover them. Therefore no real risk. When you exchange mortgages for government bonds then that’s exchanging illiquid securities for the most liquid securities in the world. Hence my view that it was more of a liquidity transaction. Everyone keeps saying the loans were bad so they needed to be bailed out of them. How would anyone know that? And follow up reports to the mortgage loan purchases showed the CMHC made money on the deal, proof that the mortgages were not all bad. – Ryan L
Farris Sabbagh “Ryan Lewenza, don’t you know how to use Google? Noticed how many individuals found the same story of the banks getting 114B$ CDN? Poor research. Wow”
As I’ve said, this CCPA paper is one’s person/organization view. I disagree with their assessment that this was a “bailout”. Here is the definition of a bailout by Investopedia “A bailout is a situation in which a business, an individual or a government offers money to a failing business to prevent the consequences that arise from the business’s downfall.” Were the banks failing? They were under stress but far from failing. I don’t view exchanging one asset for a more liquid asset as a bailout. Neither does the World Bank, the Conservative government at the time, and almost all other institutions. – Ryan L
#60 Julie K. on 09.10.16 at 7:51 pm
…After Oct 16th, higher fees will in place (currently a tiered rate scale based on $ invested).
___________________________
Educate yourself about ETF’s and open a direct investing account with the same blue guys. Start slowly and eventually move everything across. ETF’s fees continue to drop due to competition and outperform [email protected] as a result.
The Jaguar “Ryan, what is your opinion on how the big 6 will transition (bricks and mortar) to the digital age?”
Financial technology (Fin Tech) is definitely a risk to the banks. This is things like Apple Pay and Robo Advisors. They have acknowledged this and are trying to incorporate and/or fend off this threat. I don’t see it as a big risk since people will still need to get a mortgage/line of credit, buy insurance, have someone invest their money etc. As much as people dislike banks, they still need them so I don’t believe Fin Tech will have a huge impact on the banks and their profitability. Just may change how they do business. – Ryan L
Number 16 Alex Greene
I find it interesting that Canadians hold the perception that are banks were on sure footing relative to their global peers, especially when compared to US banks during the subprime fiasco.
Canadian banks balance sheet leverage was nominally superior to US banks, this fact alone did not ensure the requisite liquidity required to brave through the “Great Recession”
It was our regulators who greased the wheel through CHMC allowing the banks to shore up their respective balance sheets and avert contagion.
In the moderate to recent past the same regulators have been active in capping and restricting through regulatory changes the risk assigned. The banks are clearly shouldering more risk today than ever before.
The world is the currently de-globalizing, liabilities are excessive, rates of return suspect in this once in five millennia negative yield experiment. Algorithmic, repeatable labour displacement is accelerating, tech disrupting business models in all sectors. All in the path of negative demographics.
Bank risk is not adequately reflected in current share price.
#55 conan on 09.10.16 at 6:32 pm
Pretty sure Apple and Facebook and Google are all trying to get this app built.
===========
Collaboration works too:
http://www.cbc.ca/beta/news/business/apple-pay-canada-banks-1.3574907
As customers, banks will always rape us coming and going.
They are the legalized mafia in Canada.
So, if ya can’t beat ’em, join ’em!
Invest in banks. No matter what the economic climate, the customers will always lose while the share holders win.
If that means a government “bailout” in a time of need, so be it. It will come out of the taxpayer’s pockets. You may as well own a piece of the banks to offset the pain, if and when (unlikely) it happens again.
In the meantime, join the bankster criminal mafia cosa nostra cartel by buying bank shares in one form or another!
In the long run, it’s better to be on the winning side. At least you’ll get kissed while being effed.
#100 Smoking Man on 09.11.16 at 1:58 am
#83 Context on 09.10.16 at 10:19 pm
Its 104F in Laughlin, Nevada and no joking as there is a power outage affecting numerous customers as at September 10, 2016 there and in Vegas too.
……..
The only powet out here is my metal GPS. Androids don’t know where the room is. You would think someone , a geek would anticipated a drunk in a casino trying to find the room.
Do I need to build it in vba.
..
The smoking man groupies seem to be spawning… must be something in the sewage water!
#99 Dispatches from Under the Bridge on 09.11.16 at 1:48 am
“I left school way to young and to soon”
*too
shadow banking what has changed?
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr458_July_2010_version.pdf
#11 Brazil ex-pat on 09.10.16 at 3:05 pm
“I think I speak for “most” Canadians that when banks are raking in “record” profits at a time when 70% of “working taxpaying” Canadians are living paycheck to paycheck “LOVE the banks” is beyond laughable.”
You absolutely speak for me.
Let’s see….we deposit OUR hard-earned cash with them and they charge US, mightily, to redeploy it and rake in huge multiples of the pathetic rates they pay out…….
Let’s have a look at the lunch menu of “products” and “services” on offer:
– chequing: fees
– account: fees
– purchase debit: fees
– recurring bill: fees
– bank draft: fees
….the list goes on to foie gras production levels. So, I definitely do not “love” banks, even though I pay ZERO in fees. I had the good sense to preserve an account from the 80s which was then a “special deal” but no longer exists. The way I use it, I estimate that I save at least $40 a month – at least. That’s a minimum $650 a year after grossing up for income tax paid to obtain that spend (I gross up ALL expenditures that way. I have to suppress the gag reflex at the obscenity of most pricing today). Annualize that one at say, 20,000,000 Canadian bank accounts. Grotesque.
Strikes me that anyone putting money into banks ought to be issued bonus bank stock based upon deposit amount. Depositors are, after all, unequivocally supporting their profit motive at a huge cost to them.
Canada was a rock under PM Harper, we have become an island under Juice Box Justin, an island adrift , detached from reality. How long does anyone think we can create civil servants and drop helicopter money to bribe desperate families with borrowed money to fool the media into printing lies about an economy that is in free fall?
One observation: while banks accumulate record profits, leftist nations accumulate record deficits and accumulate very concerning debts.
Going forward this -as well- will not end well.
Thoughts?
http://thediplomat.com/2015/11/the-rise-and-fall-of-shadow-banking-in-china/
I’ve ditched my B&M bank (TD) and now go exclusively through the orange guys. Absolutely perfect and couldn’t be happier.
TD were comical in a number of ways, but the pinnacle was when I deposited a certified cheque for $60k (proceeds of a condo sale).
“There’ll be a five-day hold”
“Why? It’s certified, the funds were there”
“We can’t tell if it will be fraudulent”
“You’re TD. The cheque was drawn from another TD account. You have every way of checking”
“Five days”
“I don’t *feel* this was a bailout…”
“Canadians *feel* their banks are secure…”
“International organizations *view* our banks…”
I thought we were talking about investing where emotions and feelings should be put aside?.. Only the cold hard facts matter.
The fact that the author failed to even mention a *massive* injection of capital ($100B+) by the federal govt during 2008-09 crisis is disappointing to say the least. Whether or he *feels* it was a bailout is beside the point.
73 Farris – I can use google! I enetered “Insured Mortgage Purchase program” and got this
http://www.lop.parl.gc.ca/Content/LOP/ResearchPublications/prb0856-e.htm
Seems to back many of Ryan’s key points
#124 The Nature Boy on 09.11.16 at 9:16 am
you just have to look what poor countris and desperate
people do, that will give you worst case scenario.
But most likely it will be more like former eastern block komunist countris, or thise from latin america, or thise that we call developing countris, coruptions, crime and poverty.
every so often it feels like ive seen this already…
Local lawyer alleges “billions of dollars” of bank fraud proceeds are invested in BC real estate. More than just a few suitcases of cash. It will be interesting to see the banks in Canada fight it out with the banks from China when these houses are liquidated by the courts. How many houses does “billions” plus the standard 65% mortgage with no proof of income buy?
http://www.timescolonist.com/business/chinese-companies-want-courts-to-seize-b-c-properties-1.2340761#sthash.kJ3QPfk4.dpuf
Although I agree strongly with what you wrote, I disagree with this statement – “4) as already mentioned, they (banks) did not require a government bailout.”
The Canadian government actually bought a lot of mortgages from the banks during the GFC to relieve their stress – read “The Real Canadian Bank Bailout” http://www.macleans.ca/economy/business/the-real-canadian-bank-bailout/
Excellent post Ryan. Concise and articulate ( professional) responses to the challenges…
#123 S Coffin on 09.11.16 at 9:15 am
“Canada was a rock under PM Harper.”
Rock = Fools Gold?
#113 Ryan: Exchanging one asset for another by definition is a capital disposition.
Hillary Clinton gets out of the race for election.
#126 Ray Skunk: I have received some rather large checks of 6 figures from the USA with a 30 day hold and I rolled the proceeds into a 30 day term deposit. Furthermore, never let a clerk do an exchange rate from a posting but get a senior in the bank phone the main office for a higher fix of exchange rate based on the size before deposit.
I want to thank you for your financial advice and insight, Ryan. When I read some of the responses I’m not sure why you would want to try and help some of these people. I for one appreciate any advise whether I agree or disagree. Apparently by their own admission, most of Canada’s HNW individuals reside here and don’t need your insights. Good on you for being able to block out all that background babble and still give good advice. I hope you keep them coming, there are more than a few of us who enjoy reading it.
#14 Barb on 09.10.16 at 3:15 pm
“…with the word “Dominion” in it?
That’s hilarious.”
It lost nearly all of our business as it attempted to “dominion” us with excessively low rates. :-)))
#115 Ryan
Thanks and agree Fin Tech companies are a new challenge, but my reference was less about the competition coming their way and more specifically about what they do with their branch network when transactions will be completed digitally (applying for that mortgage, signing the documents, etc will all be done ‘one line’), and if they need to have a face to face with another human they can ‘Skype in’ with a representative from India. How do they divest themselves of the branches without appearing wholly disloyal to Canadian communities?
Here is a little support in Ryan’s hypothesis as am looking where the money is parked in the USA with Black Rock. There is about $33 billion parked in 1604 holdings of investment grade corporate bonds with an expense ratio of .15% throwing off a juicy yield. Now 27.08% is invested in the banks so that is telling me something.
You guys doing amazing, deep analysis, e.g “no bailout”.
Taxi business was even bigger oligopoly across Canuckistan cities. As well as hotels, phone landlines, wireless, insurance and many, many other businesses in Canada.
We all know what’s going to happen to those juicy businesses over time.
What’s not clear to me, how those Canadian banks are able to survive in the US. I was banking with TD in US for a year and boy their service sucks. They can’t even send you emails with the account updates, the most basic functionality everybody else had already. They have large fees. The are not friendly nor flexible.
Canada had never had a banking crisis throughout its history. They are relaxed, capitalized and were cutting costs through fierce outsourcing of workforce to India last 10 years.
The software going to eat them.
Canada was a rock under PM Harper.
it’s been transmuted into an anchor
Pretty difficult to beat an oligopoly
Wanna be rich? Buy Canadian bank stock and wake up in retirement
#141 No Canada, No
Canada had never had a banking crisis throughout its history. They are relaxed, capitalized and were cutting costs through fierce outsourcing of workforce to India last 10 years.
The software going to eat them.
===
Most definitely.
Just check out their trading software, way behind their US counterpart.
Their innovation is that Canadians can not have RRSP or TFSA account handled by the Canadian banking oligarch.
TD Waterhouse acquired a great trading software, Think or Swim, TD still has not managed to release it to Canadian investors with registered accounts.
#141 No Canada, No:- So you have been banking with the TD in the states and the service sucks. Those banks hire American men and women so what can you expect as its no surprise. In Canada our men and women are educated and trained for service with a smile at the TD banks. The young women are beautiful and you can’t have them and the men are clean cut and handsome; all educated and trained to perfection for customer service.
Great post Ryan! The Blog Dogs were all over you with the Canadian bank bailout comments…….heel boys heel…..you survived their attacks with many great comeback comment posts!
I’m on board with the fact that the Canadian banks did not get bailed out with the 08/09 crisis. However, they did tap into liquidity pools of capital during that time, off-loaded some other risk assets to CMHC, laid off many employees and benefitted from accounting rule changes that lowered their risk exposure. All inclusive……..these changes kept our Canadian banking system solvent and not requiring a direct Federal bailout. We did not go into the abyss requiring billions in bailout cash like the US banks received to remain solvent.
It would be a hoot if one Google Earthed Laughlin and they had just updated their images, allowing you to zoom behind a dumpster behind a casino and below a visible puff of smoke could be seen, this site’s Smoking man getting an STD from a crouching person doing what Freedom First tries to do to himself when ever he is not busy posting here !
Hillary Clinton is finished:
https://www.youtube.com/watch?v=vRHf7cgtMeU
https://www.youtube.com/watch?v=1FfxU3JyNpQ
Let’s see how the markets react…
#147 F.dover:- The Smoking Man will be out of action poolside in a few hours as he’s too old and out of shape to be girly watching the bikini clad youth so no photos to display on his site. The modest temperature will be 106 F so he will be suffering in some room with air conditioning and cussing the kids for pushing all the buttons on the elevators for him.
Oh yeah, she’s definitely finished:
https://vid.me/UjS5
#122 maxx on 09.11.16 at 9:13 am
PCF has no fees.
#129 NoName on 09.11.16 at 11:29 am
#124 The Nature Boy on 09.11.16 at 9:16 am
you just have to look what poor countris and desperate
people do, that will give you worst case scenario.
But most likely it will be more like former eastern block komunist countris, or thise from latin america, or thise that we call developing countris, coruptions, crime and poverty.
every so often it feels like ive seen this already…
——————
You know I was referring to western countries, yes?
Adepts of the toxic modern liberalism such as France or Canada for example…
“My sources indicate there will be increased international pressure for BC and Can to live up to anti money laundering commitments stay tuned.” – Sam Cooper
https://twitter.com/scoopercooper/status/775009149805395968
Ryan, when over 100 billion dollars was given/extended to Canadian banks during the Great Financial Crisis, saying it wasn’t a bailout is splitting hairs. What was important was our government intervened when things got dicey. And it was a good thing, not a bad thing.
Lehman Brothers being allowed to go under hurt a lot of Americans. Anyone who had their life savings with that entity was whomped. Few were crazy enough to only have a maximum of the FDIC-covered $100,000 in any one bank.
It’s vastly reassuring that the Canadian authorities are not willing to allow one of the big six to go under. But I question if the Canadian authorities now have the resources to intervene in a similar situation. Debts and deficits are at all time highs. Taxes are at all time highs. Where are fiscal resources for a rescue going to come from?
Too many levels of government now rely upon revenues generated by real estate. If real estate sustains a hit over several years, and the current Canadian mindset of Yay-House changes to Yay-Rent, government debt loads combined with a lack of revenue will ensure no Canadian authority can do anything about one of the big six going under. That is my fear.
It is also the reason why I got my mother to get most of her $$$ out of the local credit union and into a big six. If things get dicey in Ontario, the credit unions will get hit before the big six will. Ontario’s debt load is far too high for Ontario to be able to bail the credit unions out IF things in Ontario get that bad.
Smoking Man they have a Southside Johnny’s Bar and Grill clone at the Riverside Resort Hotel and Casino called the Losers’ Nightclub Lounge. You need to extend your stay to sign up for beer pong tournament on Tuesday night for the $5.00 pitchers and win the cash prize. After your win you can celebrate at the Bourbon Cellar with jacks going for just $3.00. You have no worries about getting back as just call up one of your fliers.
Interesting url: http://www.globalrichlist.com/
A better question when deciding whether or not to invest in Canadian banks is:
“Will an investment in the Canadian banks beat the S&P500 index over time?”
I think the answer to this question is a resounding “No”.
Why take the risk? Just buy an ultra low cost S&P500 ETF (ie. VFV in $CAD or VOO in $US) for the equity portion of your portfolio and rebalance when appropriate with the non equity portion of your portfolio.
It’s like Warren Buffett said, “An investment of 90% in a low cost S&P500 ETF and 10% short term govt bonds is a great strategy for the vast majority of investors.”.
There is no reason to do anything other than this over the long term. Why take additional risk for potentially LOWER returns? This just doesn’t make sense to me.
#150 When Will They Raise Rates?
Oh yeah, she’s definitely finished:
https://vid.me/UjS5
====
I wish her the best.
I am sure her double is ready to deploy at any time.
#24 Ron on 09.10.16 at 3:56 pm
Excellent post. Trouble is, much of the increase in market, re and commodity valuations is what is largely considered “progress”.
Allowing the proverbial elephant to sit on interest rates for this long has damaged economies more than most realize – everybody, government included, is being squeezed – and devotees of the Greenspan Put will certainly not disabuse the public of this mangled notion of “progress”.
Even whilst enduring quality of life, job prospects and future optimism all erode, many still can’t or won’t internalize what’s been happening, believing instead that re always goes up and that daddy government always has their backs.
#32 Sheane Wallace on 09.10.16 at 4:18 pm
“…..your kids will have have the future of over educated debt slaves with crappy jobs (so no real future) due to their greed, sponsored by idiot politicians.”
From my current perspective, you are so on the money. The future holds continued and seriously profitable opportunities in pharmaceutical, fermented and cultivated sedatives should this economic formula persist…….profits emanating mainly from sources with some line of income.
I can’t begin to imagine what life on the edges will be like, or its impact on society at large.
The base metals and Canadian banks look like the best short sales out there.
#6 pathcontrolmonk on 09.10.16 at 2:51 pm
“Anagram fun fact:
Garth Turner = Truth Ranger
Ryan Lewenza = New Analyzer”
LOL!!! This is the kind of evidence some university professors use to prove the non existence of certain people from history. The will be a Zeitgeist movie dedicated the the non existence of Garth and his great investment house in about a hundred years or so..
Thank you for explanation. A/L transfer.
If only we could all do that when times get better, but hey, they have our money so maybe not such a bad thing.
Take care Ryan. Got the explanation I wanted.
I like Canadian bank stocks. They have been good to me.
A number of years ago I moved all of our investments away from the bank. I was supposedly one of their higher value investment clients. We got high fees and junior advisors. So, moved the investments and all interest bearing cash to other institutions. Use a different credit card for foreign transactions to avoid the 2.5 percent fee. Do the same for foreign ATM withdrawals. All we have now is a free over 60 account and a safe deposit box.
But I hope all those complacent bank customers continue to pay high fees and/or get low interest rates. It helps the performance of our bank stock.
“Unlike many of their US and European peers, the Canadian banks did not need to be bailed out by the government during the financial crisis due to bad loans and being overleveraged. ”
I stopped reading your post once I saw that. Guess you never got the memo on that one.
I didn¨t participate in the poll, but here is what I have suspected all along. HAM working through Canadian banks is fuelling the price wars in Vancouver:
http://www.theglobeandmail.com/real-estate/vancouver/out-of-the-shadows/article31802994/