Canadian Banks Set More Aside for Bad loans

[00:00:01] [SPEAKER_00]: This is the Canadian Investor, where you take control of your own portfolio and gain the confidence

[00:00:07] [SPEAKER_00]: you need to succeed in the markets.

[00:00:10] [SPEAKER_00]: Hosted by Braden Dennis and see Mobile-Age.

[00:00:14] [SPEAKER_02]: Welcome back to the Canadian Investor podcast.

[00:00:17] [SPEAKER_02]: I'm here with Dan Kent.

[00:00:19] [SPEAKER_02]: We are back for a fresh episode of our Thursday news and earnings.

[00:00:24] [SPEAKER_02]: Dan before we get started, how's it going?

[00:00:26] [SPEAKER_02]: Are you excited to get a kick off of earnings season for Canadians because the banks are reporting?

[00:00:33] [SPEAKER_01]: Yeah, this is always an interesting time of the year.

[00:00:35] [SPEAKER_01]: We have the CPI and then a bunch of Canadian banks started reporting.

[00:00:40] [SPEAKER_01]: I think three of them will report in the back after the year of the week and then we got three this week.

[00:00:45] [SPEAKER_01]: It's definitely interesting.

[00:00:47] [SPEAKER_01]: The banks are reporting earnings.

[00:00:49] [SPEAKER_01]: Lots of struggles thus far.

[00:00:52] [SPEAKER_02]: Yeah, it'll be interesting.

[00:00:53] [SPEAKER_02]: I mean, I did some as you know and some people might know.

[00:00:57] [SPEAKER_02]: I'm not sure if I said it on podcast.

[00:00:59] [SPEAKER_02]: I just came back from a cottage we rented.

[00:01:01] [SPEAKER_02]: So I did a little bit of work, stayed abreast of what was happening on the earnings front.

[00:01:07] [SPEAKER_02]: I think it'll be a fun episode to get started on.

[00:01:11] [SPEAKER_02]: So let's just get started because we will try to keep this one not too long because

[00:01:16] [SPEAKER_02]: you have, I think, what a Craigslist person coming?

[00:01:20] [SPEAKER_02]: No, just, yes.

[00:01:21] [SPEAKER_02]: I mean, I mean, yeah, I'm kidding.

[00:01:25] [SPEAKER_02]: Yeah, I'm kidding.

[00:01:26] [SPEAKER_02]: I'm kidding.

[00:01:26] [SPEAKER_01]: I'm kidding.

[00:01:26] [SPEAKER_02]: I'm kidding.

[00:01:27] [SPEAKER_02]: I'm kidding.

[00:01:28] [SPEAKER_02]: So like you mentioned, Canadian CPI and the Fed had, while Jerome Powell talked about what would be happening

[00:01:39] [SPEAKER_02]: down the line at a recent meeting that he had and I'll just go over both of it

[00:01:46] [SPEAKER_02]: just to give people a bit of an overview.

[00:01:48] [SPEAKER_02]: I know it's a bit older here by the time you hear it, but that's okay.

[00:01:52] [SPEAKER_02]: So Canadian CPI, I won't go into too much details because we do have quite a bit to talk

[00:01:58] [SPEAKER_02]: about today.

[00:01:59] [SPEAKER_02]: The headline number was 2.5% over year.

[00:02:02] [SPEAKER_02]: Monthly Vermont though, it was 0.4% which is not great and it was a bit interesting

[00:02:08] [SPEAKER_02]: because I did see while I would start the cottage, the headlines of the 2.5% obviously

[00:02:12] [SPEAKER_02]: trending in the right direction.

[00:02:14] [SPEAKER_02]: But 0.4 month over month, if you analyze it's clearly way more than 2.5%.

[00:02:20] [SPEAKER_02]: So I think that is something to keep in mind and not many outlets we're talking about

[00:02:26] [SPEAKER_02]: that.

[00:02:26] [SPEAKER_02]: So I found that pretty interesting.

[00:02:28] [SPEAKER_02]: Energy prices remain in the low single digits and I think I'll say that again.

[00:02:33] [SPEAKER_02]: I know I've repeated it but that's definitely a risk for inflation picking back up

[00:02:38] [SPEAKER_02]: if energy prices do start going up.

[00:02:41] [SPEAKER_02]: And shelter costs went from 6.2% in June to 5.7% in July.

[00:02:47] [SPEAKER_02]: So that was a big driver at lowering the CPI so definitely obviously it's still going

[00:02:53] [SPEAKER_02]: up but kind of putting some downward pressure even though it may still sound pretty high.

[00:02:59] [SPEAKER_02]: The services I'm just going on memory because I forgot to put in my notes, I believe

[00:03:03] [SPEAKER_02]: it was 4.44.8% over year.

[00:03:06] [SPEAKER_02]: So services remains pretty sticky here.

[00:03:10] [SPEAKER_02]: It'll be interesting to see what happens there.

[00:03:13] [SPEAKER_02]: And in terms of the core CPI, the metrics that the bank of Canada looked closely at,

[00:03:19] [SPEAKER_02]: closest at, those were for the common median and trim.

[00:03:23] [SPEAKER_02]: They were down 2.2% 2.4% and 2.7% respectively.

[00:03:30] [SPEAKER_02]: So definitely making some progress on that front.

[00:03:34] [SPEAKER_02]: Anything you want to add before I go into some of the recent comments made by Mr. Powell himself?

[00:03:40] [SPEAKER_01]: No, I mean a few a couple of the things that have been, I mean the two sticky

[00:03:44] [SPEAKER_01]: is things over the last year or so have been services and shelter which I mean it seems

[00:03:48] [SPEAKER_01]: like shelter starting to come down still way too high but that is probably the area of inflation

[00:03:54] [SPEAKER_01]: that hits absolutely everybody.

[00:03:57] [SPEAKER_01]: So to see that come down is pretty bright spot.

[00:04:01] [SPEAKER_01]: I just saw a, I can't find, I was looking up the tweet.

[00:04:05] [SPEAKER_01]: I can't find it now but somebody posted kind of analyst projections of Canadian rates and

[00:04:12] [SPEAKER_01]: and some of them were expecting like 2.75% policy rates by the end of 2025 which would be

[00:04:20] [SPEAKER_01]: quite aggressive from where we're at now but depending how much it slows down and how long

[00:04:25] [SPEAKER_01]: it keeps in this number, it's possible.

[00:04:27] [SPEAKER_01]: The month over month, I mean it's very so much.

[00:04:31] [SPEAKER_01]: I mean sometimes you'll get flat month of a month and then the other times it'll come in way

[00:04:35] [SPEAKER_01]: higher so it's really hard to like project that out.

[00:04:38] [SPEAKER_01]: That's a good point.

[00:04:40] [SPEAKER_01]: It's not as easy as to just annualize it.

[00:04:42] [SPEAKER_01]: I mean it could if it keeps up I mean for three or four months you could probably say oh

[00:04:48] [SPEAKER_01]: you know this doesn't look too good but one off, one off month is not really too much to worry about.

[00:04:54] [SPEAKER_02]: No and I totally agree with that.

[00:04:56] [SPEAKER_02]: I mean obviously I think it's just good to note it like just a one off.

[00:05:01] [SPEAKER_02]: It's something I take with a grain of salt maybe it's something you look more at the kind

[00:05:05] [SPEAKER_02]: of three months, three to six month rolling average where it makes puts a bit more context.

[00:05:10] [SPEAKER_02]: Yes but obviously yeah and if you look at obviously what was said at Jackson Hole so a

[00:05:15] [SPEAKER_02]: Jerome Powell there was a much anticipated speech because I think it'll be the last time

[00:05:20] [SPEAKER_02]: these two weeks before the next Fed meeting in September and I think the key quote to pull

[00:05:25] [SPEAKER_02]: out from that is the time as come for the policy to adjust and I watched a full presser and they

[00:05:32] [SPEAKER_02]: were just kind of explaining how they got to this point but it's clear that there no longer

[00:05:37] [SPEAKER_02]: concern by inflation and now they're really turning their focus to the weakening labor market.

[00:05:43] [SPEAKER_02]: Again I don't have this in my notes I'm going on memory but it made the rounds quite a bit where

[00:05:49] [SPEAKER_02]: the Fed did not the Fed but the BLS I believe that a major revision to the employment numbers

[00:05:56] [SPEAKER_02]: not too long ago in the last couple weeks big downward revision for the employment numbers

[00:06:02] [SPEAKER_02]: so clearly showing that employment is not as strong as a lot of people thought and if you

[00:06:09] [SPEAKER_02]: if you're into macro you probably had an inkling that this was coming a lot of people in this

[00:06:14] [SPEAKER_02]: base were mentioning that it will likely be a pretty massive revision downwards and that's

[00:06:20] [SPEAKER_02]: what happened and the Fed does have a dual mandate so it's making sure that prices are stable

[00:06:28] [SPEAKER_02]: but also that the labor market is strong so there is that dual mandate for the Fed and I think

[00:06:35] [SPEAKER_02]: just we've talked about this before but just during reinforced it I think it's important for

[00:06:40] [SPEAKER_02]: people to remember you mentioned can't remember which bank you said or who's predicting 2.5%

[00:06:46] [SPEAKER_02]: by the end of 2025 but I think it's just interesting for people or just an important to

[00:06:54] [SPEAKER_02]: remember that when the central bank start cutting rates pretty aggressively it means typically

[00:07:01] [SPEAKER_02]: that things are not looking good they're looking at lagging data they're reactive and as people

[00:07:07] [SPEAKER_02]: from joint ECI can see is that when you get the orange lines on the graphic here is essentially

[00:07:15] [SPEAKER_02]: when you start seeing the rate cuts from the Fed and the blue is actually the S&P 500 and you can

[00:07:21] [SPEAKER_02]: see that the stock market soon after the Fed starts cutting the stock markets goes into a correction

[00:07:30] [SPEAKER_02]: if not worse so I think that just goes to show that typically when the Fed starts cutting or central

[00:07:37] [SPEAKER_02]: banks start cutting it's because they're being reactive and the reacting to some pretty bad

[00:07:42] [SPEAKER_02]: data coming in which typically will be the start of a recession. Yeah especially when you get the big

[00:07:49] [SPEAKER_01]: fast cuts like I mean the COVID-19 situation on March I guess would be a little bit different the

[00:07:55] [SPEAKER_01]: markets went up but that was also yeah just because of the situation they pretty much drop policy rates

[00:08:01] [SPEAKER_01]: absolute rock bottoms but yeah it's generally when they need to cut fast it's typically

[00:08:07] [SPEAKER_01]: because the economy is so bad and that's generally not good for the stock market but I mean all

[00:08:13] [SPEAKER_01]: the data now supports rate cuts so it's not surprising that they're going to do it I mean a lot of

[00:08:19] [SPEAKER_01]: people kind of criticize the bank a candidate for cutting early but I mean it kind of looks like

[00:08:31] [SPEAKER_02]: point who knows yeah at this point I mean L is definitely wrong on that and I'll totally admit it

[00:08:36] [SPEAKER_02]: I didn't think the Fed would start cutting essentially when like on the September meeting because

[00:08:42] [SPEAKER_02]: it is the last meeting that they are or the last chance to cut rate before the 2024 election

[00:08:50] [SPEAKER_02]: so I didn't think they would start cutting there because clearly Trump will probably try to use that

[00:08:55] [SPEAKER_02]: at the same point I mean if you're a Trump the other argument you could be it's like oh look

[00:09:00] [SPEAKER_02]: how bad the Democrats wore the Fed had to cut rates right before the election to try and help them

[00:09:06] [SPEAKER_02]: out all right I like I can just see you know kind of twisting that a little bit so it'll be

[00:09:11] [SPEAKER_02]: interesting what happens I was trying to pull up the CME Fed watch tools so for the upcoming meeting

[00:09:19] [SPEAKER_02]: for September 1820 24 so it's a 36% chance 37% chance if we round up for a 50 basis point cut

[00:09:28] [SPEAKER_02]: and 63.5% chance for a 25 basis point so 25 basis probably more likely at this point but we'll

[00:09:36] [SPEAKER_02]: have to see I mean the the markets have not done a very good job let's just be honest here about

[00:09:42] [SPEAKER_02]: predicting what the Fed will do over the last year and a half or so yeah exactly I mean the one

[00:09:47] [SPEAKER_01]: thing that I mean when you get the odds that much in favor I mean effectively what zero percent

[00:09:52] [SPEAKER_01]: chance that they maintain especially with the commentary about how he said that you know it's time

[00:09:57] [SPEAKER_01]: for you know policy to change that pretty much signals almost a guarantee that they cut just depends

[00:10:04] [SPEAKER_02]: on you know how much yeah yeah exactly so now we'll move on from the macro to a bit a name that I

[00:10:13] [SPEAKER_02]: am pretty sure a lot of people listen to the podcast are actually pretty familiar with it so

[00:10:18] [SPEAKER_02]: Algonquin power made the news because they're selling their renewable power business so this was

[00:10:24] [SPEAKER_02]: announced a few weeks ago the announced it was they were selling the renewable business for 2.5 billion

[00:10:30] [SPEAKER_02]: USD to LS power excluding their hydro business the transaction is expected to close in late 2024 or

[00:10:40] [SPEAKER_02]: 2025 and the proceeds of the sell will be used to shore up their balance sheet and future growth

[00:10:45] [SPEAKER_02]: their plan is to transform Algonquin into a pure play regulated utility and their renewable

[00:10:52] [SPEAKER_02]: business I just had a look a little bit at their number it currently generates about 13% of the

[00:10:58] [SPEAKER_02]: revenues it's not the majority of the business but I think you know the name better than I do and you

[00:11:03] [SPEAKER_02]: were telling me like it was the only part of the business that was actually growing right well it was

[00:11:08] [SPEAKER_01]: kind of the growth vertical for them I mean outside like if they sell after renewable business

[00:11:14] [SPEAKER_01]: essentially a regulated utility for the most part which was the bulk of their business previously but

[00:11:19] [SPEAKER_01]: I mean for me I'm not really sure what separates something like Algonquin from Fortis right now you

[00:11:26] [SPEAKER_01]: know what I mean like there's clearly like Fortis is clearly the superior regulated utility at least

[00:11:32] [SPEAKER_01]: you know has been in the past and the fact that they pretty much have to sell this area the

[00:11:38] [SPEAKER_01]: business off to just shore up the balance sheet I mean it's it's just pretty much probably going

[00:11:44] [SPEAKER_01]: back to paying down debt debt that they kind of added over the years just to you know kind of

[00:11:51] [SPEAKER_01]: try to feel growth or having to sell that off just to pay down debt and I mean the main

[00:11:57] [SPEAKER_01]: the key reason you know that things went sour for Algonquin was just for the most part

[00:12:02] [SPEAKER_01]: exposure to floating rate debt so I believe back when they first cut the dividend they were

[00:12:10] [SPEAKER_01]: 22 to 24% of their debt profile was exposed to floating rate debt where if you look at a

[00:12:17] [SPEAKER_01]: renewable player like Brookfield renewables they they sit at around 3% and Fortis is around I believe

[00:12:23] [SPEAKER_01]: this off the top my head but it's low single digits like 5% tops so I mean that just got them into

[00:12:30] [SPEAKER_01]: a whole slew of trouble and it was just it's been an ugly last while for this company it kind

[00:12:37] [SPEAKER_01]: of benefited from you know a 10 year stretch of practically free money and then you know when

[00:12:43] [SPEAKER_02]: interest rates went up it just got clobbered yeah and a graphic here I'm showing is basically

[00:12:49] [SPEAKER_02]: their interests expense so you can see it was hovering around like 180 to 200 million so from

[00:12:56] [SPEAKER_02]: 2019 to 2021 and then you see when the rates started to go up in 2022 so then it's 278 million

[00:13:05] [SPEAKER_02]: 353 million 2023 and last 12 months it was 390 million so just goes to show that yes interest

[00:13:13] [SPEAKER_02]: expense has really ballooned and some pretty poor management decisions I'll be honest over there

[00:13:20] [SPEAKER_02]: and the other thing I wanted to highlight to is their net debt to EBITDA the net debt essentially

[00:13:26] [SPEAKER_02]: is just that debt when you substraining the cash they would have on the balance sheet and then

[00:13:30] [SPEAKER_02]: earnings before interest taxes depreciation and amortization just to give an idea here it's around like

[00:13:37] [SPEAKER_02]: 9.6 lower the better because obviously you know it means you're cover your cut in terms of the

[00:13:44] [SPEAKER_02]: EBITDA it's the amount of times it would be required to cover your debt and if I'm looking

[00:13:50] [SPEAKER_02]: at a fordice I think they're around like 5 or 6 so it gives you a better idea here in terms of

[00:13:56] [SPEAKER_02]: what kind of debt level they were looking at and then on top of the floating rate that that you mentioned

[00:14:02] [SPEAKER_01]: yeah and then they had they had quite a few years of of share issues too so it wasn't only

[00:14:08] [SPEAKER_01]: debt it was like equity as well which for the most part of the company had a pretty good track

[00:14:14] [SPEAKER_01]: record of making a creative acquisition so like it wasn't that big of an issue but now it just

[00:14:20] [SPEAKER_01]: it just got hammered I remember a lot of people back when they before they cut the dividend the first time

[00:14:26] [SPEAKER_01]: were were mentioning like FFO their funds from operations and how it how it covered the dividend

[00:14:31] [SPEAKER_01]: and the one key thing is like FFO was not a you know gap metric pretty much it can be

[00:14:38] [SPEAKER_01]: you know companies can change how it's calculated they can do whatever they want to make the numbers

[00:14:42] [SPEAKER_01]: look better and I mean I think at the time before the dividend cut they were 60%

[00:14:47] [SPEAKER_01]: their dividend was around 60 or 70% FFO and then you know it just comes out that they slashed the

[00:14:53] [SPEAKER_01]: dividend and you know now they cut it again or did they completely eliminate it they couldn't have

[00:14:58] [SPEAKER_02]: a limit no so they cut it twice yeah so that's why I was gonna get into so they first cut it they

[00:15:04] [SPEAKER_02]: cut the dividend in 2023 they cut it by 40% and then they cut it again by 55% with their earnings

[00:15:12] [SPEAKER_02]: release and if you held the stock before the first dividend cut the dividend now is now down 73% so that's

[00:15:20] [SPEAKER_02]: a pretty massive cut here for a play that lets be honest people that weren't this name or definitely

[00:15:25] [SPEAKER_02]: dividend if seeking you income looking at the income so I think it's just a good reminder of

[00:15:32] [SPEAKER_02]: understanding what you own if you want to invest mainly in dividend stocks have added I mean I own a lot

[00:15:38] [SPEAKER_02]: dividend stocks myself it's great to get paid I totally understand that but we've had some

[00:15:42] [SPEAKER_02]: discussions on Twitter with other people where they kind of don't know the business they don't

[00:15:48] [SPEAKER_02]: understand whether you know the dividend is sustainable or not and then we're seeing it here because

[00:15:53] [SPEAKER_02]: I think you know from most people most Canadians that had this name prior to the dividend cut I think

[00:15:59] [SPEAKER_02]: a lot of people thought it was just kind of a blue chip and they would never cut the dividend but

[00:16:03] [SPEAKER_02]: then if you even factor in a total returns I mean it's just a trotus over the last five

[00:16:09] [SPEAKER_02]: years down 44% so that includes the dividend and the capital loss is like yes with them

[00:16:16] [SPEAKER_02]: minus 56% over the last three years and the last year down 22% and then year to date down 12%.

[00:16:24] [SPEAKER_02]: So not a great holding to had and I think it's just I think it's important for people to remember

[00:16:30] [SPEAKER_02]: dividends are not guaranteed and make sure that you know if you are in a company for like

[00:16:36] [SPEAKER_02]: one of the primary reasons is that dividend makes sure it's sustainable because if not you

[00:16:41] [SPEAKER_02]: man the having a pretty bad surprise here so not too much more to add do you want to go for

[00:16:47] [SPEAKER_02]: to bank earnings before or anything else you want to add for a gone quit?

[00:16:51] [SPEAKER_01]: No I mean I guess the one thing I would say is that a lot of people will associate the dividend cut

[00:16:56] [SPEAKER_01]: with poor performance but I mean it's just been completely terrible operational performance

[00:17:02] [SPEAKER_01]: the reason it's down so much is not because of cut the dividend they needed to cut the dividend

[00:17:07] [SPEAKER_01]: because they are not generating the earnings to even cover it which is ultimately why

[00:17:12] [SPEAKER_01]: the stock is down so much but yeah BMO so BMO is over the last while here it's struggled

[00:17:20] [SPEAKER_01]: quite a bit you could argue it's probably been the worst performing Canadian bank over the last

[00:17:26] [SPEAKER_01]: year so earnings per share of $2.64 not only missed endless estimates but we're also down 10

[00:17:33] [SPEAKER_01]: percent year over year so most of the banks have managed to you know maintain at least steady earnings

[00:17:41] [SPEAKER_01]: or you know maybe down mid-single digits or I believe and again this is off the top my head I

[00:17:47] [SPEAKER_01]: believe RBC is even possibly growing earnings at a very small amount but BMO double digit earnings loss

[00:17:55] [SPEAKER_01]: year over year is it's not exactly the best situation for them and one of the key issues I

[00:18:02] [SPEAKER_01]: think on the quarter in terms of why the stock I believe it's down 7 percent and I mean 7% for a

[00:18:10] [SPEAKER_01]: Canadian bank that is a big move oh is it yeah on a on a interdate like a lot of people I mean

[00:18:16] [SPEAKER_01]: if there's been a lot of volatility lately so people are probably immune to you know 7%

[00:18:21] [SPEAKER_01]: swings in price but 7% for a Canadian bank is a it's a huge move especially post earnings they

[00:18:29] [SPEAKER_01]: typically don't move this much and I believe it was because well I mean operationally they're

[00:18:34] [SPEAKER_01]: not doing too well in the United States but one of the big things was their provisions for credit

[00:18:39] [SPEAKER_01]: loss it came in at 906 million so this absolutely blew through expectations for 745 million

[00:18:47] [SPEAKER_01]: and one thing to keep in mind as well is these PCL expectations had been upgraded numerous times

[00:18:53] [SPEAKER_01]: by analysts leading into the quarter so I remember it's probably a month or two ago most

[00:18:58] [SPEAKER_01]: expectations were initially in the high 600 million range so they kept getting upgraded upgraded upgrade

[00:19:04] [SPEAKER_01]: and even then they they came in while what is that 155 million higher so that was quite a surprise

[00:19:13] [SPEAKER_01]: but the thing is the where you would think the bank is struggling it's actually doing quite well

[00:19:19] [SPEAKER_01]: so its Canadian arm is is doing very well revenue is up to 7% your over year

[00:19:25] [SPEAKER_01]: 3% core quarter of a quarter while net income is up 3% your vier and 5% quarter of a quarter

[00:19:31] [SPEAKER_01]: and provisions for credit losses were actually lower on a quarter of a quarter basis I believe they were

[00:19:38] [SPEAKER_01]: I can't remember the exact numbers maybe 130 million and that was 10 million lower than they

[00:19:43] [SPEAKER_01]: reported last quarter loans are up 6% your rear deposits are up 11% your over year and net

[00:19:50] [SPEAKER_01]: interest margins remained relatively steady but it's actually the company's US arm where it is

[00:19:56] [SPEAKER_01]: really struggling so revenue is down 1% your rear while earnings for share are fallen by 9%

[00:20:02] [SPEAKER_01]: and provisions in its US segment have more than doubled your over year which like your

[00:20:07] [SPEAKER_01]: year is really not a very good way to look at provisions its more you know sequentially like quarter

[00:20:13] [SPEAKER_01]: over quarter but even quarter over quarter they increase by about 30% and in the states loans are down

[00:20:20] [SPEAKER_01]: 1% on your over year basis while deposits were up around 4% this is the fourth consecutive

[00:20:28] [SPEAKER_01]: quarter in which the company's US segment has reported a decline in adjusted net income and net interest

[00:20:35] [SPEAKER_01]: and the really interesting thing from a PCL ratio it so the company's impaired loan PCL ratio

[00:20:42] [SPEAKER_01]: one year ago today was 20 basis points so it now sits at 50 basis points overall PCL ratio which would

[00:20:49] [SPEAKER_01]: contain performing and impaired loans was 30 basis points a year ago and now it sits at 54 basis

[00:20:56] [SPEAKER_01]: points it's been steadily increasing every single quarter you know like 6-7 basis points higher

[00:21:03] [SPEAKER_01]: every single quarter until we've got to this you know the situation we're going right now whereas

[00:21:08] [SPEAKER_01]: you know a company like CIPC which hasn't reported yet they've they've kind of you know

[00:21:14] [SPEAKER_01]: steady that PC you know they're overall PCLs and as a result they're like one of the best performing

[00:21:19] [SPEAKER_01]: banks Canadian banks over the last year but I would be you know there's still three banks to

[00:21:25] [SPEAKER_01]: report but I would be shocked if this didn't come in at the highest PCL ratio out of all the banks

[00:21:32] [SPEAKER_01]: it's gross impaired loans ratio which would pretty much represent its total impaired loans relative

[00:21:37] [SPEAKER_01]: is loan portfolio came in at 89 basis points this is the highest ratio again out of the banks that

[00:21:43] [SPEAKER_01]: have reported on a sequential basis is up by 10 basis points and I mean the most alarming acceleration

[00:21:50] [SPEAKER_01]: of PCLs is no doubt it's US segment which is starting to really drag on the results I mean overall

[00:21:56] [SPEAKER_01]: it's just really not a good quarter from BMO this is a company that I used to own but I sold it

[00:22:02] [SPEAKER_01]: I believe it was three quarters ago just see acceleration of PCLs the struggles of its U.S.

[00:22:07] [SPEAKER_01]: arm I mean they're definitely definitely concerning and I mean all banks report

[00:22:13] [SPEAKER_01]: pre-tax pre-provision revenue but BMOs kind of started to it'll move that closer to the top of

[00:22:19] [SPEAKER_01]: earnings report where they're starting to like mention pre-provision revenue pre-provision earnings

[00:22:24] [SPEAKER_01]: which I mean like provisions are provisions I mean they're they're set aside for a reason

[00:22:29] [SPEAKER_01]: so you'll see all these companies report the PPPT but I mean BMOs kind of moved it front and center

[00:22:37] [SPEAKER_01]: it's kind of the first comment in the report about how you know on a pre-provision basis

[00:22:42] [SPEAKER_01]: they're not doing that bad but I mean their their provisions are I mean they're the worst out

[00:22:47] [SPEAKER_02]: of the big six banks it's almost no question and I think it's good for people to remember

[00:22:52] [SPEAKER_02]: it is typically you'll have two types of provisions right you'll have provisions on impaired

[00:22:56] [SPEAKER_02]: loan so loans that are extremely unlikely to be recovered because they are not performing people

[00:23:02] [SPEAKER_02]: of Mr. Payments and so on and then you have provisions for performing loans and the vast majority

[00:23:09] [SPEAKER_02]: is typically you know the impaired loans so it's you know you have to keep in mind that extra money

[00:23:16] [SPEAKER_02]: they're setting aside when the vast majority is impaired loans there's a good chance they won't see

[00:23:21] [SPEAKER_02]: the vast majority of that in the future it's a bit different than in 2020 where the banks like put

[00:23:27] [SPEAKER_02]: a lot of money aside I think I can't remember exactly but I assume it was more on performing loans

[00:23:34] [SPEAKER_02]: but with the fear that the pandemic and people losing their jobs would result in mass you know 90 days

[00:23:41] [SPEAKER_02]: plus the linkwencies and so on where right now it's more of a slower moving train and one of the

[00:23:47] [SPEAKER_02]: things I'm sharing here with a joint ECI's viewers is the kind of 90 day delinquency since Q3

[00:23:57] [SPEAKER_02]: 2020 three up until now so in the past year and you can see that all the lines of business I mean

[00:24:04] [SPEAKER_02]: the 90 day the linkwency has gone for residential mortgages and they're not big numbers but it's

[00:24:10] [SPEAKER_02]: on 15 basis point to 24 in a year personal lending 33 to 43 in a year and this is for the Canadian

[00:24:17] [SPEAKER_02]: Portfolio credit card 70 basis points to 1.08 percent and then the so I guess a total consumer is

[00:24:26] [SPEAKER_02]: everything added up together but the trend I am seeing here and it's not surprising but it's really an

[00:24:32] [SPEAKER_02]: increase in those delinquencies I mean they may not all end up impaired obviously it's just 90

[00:24:40] [SPEAKER_02]: days plus but typically when you're in that situation you're probably in a pretty tough spot if

[00:24:46] [SPEAKER_01]: you've gone that far yeah like you can get an impaired loan where somebody has had some form of

[00:24:50] [SPEAKER_01]: you know mispayment and they they somehow recover but it's I mean it's generally not a very good

[00:24:56] [SPEAKER_01]: situation I was looking into the companies like gross impaired loans and a lot of them are coming

[00:25:01] [SPEAKER_01]: from the services industry which would I don't know what would that be like restaurants and

[00:25:06] [SPEAKER_01]: kind of things like that like businesses that are struggling and the I actually don't have

[00:25:11] [SPEAKER_01]: their earnings report up right now but I did do I did a YouTube video on BMO this morning and I

[00:25:18] [SPEAKER_01]: looked at the business PCLs versus the consumer PCLs and the consumer is relatively steady

[00:25:24] [SPEAKER_01]: there's very little increase but the the business impaired loans has skyrocketed over the last

[00:25:31] [SPEAKER_01]: three quarters so I think you'll find a chart in there if you're looking at it but it was like

[00:25:35] [SPEAKER_01]: I think it was just two or three quarters ago they had 180 million and now it's shot up to like

[00:25:40] [SPEAKER_01]: 550 so I mean it's definitely the I think it's a business side of things and not necessarily

[00:25:47] [SPEAKER_01]: just the consumer side of things that are starting to start you it like services industry and US

[00:25:55] [SPEAKER_01]: commercial real estate is where like a lot of their impaired loans are coming from and

[00:26:02] [SPEAKER_01]: I mean the provisions in the US segment is one of the main things that's dragging on results right now

[00:26:07] [SPEAKER_02]: yeah yeah exactly I mean and let's not forget that BMO I think they have the most if not the right

[00:26:13] [SPEAKER_02]: of there in terms of those fixed payment variable mortgages in Canada so those yeah get to

[00:26:20] [SPEAKER_02]: amortization and super long so I don't know the exact number I found it earlier but like I said

[00:26:26] [SPEAKER_02]: I came back from the cottage today and I was trying to then have much time to review BMO's earnings

[00:26:32] [SPEAKER_02]: but I did see that they've reduced it but it's still a significant portion and these are the

[00:26:38] [SPEAKER_02]: people that will have the biggest payment shock when they renew so I think it's it's just important too

[00:26:42] [SPEAKER_02]: I liked that but we got a couple more banks to talk about then anything else on BMO or we'll just

[00:26:48] [SPEAKER_02]: move on to you know the I was gonna use a certain time but I won't use it but the tire fire that

[00:26:55] [SPEAKER_02]: is TD no that's it for BMO okay so I mean TD it's definitely it could be better let's just say

[00:27:06] [SPEAKER_02]: that so the first thing that main headlines of course was that TD put aside an additional $2.6

[00:27:12] [SPEAKER_02]: billion US dollars in the first quarter for provisions for the US AML so AMLs is anti-money laundering

[00:27:19] [SPEAKER_02]: fines which you know governments do have regulations regarding that and the US has been investigating

[00:27:26] [SPEAKER_02]: now TD for quite some time was it it started in when was it like 20 early 2023 when that acquisition

[00:27:35] [SPEAKER_02]: fell through and that was one of the reasons yeah well that kind of like that fell through

[00:27:40] [SPEAKER_01]: without like first horizon or whatever yeah that fell through without like knowing why at first

[00:27:45] [SPEAKER_01]: and it was like yeah it was kind of determined that like maybe it was because of that regional

[00:27:50] [SPEAKER_01]: banking crisis and everything that they didn't want to do it but then it came out later on

[00:27:54] [SPEAKER_01]: that they were being investigated and it probably wouldn't have been allowed to be put through but

[00:27:59] [SPEAKER_01]: yeah I mean this is a I don't think anybody expected them to put aside this big of a chunk in a

[00:28:06] [SPEAKER_01]: I think like initially when when the accusation first came out I know most estimates were

[00:28:13] [SPEAKER_01]: we're saying like 500 million to one billion dollars in fines and like you fast forward till now

[00:28:19] [SPEAKER_01]: they're they're sitting at 3.5 billion dollars and it's far from over. Yes I mean it could be over

[00:28:26] [SPEAKER_01]: realistically they say that they wanted to end at the end of the year or they should get a resolution

[00:28:30] [SPEAKER_01]: at the end of the year but there's no guarantee that other stuff isn't going to come out

[00:28:35] [SPEAKER_01]: and there could be more fines so I mean it's yeah and yeah when you get in such big fines

[00:28:42] [SPEAKER_02]: two two points is billion US dollars like this means that they are probably like they're working

[00:28:47] [SPEAKER_02]: where do where are you later is that's what's happening right now right regulators are investigating

[00:28:52] [SPEAKER_02]: and TD probably has very good reasons to be setting that much money aside because they

[00:28:59] [SPEAKER_02]: probably know like they've probably have communication with these regularers are telling them

[00:29:03] [SPEAKER_02]: look this is not good it's going to be a massive fine and they're already setting stuff aside

[00:29:08] [SPEAKER_02]: but we've talked about it before and the biggest issue here with TD is what if regulators say like

[00:29:16] [SPEAKER_02]: okay TD you messed up so badly we really don't trust that you will be making changes that are

[00:29:23] [SPEAKER_02]: satisfying for us so we'll actually make sure that you make those changes in the US and we'll

[00:29:33] [SPEAKER_02]: at a certain level for certain amount of years until you prove to us that you're able to do

[00:29:38] [SPEAKER_02]: a proper AML program according to our standards and then we'll let you will re-evaluate and let

[00:29:46] [SPEAKER_02]: you grow and that's what happened with Wells Fargo's with the whole thing about like

[00:29:49] [SPEAKER_02]: opening the world putting credit cards bank accounts or like fake accounts without people

[00:29:55] [SPEAKER_02]: ever knowing so I think you have to be careful for those looking to invest with TD saying thinking like

[00:30:02] [SPEAKER_02]: it's all you know they're setting money aside they're saying they should have a resolution by the

[00:30:07] [SPEAKER_02]: end of the year the resolution even if they have it could be terrible for TD to grow in the next

[00:30:12] [SPEAKER_01]: short to medium yeah just because the resolution is coming at the end of the year does

[00:30:17] [SPEAKER_01]: mean it's going to be a positive resolution and on the on the fine front like a lot of people

[00:30:23] [SPEAKER_01]: I've heard say well let's just a provision this is probably a little bit easier to ballpark than like

[00:30:28] [SPEAKER_01]: provisions on your loan book like if they're setting aside 2.6 billion dollars someone has

[00:30:34] [SPEAKER_01]: probably told them at least to a certain degree that they're talking to really going to cost

[00:30:41] [SPEAKER_01]: them that like yeah it's it's pretty safe to say that you know they're sitting at whatever 3.5

[00:30:46] [SPEAKER_01]: billion dollars I think they've set aside that's far it's pretty safe to say that's probably what

[00:30:51] [SPEAKER_01]: it's gonna cost them and it's probably going to be even more I mean we saw like the initial

[00:30:58] [SPEAKER_01]: accusations and then you know six months later it came out that an employee was opening up

[00:31:03] [SPEAKER_01]: accounts to illegally funnel money out of the country and that caused even more issues so like who knows

[00:31:09] [SPEAKER_01]: what's not uncovered yet I'm sure there's a lot of going on behind the scenes that is not public

[00:31:13] [SPEAKER_01]: I would guarantee there's a lot going on beside the scenes oh yeah not public so yeah it's uh

[00:31:19] [SPEAKER_02]: they're for sure cooperating at this point with the investigation like they are like so that's why

[00:31:23] [SPEAKER_02]: when people say like I mean they have good reasons to set money aside and I guess on that from

[00:31:29] [SPEAKER_02]: so like you mentioned they had set aside already in the previous quarter in extra 450 million

[00:31:34] [SPEAKER_02]: and they also the big news here as well was they sold 40.5 million shares of it they're

[00:31:40] [SPEAKER_02]: stake in Schwab which reduces your stake from 12.3 to 10.1 percent it's the uh it's in the same

[00:31:47] [SPEAKER_02]: release as the AML update I didn't have the chance to listen to the full calls so I'm assuming this

[00:31:52] [SPEAKER_02]: essentially money that like transaction they did to put money aside for that uh that potential

[00:31:59] [SPEAKER_02]: fine that will be coming and for those not aware TD had a choir stake in Schwab when Schwab

[00:32:04] [SPEAKER_02]: acquired TD Ameritrade back in 2020 and I think the announcement of that transaction was 2019

[00:32:10] [SPEAKER_02]: but closed in 2020 and with all the attention around the AML investigation it's like mainstream media

[00:32:18] [SPEAKER_02]: kind of forgot to look at the provision provisions for credit losses for TD I swear I had

[00:32:25] [SPEAKER_02]: B&N Bloomberg the first thing that came up and it's the first loss in decades for TD because

[00:32:31] [SPEAKER_02]: of the AML provisions that they set aside but TD still set aside 1.072 billion in provision for credit

[00:32:40] [SPEAKER_02]: losses for the quarter which was essentially the same amount as the previous quarter so it is interesting

[00:32:46] [SPEAKER_02]: that they didn't really mention that clearly the AML is really what's weighing on TD but again

[00:32:54] [SPEAKER_02]: the PCLs are not good so I mean I don't own TD shares but if there is a bank in my opinion that

[00:33:03] [SPEAKER_02]: it's best to like kind of wait and see what happens and not try to you know bottom tick it's

[00:33:10] [SPEAKER_02]: probably TD because between you know what most banks are struggling with with the provisions for

[00:33:16] [SPEAKER_02]: credit losses and the AML there's a whole lot of uncertainty with TD right now yeah they're pretty

[00:33:20] [SPEAKER_01]: but like you have a lot of banks like say BMO who's struggling with the provisions TDs pretty much

[00:33:26] [SPEAKER_01]: double whammy they're not only struggling with the provisions but they're also struggling with this

[00:33:30] [SPEAKER_01]: this AML situation and the so the AML defines I believe this is again off the top my head

[00:33:38] [SPEAKER_01]: I was going through the the quarterly report and I think because of the fines they took a 70

[00:33:43] [SPEAKER_01]: basis point hit to their CET1 ratio so they had to I don't think they outright stated it but I'm

[00:33:51] [SPEAKER_01]: pretty sure they had to dump the shoab shares to kind of bring that ratio back up because I did

[00:33:57] [SPEAKER_01]: mention that next quarter the sale of those shoab shares is going to increase the CET1 by 50 basis

[00:34:04] [SPEAKER_01]: points 45 or 50 basis points. They had to reduce their stake because of these fines that's

[00:34:12] [SPEAKER_01]: pretty much the gist of it even if they won't like outright state it that's what it was from.

[00:34:19] [SPEAKER_02]: Yeah I mean they put in the same release so it's kind of hard to not you know add the two together

[00:34:25] [SPEAKER_02]: and I mean yeah the CET1 went down from 13.4 to 12.8 so that would make a whole lot of sense right there

[00:34:32] [SPEAKER_02]: and the cumulative amount that they have in provisions for credit losses is now so that's on the

[00:34:38] [SPEAKER_02]: balance sheet so people can just see that when you look at the balance sheet of a bank so it's just

[00:34:42] [SPEAKER_02]: all the money they set aside you know it comes out on a quarterly basis from their income statement

[00:34:47] [SPEAKER_02]: but then it kind of shows up on the balance sheet and it's at 7.8 billion up from 7.5 at the end

[00:34:56] [SPEAKER_02]: of the previous quarter and that takes into account what set aside minus what's already been written

[00:35:01] [SPEAKER_02]: off and recovered and they now have 0.82% set aside on a total loan base as compared to their

[00:35:08] [SPEAKER_02]: gross loans outstanding and that compares to 0.78% in the last quarter last year for the same quarter so

[00:35:17] [SPEAKER_02]: it's been steadily going up since the end of 2020 one it's not crazy so 82 basis point obviously

[00:35:24] [SPEAKER_02]: but it's something to keep an eye on because it has been tricking iron and something I would keep an

[00:35:30] [SPEAKER_02]: eye on for all the banks if I you know owned the shares of the banks but I wanted to mention that

[00:35:36] [SPEAKER_02]: they had a net loss of 14 cents per share compared to a dollar $53 net profit per share last year

[00:35:44] [SPEAKER_02]: obviously you know that one of the big reasons is that provision for the AML investigation

[00:35:50] [SPEAKER_02]: their adjusted EPS was higher than the same quarter last year at $2.05 but again I think the

[00:35:57] [SPEAKER_02]: banks I mean they do a good job of telling you what they adjust for but I think in this situation

[00:36:03] [SPEAKER_02]: you really have to take a look at both not just the adjusted but also the actual numbers because

[00:36:09] [SPEAKER_02]: we've said it again I mean there could be some additional fines coming up so I think it's way too early

[00:36:15] [SPEAKER_02]: to say that all their fine now was a one-time hit 2.6 billion so I think you have to take that into account

[00:36:21] [SPEAKER_02]: the net interest margin for the quarter was 1.70% again this has been trending down now slowly

[00:36:28] [SPEAKER_02]: over the last two years and in terms of segment Canadian banking saw its net income increased 13

[00:36:34] [SPEAKER_02]: percent so that is doing well so kind of goes away you were saying would be M.O it was flat for

[00:36:40] [SPEAKER_02]: management and it was massively down for US banking segment because of those AML provisions so overall

[00:36:47] [SPEAKER_02]: I mean TD really not a great quarter again and that's not a good quarter I think it's more of a

[00:36:53] [SPEAKER_02]: wait and see like I've said I won't repeat myself but yeah I think it's personally no matter how

[00:36:59] [SPEAKER_02]: attractive they might look in terms of value I just think there's just so many uncertainties and things

[00:37:05] [SPEAKER_02]: could still get much worse for TD unfortunately yeah I mean again on the loss per share like

[00:37:12] [SPEAKER_01]: for provisions you know when you adjust them I you know there could be a recovery there but I would say

[00:37:17] [SPEAKER_01]: this is like a guarantee cost that it is going to cost TD that much money the 3.5 billion or whatever

[00:37:25] [SPEAKER_01]: and probably even more but it seems like they're doing not bad like operationally but just the AML

[00:37:32] [SPEAKER_01]: investigation is just they're taking a big hit because of it yeah no I think I know I think I agree with that now

[00:37:39] [SPEAKER_02]: let's move on to Bank of Nova Scotia and if we have time we'll do metro earnings but if not

[00:37:46] [SPEAKER_02]: we can keep that for another episode so you want to go over Scotia bank what the how it looks yeah so

[00:37:53] [SPEAKER_01]: Scotia actually reported a fairly solid quarter which is which is definitely on the rare side like

[00:37:59] [SPEAKER_01]: it's struggled for quite a bit for quite some time they topped expectations top-end bottom line

[00:38:07] [SPEAKER_01]: revenue is up by 5% on a year over your bases however expenses are up 5% so it effectively

[00:38:14] [SPEAKER_01]: zeroed it out earnings per share down 5% year over year return on equity 11.3% which is down 80

[00:38:21] [SPEAKER_01]: basis points over year but the thing is much like BMO the company's Canadian banking arms performing

[00:38:28] [SPEAKER_01]: relatively well like TD BMO like I just don't I can't understand that I mean you'd think that it

[00:38:34] [SPEAKER_01]: would be struggling a lot more because you know there's a lot of headlines on the struggles of the

[00:38:38] [SPEAKER_01]: Canadian consumer all that type of stuff but I mean the Canadian arms of all these banks are doing quite

[00:38:45] [SPEAKER_01]: well revenue up 9% year over year while that income is up 6% and much like BMO again the company's

[00:38:53] [SPEAKER_01]: Canadian provisions for credit losses came in at 435 million and that's up just 2% from last quarter

[00:39:00] [SPEAKER_01]: which again is you know a bit you know a bit of a sign of a stabilization on that front

[00:39:06] [SPEAKER_01]: net interest margins in the Canadian segment were up 16 basis points which is actually like

[00:39:11] [SPEAKER_01]: when you're talking net interest margins that's that's a big boost so they're at 2.52% right now

[00:39:17] [SPEAKER_01]: and loans were effectively flat on the quarter but a few segments still saw a pretty big growth so

[00:39:23] [SPEAKER_01]: business loans were up 7% and credit cards were up 16% so this is just in their Canadian arm

[00:39:29] [SPEAKER_01]: but it was offset by the fact that personal loans grew just 1% and mortgages actually fell by 2%

[00:39:35] [SPEAKER_01]: mortgages are big money lending and even personal loans are big money lending much more than

[00:39:40] [SPEAKER_01]: than credit cards so I mean that's 16% year over year growth and in credit card loans is definitely

[00:39:47] [SPEAKER_01]: uh something to keep an eye on but yeah deposits grew by 8% year over year and as mentioned the

[00:39:54] [SPEAKER_01]: loans are a bit flat the companies wealth management arm put up double digit year over year growth

[00:40:00] [SPEAKER_01]: in terms of revenue and earnings they had mentioned that higher broker revenues and higher mutual

[00:40:04] [SPEAKER_01]: fund fees field a lot of the growth companies international segment remains relatively steady as well

[00:40:10] [SPEAKER_01]: revenue grew 6% net income is up 6% provisions for credit losses 580 and I million are up 14%

[00:40:19] [SPEAKER_01]: year over year but just 4% quarter of a quarter so again a bit of normalization.

[00:40:25] [SPEAKER_01]: Overall loans were down 2% and its international segment retail was up 4% but business banking

[00:40:31] [SPEAKER_01]: was down 7% and deposits were up 4%. So the total PCL ratio for the bank and over Scotia

[00:40:40] [SPEAKER_01]: is that 55 basis points this is among the highest from Canadian banks over the big difference here

[00:40:47] [SPEAKER_01]: is like Scotia bank kind of got to that 55 basis point ratio quite a while ago and now it's you

[00:40:53] [SPEAKER_01]: know seeing a bit as I mentioned a bit of stabilization well while from you know in contrast

[00:40:59] [SPEAKER_01]: BMO it's been accelerating and accelerating and the companies grow some paired loan ratio now

[00:41:05] [SPEAKER_01]: it's at 84 basis points I believe what did you mention TD was 82 basis points 82 and then

[00:41:12] [SPEAKER_01]: now bank a mucher all was 88 basis points I think so I mean it's definitely like within the realm

[00:41:18] [SPEAKER_01]: of normalization there and they did announce prior to the quarter this happened I can't remember

[00:41:24] [SPEAKER_01]: when this was probably a month ago so they took a 14.9% position in US regional bank keycorp

[00:41:32] [SPEAKER_01]: so they do expect the acquisition to be a creative two earnings per share within the first year of

[00:41:37] [SPEAKER_01]: closing and it also expects to boost the companies return on equity by 45 basis points I believe

[00:41:44] [SPEAKER_01]: Scotia bank actually went down on the news but keycorp just because of the acquisition price I

[00:41:50] [SPEAKER_01]: think was up quite a bit so that'll be interesting because I don't this must be some sort of play

[00:41:56] [SPEAKER_01]: for you know bank in Nova Scotia to kind of enter the US market a bit more aggressively versus

[00:42:01] [SPEAKER_01]: you know what they've typically done which is internationally but overall not a good quarter but

[00:42:07] [SPEAKER_01]: not really a bad quarter from Scotia bank we're seeing the same out of pretty much all the Canadian

[00:42:13] [SPEAKER_01]: banks thus far the Canadian segments are doing well but they're not really picking up the slack

[00:42:17] [SPEAKER_01]: of of the US and international markets and the one thing is these are all Canadian banks but we do

[00:42:23] [SPEAKER_01]: remember that like I'll get a large chunk of their revenue does come from outside of Canada so

[00:42:29] [SPEAKER_01]: they definitely need both ends of the business to be operating well in order to do well

[00:42:34] [SPEAKER_01]: and yeah I mean it wasn't too bad of a quarter they've struggled for quite a while but it's

[00:42:40] [SPEAKER_02]: it's normalized a bit yeah no and I'm sharing here a slide from their investor presentation

[00:42:45] [SPEAKER_02]: so like you were sharing their provisions for credit losses and I highlighted here you can tell

[00:42:50] [SPEAKER_02]: really that they started ramping up I would say like Q4 of last year's really when they started ramping

[00:42:57] [SPEAKER_02]: out those provisions for credit losses with 1.25 1.26 a billion set aside 962 and Q1 a billion in Q2

[00:43:08] [SPEAKER_02]: and then again over a billion in Q3 2024 so it is interesting though the Canadian segment I don't know

[00:43:16] [SPEAKER_02]: I feel like it's not hanging by much I feel like it would not take much whether it's you know

[00:43:23] [SPEAKER_02]: a more company starting to lay off people not that we want that to happen but there is

[00:43:30] [SPEAKER_02]: there's a lot of stress it feels like at least in the Canadian market and if you look at different

[00:43:34] [SPEAKER_02]: retailers right we've talked about it they're not doing all that well and people are pulling back

[00:43:39] [SPEAKER_02]: but maybe people are pulling back so they can actually pay those loans as well yeah I mean it was

[00:43:45] [SPEAKER_01]: clear in BMOs their impaired loans I mean a huge chunk of them was from the service industry

[00:43:51] [SPEAKER_01]: which would probably contain a ton of you know small to medium sized businesses and I mean it

[00:43:58] [SPEAKER_01]: it seems like you know the Canadian arm results were pretty strong but like you said it

[00:44:02] [SPEAKER_01]: it seems like it wouldn't take much to turn that around quite quickly but I mean though the one key

[00:44:08] [SPEAKER_01]: thing is the provisions in the Canadian segment have somewhat stabilized whereas like when we were

[00:44:16] [SPEAKER_01]: seeing it you know even the what would it be probably two three quarters ago they were posting like

[00:44:21] [SPEAKER_01]: huge quarter over quarter growth and you know like Scotchabank and CBC were two companies that were kind of

[00:44:28] [SPEAKER_01]: you know early and that's why we've seen like CBC is normalized a bit and it's I'm pretty

[00:44:34] [SPEAKER_01]: sure it's actually posting reductions which is caused it you know share price to to go a quite a bit so

[00:44:40] [SPEAKER_01]: I mean it's all like there's an element of timing here I mean BMOs clearly right now playing

[00:44:45] [SPEAKER_01]: catch up were as a lot of the other banks or are somewhat you know normal levels no surprises

[00:44:50] [SPEAKER_01]: so which is probably you know that's probably the biggest driver of share price right now is

[00:44:55] [SPEAKER_01]: those provisions and whether or not you know if you come in if you blow it out of the water like

[00:45:00] [SPEAKER_01]: BMO did there's definitely going to be a lot of worries yeah and I think at least for these three

[00:45:05] [SPEAKER_02]: banks I think to take away from me at least is provisions are either ramping up or staying at the

[00:45:12] [SPEAKER_02]: same level so things are not yeah things are not really looking that much better like let's be honest

[00:45:17] [SPEAKER_02]: like they're not looking maybe as bad as maybe some people thought for like a schoolship bank for

[00:45:22] [SPEAKER_02]: example but overall I mean the PCLs are in around the highest they've been in the last five years

[00:45:31] [SPEAKER_02]: if you zero out kind of early the 2020 I guess 2020 which was a bit of a freak year and what happened

[00:45:38] [SPEAKER_02]: with the pandemic and all the government programs in place kind of distorted things quite a bit but

[00:45:43] [SPEAKER_02]: if you remove that I mean they're really they're there are there these provision for credit losses yes it

[00:45:50] [SPEAKER_02]: may not be as bad as it was like three quarters ago for a schoolship bank for example but

[00:45:56] [SPEAKER_02]: it's also not really getting better it's just staying yeah exactly I mean if you see

[00:46:01] [SPEAKER_01]: if you expect like some sort of provision recovery like you saw in you know post pandemic where these

[00:46:09] [SPEAKER_01]: you know these banks have like they went way overboard and then they started recovering a lot

[00:46:14] [SPEAKER_01]: and then like banks went on an absolutely massive run that's probably not gonna happen that's not

[00:46:20] [SPEAKER_01]: I'm gonna go and see that's not happening you know I think we're like I'm not on ways from you

[00:46:26] [SPEAKER_01]: know these banks kind of reversing this and and starting to report recoveries but one thing that

[00:46:31] [SPEAKER_01]: would be a strong sign is a reduction and maybe not you know a flatline in PCLs but yeah the one

[00:46:38] [SPEAKER_01]: thing you don't want to do right now and clearly when we see a 7% dip in in BMO is report you know

[00:46:45] [SPEAKER_02]: three quarters of consecutive huge increases yeah and I think if someone's if there are

[00:46:52] [SPEAKER_02]: thesis in the banks is that what happened 2021 will happen again would banks like releasing

[00:46:59] [SPEAKER_02]: provisions from credit losses if that's your thesis you should not be investing yeah that's like

[00:47:05] [SPEAKER_02]: that's that's my kind of hot take here just I'm saying that like I'm laughing a little bit

[00:47:10] [SPEAKER_02]: new are but it's a completely different situation we talked about it a little bit we alluded to it

[00:47:15] [SPEAKER_02]: yeah 2020 the banks were seeing the world shut down so clearly the risk management they're like

[00:47:21] [SPEAKER_02]: okay we have to take these massive PCLs because people are losing their jobs left iron

[00:47:26] [SPEAKER_02]: in center we don't know what their government will do we have to be on the safe side and then

[00:47:31] [SPEAKER_02]: obviously there was huge amounts of stimulus there was loans to businesses there was serve

[00:47:35] [SPEAKER_02]: for individuals so and I think there was also some reminded like correct me if I'm wrong but

[00:47:42] [SPEAKER_02]: I think there was also some programs where the banks would allow you to not pay for a few months

[00:47:47] [SPEAKER_01]: for your mortgage yes that's right if you could get six months relief and then they just

[00:47:51] [SPEAKER_02]: tacked it all exactly amortization I think so I mean that's not happening probably no this time

[00:47:58] [SPEAKER_02]: around so this is a completely different situation and we talked about at the beginning it kind of

[00:48:05] [SPEAKER_02]: done the fed cutting while as a bank of canon that fed our cutting pretty aggressively and it's

[00:48:11] [SPEAKER_02]: still remains to be seen maybe they won't be cutting that aggressively but if they are and the overnight

[00:48:16] [SPEAKER_02]: rate is let's say around 3% or even lower it means that we're probably going to see a lot of

[00:48:23] [SPEAKER_02]: job losses and if you're starting to see job losses or business struggling who owns the you know

[00:48:30] [SPEAKER_02]: who has those loans as assets on their balance sheet I'm going to go and save most of the big

[00:48:35] [SPEAKER_02]: Canadian banks so I think you have to really be careful here is because the macro what we're talking

[00:48:41] [SPEAKER_02]: about it and we don't talk about macro all the time but I think it has a big impact when you look

[00:48:46] [SPEAKER_02]: at banks because they're very dependent I mean if you can't service your loan you can't service

[00:48:51] [SPEAKER_01]: your loan if you lost your job right yeah it's extremely hard to predict even for the banks so I mean

[00:48:57] [SPEAKER_01]: numbers are yeah they're difficult to project out but I like I wouldn't expect any sort of

[00:49:03] [SPEAKER_01]: I would like maybe we start to see a decline it's really hard to say it really depends you know

[00:49:09] [SPEAKER_01]: economically how things go but I think we're a long ways from being out of the current mess I guess

[00:49:18] [SPEAKER_01]: and as you mentioned faster rates come down probably the worst it is for the Canadian economy

[00:49:24] [SPEAKER_01]: whereas if they kind of gradually go down maybe you know soft landing is achievable but

[00:49:30] [SPEAKER_02]: oh you said that soft landing, dans in the soft landing can we said it will clip that out yeah

[00:49:38] [SPEAKER_02]: well I think that's it for today right we got on over the banks will keep Metro for another time

[00:49:43] [SPEAKER_02]: maybe we'll do Metro and kind of lobas and all the groceries when they report um I don't think

[00:49:49] [SPEAKER_01]: they've already reported that the other ones uh yeah lobas reported earlier than Metro

[00:49:56] [SPEAKER_02]: okay so maybe we'll maybe we'll just do the yeah groceries when things start dying down a little bit

[00:50:04] [SPEAKER_02]: even if it's a few weeks out I think people are always interested at the groceries and you know whether

[00:50:11] [SPEAKER_02]: they love them or they hate them I think we've just said the groceries so that was a fun episode

[00:50:16] [SPEAKER_02]: and I mean I'm happy I found the energy because a couple hours of driving with a baby crying was

[00:50:23] [SPEAKER_02]: you know drains you a little bit but I think it was still a fun episode and we'll be back next week

[00:50:28] [SPEAKER_02]: for with another one and you know uh biomeans if you haven't done so make sure you give us a review on apple

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