Canadian Banks Set Aside More Money for Bad Loans

[00:00:00] Welcome back to the Canadian Investor podcast. We're back for a Thursday episode mostly

[00:00:20] earning some news today. I'm here with Dan Kent. Dan, how are you doing?

[00:00:25] Are you excited to go over mostly banks, I guess, today?

[00:00:28] Yeah, pretty much all banks, a little bit of Bitcoin.

[00:00:31] I had to adjust my stop loss again.

[00:00:35] I think that's like five trading days straight.

[00:00:38] But it's taken a bit of a tumble now

[00:00:41] over the last like 10 minutes.

[00:00:43] Yeah, I might actually hit that stop limit this morning.

[00:00:47] Yeah, do you want to explain to people that may be new to investing what a stop loss is?

[00:00:52] Yeah, so pretty much it, when you have a holding, you can set a particular stop price, they call

[00:01:00] it, which is once it hits that stop price, it will trigger an order for

[00:01:06] you to sell a particular amount.

[00:01:08] So I don't believe we can do you can have a stop, just a dead stop where after it hits

[00:01:15] it triggers a market order and we'll just sell at whatever price.

[00:01:18] But I think here we have to put stop limits in, at least.

[00:01:23] So if you own a $40 stock and wanna sell it

[00:01:26] when it drops 10%, you would put your stop in at 36

[00:01:30] and then you would put a limit price in that says,

[00:01:33] you know, I wanna sell at 36,

[00:01:35] but I'm not willing to take less than 35.50

[00:01:38] or something like that.

[00:01:39] And then it'll execute the order.

[00:01:42] And depending on your brokerage,

[00:01:44] you can actually do a trailing stop

[00:01:46] where it'll automatically adjust.

[00:01:49] So if you say, oh, I want to sell it when it dips 10%,

[00:01:53] but then it goes up to $50,

[00:01:55] it'll automatically adjust and hit that stop

[00:01:58] when it goes to 45.

[00:02:00] With a brokerage like, well simple,

[00:02:02] they don't have those orders.

[00:02:04] I actually don't even think RBC has them either, which is kind of surprising, but some brokerages won't have that trailing stop,

[00:02:10] but it's just a good way to protect profits. Bitcoin is almost double digits in my portfolio

[00:02:17] now, so I just don't want to leave that fully exposed because it can drop so much so quickly.

[00:02:23] I mean, even discussing this, it's dropped.

[00:02:26] I don't know, it's got to be close to six or seven percent now.

[00:02:29] Yeah, I think so.

[00:02:31] I mean, we might as well talk about Bitcoin and the all-time highs.

[00:02:34] So, yeah, like you were saying, I mean, it's just been ripping recently,

[00:02:38] and it hits all-time high against several major currencies.

[00:02:43] It just went shy of hitting the US all time high.

[00:02:46] I guess it depends on which exchange you're looking at because the price of Bitcoin will

[00:02:52] depend. Sometimes there's going to be some little variances depending on which exchange it's being

[00:02:57] traded on. So I think I've seen some people saying that it hit it. I mean, regardless, it came very close or just kind

[00:03:05] of touched it very briefly for a US dollar US-denominated currency. Now, obviously, we

[00:03:12] don't talk too much about the price of Bitcoin. We do talk about Bitcoin here and there. I've

[00:03:17] owned it since early 2018. I believe in what Bitcoin is and the network. I understand it

[00:03:24] pretty well. I'm not an expert

[00:03:26] I would say there's some people that understand it way better than I do especially those who are developing on top of the

[00:03:32] Bitcoin layer the L1 layer

[00:03:34] However, I mean it has it's pretty no

[00:03:38] Noticable that it has hit all-time highs compared to the Canadian dollar the euro Euro, the Japanese yen, the Chinese yuan, the Indian

[00:03:45] rupee and the British pounds, amongst other major currencies. So it has definitely hit a

[00:03:52] whole time high here compared to those. In terms of Canadian dollar, it reached a price of $91,000

[00:03:58] Canadian dollar just this week. Actually, I think it probably went a bit higher than that.

[00:04:02] I wrote these notes just yesterday.

[00:04:05] And as you were saying, the price of Bitcoin is quite volatile.

[00:04:08] And the previous all-time high were reached in November of 2021,

[00:04:13] which was just shy of 87,000 per Bitcoin.

[00:04:18] And, you know, it's pretty...

[00:04:20] Whatever you want to think about Bitcoin,

[00:04:22] I know we have some people that are fully on board with it, some people that are on the fence and some people that don't believe

[00:04:28] at all in Bitcoin, they think it's a scam and that's fine.

[00:04:32] You know, everyone's allowed their opinion.

[00:04:34] But regardless of what you believe, I think it's remarkable that it's back near these

[00:04:38] all time highs despite all the fraud that happened around with a lack of better term as shitcoins and unregulated centralized crypto exchanges

[00:04:48] or even lending platforms that we saw happen in 2022.

[00:04:52] And obviously that culminated with FTX at the end of 2022.

[00:04:56] And then last year with the, with Sam Bankman free,

[00:05:00] it has been convicted of, I think on all charges,

[00:05:04] if I remember correctly,

[00:05:05] you're still waiting for a sentence,

[00:05:07] which I think is supposed to be this month.

[00:05:10] Either this month or that side.

[00:05:11] That's not true.

[00:05:12] Yeah, I think it's coming pretty soon,

[00:05:14] but I think it's pretty remarkable.

[00:05:15] What do you think, like, that it's back?

[00:05:17] Pretty quickly, a lot of people thought

[00:05:19] Bitcoin was just dead because of all of this.

[00:05:22] Yeah, and especially, like, a lot of people who may necessarily not believe in it kind of

[00:05:28] thought that the only reason it went up was just because of, you know, the pandemic.

[00:05:32] A lot of disposable income went interest weights were really low.

[00:05:36] But now you, you know, you get into this situation where a lot of people, you know,

[00:05:39] they don't have a lot of expendable income and it's touching all time highs.

[00:05:43] There's crazy inflows into those new US funds.

[00:05:47] And I mean, I had I've had a couple of my friends message me about bonk. I don't know if you know

[00:05:52] what bonk is. I do not know what bonk is. It's some I don't know. I don't know what I have no idea

[00:05:59] what it is, but they've made they've made a lot of money on it and it's kind of one of those coins. I mean, it's down like 50% over the last few days,

[00:06:08] but it's also gone up like,

[00:06:10] this just reminds me of 2021,

[00:06:13] all these random coins that have gone up a ton.

[00:06:18] And then I mean, it's a crazy environment,

[00:06:22] but Bitcoin, I'm amazed it's at all time highs

[00:06:24] because just because of how the environment is right now. Yeah, it's a crazy environment, but Bitcoin, like I'm amazed it's at all time highs because

[00:06:25] just because of how the environment is right now.

[00:06:28] Yeah, same for me.

[00:06:29] I mean, it's pretty amazing, especially, you know, the last thing I'll mention, it's

[00:06:33] especially amazing because we haven't even hit the halving and the halving is supposed

[00:06:38] to happen.

[00:06:39] I believe at the end of April, so in the next couple months. And essentially what they're having is Bitcoin miners when they get a reward for completing transactions, they get a certain amount of

[00:06:51] Bitcoin and will go down by half in April. So that typically happens every four years.

[00:06:57] And historically, the price of Bitcoin eventually the year following the having has typically

[00:07:02] done quite well. Of course, it could change this time around and obviously Bitcoin is very volatile. So take this with a grain of salt.

[00:07:09] But it's surprising a lot of people that it's happening right now. I think a lot of it has to do

[00:07:14] with the spot Bitcoin ETFs in the US that are doing very well. I think that BlackRock ETF has

[00:07:20] hit like close to 10 billion in asset under management.

[00:07:25] I think I heard that this morning,

[00:07:26] somewhere it could be a bit off,

[00:07:28] but I'm pretty sure it hit pretty close to that

[00:07:30] or just hit it, which would make it in the top 4%

[00:07:33] of all ETFs in terms of assets under management,

[00:07:36] which is very impressive.

[00:07:39] Yeah, it's 11, well, according to Y-charts this morning,

[00:07:42] it says 11 billion.

[00:07:44] Oh, there you go.

[00:07:45] Yeah.

[00:07:46] There's still money flowing into it.

[00:07:47] I mean, I sold all my, what I own, I own BTCC before this, and then I sold it all and

[00:07:52] went to just because the fees are way, way lower.

[00:07:56] Last question for you on this, and this is more of a broad ETF questions, but the difference

[00:08:02] in fees with the Canadian spot Bitcoin ETF and the US

[00:08:06] ones, the Canadian ones were there much before, right?

[00:08:08] I think it's been a couple of years now.

[00:08:10] Do you think they'll lower them by the end of the year?

[00:08:13] Because I did the same thing as you.

[00:08:14] I liquidated the Bitcoin spot Bitcoin ETFs I had in the Canadian ones.

[00:08:19] And I bought the Bitwise, which is very similar fees to the BlackRock ETF, just because the

[00:08:26] fees were literally 80 basis points less.

[00:08:29] I mean, that's a massive difference.

[00:08:32] It's quite a big difference.

[00:08:34] If I look it up right now, like the purpose, like BTCC, it has three months.

[00:08:40] So it has total assets under management of $2 billion, but it has three months and year

[00:08:44] to date outflows of about $200 million. So it's not so despite Bitcoin going up like this,

[00:08:51] these Canadian funds are seeing outflows. I don't know any other one. I guess there's the

[00:08:57] CI Galaxy fund. Yeah, there's a few, but I think just even that one, BTCC, that's the purpose one, right? Yeah. Yeah. Yeah.

[00:09:06] CI is even worse.

[00:09:08] So it's got 1.18 billion in AUM and it's had year to date outflows of $216 million.

[00:09:14] Yeah. That's...

[00:09:16] So they're gonna have to lower fees.

[00:09:18] Yeah, they're gonna have to.

[00:09:20] I think it just goes to show whenever there's more competition,

[00:09:23] I think it's typically good for the consumer because before that,

[00:09:26] I mean, there was just a handful of Canadian,

[00:09:30] Spaw Bitcoin ETFs, so they could basically,

[00:09:33] none of them were really competing on fees,

[00:09:35] so they just kept it pretty high,

[00:09:37] get a good share of the profits.

[00:09:39] So it's always interesting to watch that.

[00:09:43] Enough about Bitcoin, let's start talking about banks

[00:09:46] before we move into Canadian banks,

[00:09:48] because this shall be proud of the bulk of it,

[00:09:50] will be Canadian banks.

[00:09:51] We do have an update on New York Community Bank,

[00:09:55] so the troubles do continue there.

[00:09:57] A few weeks ago, you and I actually talked about NYCB

[00:10:01] and how it was struggling because of its exposure

[00:10:04] to commercial real estate, but more specifically

[00:10:07] rent control multifamily real estate in New York City

[00:10:10] And I think that's important for people to understand because there's a lot of talk about

[00:10:15] commercial real estate and a lot of people mainstream media are

[00:10:20] Interchanging that commercial real estate with office real estate, but it's a very broad class of asset.

[00:10:27] Some are doing very well, some are not doing well.

[00:10:30] And this is one of them that's not doing very well

[00:10:33] as the multiflamly, especially the rent control in the US.

[00:10:37] Now around that time, news had come out

[00:10:39] that about insiders adding shares of the company.

[00:10:43] And you and I mentioned that you have to be careful

[00:10:45] about that, especially insider buying,

[00:10:48] because these insiders would want to show

[00:10:50] that they are confident in the company

[00:10:53] because their compensation depends on it

[00:10:56] and stock they already have or even their stock options.

[00:11:00] And obviously, if the stock goes to zero,

[00:11:02] that all goes poof and they are probably out of a job as well.

[00:11:06] So it turns out that things are even worse than we thought.

[00:11:10] So on February 29, so last week, they announced that they would be delaying filing their annual

[00:11:17] statements, which is never a good thing.

[00:11:20] I mean, unless you know of a situation where it's a good thing.

[00:11:24] No.

[00:11:23] a good thing. I mean, unless you know of a situation where it's a good thing.

[00:11:30] No. As soon as it happens, it's usually pure panic. Because what, like really, what is the reasoning for them to not file on time?

[00:11:33] Yeah, usually it's someone probably in their accounting department or finance or the auditor

[00:11:38] saying like, okay, something's not right here. And then they're probably scrambling to get in

[00:11:44] the middle of it and they've uncovered

[00:11:46] issues and they just don't have time to, you know, do it all before, before the deadline.

[00:11:51] Yeah, they're never doing this to hide good news.

[00:11:54] No, very rarely. Very rarely. That's a good point. So the reasons they gave are the following.

[00:12:00] Listen, a big SEC filings. It's a couple pages. I encourage people to go on their investor relations side

[00:12:06] if they want to see it.

[00:12:07] Now there's a three main reasons.

[00:12:09] So Goodwill Impairment's adjustment related to acquisitions

[00:12:13] that were made in 2007.

[00:12:15] They weren't specific to that,

[00:12:17] but it was probably related to some properties

[00:12:21] that they bought and, or I guess some banks are assets that they

[00:12:26] bought back in 2000 2007. It is interesting that there are some

[00:12:30] impairments related to that. There's adjustment related to the

[00:12:35] signature bank acquisition. Signature Bank was one of the banks that failed

[00:12:40] last spring during the regional bank crisis and I think it's fair to say at this point that this acquisition was pretty ill advised by

[00:12:49] them.

[00:12:50] Especially with the writing that was on the wall with commercial real estate and how potentially

[00:12:56] their own business could be in trouble.

[00:12:58] I'm not sure why the management wouldn't have seen that happening.

[00:13:03] I think they just saw it as a way to potentially

[00:13:05] grow. And then the big one, management identified material weakness in the company's internal

[00:13:12] control related to internal loan review, resulting from ineffective oversight, risk assessment,

[00:13:19] and monitoring activities. So in other words, this means that

[00:13:25] they're underwriting practices were not as good as they should

[00:13:27] have been. And the results of this is that they probably have

[00:13:31] even more credit risk against their loan than they initially

[00:13:36] thought. So I wouldn't be surprised. And I don't know about

[00:13:39] you if we see even higher loan loss provisions when they

[00:13:43] have refiled their statements. I'm not quite sure when, but when they do refile them.

[00:13:47] Yeah, because didn't they already like quarter over quarter increase like 10 fold or something?

[00:13:52] Yeah. Yeah. I was something that kind of would have caused it to.

[00:13:54] Yeah. Yeah.

[00:13:55] Yeah. I mean, who knows what's going to happen when they report?

[00:14:00] And I guess we were talking about this, the fact that you're really not gonna be able to see

[00:14:07] depositors and kind of the flow of money

[00:14:09] until they report as well,

[00:14:11] which is a huge, huge concern,

[00:14:14] probably among a lot of people right now.

[00:14:16] Yeah, and that's a great point.

[00:14:17] So when they gave their results on January 31st,

[00:14:22] they said that they hadn't seen any kind of outflows of deposits,

[00:14:26] but more than a month has passed since. And now a lot of depositors at NYCB have seen

[00:14:33] the news. We've talked about it when we talked about it on the podcast. Like if I had my

[00:14:37] money there, even if it's fully insured, I would probably have been looking to move that

[00:14:42] money out simply because I didn't want

[00:14:45] to deal with the whole hassle of the bank going under.

[00:14:48] Who is it going to be?

[00:14:49] Who's going to be purchasing the assets and so on?

[00:14:53] And then think about the depositors that had more than 250,000, which is the insurance

[00:14:58] limit in the US.

[00:14:59] They probably got most of their money out because why would you keep it there when you

[00:15:03] see this kind of stuff?

[00:15:04] So I think that's one of the big things that they have not provided an update yet is the status

[00:15:09] of theirs deposit. If there is a start of a bank run, that could be a big, big risk. Unfortunately,

[00:15:15] I mean, my interpretation of all this is there is a decent possibility that this bank could go

[00:15:21] under and essentially become insolvent.

[00:15:25] And I think that's a very realistic possibility with all the information that's out there

[00:15:30] right now.

[00:15:31] Definitely.

[00:15:32] And it's down what, like 70 some percent from its highs.

[00:15:35] So clearly there is a big risk there.

[00:15:38] And yeah, and in terms of the money, like your deposits would be insured, but it's not like

[00:15:43] you would just have access to that money.

[00:15:46] There's probably a process you'd have to go through

[00:15:47] and people just don't want to deal with that process.

[00:15:49] I mean, why would you?

[00:15:52] Why wouldn't you just go to another bank?

[00:15:54] So I mean, it's definitely going to be interesting.

[00:15:56] What is it mid month they have to report

[00:15:58] at the absolute latest, I think it said?

[00:16:01] Yeah, yeah, I think something like that.

[00:16:02] Yeah, mm-hmm.

[00:16:04] Yeah, And I guess

[00:16:05] the last thing here following these new revelation, they did a change of CEO. So they appointed

[00:16:11] Elisandro Danello as CEO and executive chairman of the board. He succeeds Thomas King. GEMMI

[00:16:18] who remains on the board of director. He had been CEO since December of 2020. They also

[00:16:23] announced a new chief risk officer.

[00:16:26] The last thing and we were talking about this before we recorded like why would you even

[00:16:30] keep him on the board of director he was there like since December 2020. It's just not a good

[00:16:36] perception even if he probably has little to no power at this point. He's the guy that

[00:16:41] oversaw all of this he oversaw the signature acquisition Clearly there were some really bad decision made since he's been sealed

[00:16:48] I would have just made sure he was gone in there because at this point is the survival of the bank pretty much

[00:16:54] Yeah

[00:16:55] And I mean even as like a shareholder you're sitting there you're down

[00:16:59] 70% off the highs and then they just kind of

[00:17:02] Move this guy down an arch instead of just kind of getting rid of him.

[00:17:05] It doesn't really look all that good.

[00:17:07] No, no, exactly. Now we'll enough about the US bank. Let's, I guess, go more on a positive note.

[00:17:15] Let's start with the Canadian banks here. Do you want to get it started with the

[00:17:19] largest of the large Canadian banks, Royal Bank here?

[00:17:22] Yeah, so Royal's in a lot better shape

[00:17:25] than the New York Community Bank.

[00:17:27] But they seem to be the most steady out of the big five,

[00:17:31] so they top street numbers on both top and bottom line.

[00:17:35] The underlying numbers pretty much tell the same story

[00:17:38] for Royal Bank as they do for the other banks,

[00:17:39] so they're struggling quite a bit right now.

[00:17:42] So they reported a 6% decline in year over year earnings

[00:17:46] return on equity dipped 2.3%.

[00:17:49] Wealth management earnings declined by 27%

[00:17:53] and capital market earnings dipped by 7%

[00:17:56] over the same time period.

[00:17:57] So net interest margins also dipped six basis points

[00:18:02] year over year.

[00:18:03] So when we look to provisions,

[00:18:04] I'll go quarter over quarter instead of year over year

[00:18:07] because just simply the environment's quite a bit different.

[00:18:11] It's more, we've discussed this before.

[00:18:13] It's just more useful to compare quarter over quarter provisions.

[00:18:18] So they came in.

[00:18:19] Probably the one thing I would add for that.

[00:18:21] And I think that's important for people to understand

[00:18:23] not that it's not important to look also like a year ago and you know, what's happened

[00:18:28] since the trends. I think the trend is a good indicator as well. But I think you see a lot

[00:18:32] in mainstream media is like, okay, you know, the loan loss or provision for credit losses

[00:18:38] increase like 100% over last year. Well, that was a pretty different environment. I mean, even interest rates were lower a year ago by, I think, 50 basis points, if I remember correctly at this point.

[00:18:51] So a lot of things change, I think, to get a better idea and sense where it's going, you look at the trend, but especially the difference between quarter over quarter makes a whole lot more sense. Yeah, exactly. And you look at, you know, well, I haven't looked at Eurovision numbers, but for Royal

[00:19:07] that came in at 813 million, which is 93 million higher, quarter over quarter.

[00:19:14] So probably year over year, it's probably going to be much higher.

[00:19:17] But when you look quarter over quarter, it's not crazy, you know, the increase.

[00:19:22] So out of that 813 million, 636 or 78% came from its Canadian

[00:19:28] banking arm. So this isn't really all that surprising. It's a global bank. It's got probably the most

[00:19:34] international exposure out of all of them, maybe not Scotia, but it's Royal Banks all over the

[00:19:39] place. But it still generates a ton of money revenue exposure from Canada pretty much all the banks this the

[00:19:50] Canadian PCLs this was a 40% increase on a quarter quarter over quarter basis in its Canadian banking segment

[00:19:58] So there's clearly some some pretty big weakness in you know in its Canadian segment overall

[00:20:05] So I'm pretty big weakness in, you know, in its Canadian segment overall. The higher provisions led to a 4% dip in net income on a year over year basis and a 2%

[00:20:11] dip quarter over quarter in its Canadian banking segment.

[00:20:14] So it's PCL ratio on impaired loans increased six basis points to sit at 31 basis points,

[00:20:21] which would be 0.31%. While it's PCL ratio on performing loans actually

[00:20:27] declined three basis points to sit at six basis points. So quick, an impaired loan would

[00:20:33] be one that's in arrears while a performing loan would be one that's still being paid.

[00:20:38] But in this situation, the bank thinks there's a pretty high risk that it could go unpaid.

[00:20:42] It's total PCL ratio came in at 0.37, which pretty much

[00:20:47] compares its provisions for credit losses against its total loans. This is the best of

[00:20:52] the big five banks, but does Trail National. And in its US wealth management arm, this

[00:20:59] is pretty interesting. The bank actually released PCL's. so they didn't report more. They actually did a release, which would essentially add to the net income of that area.

[00:21:10] So it stated that the bank has a better macro outlook in the US, and it is comfortable

[00:21:16] releasing provisions instead of adding more.

[00:21:18] Yeah.

[00:21:19] So question on that wealth management.

[00:21:20] I would imagine that typically the PCLs are quite low, right?

[00:21:25] For wealth management, just based on the nature of the business.

[00:21:28] Yeah, but I think they actually, I would have to look that up.

[00:21:31] I think they actually increased quite a bit, like from throughout 2023.

[00:21:38] So if I look at this quickly, it looks like there was only 26 million in the second quarter

[00:21:43] of 2023, but then it rose to almost million in the second quarter of 2023, but then it rose

[00:21:45] to almost 70 in the fourth quarter of 2023. I mean, when you're looking at total provisions,

[00:21:51] yeah, very like the first quarter of 2024, 38 million compared to what did they report total 813.

[00:22:00] Yeah. I mean, it's a relatively small, it's a small amount. Small amount. And for those listening on joint TCI or watching, you'll see I have essentially

[00:22:10] the provisions for credit losses that they added per quarter since April of 2021. Essentially,

[00:22:17] April 2021 to April 2022, it's mostly just releases from the pandemic. There's one quarter where

[00:22:24] there was a small

[00:22:25] ad, but aside from that was all releases. And then starting in July, the quarter finishing

[00:22:30] in July 2022, it's been a steady essentially like a staircase, steady increase since then

[00:22:37] up to this quarter. So that's where we're talking about the trend. This is definitely

[00:22:41] a trend that we're seeing is royal and I think most of the Canadian

[00:22:45] banks you are seeing that consistent increase in provision for credit losses, which, you know,

[00:22:51] whatever they say, I mean, this speaks volume in terms of what they're seeing right now.

[00:22:57] Yeah, exactly. And you would have seen them, you know, in 2020, the provisions would have went

[00:23:01] higher again. And then in 2021, those releases are when it's you know

[00:23:05] not necessarily as bad as they had planned and in terms of

[00:23:11] Just overall, you know by segment in terms of of PCL. So they reported a

[00:23:19] 16 basis point PCL ratio with residential mortgages

[00:23:23] So I mean it's still a very very very, very small portion of those residential mortgages that

[00:23:29] are, they're writing off as provisions, whereas a lot of people think that the residential

[00:23:34] area is the main focus for these money they're setting aside for mortgages essentially to

[00:23:41] go unpaid, but the real interesting thing is actually how bad it is on the small business and commercial loans front.

[00:23:49] So small business, PCL ratio in Q1 of 2024 was 191 basis points.

[00:23:57] And their commercial was 81 basis points, which is quite a bit higher than Q4 of 2023 on both fronts.

[00:24:06] So I think this maybe gives a pretty strong indication of the health of the Canadian economy

[00:24:12] overall.

[00:24:13] Credit cards are up quite a bit as well.

[00:24:15] But in terms of residential mortgages, it's not actually booking very many extra PCL's

[00:24:22] over any other situation, any other quarter over the last year or so.

[00:24:26] And in terms of just mortgage mix, so they have a 70-30 mix when it comes to fixed and

[00:24:31] variable rates.

[00:24:33] So it states that the average original term of the mortgage portfolio was 41 months.

[00:24:38] So this would suggest that more Canadians have opted for shorter term mortgages, 36

[00:24:43] month over a longer term, which would

[00:24:45] be 60 months.

[00:24:47] And it says that average remaining term left on its portfolio is around 25 months.

[00:24:52] So they don't actually report how many renewals they have.

[00:24:55] Most of the banks do.

[00:24:56] And I think you mentioned that in national.

[00:24:58] They'll tell you how many renew this year next year.

[00:25:01] Royal just has the average term.

[00:25:03] But just final thing, on the bright just, you know, final thing on the

[00:25:05] bright side, the company's dividend is among the best covered out of the six, which should

[00:25:10] allow it a bit more flexibility moving forward. I think it's payo ratio is still only 40,

[00:25:16] 40, 45%, which is, you know, historically, this is what the bank has paid. And in addition

[00:25:23] to this, the company's CET1,

[00:25:26] which in the simplest terms possible

[00:25:27] is just it's a metric regulators and investors

[00:25:30] used to judge a bank's ability to withstand financial shock.

[00:25:33] It's a very complex ratio.

[00:25:35] I think we've discussed this before.

[00:25:36] It's really hard to understand it entirely,

[00:25:39] but what you really need to know,

[00:25:42] the regular set a minimum at 11.5%, Royal sits at 14.9.

[00:25:48] So they're well above the regulatory requirements for tier one capital.

[00:25:55] And it's been the best performing bank in terms of total returns and just in terms of

[00:26:00] operations over the last three years.

[00:26:02] National, of course, which you'll talk about next being

[00:26:05] the best out of the Big Six.

[00:26:07] Yeah, yeah, depending if you say a Big Five or Big Six.

[00:26:10] Yeah.

[00:26:12] I mean, Grandton National Bank is quite smaller

[00:26:16] than the Big Five by, at the same amount,

[00:26:19] I think a couple hundred billion in terms of assets,

[00:26:23] which is a pretty big difference.

[00:26:26] And I posted something earlier on Twitter or X, whatever you want to call it.

[00:26:31] So in terms of people also sometimes just don't realize how big our big five banks are.

[00:26:38] And I posted the big four banks here.

[00:26:41] So RBC, TD, BMO and CIBC, even when you convert their total assets to US dollar,

[00:26:49] they are all bigger than US bank court, which is the fifth largest US bank. So if they were

[00:26:57] American banks, they'd be in the top five, each and single one of them would be in the top five of the largest US banks.

[00:27:05] And it just goes as a reminder that our banks are massive and we don't have that many,

[00:27:12] but they are extremely large. And I thought that was just interesting because people sometimes

[00:27:17] just kind of forget how big they are. They know there's a lot of banks in the US, but I don't think

[00:27:22] they realize how big the Canadian ones are. Yeah, you kind of look at a bank like like CIBC and you think it's kind of it's small,

[00:27:29] which it is in relation to, you know, a TD or a royal, but it's still gigantic.

[00:27:34] They're, uh, I mean, there's no real competition here outside of, you know,

[00:27:39] smaller credit unions and maybe some like smaller banks, like Canadian, Western

[00:27:44] Equitable other outside of

[00:27:45] that. But they just dominate.

[00:27:47] Yeah. And Ospi loves protecting the big banks.

[00:27:52] Yeah, absolutely. Yeah. They never lose.

[00:27:55] No, exactly. Now moving on to, I guess, the small lifts of the big six, if we use the

[00:28:02] big six, a national bank, as you were referring to so national bank

[00:28:06] had a pretty good quarter overall again the same kind of trend that we're seeing so overall

[00:28:12] provision for credit losses at our steadily increasing some of the slowest increase though

[00:28:17] amongst the six big banks probably the slowest increase in the past year. Total revenues were up close to 6%.

[00:28:25] Net in Cup was up 23%.

[00:28:28] Earnings per share was $2.59 up 24%.

[00:28:33] And provision for credit losses.

[00:28:35] Again, this is all a quarter over quarter.

[00:28:37] We're up 4.3%.

[00:28:40] So it went from 150 million to 120 million.

[00:28:44] Now, what I like to look for these banks as well as that net interest margin.

[00:28:47] So this is just essentially what they pay on deposits compared to the interest that they

[00:28:54] get when they loan out the money.

[00:28:56] So in aggregate, their net interest margin was 2.21%.

[00:29:01] That was an increase of seven basis points, quarter over quarter.

[00:29:04] So pretty good there.

[00:29:06] Like the main numbers,

[00:29:07] definitely looking pretty solid for National Bank.

[00:29:10] Now personal and looking at the different segments,

[00:29:12] personal and commercial revenues were up 3% there.

[00:29:16] Provision for credit losses were up 9% for that segment.

[00:29:20] And net income was up 25%.

[00:29:23] Wealth management, again again still pretty good.

[00:29:26] Revenue is up 3% and net income was up 26% financial markets which is a decent

[00:29:33] segment for them. Revenue's were 2.7% were up 2.7% net income was up 8% and

[00:29:42] the US specialty finance and international and this is where I started

[00:29:47] digging a little more because I was pretty interested. So I'll explain what they are but I'll just

[00:29:52] give the high numbers here. So revenues were up 4% provision for credit losses were up 56%

[00:30:00] and net income was up 3.4% and their specialty finance group is in there's like two main

[00:30:08] parts to it.

[00:30:09] So there's credit, credit G. Do you know how to pronounce that?

[00:30:13] Credit G?

[00:30:14] I would imagine credit G.

[00:30:15] Yeah.

[00:30:16] Credit G. Okay.

[00:30:17] Which is a US bank that specializes in buying consumer debt receivable and provides

[00:30:22] financing to consumer debt receivable and provides financing to consumer debt receivable market.

[00:30:26] So essentially what that means is they're, they kind of buy that consumer debt in bulk

[00:30:32] and essentially they assess that whether it's worthwhile or not and the price that accordingly

[00:30:37] they buy it or they will issue debt for other institutions that would be doing that.

[00:30:42] So that's just a kind of simpler, simple way of saying it.

[00:30:47] And they also own ABA Bank, which is the largest bank in Cambodia. So these are the two main

[00:30:53] entities part of this US specialty finance and international. Where it gets really interesting

[00:30:59] here is when you start looking at Credigies, PCL. Now to be fair, the amount is a bit lower than

[00:31:05] year over year, so Q1 2023. But it's something to keep an eye on if the consumer slows down

[00:31:12] in the US because this is specific to the US and start defaulting on debt. You could see

[00:31:17] the PCL increase pretty significantly because that's the nature of the business. And last

[00:31:22] year they set aside for the whole year 81 million for PCL for this segment,

[00:31:27] which was a 130% increase from the previous year.

[00:31:30] Now, National Bank is still doing very well overall,

[00:31:33] but this looks like it's starting to drag on the business.

[00:31:36] And they did say in their investor presentation

[00:31:39] that it's normal seasoning of portfolios

[00:31:42] for the increase in Q1. However, it's something I think people should

[00:31:47] still keep an eye on, especially if they own National Bank or they're interesting in buying it,

[00:31:53] because you really want to look how the year progresses as a whole. And if it keeps increasing

[00:31:58] from last year, which was significantly higher than the previous year. The reason I said that because the PCL's

[00:32:06] compared to Q4 were up 150% and you had revenues that were flat and net income for credit G that

[00:32:15] was down 16% and credit G is a very small part of the revenues and net income. So revenues are

[00:32:26] small part of the revenues and net income. So revenues are around 5% and the percentage of net income for National Bank as a whole is around 6%. And it is however, 20% or 21%

[00:32:35] of their percentage as the provision for credit losses. So it has a now size impact on their PCL compared to the net income it generates.

[00:32:46] And that's significantly up compared to Q4 2023.

[00:32:50] However, I will caution like I mentioned,

[00:32:53] they did say there's some seasonality behind it.

[00:32:55] So take it with a grain of salt,

[00:32:57] but something to keep an eye on

[00:32:59] because it's probably a great business

[00:33:01] when things are going well.

[00:33:02] But consumer credit can be quite

[00:33:05] dangerous when the economy takes a turn for the worse.

[00:33:08] Oh yeah, for sure.

[00:33:09] I actually didn't know too much about it.

[00:33:11] I didn't.

[00:33:12] Good job for doing the digging into credit.

[00:33:14] I didn't.

[00:33:15] I mean, it's yeah.

[00:33:16] What are you looking at?

[00:33:17] 25 million in PCLs out of out of 120 million on the quarter.

[00:33:21] So yeah, it's it is, it looks to be a drag

[00:33:25] unless this is seasonal and it kind of normalizes.

[00:33:29] But the one thing I'm surprised is most of these banks

[00:33:31] are reporting some pretty tough results

[00:33:34] in terms of wealth management,

[00:33:35] but national seems to be just chugging along

[00:33:38] in that department.

[00:33:40] Yeah, yeah, no, I think every segment pretty much

[00:33:43] except for this one has been doing quite well

[00:33:46] I mean again it diversifies their portfolios whether it's good or bad we'll have to say

[00:33:51] But it is something to keep an eye on and you reference the mortgages earlier so 54% of their mortgages

[00:33:58] 50% of their mortgage and HELOC portfolio is

[00:34:03] Located in Quebec 29% in Ontario and

[00:34:06] the balanced arrest of Canada. I wanted to mention that because National Bank is

[00:34:10] primarily an Eastern Bank and even more so a Quebec Bank. They do have

[00:34:16] exposure elsewhere like I just mentioned but a lot of their net income is from

[00:34:21] Quebec and Quebec has had less of,

[00:34:25] I would say real estate boom then in terms of prices,

[00:34:29] then Ontario and BC for example,

[00:34:31] prices are still increased over the last five years,

[00:34:34] but it's less so in Quebec.

[00:34:36] So there's probably a bit better performance

[00:34:40] when it comes to their mortgage portfolio there.

[00:34:42] 28% of their portfolio is variable rate and 72%

[00:34:46] is fixed. 12% of their fixed mortgages will renew this year. Well, I say this year, it's

[00:34:51] their fiscal year this year, but I'll just say that 27%, 2025 and 38% in 2026. And overall,

[00:35:00] their mortgage and e-locks represent 40% of their loan portfolio.

[00:35:05] So regardless of which bank you're looking at,

[00:35:07] they're all going to have some substantial mortgage exposure

[00:35:11] in Canada.

[00:35:12] But I think National Bank and Royal Bank

[00:35:14] as a total of their loan portfolio,

[00:35:17] they're amongst the lowest in Canada,

[00:35:19] if I remember correctly, right?

[00:35:21] Yeah, so BMO is by far the lowest, by quite wide range.

[00:35:28] But 40% is actually reasonably low.

[00:35:32] If you look at CIBC, I think they're 53%.

[00:35:35] Yeah, 53.

[00:35:36] But if you calculate, I was looking at that.

[00:35:39] And if you calculate all of their real of real estate exposure.

[00:35:45] So if you can include commercial real estate,

[00:35:47] whether in CUS or Canada, Heloch, and Canadian mortgages,

[00:35:51] it goes up to 65%.

[00:35:53] So yeah, that's...

[00:35:55] Well, I mean, I guess I'll be talking about it

[00:35:58] yeah, a bit later on, yeah.

[00:36:00] Yeah, I guess we got to do CIBCs,

[00:36:02] but I think this is just numbers right off the top of

[00:36:06] my head, but I think Royal Bank is higher than national.

[00:36:09] I know they have around a $410 billion residential mortgage portfolio, and I think they have

[00:36:15] like $820 or $830 billion in loans.

[00:36:19] But that's like I said, just right off the top of my head.

[00:36:22] I'm not going to spend, I might be digging here for a bit to try and find out that report.

[00:36:26] But yeah, it's 40% is actually like people might think that's high, but that's actually,

[00:36:31] it's fairly low.

[00:36:32] Yeah, exactly.

[00:36:33] I mean, it is.

[00:36:34] So, at least compared to the other banks in Canada, but just goes as a reminder, if you

[00:36:40] only Canadian banks, by default, you will have a lot of exposure to real estate.

[00:36:45] Having said that, let's move on to TD, the, I guess the little brother of Royal Bank in terms of size, but pretty close behind.

[00:36:53] Yeah, so they are very close. I mean, TD's pretty, they're pretty similar in size.

[00:37:00] I think even the loan books might be pretty close, but they reported pretty solid headline numbers as well. similar in size. the company CTE1 came in at 13.9% which has fallen by 1.57 year over year.

[00:37:28] The one thing this isn't really anything to worry about, it's expected.

[00:37:32] The company bailed out of the first Horizon deal during their regional banking crisis,

[00:37:38] which left it kind of with a pile of cash. So it's been using the cash to just do things

[00:37:44] like aggressively buy back

[00:37:45] shares. It purchased 21 million shares on the quarter. When we look to provisions, the

[00:37:50] bank set aside 1 billion in PCLs. 934 million of that is impaired loans and 67 million is

[00:37:58] performing. So on a quarter over quarter basis, this is an increase of 123 million. The company's overall PCL ratio

[00:38:06] came in at 0.44%, which is a five basis point jump. So even though the number the $1 billion

[00:38:13] number is by far, you know, the hefty is chunk of PCL set aside on the quarter by any of the

[00:38:19] big six bank, big six banks, the overall PCL ratios, which is probably the more important indicator of

[00:38:25] BMO and CIBC actually increased more. So BMO actually went from a 0.27 PCL ratio,

[00:38:34] which was the lowest out of the Big 5 and it went up to 0.38 just on a

[00:38:39] quarter-over-quarter basis. So it was quite a big jump. It reported a recovery in terms of performing PCLs in its

[00:38:47] Canadian PNC banking arm. And its gross impaired loan ratio on residential mortgages came in at 0.08.

[00:38:55] So if you remember from RBC, I think I mentioned they were 0.16, I think so it's quite a bit lower.

[00:39:02] Net interest margins were pretty flat. They declined by seven

[00:39:06] basins points on a year over year basis. So the one interesting thing to note is this is the fifth

[00:39:12] straight quarter of PCL ratio increases in its US retail segment and the fourth straight in its

[00:39:18] Canadian P&C segment. So although year over year loans are still growing at a high single digit pace,

[00:39:25] when we look to quarter over quarter results, we see barely any growth, maybe only, you know,

[00:39:30] one to 2% across all segments deposits are flat. But the one interesting thing that

[00:39:36] TD actually put out, and this is kind of different what we then what we've talked about, but they

[00:39:40] put out some pretty interesting charts. So they have Canadian card spend trends at their bank.

[00:39:47] So during the pandemic, you were seeing 20 to 25%

[00:39:53] year over year growth in credit card spending,

[00:39:56] and then it literally just falls off a cliff.

[00:39:59] After Q3 of 2022, it goes from 20 some percent year over year

[00:40:04] to maybe 4%.

[00:40:06] And now when we get into late 2023, early 2024, you're talking about maybe 2 to 3% in terms of year over year credit card growth.

[00:40:17] So debit growth as well.

[00:40:20] It was growing at a 10% clip during the pandemic, 2021.

[00:40:24] And even that, it's just gone down to the point where it's only growing at 1-2%.

[00:40:29] So Canadians are definitely tightening up when it comes to money,

[00:40:35] spending, things like that.

[00:40:36] And then the other thing is they reported their average trades per day on TD Direct Investing.

[00:40:43] So the company reported either flat or quarterly declines in trades since the second quarter

[00:40:49] of 2022.

[00:40:51] So if we look to year over year, so say Q2 of 2022, it was almost a 40% decline in average

[00:41:00] trades per day compared to without well, it would be compared to the first quarter of 2021.

[00:41:06] It's rising now, but you can clearly see a massive, massive drop off in trading activity among the

[00:41:14] brokerages. And this goes back to that study that I talked about not too long ago that TD ran,

[00:41:20] where 47% of Canadians didn't contribute anything at all to their investment accounts in 2023.

[00:41:27] And just overall, I mean, PCLs are hitting the bottom line pretty hard for TD Bank.

[00:41:32] So it's expected to report the largest earnings decline out of the big six banks in 2024.

[00:41:40] And that's nothing to really be scared about. It's only expected to decline 3 or 4%, but you can see the impacts that these PCLs, that

[00:41:51] the slower results are having.

[00:41:53] It's pushing the company's dividend payout ratio to pretty high levels relative to historical

[00:41:58] averages.

[00:42:00] So it's paying out 55% right now.

[00:42:02] This is about 15% higher than its historical averages,

[00:42:06] which I mean, if the bottom is in right now should be fine. But if things continue to dip even further,

[00:42:11] we could see a slowing or even a halt of dividend growth. This isn't the worst payout ratio that

[00:42:18] would belong to Scotia Bank, which is currently paying out 70% of earnings just shy, which is

[00:42:25] Scotia Bank, which is currently paying out 70% of earnings just shy, which is it's not good for, you know, a major financial financial institution to pay out this much.

[00:42:30] But at 55%, it is the second worst.

[00:42:33] But yeah, that's that's pretty much all I had for TD.

[00:42:36] Yeah.

[00:42:37] And I mean, what you're saying in terms of the Canadian consumer and what TD was saying,

[00:42:40] I think it aligns to with the Equifax Q4 report on the Canadian consumer,

[00:42:46] essentially Ontario and BC where they're starting to see the delinquency rates pick up pretty rapidly

[00:42:53] for mortgages, but also credit cards. And I don't have the percentages just in front of me, but that's

[00:42:58] the gist of it. I'll put the report, the link of the report in the show notes for people to see it.

[00:43:03] But we're starting to hear

[00:43:05] the same thing from a whole lot of different companies,

[00:43:09] whether we're looking at banks,

[00:43:11] whether we're looking at Equifax

[00:43:13] in terms of credit reporting,

[00:43:14] whether we're looking at Canadian Tire,

[00:43:17] like they're all saying the same thing.

[00:43:19] So at some point, I think people have to start listening

[00:43:22] that the consumer is feeling the pinch. People are, especially if people have to start listening that the consumer is feeling the pinch people are

[00:43:26] Especially if people have mortgages, but even those who don't who've seen their rent increase

[00:43:31] You have to make cuts somewhere make things work, especially with

[00:43:35] Inflation that was so high sure the rate of inflation is slowing down

[00:43:38] But that does not mean that prices are going back to what they are pre-pandemic

[00:43:44] Prices are probably

[00:43:45] 25, 30% higher than they were in 2019 at this point. They're just increasing less rapidly than they were.

[00:43:54] Yeah, it's a pretty tough time for Canadians. I mean, when you look at even the average

[00:44:01] trades, you would typically see, you know, 2023 was a pretty big bull market.

[00:44:06] I mean, there was a lot going on,

[00:44:07] like the markets just ripped in 2023.

[00:44:10] But if you look at this chart,

[00:44:11] you're still seeing like anywhere from 30 to 20%

[00:44:16] you're over your declines in trading volume among,

[00:44:19] you know, their direct investing platform.

[00:44:21] So I mean, when you see that,

[00:44:23] it just shows you that people just have less disposable

[00:44:26] income to put towards things like investing.

[00:44:28] Yeah.

[00:44:29] And it's been a, it was a great 2023 year investing, at least for me and you, I know Braden as

[00:44:35] well.

[00:44:36] And people on joint TCI will know we like all three of us had a really good year and a good

[00:44:40] start to the year as well.

[00:44:42] But you know, you can only benefit from the markets if you're in the

[00:44:45] markets. And that's probably a big issue for people who I'm thinking, especially if they bought a

[00:44:52] house during the pandemic, they probably used a lot of savings, a lot of that money that would

[00:44:56] potentially invest in that they use towards a down payment and have very little left into market.

[00:45:02] Or they may have a little bit,

[00:45:05] but they're unable to add on top of that.

[00:45:07] So they're not benefiting as much.

[00:45:09] So I think that's something to keep in mind.

[00:45:11] I think people here obviously are like investing.

[00:45:14] So I think we're probably a bit different

[00:45:17] than the overall population,

[00:45:19] but I think it's a good reminder

[00:45:20] that the wealth effect sure can be there,

[00:45:23] but you have to be able to have

[00:45:26] money invested in those assets that are increasing to be able to benefit from it.

[00:45:30] Yeah, that's ultimately like sometimes when the markets are at lows, you think it'd be

[00:45:34] the best time to buy, but it's also when people, during those situations, it might not be when

[00:45:39] people have the most amount of income to do so.

[00:45:42] But yeah, that's all I got on TD. It was, I just found it interesting

[00:45:46] that they reported that data.

[00:45:48] It was pretty cool.

[00:45:50] Yeah, no, that's great.

[00:45:51] And, you know, we did the segments.

[00:45:53] Obviously we're each doing two banks.

[00:45:55] So we're looking at slightly different things.

[00:45:58] But overall, I think there's some things

[00:45:59] we look at the exactly same.

[00:46:01] And then depending on what we're looking at,

[00:46:04] it's just interesting to get these

[00:46:05] different takes. So we'll finish with, you know, if you like housing or real estate, this is the

[00:46:10] bank for you. So CIPC, again, I think it's important to know that in terms of total exposure in terms

[00:46:18] of pure dollar value to real estate, like a bank like Royal Bank will have more than CIPC. We're

[00:46:23] just talking about their total loan portfolio. And I think that's really important for people to remember. Now revenues were up 5%

[00:46:31] compared to the last quarter to 6.2 billion net income was up 16% compared to well quarter

[00:46:38] quarter to 1.7 billion earnings per share was up 16% at $1.77.

[00:46:45] And that interest margin was down at basis points,

[00:46:47] so essentially flat and up five basis point year over year.

[00:46:51] Now by segment, you know, it was a decent court,

[00:46:54] I would say for CIBC.

[00:46:56] I know they're dunked on a lot,

[00:46:59] so I was still, I mean, for good reason,

[00:47:03] but it was still a good quarter for them. So revenues

[00:47:06] for the Canadian banking personal and business up 2% provision for credit losses for that segment

[00:47:14] 17% and net income up 2% again. We're seeing all these Canadian divisions because some have more

[00:47:22] exposure to Canada than others. They all have some pretty significant exposure to Canada

[00:47:26] But we're seeing that those provision for credit losses being quite high especially for the Canadian portion

[00:47:33] Now the Canadian commercial banking and wealth management that part revenues were essentially flat net income was up

[00:47:41] 2% and asset under administration was up 10%. So asset under administration,

[00:47:48] it's kind of a mix of under asset under management and asset that they provide guidance on. That's

[00:47:54] kind of how they define it. So that was up 10%. All that to say they get some fees out

[00:48:00] of that the US commercial banking and wealth, that part was up 1% net income was

[00:48:07] negative. So was essentially negative 9 million. So compared to 50 million last year and asset

[00:48:14] under administration, again, that metric was up 5% and capital markets revenues were up 21%

[00:48:21] and net income up 60%. So clearly, this capital market did quite well. And for the PCL,

[00:48:28] if we dig in a little more, total provision for credit losses were up 8% compared to Q4 to 585

[00:48:36] million. And compared to last year, it's a double. But like we mentioned before,

[00:48:41] going year over year doesn't make the most sense.

[00:48:45] And what I started digging into a little bit

[00:48:48] was their Canadian Personal Banking Unit

[00:48:51] and the amount of provision for credit losses

[00:48:55] that they have on their impaired and performing loans.

[00:48:58] So impaired are essentially loans

[00:49:00] that they're like pretty much writing off at this point.

[00:49:03] And performing loans are loans that people are paying, but they expect will go bad.

[00:49:09] And that part is really interesting because it jumped from 23 million in terms of provision

[00:49:15] for credit losses to 44.

[00:49:18] So not quite a double, but pretty close to it just in the span of a quarter.

[00:49:23] And if we go on year over year, they had actually

[00:49:25] released at 30 million. So they had released some provision for credit losses. So we see definitely

[00:49:31] a reversal, I then looked at the two quarters in between. But I would assume that there's probably a

[00:49:38] bit of a trend there. And it is clearly, it's a small part of their portfolio, but one thing that's pretty wild

[00:49:46] is their US commercial real estate portfolio.

[00:49:50] So I kid you not.

[00:49:51] So this has climbed.

[00:49:52] So the provision for credit closet climbed to 19.7% for Q1.

[00:49:57] So of the total portfolio of 2020 fare of four compared to 1.8% in Q1 of 2023.

[00:50:05] I don't think there's a need to panic here.

[00:50:07] I know it sounds massive,

[00:50:09] but it's only 3.5 billion worth of assets.

[00:50:12] So it's quite small.

[00:50:13] We're talking here about a bank that has 539 billion

[00:50:18] in terms of total outstanding loans.

[00:50:21] So it is a small portion,

[00:50:23] but I think it clearly shows that the US commercial real estate market is struggling in Q1 of 2023. They actually had four billion worth of assets here. So you see that sharp drop is essentially them having to write it off. Anything you want to add towards that section. No, but that is a huge jump.

[00:50:45] So 3.5 billion is total assets.

[00:50:48] Yeah, total assets.

[00:50:49] Or that's assets that they've written off.

[00:50:52] That's just total.

[00:50:52] No, that's total asset.

[00:50:53] Yeah, so it went from four to 3.5 billion

[00:50:56] in a span of a year.

[00:50:56] So they wrote off half a billion.

[00:50:59] Yeah.

[00:51:00] And that's like to give some insight.

[00:51:02] Like Royal Bank is at 28 billion, which is in their US commercial real estate

[00:51:08] So they have 28 billion, which is only 3% of their total

[00:51:12] Loans, so I mean it's a relatively small figure, but it like that is a massive jump. Oh, yeah

[00:51:17] Yeah, I mean it just goes to show that the struggles of the

[00:51:20] I mean again, I think yeah, and I think it's just important to re-emphasize

[00:51:25] that it is a big space, like you have data reads that have been performing quite well.

[00:51:31] So let's, we have to remember that.

[00:51:33] But I mean, I thought it was interesting just by the sheer, you know, percentage, de-increase

[00:51:38] eyes pretty significant.

[00:51:40] Yeah, that was a headline number.

[00:51:42] People would probably be freaking out, but then you look at it. It's at it's like it's very very it's a very small portion of the total

[00:51:49] Yeah, I mean let's be honest like mainstream media will never dig in that far into the financial so

[00:51:55] Yeah, that's not something they're gonna be looking at in terms of their gross impaired loan ratios

[00:52:00] So that has been ticking up as well. If we just look at Canadian, the Canadian portion

[00:52:08] here. So Canadian mortgages in Q1 of 2023 was 16 basis point Q4 2023 21 basis point Q1 2024 25

[00:52:18] basis points. So you see that steady increase, a similar kind of increase for Canadian personal lending. So again, trending up.

[00:52:26] And the same thing I would say for business and government loans, although it seems to have

[00:52:31] kind of leveled off after almost doubling within a couple quarters. So that'll be something to

[00:52:38] just keep an eye on because I find, you know, I find that stuff personally very interesting. And their delinquency rates for the 90 plus days delinquency rates, those are also just

[00:52:49] trending up.

[00:52:50] So, most of the anything related to kind of debt right off delinquency rates for the most

[00:52:57] part, you see the trend for the past year or so just increasing.

[00:53:01] So, it is something to bear in mind. And what I like about CBI, C-I-B-C

[00:53:06] is they actually compare it to Q1 of 2020

[00:53:10] where they started increasing, you know,

[00:53:12] around the time that they started putting

[00:53:14] a bit more money towards the pandemic

[00:53:17] that was right around that time.

[00:53:19] So I think it's just important to compare that.

[00:53:22] And the last thing I'll mention here is the maturity schedule.

[00:53:27] That's always really interesting to look at with C.I.B.C.

[00:53:30] And I think they do a good job.

[00:53:32] Obviously, they have a lot of exposure to Canadian mortgages and they do a pretty

[00:53:36] good job outlining those numbers for investors.

[00:53:40] So the maturity schedule for 2024, I'll just focus on fixed rates here. So 28

[00:53:47] billion for this year, that's maturing 56 billion next year, 61 billion in 2026. So 2026

[00:53:55] is the big year and seems to be the same for national bang. That was their big maturity

[00:54:01] date. And then it starts leveling off for 2027 and 2028. Variable rates,

[00:54:07] same kind of thing. The majority is coming in 2026. Actually majority in 2027 for that.

[00:54:14] And 2026 has a maturity for both variable and fixed rate is 90 billion. So that will be the

[00:54:21] peak maturity that they'll see. So I mean, overall, I think

[00:54:26] it was a decent quarter, I would say, for CIBC. I mean, not great, but probably better than

[00:54:34] people expected is what my takeaway is. I don't think any of the banks, I mean, I guess you could

[00:54:41] say national had a pretty good quarter, but for most of them that was not good for the banks

[00:54:45] So you're looking at like double-digit earnings declines across the board and the one thing I will mention the that the gross impaired loan ratios

[00:54:54] so

[00:54:55] Just kind of for apples to apples comparison

[00:54:58] So CIBC is at point two five whereas I believe TD was at point08 and Royal was at.16.

[00:55:05] So I mean, it's best to look at those across all the banks and you can see, you know,

[00:55:10] CIBC has a little bit more in terms of those residential mortgages, but it was a pretty good quarter.

[00:55:16] They've been actually one of the best performing Canadian banks over the last while, I think.

[00:55:21] Mostly because, you know, I think their provisions have slowed down relative to the

[00:55:25] other banks, whereas you look at a bank like BMO was slow and now they're starting to really

[00:55:31] pick it up. It's all, it could be a tough 2024 for Canada's banks.

[00:55:38] Yeah, I mean, remember when we talked about what the CEOs were saying and I mean, it was

[00:55:43] across the board that they were saying that it would be a tough 20 24 so I think

[00:55:48] It remains to be seen how hard it will be and will things be turning around in 2025. I think that's

[00:55:54] Probably the best question to be asking. I think a lot of it will depend on

[00:55:59] Interest rates where interest rates go with what the bank of Canada does, but also what long-term

[00:56:05] interest rates do with the bond market. And the last thing I want to mention here about

[00:56:11] CIBC is for those on joint TCI. So these are the allowance for loan losses. So this is the money

[00:56:18] essentially when they, you see the headline. So the numbers we're talking about is money that

[00:56:22] they're taking from their profits and putting

[00:56:25] on their balance sheet as a provision for writing off loans. And what's always interesting to look

[00:56:32] at is the total money they actually have on their balance sheet for that purpose. And CIBC,

[00:56:38] actually, you can see that it's been steadily increasing again, kind of follows July 2022. That quarter, I kind of

[00:56:46] started leveled off there and then started increasing since. And you see these

[00:56:51] amount increasing. And I always find that's a really good thing to look at because it looks at

[00:56:55] the total, not just what the bank is adding this quarter. Because like we looked at the past quarter,

[00:57:02] remember, Scotia bank had like this massive increase,

[00:57:05] but they were also behind the other banks

[00:57:08] when you looked at that compared

[00:57:09] to their total loan portfolio.

[00:57:11] So it didn't make sense when you looked at it

[00:57:13] from that perspective.

[00:57:14] But I do encourage people who invest in banks

[00:57:17] to just look at that total amount under balance sheet

[00:57:20] and see what direction is going.

[00:57:22] A little spoiler alert, it's increasing, but for the

[00:57:28] more medium term as the year goes through 2025, you want to have an eye on what direction

[00:57:36] that total amount is going. That'll give you a good idea because they always have to keep

[00:57:41] money on their balance sheet for bad loans. They're required to do that.

[00:57:45] I think it's just something I wanted to mention here.

[00:57:48] Yeah.

[00:57:49] I mean, even see during the pandemic, they still had $2.8 billion set aside.

[00:57:54] You can tell it starts to increase conveniently right when the Bank of Canada started accelerating

[00:58:01] rates.

[00:58:03] It goes down during the pandemic and then just starts going up pretty rapidly,

[00:58:07] leading up to this quarter.

[00:58:09] Yeah, because I mean, it does take a bit of time

[00:58:11] for that stress to be felt, right?

[00:58:14] Yeah.

[00:58:14] Not those who had like, for example,

[00:58:16] variable rate mortgages,

[00:58:17] because those are directly affected

[00:58:19] by what the Bank of Canada is doing.

[00:58:21] But those who had fixed rate mortgages that are renewing,

[00:58:24] it's going to

[00:58:25] take a little bit of time because we saw those maturity schedules, right?

[00:58:29] They're not immediate.

[00:58:31] So it's more of a slow burn of people getting those payment shocks.

[00:58:35] So that's why you kind of see those increases and obviously the ripple effect that we talked

[00:58:40] about.

[00:58:41] If you're paying more for your mortgage, then you know, what are you doing?

[00:58:44] Are you paying off your you doing? Are you

[00:58:45] paying off your credit card? Are you just saying, okay, I'll pay the minimum and then I'll still

[00:58:48] make my mortgage payments? So then consumer, they may start putting more money aside because

[00:58:54] there's this ripple effect for different clients that they have.

[00:58:57] Yeah. It's going to be an interesting situation moving forward. I mean, the fiscal 2026 makes sense because you like most consumers during 2021 probably

[00:59:08] chose a five years fixed rate because you were probably getting like one and a half percent.

[00:59:14] You probably crazy do have not gone.

[00:59:16] Well, I know a lot of people went variable, but I mean, the renewal schedule makes sense

[00:59:20] that, you know, the vast majority of these mortgages are going to come do five years after an insane real estate flurry of purchases.

[00:59:30] I don't expect a good 2024 from the banks.

[00:59:33] I still own them.

[00:59:34] I'm not going to sell them or anything, but I don't expect any immediate recovery here

[00:59:39] because I think the economy is still going to be in rough shape for a bit.

[00:59:44] Yeah.

[00:59:45] No, I agree with you.

[00:59:47] Who knows?

[00:59:48] I mean, with the stock market ripping in terms of the Magnificant 7, who knows sometimes

[00:59:53] where things will go, but maybe they'll end up reversing things if we end up getting

[00:59:59] rate cuts eventually.

[01:00:01] But who knows when those will happen at this point?

[01:00:03] There's been a definitely a shift in sentiment on when those could potentially be happening.

[01:00:07] Yeah, like we're even as we talk right now, like the NASDAQ's down like 1.8% because

[01:00:14] they might think that Raycuts might not come and when is it, when's the next meeting?

[01:00:19] Would it be June?

[01:00:20] The Fed meeting?

[01:00:21] No.

[01:00:22] It'd be before that.

[01:00:23] I think it's March.

[01:00:24] The Fed meeting. But there's pretty, I don. I think it's March. The Fed meeting.

[01:00:25] But there's pretty, I don't think they're not gonna cut in March, but now there's debate

[01:00:29] that they might not cut even in June.

[01:00:32] So.

[01:00:33] Yeah, it'll be.

[01:00:34] I mean, I think a lot of the rally we're seeing is just, sorry for lack of better

[01:00:39] term, but investors are getting high on rate cuts, on the potential of rate cuts.

[01:00:44] Pretty much, yeah. And just of rate cuts, and just how

[01:00:46] the Fed had come out in December and basically a shift in tone and essentially saying there'd

[01:00:51] be at least three rate cuts and the market pricing in six.

[01:00:55] And now, as we're seeing the top line figures come in, I think it allows the Fed to justify

[01:01:01] leaning on that.

[01:01:04] Yeah, staying high for longer just because they want, you

[01:01:08] know, they need justification. If you start digging into the numbers, like employment,

[01:01:11] for example, it's not as rosy as the headline numbers might think. But I mean, from a, you

[01:01:18] know, Jerome Powell standpoint, from the Fed standpoint, if they want to make sure that

[01:01:21] they quash inflation, it gives them cover at least, right? They can just say, well, look, employment's fine. Unemployment is low.

[01:01:29] The economy is still chugging along even though they might know that the underlying numbers

[01:01:34] are not great. If their main priority is to get inflation down, it does allow them to

[01:01:38] keep it higher for longer. But then you get into the question, when will they cut because

[01:01:43] it would not look great if they start cutting the meeting before the question, when will they cut? Because it would not look great

[01:01:45] if they start cutting the meeting before the election,

[01:01:47] for example.

[01:01:48] So what I've been hearing is that if they want to cut,

[01:01:52] they'll have to start a couple meetings before

[01:01:55] so that at least if they do cut right before the election,

[01:01:58] they've already started so they can't say

[01:02:00] that they're being political.

[01:02:01] I think that's the angle that apparently they're trying to,

[01:02:04] a lot of people are speculating that they're being political. I think that's the angle that apparently they're trying to, a lot of people are speculating that they're trying to take.

[01:02:07] Oh, definitely. It's all, I mean, they're not supposed to be, but it just paints a bad picture

[01:02:11] if they do it. And I mean, then you look at what does the bank of Canada do because

[01:02:16] I think the Bank of Canada probably understands that they need to cut much more than the Fed,

[01:02:22] but then that creates a whole world of problems if you're cutting

[01:02:26] before they do in terms of the impact on the dollar and everything.

[01:02:29] So I think the bank of Canada is in a pretty tough situation because I think a lot of Canadians

[01:02:35] need relief for us.

[01:02:36] The US economy seems to be on the surface just chugging along just fine.

[01:02:41] So there's probably less of a need to cut down there than

[01:02:46] there is up here. Yeah, and you have politicians from provincial to federal that are not explicitly

[01:02:55] saying it, but basically implying that the Bank of Canada should cut rates, which I mean,

[01:03:00] I always find no areas that they would even venture to say that, but it'll, yeah,

[01:03:05] who knows what's going to happen.

[01:03:07] Tough situation.

[01:03:08] Yeah.

[01:03:09] So I think that's it for this episode.

[01:03:11] I hope people enjoyed it.

[01:03:13] I know Canadian banks are always very popular, so I'm sure there's going to be a lot of you

[01:03:17] listening to the episode.

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[01:03:47] Stock trades underscore CA. Okay, perfect. So yeah, thanks for listening and we'll see you soon

[01:03:54] The Canadian investor podcast should not be construed as investment or financial advice

[01:03:59] the hosts and guests featured may own securities or assets discussed on this podcast.

[01:04:06] Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.