Mixed Results for Canada’s Big Banks
The Canadian InvestorJune 06, 2024
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01:05:0359.6 MB

Mixed Results for Canada’s Big Banks

In this episode of The Canadian Investor Podcast, we go over the recent earnings of 4 of Canada’s big 6 banks. The results from the big banks have been uneven with some performing better than others. We talk about CIBC, ScotiaBank, TD Bank and Bank of Montreal.

We also take touch on the news that Park Lawn Corporation will be taken private and more troubles for the owner of Ticketmaster, Live Nation

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[00:00:00] Welcome back to the Canadian Investor Podcast.

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

[00:00:19] We're back for our earnings and news episode, and today we'll be mainly focusing on the

[00:00:24] big Canadian banks.

[00:00:26] We've picked four out of the six because it would be probably an hour and a half, two

[00:00:30] hours if we did all six.

[00:00:33] So Dan, how's it going?

[00:00:34] Are you excited to get started on that?

[00:00:36] Oh yeah, absolutely.

[00:00:38] Pretty pumped right now.

[00:00:40] Stanley Cup finals.

[00:00:41] Yeah, yeah.

[00:00:42] I was trying to avoid that discussion, but you had to bring it up.

[00:00:46] I had to bring it up.

[00:00:48] All other fans are jealous of the Edmonton Oilers right now.

[00:00:53] All that to say, I mean, I do hope they win it because we're due for Stanley Cup back

[00:00:57] in Canada.

[00:00:58] I do understand if the Calgary Flame fans do not want the Oilers to win it.

[00:01:04] When you have rivals, I'm pretty sure Maple Leafs fans didn't want the Habs to

[00:01:07] win it when they were back there, I think in 2021.

[00:01:11] So I totally get that.

[00:01:13] Yeah, I've talked to a lot of Flames fans who are in a tough position because now

[00:01:17] got a cheer for Kachuk and Bennett, who were former Flames that they cast away.

[00:01:24] But yeah, it'll be interesting.

[00:01:25] I have my Cup final tickets booked.

[00:01:27] We're heading up there for not missing a game this round, that's for sure.

[00:01:31] Well, I mean, best of luck to the Oilers and I guess, you know, all of Canada in

[00:01:37] terms of getting back the Cup over here.

[00:01:39] But enough about that.

[00:01:41] Before we get started, we had a couple news items.

[00:01:44] I know you've been inundated with requests, people asking you about what is

[00:01:49] going on with Parklawn Corporation.

[00:01:52] You want to go over what happened and just maybe a little refresher of what

[00:01:55] the business is for those who are not familiar with the business.

[00:02:00] Yeah, so Parklawn is it's a small cap funeral stock pretty much.

[00:02:06] They were acquired by a private equity firm for $26.50 a share.

[00:02:12] So Parklawn had been hit pretty hard by rising interest rates and lower

[00:02:17] mortality rates post pandemic.

[00:02:18] The company's earnings had been pretty much continually declining, but the bulk

[00:02:24] of it had been from the higher costs on debt.

[00:02:27] 75% of the decline in net income on some quarters was just strictly interest

[00:02:33] costs just because the company, you know, they utilize floating rate

[00:02:37] facilities for a lot of their acquisitions.

[00:02:39] So they just got hammered down because of rates.

[00:02:42] This is a stock that I've owned for over eight years now.

[00:02:45] It might be going on nine years, but I really added aggressively in late

[00:02:48] 2023 2024 because I just felt that it was way too undervalued and the

[00:02:54] acquisition works out today to be about a 62% premium to market price.

[00:03:00] I personally think it's a low ball just considering the long term growth

[00:03:04] potential of the business.

[00:03:05] But I mean, small caps right now, valuation wise, they're just, they're

[00:03:09] not really doing all that well.

[00:03:12] And you know, for a while this morning, I was a bit hesitant to sell

[00:03:16] just because of the potential for somebody else to kind of step up and

[00:03:20] make a better offer, but I really don't think it's unlike.

[00:03:22] I really don't think it's all that likely.

[00:03:24] There's a few large scale players in the business, but it's just so

[00:03:29] fragmented like a lot of the funeral homes are like privately owned,

[00:03:33] individually owned things like that.

[00:03:34] So like the only big player would be service corporation, which is like

[00:03:39] a US based funeral home company.

[00:03:41] But even then they're only worth around $10 billion and park

[00:03:45] lawn sold for around 1.2.

[00:03:47] So, you know, in my opinion, I don't really see a higher offer

[00:03:51] coming in.

[00:03:51] So I did end up selling it.

[00:03:53] I sold it at a 2.7% discount to the offer price, but I just don't

[00:03:57] like for me personally, I wasn't going to hold out for 2.7% when

[00:04:01] sitting on a 60% bump because like on the outside chance, the deal

[00:04:06] falls through or something.

[00:04:07] This it's probably heading back to 60% down pretty quickly, but

[00:04:12] it kind of sucks.

[00:04:13] I've owned it for a long time.

[00:04:14] I would have rather them just kind of turn it around and

[00:04:16] continue going, but private equity, they kind of jump in and

[00:04:20] grab a pretty solid Canadian company at a pretty good price.

[00:04:25] That's pretty much it for this.

[00:04:27] It's an all cash offer.

[00:04:28] Pretty simple.

[00:04:29] I don't know when it's going to close.

[00:04:31] I didn't get to reading that, but yeah, $26.50 a share.

[00:04:34] Yeah, exactly.

[00:04:36] And I mean, you know this business better than I do.

[00:04:39] I used to own it about five years ago.

[00:04:41] So I mean, I know it decently well, but I haven't looked

[00:04:45] at it all that much ever since.

[00:04:46] And I think we were talking about this and I think this

[00:04:50] is good.

[00:04:50] It's a good explainer as to why they're probably being

[00:04:56] bought out.

[00:04:56] I mean, that's what I would do if I was a private equity firm

[00:04:59] is I would tell them, look, you have a lot of revolving

[00:05:02] debt, which is just variable interest debt, which is

[00:05:06] clearly pretty high right now.

[00:05:08] I think the big premise for them was that rates would

[00:05:11] eventually be coming down.

[00:05:12] I'm sure they will eventually, but most people, I think

[00:05:16] you and I included, were thinking that the rates would

[00:05:18] actually probably have started coming down at this point.

[00:05:21] Clearly they haven't.

[00:05:23] So it probably was a leverage play on their end.

[00:05:26] Clearly private equity is leveraged to be kinmoid, but

[00:05:29] they levered that fact to probably get a slightly better

[00:05:34] deal from Parkland Corporation.

[00:05:36] And from their standpoint, they're probably thinking,

[00:05:38] well, it's not a bad deal considering that at this

[00:05:42] point we don't know when interest rates will be

[00:05:45] coming down.

[00:05:46] And there could be some pressures because of that on

[00:05:49] the business.

[00:05:50] Yeah, exactly.

[00:05:51] And if you look at the interest expenses on the screen

[00:05:54] there, it's like 1.8 million in interest expenses in

[00:05:58] 2018 and you jump up to 18 million at the end of 2023.

[00:06:03] Some of that is going to obviously be new debt

[00:06:05] accumulation, but a lot of it is going to be

[00:06:08] attributed just to the fact that for the most part,

[00:06:11] they did run on revolving credit facilities, which

[00:06:14] obviously are going to fluctuate depending on where

[00:06:17] rates go.

[00:06:18] That's why this company got hit so hard, so fast.

[00:06:22] And I think even in the event they do operate quite a

[00:06:25] bit in the United States.

[00:06:26] So that's kind of another added element if Canada

[00:06:28] were to cut, but the United States would kind of

[00:06:30] remain higher.

[00:06:32] It might not see that benefit immediately.

[00:06:35] I mean, I was thinking when I was buying in late

[00:06:37] 2023, it was going to be...

[00:06:39] I expected this 60% gain to happen over multiple

[00:06:44] years.

[00:06:44] So to get it in six months, I'm happy with that.

[00:06:48] I'll move on.

[00:06:49] Yeah, take the win and move on.

[00:06:50] But no, that's a great overview.

[00:06:53] And there's worse things than getting a quick 60%

[00:06:57] gain.

[00:06:57] So I'll just say that.

[00:06:59] So now before we get onto the bangs, the one

[00:07:02] last thing, the quick news item I wanted to

[00:07:05] talk about, and we'll probably get to the old

[00:07:08] GME thing with Warring Kitties and his other

[00:07:11] name, some posting that he's done, but we'll

[00:07:14] probably get to that next week.

[00:07:15] We won't have time today.

[00:07:16] However, I did want to chat about Live Nation.

[00:07:20] Live Nation is...

[00:07:21] I guess things got went from bad to worse for

[00:07:25] Live Nation.

[00:07:25] So people will remember last week we talked

[00:07:28] about the Department of Justice suing them to

[00:07:30] try and breaking up the business.

[00:07:32] And then last weekend news came out that a

[00:07:35] hacker group called Shiny Hunters said it had

[00:07:39] stolen over 500 million user data from

[00:07:42] Ticketmaster's customer.

[00:07:44] Live Nation said that it was working to

[00:07:46] mitigate risks to their users and corporation

[00:07:50] with law enforcement currently, but

[00:07:52] obviously there's a risk that this information

[00:07:54] be released on the dark web.

[00:07:56] Whatever that means, I always hear the term

[00:07:59] dark web and I like, I don't know.

[00:08:01] I know it's there.

[00:08:03] I know it's like, I just, yeah, I don't

[00:08:06] know exactly what to make of it myself.

[00:08:08] A rabbit hole you don't want to go down.

[00:08:10] Yeah, probably not people that...

[00:08:13] Anyways, not to go too deep into that, but

[00:08:17] having said that, they said the breach is

[00:08:19] unlikely to have any financial impact on

[00:08:23] them, on the company.

[00:08:24] However, I would say, you know, that's

[00:08:27] probably not the best thing.

[00:08:29] That's a quote they gave to Reuters and

[00:08:32] it's probably not the best thing to say

[00:08:34] right now in the midst of a DOJ lawsuit

[00:08:37] that it may not impact their financial.

[00:08:39] It's just not a good look when they're

[00:08:41] actually going to court and potentially

[00:08:44] facing a breakup if they lose.

[00:08:47] Just not, yeah, not going great with

[00:08:49] Live Nation and for me, I know Brayden

[00:08:51] talked about the business last Monday

[00:08:54] and something he was keeping an eye on.

[00:08:58] There's two sides to the story.

[00:08:59] I know Live Nation refutes a lot of

[00:09:01] the claims by the Department of Justice,

[00:09:03] but for me, I would not touch this

[00:09:06] company with a 10 foot pole right now.

[00:09:07] There's just so much uncertainty and

[00:09:11] yeah, this last thing may just put some

[00:09:13] more weight onto the Department of Justice.

[00:09:16] Maybe they'll use it and say, look,

[00:09:18] this is why we want more competition

[00:09:20] because if these kind of breaches happen,

[00:09:23] if there's more competition, then

[00:09:24] there's less potential users that

[00:09:26] are affected at once.

[00:09:27] So I can see them coming up with

[00:09:29] a bunch of arguments saying that,

[00:09:31] see, Exebit A is another reason why

[00:09:33] they shouldn't be this powerful.

[00:09:35] Yeah, the only other thing for me,

[00:09:37] like I have a ticket master counsel

[00:09:40] who I could have been impacted by this.

[00:09:42] And I don't know if maybe it hit my junk mail

[00:09:44] or wasn't set, but I got no alert

[00:09:46] on this from ticket master themselves.

[00:09:49] They said they'd been notifying people impacted,

[00:09:52] but I don't know.

[00:09:53] So maybe I haven't been impacted,

[00:09:55] that's why, but I mean,

[00:09:57] the one interesting thing about these

[00:09:58] is these hackers always have the

[00:10:01] ransoms or whatever and they force,

[00:10:03] well, they try to get these companies to pay.

[00:10:05] There was another one, well,

[00:10:06] I think it was London Drugs,

[00:10:08] that was recently hit.

[00:10:10] Yeah, I saw that one too.

[00:10:11] And there's no, what do these companies even do?

[00:10:14] It's like they could pay this ransom

[00:10:15] and the information, what's stopping

[00:10:17] these people from just taking their money

[00:10:19] and releasing the information

[00:10:20] or just being like, oh, we want more,

[00:10:22] we want more, we want more.

[00:10:23] It's never ending.

[00:10:24] Yeah, well, I guess what could happen

[00:10:27] if they do that is if they do another hack

[00:10:30] in the future, then whoever they hack

[00:10:33] will be like, well, we're not paying.

[00:10:36] We saw what you did.

[00:10:37] We'll just try to make sure

[00:10:41] that law enforcement catches you.

[00:10:43] So it's not a good business model

[00:10:45] for the hackers.

[00:10:46] You gotta keep your hacker reputation up.

[00:10:49] Yeah, exactly.

[00:10:50] But no, that's it on that.

[00:10:53] So now we'll move on to the big Canadian banks.

[00:10:56] So we chose four, like I said,

[00:10:58] just because this would probably go on for two hours.

[00:11:01] I mean, mainstream media,

[00:11:03] you'll probably see sometimes they'll talk about banks

[00:11:05] or you'll see articles,

[00:11:06] but I think we go way more in depth than they would.

[00:11:09] So that's why it takes a bit more time for us to do.

[00:11:12] You wanna start us off with CIBC?

[00:11:14] I didn't look through the results all that much,

[00:11:16] so I'll be listening closely.

[00:11:18] All I know is I think they had a pretty good quarter.

[00:11:21] So it's definitely been a mixed bag

[00:11:23] depending on the bank.

[00:11:24] Yeah, CIBC, they have had a huge turnaround

[00:11:28] over the last bit.

[00:11:29] Many investors haven't worried about the company

[00:11:31] just overexposure to Canadian real estate.

[00:11:33] I think it's like 62% of their portfolio

[00:11:37] is Canadian real estate focused,

[00:11:39] or at least it's around there.

[00:11:40] I know they have at minimum 55 plus percent.

[00:11:44] I mean, although the risk certainly exists,

[00:11:46] the company is scaling back on provisions,

[00:11:49] which is a pretty big contrast

[00:11:50] to another company we'll talk about,

[00:11:52] which would be Bankamuncher All

[00:11:53] who's pretty much doing the exact opposite.

[00:11:56] Revenue of 6.16 billion topped expectations.

[00:11:59] Earnings per share came in well ahead of estimates.

[00:12:02] They were $1.79 versus $1.61 expected.

[00:12:07] Because of the scale back provisions,

[00:12:08] CIBC is posting earnings increases across the board

[00:12:12] in pretty much all of the segments of the business.

[00:12:15] Revenue is up 8% year over year,

[00:12:17] earnings per share 3%,

[00:12:18] and the company CET1 ratio has improved from 11.9%,

[00:12:23] which is barely over the 11.5% buffer to 13.1%.

[00:12:29] And CET1 is pretty much just the simplest terms possible.

[00:12:32] It's just the ability for the company

[00:12:35] to withstand some sort of financial shock,

[00:12:37] and they kind of measure their tier one capital,

[00:12:40] which would be just high quality capital

[00:12:42] in the event something disastrous like say 2008,

[00:12:45] something were to occur.

[00:12:47] Just it's a bit of a buffer.

[00:12:49] So it's Canadian personal banking segment

[00:12:52] saw revenue dip by 1% on the quarter,

[00:12:55] quarter over quarter basis.

[00:12:56] Net income was effectively flat quarter over quarter.

[00:12:59] The most notable thing was provisions for credit losses

[00:13:02] actually declined by 59 million

[00:13:04] on a quarter over quarter basis.

[00:13:06] Year over year, they still remain elevated,

[00:13:08] but you're gonna see this pretty much

[00:13:10] with every single bank.

[00:13:11] It's not unique to CIBC.

[00:13:13] But the one thing that is unique

[00:13:15] is I'm pretty positive that CIBC was the only bank

[00:13:18] that reported a quarter over quarter decline in provisions.

[00:13:23] So the company's US commercial and wealth segment

[00:13:26] saw revenue dip by 4% on a quarter over quarter basis

[00:13:29] and net income grew 69%.

[00:13:31] It's US segment saw a decline in overall PCLs

[00:13:34] on a quarter over quarter and year over year basis.

[00:13:37] So the company's loan PCL ratio,

[00:13:40] which would effectively be its provisions

[00:13:42] against its loan book and its impaired PCL ratio

[00:13:46] now sits at 0.34%.

[00:13:48] PCLs remain relatively steady now

[00:13:50] after undergoing some pretty big increases over,

[00:13:54] I believe it was 2023, maybe 2022 and 2023,

[00:13:58] which caused it to get hit pretty hard.

[00:14:01] On a quarter over quarter basis,

[00:14:03] the bank's total PCL ratio dipped from 0.43 to 0.39%

[00:14:09] and its impaired loan PCL ratio

[00:14:11] went from 0.36 to 0.34.

[00:14:14] Again, I'll speak on BMO

[00:14:17] and how big of a contrast this is gonna be

[00:14:20] in relation to BMO's provisions,

[00:14:22] which is why you saw CIBC gain 7% post earnings

[00:14:27] and BMO lost I think it was nine or 10%.

[00:14:30] Company's gross, total gross impaired loans

[00:14:33] saw a reduction on a quarter over quarter basis.

[00:14:35] Just they were previously they were just under 3 billion

[00:14:39] they're now at 2.84%

[00:14:40] and net write-offs for the company

[00:14:42] on its Canadian residential mortgages remain very low.

[00:14:45] The bulk of the write-offs right now

[00:14:48] are coming from credit cards and personal lending

[00:14:50] and just overall, I mean,

[00:14:52] it's been one of the best performing bank stocks

[00:14:54] over the last year.

[00:14:55] I think it is the best performing bank stock

[00:14:57] out of the big six

[00:14:59] just because of how well it's operated here

[00:15:02] and it's primarily just due to scale back provisions.

[00:15:05] I still don't know if I would ever own it

[00:15:07] just because of that Canadian real estate exposure

[00:15:10] but I mean, you can't knock how well it's done

[00:15:13] over the last bit.

[00:15:14] Yeah, I mean, I think it's buyer beware for me.

[00:15:17] It has done well, but it still has a lot of risk in my view

[00:15:21] just because about half of their portfolio

[00:15:23] and I'm going on Memorand was trying to find

[00:15:26] they usually I'm sure they have

[00:15:27] a Nerva investor presentation.

[00:15:29] They do a pretty good job.

[00:15:30] They usually have like a pie chart

[00:15:32] that shows their loan

[00:15:34] and it's typically like right around 50%,

[00:15:36] a bit more than 50%

[00:15:38] that is specific to mortgages

[00:15:41] or home equity line of credits.

[00:15:43] That's a big risk in my book.

[00:15:45] People may say, oh, like real estate

[00:15:47] has been relatively stable in Canada

[00:15:50] and I wouldn't disagree

[00:15:52] but I think a lot of people right now

[00:15:54] are just hanging on to dear life, right?

[00:15:57] For those who have variable mortgages

[00:15:59] we're still seeing a lot of people

[00:16:01] that will see those kind of, you know

[00:16:04] mortgages that don't pay any interest on it.

[00:16:08] So these kind of fixed payment variable mortgages.

[00:16:12] So a lot of banks have them.

[00:16:13] I can't remember if CIBC has one of those.

[00:16:16] Do you know, do you remember?

[00:16:18] Do you mean like the one

[00:16:19] like where you're just paying pure interest on the loan?

[00:16:23] Is that what you mean?

[00:16:24] Not even, yeah.

[00:16:25] I think some of them were-

[00:16:26] Yeah, you're like negative

[00:16:27] where they added back in.

[00:16:28] Exactly, negative amortization

[00:16:31] and what happens

[00:16:31] and we've talked about this before

[00:16:33] is when the term of the loan.

[00:16:35] So your five year term, right?

[00:16:36] So you have a fixed payment variable interest.

[00:16:39] So your payment doesn't change

[00:16:40] but at some point

[00:16:41] the interest rate has gone up so much

[00:16:43] that you're not paying anything else.

[00:16:46] You're not paying anything on the actual loan

[00:16:49] so that loan gets bigger.

[00:16:50] And then at the end of your five year term

[00:16:52] when you have to renew

[00:16:54] then the amortization resets

[00:16:56] and that's when the payment shock

[00:16:58] actually happens for these people.

[00:16:59] So you have this, you have, you know

[00:17:02] a slew of people that have fixed mortgages

[00:17:04] at very low rates that are starting to renew now.

[00:17:07] It's gonna continue into 2025 and 2026.

[00:17:11] There's gonna be a big portion of those mortgages

[00:17:14] that will be renewing at significantly higher rates.

[00:17:17] So the risks for the Canadian housing market

[00:17:21] is still quite high in my opinion.

[00:17:23] I think with a lot of people

[00:17:24] that know more about the space

[00:17:26] than I do would agree with that.

[00:17:27] Yeah, so the CIBC, I'm almost positive

[00:17:30] they do have negative amortization loans.

[00:17:33] Like whereas, you know

[00:17:34] a lot of banks will do arm loans

[00:17:36] they call them like adjustable rate mortgages

[00:17:38] where like your payment will fluctuate

[00:17:40] based on interest rates.

[00:17:42] Whereas like a set fixed rate payment

[00:17:44] typically it'll stay the same.

[00:17:46] You'll pay less principal until you hit your trigger rate.

[00:17:49] But I think there's a lot of times

[00:17:51] where the like a bank like CIBC

[00:17:53] hasn't even been increasing the payments.

[00:17:55] So again, yeah, it just gets added

[00:17:57] back into the mortgage and it's just

[00:17:59] it's a pretty ugly situation.

[00:18:01] And I think we're seeing a lot of these banks too

[00:18:03] like when mortgages are coming up for renewal

[00:18:05] they're pretty much telling people to go elsewhere.

[00:18:07] Yeah, exactly.

[00:18:08] Because it's just the quality of the loan

[00:18:10] has deteriorated to the point where

[00:18:12] they just don't even want it anymore.

[00:18:14] So I mean, it's yeah, it's interesting.

[00:18:17] Yeah and what a bank like Scotiabank

[00:18:21] which I'll be touching on a bit later on

[00:18:23] what I've heard is that that's what they do

[00:18:25] or they'll basically offer people

[00:18:28] a new rate when their term comes up

[00:18:30] but it's like not competitive at all.

[00:18:32] Yeah.

[00:18:33] I think that people will likely go somewhere else

[00:18:36] because they've been actively trying

[00:18:38] to get their mortgage loan portfolio down

[00:18:41] and they have gotten it down in their latest result.

[00:18:44] But it's always interesting to look at that kind of stuff

[00:18:46] but now we'll go on with TD Bank.

[00:18:49] So TD who's, you know,

[00:18:52] to say was the first big bank to report first of all

[00:18:54] and we know TD has had has been in the news

[00:18:57] a lot recently.

[00:18:58] So one of the things I wanted to check for TD

[00:19:00] was what they had to say regarding the US

[00:19:04] anti-money laundering program from the call

[00:19:07] and their issues that they're having right now

[00:19:09] with regulators.

[00:19:10] So I'll refer to that as AML, anti-money laundering.

[00:19:13] So if you hear me say that it's just easier

[00:19:16] and like Dan did I'll go quarter over quarter

[00:19:19] because I honestly don't really know why banks post

[00:19:23] or I wish banks would actually most of them

[00:19:25] post their results quarter over quarter

[00:19:28] because what happened a year ago,

[00:19:30] it's not very like a lot of time has passed

[00:19:34] and things can change quite a bit for a bank in a year

[00:19:37] especially when it comes to loan loss provisions

[00:19:39] or provision for credit losses.

[00:19:41] So I think that's why I like to look at

[00:19:44] the quarter over quarter as well.

[00:19:46] Now, in terms of what they said on the call

[00:19:48] so they are working with US regulators

[00:19:50] and the Department of Justice for their investigation.

[00:19:53] They're fully cooperating.

[00:19:55] They are overhauling their US AML program.

[00:19:58] They're hoping to have clarity as soon as possible

[00:20:01] for their shareholders on this investigation.

[00:20:03] My perception of how management responded there

[00:20:06] is that they were extremely defensive

[00:20:09] when answering some of the question

[00:20:10] they receive in their AML programs.

[00:20:13] They were a bit elusive I found as well.

[00:20:15] They said like, you know, all the stuff

[00:20:17] like oh we're trying our best,

[00:20:20] we're working with them,

[00:20:21] we're gonna be improving and so on.

[00:20:23] Definitely feels that there's a bit of a lack

[00:20:25] of accountability for leadership there.

[00:20:28] At the end of the day, I mean if you're the CEO,

[00:20:30] you may say that you weren't aware of things like that

[00:20:33] but clearly, you know,

[00:20:35] there's something that was coming from the top.

[00:20:36] I'm not saying they were, you know,

[00:20:38] asking employees to circumvent AML rules

[00:20:42] or anything like that but like we've seen,

[00:20:45] you know, during that CBC investigation

[00:20:48] in terms of them upselling financial products

[00:20:50] that are not great for clients.

[00:20:52] When you have incentives that come from the top

[00:20:55] that you need to increase profitability, revenues,

[00:20:59] then, you know, the behavior from your employees

[00:21:03] will reflect that and sometimes it will not be

[00:21:06] the kind of behavior that you wanna see

[00:21:08] and, you know, I'm not saying this was the case

[00:21:11] but it's probably part of the reason.

[00:21:14] Yeah, they got, weren't they,

[00:21:15] I'm pretty sure they were like bringing people in

[00:21:18] and like they had credit card debt

[00:21:19] and they were telling them like

[00:21:21] not to pay down the debt instead to like buy funds.

[00:21:24] Yeah, stuff like that.

[00:21:25] It's just, and they just had,

[00:21:28] it just never ends for TD right now.

[00:21:30] Like even, I think it was just yesterday.

[00:21:31] I'm actually just reading the article now

[00:21:33] because I couldn't find a non-paywall one yesterday

[00:21:37] but there is some accusations in Florida, I think,

[00:21:41] where they had some bankers that falsified documents

[00:21:45] to open up accounts to provide like cash flows

[00:21:50] internationally, like across borders.

[00:21:52] So that's a new accusation.

[00:21:54] Yeah, I've seen that one.

[00:21:55] So I mean, it's like who knows

[00:21:59] what hasn't even been mentioned yet?

[00:22:01] Like I'm sure much more of this

[00:22:04] is gonna come to the surface which is why,

[00:22:06] when you talk about earnings in terms of relative

[00:22:09] to adjustments made from like AML fees,

[00:22:12] like I don't think those are one-time costs.

[00:22:14] I think there's probably gonna be more

[00:22:16] but yeah, it's, who knows when this is gonna end.

[00:22:19] That's a good point that you made

[00:22:20] because we were talking about that

[00:22:22] in terms of adjusted earnings for banks

[00:22:24] and I think that's where your judgment is important

[00:22:28] when looking at earnings

[00:22:29] and looking at what adjustments are made

[00:22:32] because sometimes adjustment

[00:22:35] and adjusted earnings are very useful,

[00:22:37] especially if they make an acquisition.

[00:22:39] There's costs related to that,

[00:22:40] the really one-time thing.

[00:22:42] So the adjusted earning will give you a better idea

[00:22:44] of what the actual performance of the business was

[00:22:48] but in instances like TD

[00:22:50] where there are costs associated

[00:22:52] with this AML investigation, fines from the US,

[00:22:56] there could very well be some ongoing costs,

[00:22:59] additional costs, additional fines

[00:23:01] if they find more things.

[00:23:02] So I think it's really important to me

[00:23:04] to have a look at those adjustments

[00:23:06] and just understand what they are

[00:23:08] and sometimes you have to almost

[00:23:10] like do your own adjusted earnings

[00:23:12] because TD for example, you could like kinda say,

[00:23:14] okay, well, you know what?

[00:23:16] The AML charge that you got,

[00:23:19] I'm reducing that from your earnings

[00:23:21] because that will probably keep happening

[00:23:23] on a regular basis in the next few years.

[00:23:26] So I think it's just important for people to remember

[00:23:28] like there can be a lot of value

[00:23:30] in adjusted earnings, sometimes not as much

[00:23:34] but I think it's something you should definitely look

[00:23:36] and they will let you know what the adjustments are

[00:23:38] so you just need to look at it.

[00:23:39] Yeah, they'll footnote them or they'll,

[00:23:43] most companies who are pretty transparent

[00:23:45] with adjusted earnings will just say,

[00:23:47] like right in that area,

[00:23:49] we've adjusted this out, this out

[00:23:51] but you gotta watch like one-off expenses like this

[00:23:54] that they might not be one-off expenses.

[00:23:56] Like I could see this investigation

[00:24:00] continuing to cost TD money.

[00:24:02] I mean, I don't think it just ends here

[00:24:04] but it'll be interesting to see.

[00:24:06] I 100% agree.

[00:24:07] I mean, the US does not mess around with AML.

[00:24:11] So I'll just say that.

[00:24:13] The one thing I'll say is wasn't Wells Fargo,

[00:24:16] they were caught opening false accounts, were they not?

[00:24:19] Yeah, yeah.

[00:24:20] Opening accounts, I think it was opening credit cards,

[00:24:23] like all this kind of stuff without consumers knowing

[00:24:26] and it plagued Wells Fargo for years.

[00:24:29] I think it was like something like six or seven years

[00:24:32] if not more, yeah.

[00:24:33] Yeah, and I mean you got like an accusation

[00:24:35] just yesterday that says,

[00:24:37] I mean, it says that he opened up,

[00:24:38] it was a single guy opening up dozens of accounts

[00:24:41] but like it doesn't look good.

[00:24:45] No, exactly.

[00:24:46] So I'll stick here with the non-adjusted figures

[00:24:49] for that reason.

[00:24:50] So net income was down 9.2% to 2.6 billion.

[00:24:54] EPS was down 13% to $1.35

[00:24:58] and of course you can make your own adjustments here

[00:25:01] but the main reason is one of the big charges

[00:25:03] in the adjustment was the AML investigation

[00:25:06] like we just talked.

[00:25:07] By segment, net income was down 3% to 1.7 billion

[00:25:11] for Canadian banking.

[00:25:12] It was down 36% to 580 million for US retail banking.

[00:25:18] Net income was 12%.

[00:25:20] I think it was also down 12% to 621 million

[00:25:24] for their wealth management banking

[00:25:26] and then net income was up 76%

[00:25:29] for their wholesale banking.

[00:25:31] So the total deposits were up 2% to 1.2 trillion.

[00:25:35] That's always something I like to look especially

[00:25:38] ever since last year with Silicon Valley Bank.

[00:25:41] I think we tend to forget but the deposits are the,

[00:25:45] I would say life like-

[00:25:47] Backbone.

[00:25:48] Lifeblood or whatever.

[00:25:51] It's basically if the bank starts losing deposits

[00:25:55] at a rapid rate, that's when things start getting bad.

[00:25:59] So I always like looking at that.

[00:26:01] The CET1 ratio was down 50 basis point to 13.4%

[00:26:06] and you explained to what that was earlier.

[00:26:09] Net interest margin was up one basis point to 1.73%.

[00:26:13] So pretty much flat there.

[00:26:15] PCL's provisions for credit losses were up 7%

[00:26:19] to slightly over 1 billion

[00:26:21] and they now have 7.5 billion in allowance

[00:26:25] for loan loss provisions on their balance sheet

[00:26:28] and I wanted to know that because what you've seen

[00:26:30] the headlines is what the bank is adding

[00:26:33] to their loan loss provision, to their balance sheet

[00:26:36] but it doesn't include what was previously there

[00:26:38] and what has been written off and has been recovered.

[00:26:41] So just to keep an eye

[00:26:43] and when you look at the balance sheet

[00:26:45] if you look at several quarters or years

[00:26:48] you'll see that amount kind of fluctuate

[00:26:50] and clearly right now most of the Canadian banks

[00:26:53] the amount on the balance sheet is actually trending up

[00:26:56] even when you factor in what's being recovered

[00:26:59] and what's being written off

[00:27:01] and it's now 0.81% of their total loans.

[00:27:04] Pre-pandemic it was 0.64%,

[00:27:07] peaked at 1.14 in 2020

[00:27:10] and then went down to 0.76 in 2022

[00:27:13] and has been slowly ticking back up since.

[00:27:16] So that's one thing I'll keep an eye on

[00:27:18] because if that starts approaching 1% plus

[00:27:22] you know that the banks are starting to see

[00:27:25] definitely something that's going on

[00:27:27] and they're starting to pile on more and more money

[00:27:29] on their books, on their balance sheet for that.

[00:27:33] Anything you wanted to add before I continue there?

[00:27:36] I guess the only thing I would say is the CET1

[00:27:38] like TD it's going down but it's not necessarily bad

[00:27:41] like you don't want the ratio to be too high either

[00:27:44] because then they just like it's too much capital

[00:27:46] and the first horizon, yeah it was first horizon

[00:27:50] acquisition when it fell through they had a ton of cash

[00:27:52] so I think most of this is going to share buybacks.

[00:27:56] Yeah and see then that's a great point right

[00:27:59] because banks don't like having

[00:28:01] too much liquidity on the balance sheet

[00:28:03] because in a fractional reserve system

[00:28:06] is the least you can have in theory

[00:28:09] the more you can actually use to loan out right?

[00:28:12] So that's why banks,

[00:28:14] the more they have on their balance sheet

[00:28:16] in terms of liquidity ready to you know

[00:28:18] absorb a financial shock or a financial crisis,

[00:28:23] well that's money they can't use and loan out

[00:28:25] and get income from that so I think it's just important

[00:28:29] that's why banks tend to not love higher requirements

[00:28:33] like that because it impacts their ability

[00:28:35] to generate more profits.

[00:28:37] Yeah exactly, like if you had a bank

[00:28:39] that was at a C like a CET like right

[00:28:43] near the regulations and it's dipping

[00:28:45] like it might be an indicator of some issues

[00:28:48] and like this happened to BMO

[00:28:50] and they had to issue shares to kind of shore that up

[00:28:53] but I mean it's not necessarily bad when it goes down

[00:28:55] like for example you don't want a bank

[00:28:57] with a 20% CET ratio like it's just too high

[00:29:01] you know what I mean?

[00:29:02] Like there's kind of a buffer there

[00:29:04] that they kind of and most of them will hover

[00:29:07] slightly above the buffer,

[00:29:09] they're not gonna sit too high,

[00:29:10] they're not gonna get too tight.

[00:29:12] No definitely and one thing I'll add about

[00:29:15] you know these credit losses

[00:29:17] so banks will typically have three stages

[00:29:18] for allowances for credit losses

[00:29:20] so without going into each stage

[00:29:23] bank will assign certain amount of you know

[00:29:25] loan loss provisions for each stage

[00:29:27] based on their outstanding loans

[00:29:29] and stage three is where the loans

[00:29:31] are considered impaired and as part of stage three

[00:29:34] TD shows that the amount of write-offs

[00:29:37] that were performed during the quarter

[00:29:39] and basically loans that are unlikely

[00:29:42] to get their full money back.

[00:29:44] Sometimes you know they'll be able to recover

[00:29:46] a little bit but that's typically

[00:29:49] when they're in stage three

[00:29:50] their recovery rate is much much lower

[00:29:52] and we see the write-off since Q1 of 2022

[00:29:55] for our joint TCI listeners here

[00:29:58] it's steadily been going up.

[00:29:59] Obviously their loan portfolio has grown since

[00:30:02] so you have to keep that in mind

[00:30:04] but even as a percentage hit has been going up

[00:30:07] so that's a little graphic that I decided to do

[00:30:10] because I thought it was pretty interesting

[00:30:14] just to look at and then I wanted to look

[00:30:16] at their real estate portfolio

[00:30:18] so I looked at their investor presentation

[00:30:21] which is really useful for people who invest in banks

[00:30:23] I think that would be you know

[00:30:25] don't just look at the earnings release

[00:30:28] make sure you look at the investor presentation

[00:30:30] there's a lot of good information there

[00:30:32] but also the supplemental information data

[00:30:35] because a lot of the data we talk about

[00:30:37] is in those two documents

[00:30:39] not in the earnings release

[00:30:40] and especially when you look at banks

[00:30:42] official financial statements on a gap or IFRS

[00:30:47] well it's useful but it's really useful

[00:30:50] to look at the different ratios that they break down

[00:30:52] and then for their maturity schedule

[00:30:55] it's quite interesting

[00:30:56] so they have a lot of mortgages

[00:30:59] like I was saying earlier coming to maturity

[00:31:02] in fiscal year 2025

[00:31:04] so 23% are coming to maturity

[00:31:07] then 9% are coming to maturity

[00:31:10] in the second half of this year

[00:31:12] and then you go forward to 2026

[00:31:14] it's 32%

[00:31:15] and forward to 2027

[00:31:18] it's 25%

[00:31:19] so you're looking at a lot of these loans

[00:31:21] like we've talked before

[00:31:23] that will be coming in renewed

[00:31:25] at significantly higher rates

[00:31:27] and it's something to keep in mind

[00:31:30] and especially with TD here

[00:31:32] and I'm assuming it's similar to the other banks

[00:31:34] but 75% of their loan portfolio

[00:31:38] is between BC and Ontario

[00:31:40] and if you know a little bit about real estate

[00:31:45] you know that those were two of the hottest markets

[00:31:48] that we've seen since the pandemic started

[00:31:51] so these are potentially two

[00:31:53] of the most problematic markets

[00:31:55] so something to keep in mind

[00:31:57] I think TD obviously the AML issues

[00:32:00] is the kind of top of mind here

[00:32:02] but the mortgage business as well

[00:32:06] there's definitely some things to keep an eye on

[00:32:09] and their total mortgage portfolio

[00:32:11] is 388 billion

[00:32:13] in terms of real estate secured lending

[00:32:16] so I think that's pretty much all residential

[00:32:18] or there might be a little bit of commercial

[00:32:20] but I think it's mostly residential

[00:32:23] yeah summed up

[00:32:24] well the only thing I would say

[00:32:25] is most all the banks are the same

[00:32:26] I think national does have a bit more exposure

[00:32:29] to Quebec

[00:32:30] so like they're I'm pretty sure

[00:32:31] their residential mortgage exposure

[00:32:33] is gonna be a little bit more skewed

[00:32:35] towards Quebec

[00:32:36] but it's pretty much the same makeup

[00:32:38] for all of them

[00:32:39] just because it's more so a population thing as well

[00:32:42] I mean obviously these banks

[00:32:44] there's like what percentage

[00:32:45] of the Canadian population is in Ontario

[00:32:48] it's a huge chunk

[00:32:49] so obviously their mortgage portfolios

[00:32:51] are gonna be a huge chunk there too

[00:32:53] yeah I would say it's probably

[00:32:55] like I totally agree on the population

[00:32:56] but it's probably a combination of population

[00:32:59] but also prices being elevated

[00:33:02] in those two provinces

[00:33:03] cause clearly right

[00:33:05] there's probably a higher quantity of mortgages there

[00:33:07] because of the population

[00:33:09] but the value of these mortgages

[00:33:10] are likely to be higher as well

[00:33:12] yeah I wonder how this moves forward

[00:33:14] with the Prairie provinces

[00:33:16] because our real estate market is nuts

[00:33:18] nuts right now

[00:33:19] well we'll have to see

[00:33:20] we'll probably know in the next year or two

[00:33:23] but I think that's it for TD here

[00:33:28] do you wanna move on to Bank of Montreal

[00:33:31] yeah so

[00:33:32] I would say that

[00:33:34] BMO posted probably the worst quarter

[00:33:37] out of the big six

[00:33:38] like just

[00:33:39] it was kind of a surprise

[00:33:41] much higher than expected provisions

[00:33:43] and some pretty crazy increases

[00:33:45] in impaired provisions

[00:33:47] so as I had mentioned when we talked about

[00:33:50] CIBC it dipped 9% post earnings

[00:33:53] which like Canadian banks

[00:33:54] are really not that volatile

[00:33:56] they typically do not go up or down

[00:33:59] you know double digits

[00:34:01] post earnings report

[00:34:02] and BMO did end up closing the day

[00:34:04] down more than 9%

[00:34:06] they missed

[00:34:07] expectations like street expectations

[00:34:09] top and bottom line

[00:34:10] they missed earnings by about

[00:34:13] yeah 279 was expected

[00:34:15] and they reported 259

[00:34:17] so the one thing we had

[00:34:20] mentioned in terms of adjusted earnings

[00:34:22] so there's some large discrepancies

[00:34:24] between Bank of Montreal's

[00:34:26] reported earnings and adjusted earnings

[00:34:28] and I think in this case

[00:34:30] adjusted earnings are going to give you a much

[00:34:33] better picture on the results of BMO

[00:34:36] so if you look on the surface

[00:34:38] it looks like BMO's earnings have increased

[00:34:40] by around 180%

[00:34:42] through the first six months of this year

[00:34:44] compared to last

[00:34:45] which they did like on a reported basis

[00:34:47] there's no denying that they did however

[00:34:50] where many investors may get tripped up

[00:34:52] is the company's earnings were only

[00:34:55] as low as they were in the second quarter of 2023

[00:34:58] because of that acquisition of Bank of the West

[00:35:00] which is a US

[00:35:02] you know like regional type bank that they acquired

[00:35:05] the reasoning for this

[00:35:06] is the company booked over 1.1 billion dollars

[00:35:10] and I think it was actually

[00:35:11] this doesn't include like the legal costs

[00:35:13] and all that things

[00:35:13] I think there was even more costs

[00:35:15] attributed to it

[00:35:16] but the bulk of it is going to be

[00:35:18] 1.1 billion in one-off expenses

[00:35:21] so these pretty much consisted of

[00:35:22] acquisition costs along with

[00:35:25] I think they had to take like

[00:35:26] $730 million dollars

[00:35:29] in provisions when they first acquired

[00:35:30] when they first bought the bank

[00:35:32] so this is why especially when

[00:35:35] there is an acquisition involved

[00:35:37] it's best to use adjusted earnings

[00:35:39] because you know when we adjust

[00:35:42] these one-off costs out

[00:35:43] we can get a better picture of how

[00:35:45] you know the business is growing

[00:35:46] on an apples to apples basis

[00:35:48] so when we adjust out the

[00:35:50] you know 1.1 probably closer to 1.3 billion

[00:35:54] I just forgot to include a couple things

[00:35:56] BMO's earnings through the first six months

[00:35:57] of the year are actually about

[00:36:00] 13.5% lower than last year

[00:36:03] so the company's Canadian segment put up

[00:36:06] mid single-digit growth in terms of net income

[00:36:08] but higher provisions are

[00:36:10] you know ultimately eroding earnings

[00:36:11] its U.S. segment witnessed a 24% decline

[00:36:15] in year-over-year net income

[00:36:16] lower borrowing activity and lower margins

[00:36:19] capital markets saw a strong

[00:36:21] bounce back quarter

[00:36:22] but you're going to see this

[00:36:23] with most Canadian banks

[00:36:24] they're seeing a pick up in

[00:36:25] investment banking activity

[00:36:27] and just overall you know trading activity

[00:36:29] has ramped up markets are at all-time highs

[00:36:32] or nearly all-time highs

[00:36:33] return on equity dipped from 12.6% to 10.9%

[00:36:38] and where I think like in my opinion

[00:36:40] where the real issue

[00:36:42] lies with BMO and why it took such a hit

[00:36:44] was their provisions

[00:36:45] so the bank reported PCLs of 705 million

[00:36:49] expectations were for

[00:36:51] anywhere from 560 to 575 million

[00:36:54] when we look at their PCL ratio

[00:36:57] it now sits at 0.44%

[00:36:59] so this is the second highest ratio

[00:37:01] among big six banks

[00:37:02] and the one thing that's you know

[00:37:04] a bit alarming is just a year ago

[00:37:07] the PCL ratio sat at 0.2%

[00:37:10] so all of the banks have increased

[00:37:12] but BMO over the course of the year

[00:37:15] has increased the most

[00:37:18] so quick explanation like again

[00:37:20] on performing PCL loans

[00:37:22] versus impaired PCL loans

[00:37:24] performing is a loan

[00:37:26] that is currently being paid

[00:37:27] but the bank expects to go unpaid

[00:37:30] whereas an impaired loan is one where

[00:37:32] it's already impaired

[00:37:33] like people are struggling to make payments

[00:37:35] and the more concerning thing for BMO

[00:37:38] and in my opinion again

[00:37:39] one of the reasons why it got hit so hard

[00:37:41] post earnings was just how fast

[00:37:44] its impaired loan PCL ratio has increased

[00:37:48] so typically over the last

[00:37:50] like if we look sequentially

[00:37:51] over the last five quarters

[00:37:53] BMO's impaired loan PCL ratio

[00:37:56] has typically increased by

[00:37:58] four to five basis points a quarter

[00:38:00] I believe five quarters ago

[00:38:02] they were at 0.16%

[00:38:04] and then it would you know

[00:38:05] it would tick up to 0.2, 0.25, 0.29

[00:38:08] but just on in this quarter alone

[00:38:11] it reported a 12 basis point increase

[00:38:13] so it increased from 0.29 to 0.41%

[00:38:17] so overall impaired loan PCLs

[00:38:19] which again are those loans

[00:38:21] that are already being struggled

[00:38:23] to being paid it tripled nearly

[00:38:24] on a year over year basis

[00:38:27] it's pretty difficult to figure out

[00:38:29] whether the company is being overly cautious

[00:38:31] which is probably a case

[00:38:32] what CIBC was

[00:38:34] they reported really high provisions

[00:38:36] over the previous years

[00:38:38] and now they're kind of settling down

[00:38:39] so maybe they were being a bit too overzealous earlier

[00:38:43] or BMO could just be playing catch up

[00:38:46] in terms of PCLs

[00:38:48] a bit of an under reporting issue

[00:38:49] and now they're having to over report

[00:38:51] and I would probably be more inclined to believe

[00:38:53] it's a bit of a catch up situation

[00:38:55] just because they're impaired loans

[00:38:57] and not performing

[00:38:59] you know again

[00:39:01] performing loans are more of you know

[00:39:02] a precautionary situation

[00:39:04] but impaired loans are clearly already at the point

[00:39:07] where buyers are having you know

[00:39:08] borrowers sorry are having difficulty

[00:39:10] and it just it wasn't very pretty for BMO this quarter

[00:39:15] bad again in my opinion

[00:39:16] one of the one of the softest quarters

[00:39:19] out of the big six

[00:39:20] Yeah and I think I don't know exactly how the bank

[00:39:22] assess the provisions that they put aside each quarter

[00:39:26] but on those performing loans

[00:39:28] I'm assuming they have a certain kind of percentage

[00:39:31] that they assign

[00:39:32] yeah

[00:39:32] for the performing loans

[00:39:33] and then they'll come up with an amount

[00:39:35] but what I'm suspecting is that

[00:39:37] they've increased that percentage

[00:39:38] because they figure that there's going to be higher percentage of these

[00:39:41] that will become non-performing loans

[00:39:44] and then potentially write offs down the line

[00:39:47] Yeah and I mean as always these provisions like

[00:39:50] a lot of people might make the assumption that they're already lost

[00:39:53] they're definitely not

[00:39:54] like you can see them

[00:39:56] like more likely the banks are going to go over the top

[00:39:59] in terms of provisions

[00:40:00] and then recover them later on

[00:40:02] so it's not like

[00:40:03] it's not like this is already dead money

[00:40:05] it's just money that they set aside just in case

[00:40:09] yeah exactly

[00:40:10] I mean we saw it during the pandemic right

[00:40:12] so it was

[00:40:14] and I'll show this for our joint TCI listeners

[00:40:17] but we saw this during the pandemic

[00:40:19] where the banks actually like reversed a lot of these provisions

[00:40:24] because they had set aside way too much

[00:40:26] at the start of the pandemic

[00:40:28] thinking that there'd be some issues for a lot of borrowers

[00:40:32] and then they end up reversing those

[00:40:34] so it's something

[00:40:36] it's something just to keep in mind

[00:40:38] at this point I think there's probably

[00:40:42] I think we still don't know

[00:40:44] I think we're probably not going to see anything trend better

[00:40:48] for at least a year if not more

[00:40:51] and Scotiabank actually talked about that on their call

[00:40:55] and that's what I'm going to do now

[00:40:56] is I'm going to transition over to Scotiabank

[00:40:59] because I think it's just very interesting

[00:41:02] what they had to say on the call

[00:41:03] so for Scotiabank

[00:41:05] well actually before I go on

[00:41:06] anything else you wanted to add

[00:41:08] or you were good for BMO?

[00:41:10] No, that's it

[00:41:10] Yeah

[00:41:11] Move on to Scotiabank

[00:41:12] Okay, perfect

[00:41:13] So again here I'll go on over quarter or quarter

[00:41:16] and before I get to the results

[00:41:17] so I mentioned the call

[00:41:18] and it was a really interesting call

[00:41:21] I do encourage people to listen to the call

[00:41:23] especially if they own the banks

[00:41:25] I mean there's too many people on Twitter

[00:41:27] that invest in Canadian banks

[00:41:29] that I can tell they've probably never listened to a call

[00:41:33] and they've never looked at the investor presentation

[00:41:36] the supplemental data

[00:41:38] they just invest in banks

[00:41:40] because they've been here forever

[00:41:41] they've been paying a dividend for 100 years

[00:41:43] or whatever it is

[00:41:45] and it's going to keep going for another 100 years in the future

[00:41:48] I'm of the mind

[00:41:49] I like to look at what the numbers say right now

[00:41:53] what they say on the calls

[00:41:54] what they provide in terms of information

[00:41:56] and then make my own opinion

[00:41:58] because you know I'm not young

[00:42:01] I'm not old

[00:42:01] I'm you know getting close to 40

[00:42:04] but what I've learned over time is nothing is forever

[00:42:08] and I think it's just important to understand

[00:42:10] where things are going

[00:42:12] I think there's like you just said

[00:42:14] there's some banks that are doing much better

[00:42:16] there's some banks that could see some trouble for years to come

[00:42:18] so I think it's just important to not just blindly invest in them

[00:42:23] understand what you're investing in

[00:42:25] I know banks can be complicated

[00:42:26] but there are certain things that you can look at

[00:42:29] without making it overly complex

[00:42:31] to get a better idea

[00:42:32] whether they're trending the right direction or not

[00:42:34] No yeah I completely agree there

[00:42:36] a lot of people

[00:42:38] I don't know why

[00:42:39] probably because they were very well performing

[00:42:41] post-financial crisis

[00:42:43] a lot of people just like

[00:42:44] 100%

[00:42:45] You could have theoretically known

[00:42:48] absolutely nothing about the banks from you know

[00:42:50] what would it be 2010

[00:42:52] maybe even 2009

[00:42:54] up until 2022

[00:42:56] and you would have been just fine

[00:42:57] just buying them sitting on them

[00:42:59] but I mean ultimately it's better off to just

[00:43:03] you know understand the business

[00:43:04] understand how they work

[00:43:05] because on the surface they look relatively simple

[00:43:09] because most people will look at the revenue

[00:43:10] look at the earnings

[00:43:12] see how they're growing

[00:43:13] but these are insanely complex companies

[00:43:17] so I mean

[00:43:18] and like you said with TD

[00:43:20] like they do

[00:43:21] they lay it out very well in their

[00:43:23] what would you have to look for

[00:43:24] it's not like the report to shareholders

[00:43:26] but the investor presentation

[00:43:27] like they go in depth on like

[00:43:30] probably 10, 12 different aspects of the businesses

[00:43:35] and they do make it relatively easy to understand

[00:43:38] Mm-hmm

[00:43:39] Yeah and then it's just looking for specific things right

[00:43:42] and the supplemental information

[00:43:44] then you get into more that nitty gritty of it

[00:43:46] but I still think it's very useful

[00:43:48] and I agree with you

[00:43:50] I think the biggest disservice

[00:43:53] and it was good for Canada

[00:43:54] don't get me wrong

[00:43:55] but was to the Canadian banks

[00:43:58] to perform as well as they did during the financial

[00:44:01] great financial crisis

[00:44:02] compared to their U.S. counterparts

[00:44:04] and I think unfortunately

[00:44:06] it gives people who invest in them

[00:44:08] a lot of feeling of being invincible almost

[00:44:12] because they're Canadian banks

[00:44:14] and you know

[00:44:14] they handle the biggest financial crisis

[00:44:17] that we've seen in our lives

[00:44:18] so you know they can handle anything

[00:44:20] the reality is Canada was way less impacted

[00:44:24] than the U.S. was

[00:44:25] obviously with the subprime lending mortgage

[00:44:27] some prime lending that happened over there

[00:44:29] but there's a lot of kind of financial risks

[00:44:33] don't believe me

[00:44:34] look at what OSFIE the regulator is saying

[00:44:37] look at what the Bank of Canada is saying

[00:44:39] there's a lot of risk around

[00:44:41] especially housing in Canada

[00:44:43] and all the lending around that

[00:44:45] so I'm not just saying it

[00:44:46] it's just you know people are

[00:44:48] well into know are saying it as well

[00:44:51] it's in the risk doesn't mean

[00:44:52] that it will necessarily happen

[00:44:54] but there is you know

[00:44:56] there is a possibility

[00:44:57] yeah a lot of and a lot of the times

[00:44:59] I talk about this

[00:45:00] some people get upset with me

[00:45:02] or call me a bear or whatever

[00:45:03] I mean you can't

[00:45:05] there is it's not a zero probability

[00:45:07] that there could be issues

[00:45:09] I mean 2008 it was probably

[00:45:12] it was nowhere near the like weird

[00:45:15] borderline like disastrous housing situation

[00:45:18] we have here in Canada

[00:45:20] it's just not really the same situation

[00:45:22] so it's just good to just be cautious

[00:45:24] I mean a lot of people

[00:45:26] if you speak badly of the banks

[00:45:28] just assume you're some sort of perma bear

[00:45:31] and you know it just it's

[00:45:34] there's nothing wrong with like objectively

[00:45:36] looking at these companies

[00:45:37] and seeing the situation that they're in

[00:45:40] and just I mean not kind of

[00:45:44] making a decision based on that risk

[00:45:45] instead of just blindly assuming

[00:45:47] they're going to be okay

[00:45:48] which they probably are going to be okay

[00:45:51] they probably are going to be okay

[00:45:53] but they probably will be

[00:45:54] risk is not zero

[00:45:56] exactly but yeah

[00:45:58] they might be okay

[00:45:59] and they may end up being a terrible investment for you

[00:46:02] so you keep that in mind

[00:46:03] these are not the same thing right

[00:46:05] the banks may be okay

[00:46:07] and pick your bank

[00:46:09] whichever one doesn't matter

[00:46:10] I'm just like as a general kind of thought here

[00:46:13] the bank might be okay

[00:46:15] may struggle for a few years

[00:46:16] and then be fine after that

[00:46:18] but your returns may not be that great

[00:46:20] because of that

[00:46:21] so you have to keep that in mind too

[00:46:22] but having said that

[00:46:24] during the call Scotia Bank

[00:46:25] they mentioned some really interesting things

[00:46:27] at least I thought so

[00:46:29] they mentioned first of all

[00:46:30] in certain macroeconomic conditions

[00:46:32] and higher rates have negatively impacted

[00:46:35] certain clients and their profitability

[00:46:37] the impact of higher rates

[00:46:38] is increasingly weighing on consumers

[00:46:41] and small and larger businesses

[00:46:44] they believe that the rate hiking cycle

[00:46:46] is now over

[00:46:47] but their view of multiple rate cuts

[00:46:50] in the back half of this year

[00:46:51] is now less certain than it was earlier this year

[00:46:54] if we remember correctly

[00:46:55] I think we had done a segment on that earlier in the year

[00:46:58] I think most banks were saying

[00:47:00] between 75 basis point to 150 basis point

[00:47:04] terms of cuts by the end of this year

[00:47:07] clearly obviously

[00:47:09] that's probably not gonna happen

[00:47:11] and I mean I'm not picking on them there

[00:47:13] I probably would have bet like 75 to 100 basis point

[00:47:16] I mean my bold prediction was higher than that

[00:47:18] just because I was being bold

[00:47:20] but nonetheless I think most people

[00:47:22] including ourselves have been wrong here

[00:47:25] Yeah and I don't think

[00:47:27] I mean there was I was hearing

[00:47:28] while reading a bit of stuff

[00:47:30] that there could be a half point decline

[00:47:32] in June from the Bank of Canada

[00:47:34] but I'd say that would be

[00:47:36] Okay you had to say that

[00:47:38] I came prepared

[00:47:40] so I came prepared for a joint TCI listeners

[00:47:43] but obviously I'll share what I'm

[00:47:46] talk about what I'm sharing right now

[00:47:48] so I discovered this recently

[00:47:50] so the Montreal Exchange

[00:47:52] which is owned by the TMX group

[00:47:54] so the Montreal Exchange

[00:47:56] they do derivatives

[00:47:57] so I've talked about a lot

[00:47:59] about the FedWatch tool from the CME in the US

[00:48:02] so the Montreal Exchange you can say

[00:48:03] it's like pretty much the equivalent of that

[00:48:06] but for Canada

[00:48:07] and the probability of a rate cut

[00:48:10] is at 32% for the meeting

[00:48:12] that's going to be happening tomorrow

[00:48:14] we're recording on the 4th

[00:48:16] yet you look at headlines

[00:48:19] from the various mainstream media outlets in Canada

[00:48:23] and you think that it's actually a certainty

[00:48:26] that they're cutting rate cuts

[00:48:27] this is based on what the market

[00:48:29] is essentially betting in terms of derivatives

[00:48:33] and very similar to the CME FedWatch tool

[00:48:36] although the CME FedWatch tool

[00:48:38] is way more comprehensive than this

[00:48:40] but for people who'll see it now

[00:48:42] there's a 32% chance of a 25 basis point cut

[00:48:46] yet if you look at headlines

[00:48:48] it's almost a certainty

[00:48:49] that there's a rate cut tomorrow

[00:48:51] take headlines with a grain of salt

[00:48:53] I think sometimes they may be motivated

[00:48:56] they may have

[00:48:57] you know they might be using that as click bait

[00:48:59] it might be in their interest

[00:49:01] to get people to read

[00:49:03] or to think there's going to be a rate cut

[00:49:05] but it doesn't look very likely

[00:49:07] obviously one third of a chance

[00:49:10] I've played enough poker

[00:49:11] to know that that can still happen

[00:49:13] but I just wanted to provide

[00:49:15] a little bit of context there

[00:49:16] you poked the bear down

[00:49:18] I saw it

[00:49:19] well I don't know where I read it

[00:49:20] I was trying to dig it up here

[00:49:22] but I saw 80% chance of a cut

[00:49:25] that was the headline

[00:49:26] they figured there's going to be an 80% chance of a cut

[00:49:29] and then I read the other article

[00:49:30] that said a half point decline

[00:49:33] so yeah

[00:49:33] was it written by a realtor?

[00:49:35] is that it?

[00:49:35] yeah real estate

[00:49:38] oh man

[00:49:39] I mean yeah I can't find anything

[00:49:41] but I was trying to find the article

[00:49:42] to see who was buying it

[00:49:43] no but if you look

[00:49:45] you'll probably find a few

[00:49:47] I've seen several articles

[00:49:48] that are essentially implying

[00:49:49] that it's either a high probability

[00:49:52] or borderline of certainty

[00:49:55] that there's a rate cut coming

[00:49:56] I mean it could still come

[00:49:57] I'm just not saying

[00:49:58] it's just the markets are saying

[00:50:00] that it's not that likely

[00:50:02] yeah 80%

[00:50:03] I mean 80% is far from certainty

[00:50:05] but that's pretty confident

[00:50:08] so yeah

[00:50:09] I mean maybe they changed the headline now

[00:50:12] but yeah we'll see

[00:50:13] we'll see

[00:50:14] but to get back to Scotiabank

[00:50:16] higher for longer interest rates

[00:50:18] will likely keep their provisions

[00:50:19] for credit losses

[00:50:21] higher for longer as well

[00:50:23] they expect PCL to be

[00:50:24] at the high end of their 2024 guidance

[00:50:27] they also said that

[00:50:28] they would not increase

[00:50:29] the dividend this year

[00:50:31] so that made the rounds

[00:50:32] on dividend twitter

[00:50:35] a lot of people

[00:50:36] who are growth dividend investors

[00:50:38] were not too happy

[00:50:39] I even saw some people selling

[00:50:41] because they said

[00:50:42] they would not be increasing it

[00:50:44] I mean personally

[00:50:44] I give them props

[00:50:46] because what they said is

[00:50:47] look typically we do increase

[00:50:50] the dividend in Q2 of each year

[00:50:52] when they answered a question

[00:50:53] regarding that

[00:50:54] however we are being prudent

[00:50:56] we're letting it

[00:50:57] to the current level that it is

[00:51:00] let's say a pause

[00:51:01] I think that's the word that they used

[00:51:03] and we're hoping

[00:51:04] that we'll be able to continue raising

[00:51:06] in Q2 of 2025 going forward

[00:51:09] they want to raise it along

[00:51:12] with earnings growth

[00:51:14] what they're saying is that

[00:51:16] they'll raise it next year

[00:51:17] as long as earnings grow

[00:51:18] so don't take it as a certainty

[00:51:20] that they will be raising

[00:51:22] I think they're making that

[00:51:22] dependent on earnings

[00:51:24] and I think to be honest

[00:51:25] that is a very reasonable approach

[00:51:29] the results were not great

[00:51:31] but to me

[00:51:32] that makes a whole lot of sense

[00:51:35] yeah so these like banks

[00:51:36] typically all of the banks

[00:51:38] pay out anywhere from 40 to 50 percent

[00:51:41] of their earnings

[00:51:42] towards the dividend

[00:51:43] and Scotia

[00:51:44] they're sitting at

[00:51:46] financial crisis payout ratios

[00:51:48] which are around 70

[00:51:50] I believe 73-74 percent of earnings

[00:51:53] you won't find too many banks

[00:51:54] that are paying out

[00:51:56] that level of earnings

[00:51:57] towards the dividend

[00:51:58] so no dividend growth

[00:52:01] it's really not all that surprising

[00:52:04] another bank

[00:52:05] bit off the mark here for Scotia

[00:52:07] but TD is approaching that point as well

[00:52:09] I think they're at 70 percent of earnings

[00:52:12] BMO is at 59 percent

[00:52:14] but they still

[00:52:15] still raised the dividend this quarter

[00:52:17] but it was quite a bit lower than typical

[00:52:20] but I mean yeah

[00:52:22] when you're paying out

[00:52:23] nearly 75 percent of your earnings

[00:52:25] I don't think you should be raising

[00:52:27] the dividend

[00:52:27] especially when that's

[00:52:28] at a 50 percent premium

[00:52:31] to what you typically payout

[00:52:33] yeah and I guess the last thing here

[00:52:36] before I get to the results

[00:52:37] so for Latin and Central America

[00:52:39] which Scotia Bank

[00:52:40] has a pretty big presence in

[00:52:42] they said it's looking a bit different there

[00:52:44] especially since most of the markets

[00:52:47] have started easing interest rates

[00:52:48] so different

[00:52:50] definitely different than what they're seeing

[00:52:51] here in Canada

[00:52:52] where we're a bit more dependent on the U.S.

[00:52:55] now onto the result

[00:52:56] the adjusted earnings

[00:52:57] I'll use adjusted earnings here again

[00:53:00] quarter over quarter

[00:53:01] because I think it's more accurate

[00:53:02] the adjusted earnings though

[00:53:03] were very close to the actual earnings

[00:53:05] there wasn't that many adjustments

[00:53:07] so adjusted earnings were down 5 percent

[00:53:09] to 2.1 billion

[00:53:11] adjusted EPS was down 6.5 percent

[00:53:13] to 1.58 per share

[00:53:15] and by segment

[00:53:16] Canadian banking net income

[00:53:18] decreased 8 percent to 1 billion

[00:53:20] their largest segment

[00:53:22] international banking

[00:53:23] decreased 10 percent to 671 million

[00:53:26] global wealth management

[00:53:27] and income increased 3 percent

[00:53:29] to 380 million

[00:53:31] and global banking and market

[00:53:33] net income decreased 3 percent

[00:53:34] to 428 million

[00:53:36] the CET1 ratio was

[00:53:39] 13.2 percent

[00:53:40] down 30 basis point

[00:53:41] from the previous quarter

[00:53:43] PCL increased 4.5 percent

[00:53:45] to 1 billion

[00:53:46] and that's the second highest amount

[00:53:48] for them that they've set aside

[00:53:50] since the beginning of 2022

[00:53:52] for a single quarter

[00:53:53] the largest was Q4 of 2023

[00:53:58] when they set aside 1.25 billion

[00:54:01] so definitely you know

[00:54:03] none nothing

[00:54:03] I remember when they came out

[00:54:05] we were talking about it

[00:54:06] when they came out

[00:54:07] with that loan loss provision

[00:54:09] in last year

[00:54:11] and it was a big big jump

[00:54:13] compared to the rest of the banks

[00:54:16] so it was just kind of interested

[00:54:18] to see that they have

[00:54:20] another pretty big one

[00:54:21] and I'll just show this

[00:54:22] for our joint TCI listeners

[00:54:24] and this is the amount

[00:54:25] that they've set aside per quarter

[00:54:27] again it's not the total amount

[00:54:28] that they have on the balance sheet

[00:54:30] and we see steadily

[00:54:32] that these amounts

[00:54:33] have been increasing

[00:54:33] for Scotiabank

[00:54:35] even as their loan book

[00:54:37] is kind of starting to stagnate

[00:54:40] it a little bit

[00:54:41] it's not growing

[00:54:42] as I'll mention a bit later

[00:54:44] yeah that I believe

[00:54:46] that October 2023 quarter

[00:54:48] is when they just they reported

[00:54:50] way way higher

[00:54:51] than anyone had expected

[00:54:52] and I mean it's kind of

[00:54:54] it's similar to BMO this quarter

[00:54:56] like BMO kind of had

[00:54:58] that type of quarter this year

[00:54:59] and it generally like spooks the market

[00:55:02] but I mean Scotia's

[00:55:04] really struggled

[00:55:05] over the last while

[00:55:07] it's rough

[00:55:08] and they didn't post a good quarter now

[00:55:09] like I can't remember

[00:55:11] the last time Scotia

[00:55:12] had a good quarter

[00:55:13] it's been a while

[00:55:15] yeah I don't know

[00:55:16] maybe you had hair the last time

[00:55:18] I might have had hair

[00:55:19] and I haven't had hair

[00:55:20] for a very long time

[00:55:22] for a while

[00:55:23] sorry it was a little too easy

[00:55:25] I know it's been a while

[00:55:26] that's why I said that

[00:55:27] but no I thought

[00:55:27] it was just interesting to show that

[00:55:29] because it has been increasing

[00:55:30] and like it's been a similar story

[00:55:32] for all of the banks

[00:55:34] just to keep that in mind

[00:55:36] the PCLs were driven higher

[00:55:37] by auto loans and residential mortgages

[00:55:40] they now have 6.5 billion

[00:55:42] set aside on their balance sheet

[00:55:43] which is the most they've had

[00:55:45] over the last 10 years

[00:55:46] aside from the pandemic

[00:55:48] and as a percentage of gross loans

[00:55:50] that's 0.86%

[00:55:52] which is the highest

[00:55:53] it's been since 2020

[00:55:55] 2020 was 1.25%

[00:55:57] and it bottomed in late 2022

[00:56:00] when it reached 0.71%

[00:56:02] so clearly it's trending up here

[00:56:04] Scotiabank has been trying to

[00:56:06] reduce their mortgage exposure

[00:56:07] like I mentioned earlier

[00:56:09] and they made a progress on that

[00:56:11] so mortgage loans declined 1%

[00:56:13] to $289 billion

[00:56:15] however credit card loans

[00:56:16] were up 18% to $9 billion

[00:56:19] so it's not a big part

[00:56:20] of their portfolio

[00:56:22] but I'm not quite sure

[00:56:24] why you'd want to be

[00:56:26] increasing the credit card loans

[00:56:28] by so much

[00:56:30] that's clearly a segment

[00:56:31] that's going to be under pressure

[00:56:32] if consumers are under pressure

[00:56:34] and I would say

[00:56:35] it's going to be even more so

[00:56:37] under pressure than mortgages

[00:56:39] for example

[00:56:40] because I would think

[00:56:41] most people would prioritize

[00:56:42] paying their mortgage

[00:56:43] over their credit card

[00:56:44] right so I think that's probably

[00:56:46] yeah that's definitely something there

[00:56:48] and credit card loans

[00:56:50] unfortunately they're unsecured

[00:56:52] so that money can be

[00:56:53] difficult to recover

[00:56:55] yeah I would imagine

[00:56:56] this is a joint effort

[00:56:57] by the bank and consumers

[00:57:00] but I mean I get like

[00:57:01] I get an insane amount of like mail

[00:57:06] boosting limits

[00:57:07] like reducing interest rate

[00:57:08] to transfer balances

[00:57:09] and stuff like that but

[00:57:11] are you with Scotiabank for that or?

[00:57:14] no this would be with

[00:57:15] I'm with it

[00:57:16] well I don't really

[00:57:16] I bank with Accruitable

[00:57:18] pretty much exclusively now

[00:57:19] but I do have

[00:57:20] just credit cards with RBC

[00:57:22] and I'm talking like

[00:57:23] twice a month at least

[00:57:26] they have one with Scotiabank

[00:57:28] and they they are

[00:57:30] yeah they keep telling me

[00:57:31] I'm richer than I think

[00:57:33] yeah just boost your balance

[00:57:35] yeah exactly so

[00:57:37] yeah it's

[00:57:38] I mean it's just something

[00:57:39] to keep an eye on

[00:57:40] and in terms of

[00:57:42] their mortgage portfolio

[00:57:43] 25% is insured

[00:57:45] 75% is uninsured

[00:57:47] so insured would be

[00:57:48] insured by CMHC

[00:57:50] or one of the two

[00:57:50] private mortgage insurers

[00:57:52] and uninsured is

[00:57:53] typically people will have

[00:57:55] like 20% or more

[00:57:56] so these are uninsured mortgages

[00:57:58] and 68% of their portfolio is fixed

[00:58:01] versus 32% variable

[00:58:03] and the mortgage portfolio

[00:58:05] it is similar to what we saw with TD

[00:58:08] but I always like to

[00:58:09] show a little bit

[00:58:10] what's going on here

[00:58:11] with the banks

[00:58:12] and pretty much

[00:58:13] the same story here

[00:58:15] where you get

[00:58:17] a lot of their mortgages

[00:58:18] that are actually renewing

[00:58:20] in you know

[00:58:21] a decent amount renewing this year

[00:58:23] then it starts trending up in 2025

[00:58:26] and 2026 is just a year right

[00:58:28] it's the year where most of these

[00:58:31] mortgages are renewing

[00:58:32] a big chunk of them

[00:58:34] and that is

[00:58:35] that's a little scary

[00:58:36] if you ask me

[00:58:37] just because these are the mortgages

[00:58:39] that especially the fixed rate ones

[00:58:41] and 65% of the 2026 mortgages

[00:58:44] are actually fixed rate

[00:58:46] it's these mortgages

[00:58:48] that people had extremely low rates

[00:58:50] that we'll be seeing

[00:58:52] you know potentially a jump from

[00:58:54] you know maybe like low 2%

[00:58:56] to something in the high 4s

[00:59:00] or even 5%

[00:59:02] depending on what rates are

[00:59:04] down the line in 2026

[00:59:06] so that is the one

[00:59:07] that will probably

[00:59:09] will be worth keeping an eye on

[00:59:10] and like I said

[00:59:11] it's not just Scotiabank here

[00:59:12] I'm not trying to pick on them

[00:59:14] I think most of the banks

[00:59:15] it's exactly that

[00:59:16] that was like a better words

[00:59:19] peak FOMO and low interest rates

[00:59:21] Yeah and I mean the one

[00:59:22] the one situation

[00:59:23] with a lot of these renewals too

[00:59:26] you're kind of

[00:59:27] if you've maxed yourself out

[00:59:29] you're kind of at the mercy

[00:59:31] of the bank you're with

[00:59:33] because if you go elsewhere

[00:59:34] you have to qualify

[00:59:36] for the stress test again

[00:59:37] whereas

[00:59:38] which is so stupid

[00:59:39] Yeah

[00:59:40] I mean it's so stupid

[00:59:42] because then the bank can take so

[00:59:43] like they can take advantage

[00:59:45] of you big time

[00:59:46] Yeah so if you're at 2%

[00:59:48] and you could get

[00:59:50] you know say a 4.5% mortgage

[00:59:52] somewhere else

[00:59:52] but you won't qualify for that

[00:59:54] beat out the stress test

[00:59:55] stress test

[00:59:56] I mean Scotia could be like

[00:59:58] here's 5.5%

[01:00:00] what do you like

[01:00:01] what else can you do

[01:00:02] you're not going to get qualified

[01:00:03] anywhere else

[01:00:03] you know what I mean

[01:00:04] it's a bad system

[01:00:06] in that regard I think

[01:00:08] Yeah it's good system

[01:00:09] for the banks

[01:00:10] but not so much

[01:00:11] for the consumer

[01:00:12] and I think I posted something on

[01:00:14] on X and it was interesting

[01:00:15] because I posted basically

[01:00:17] some of the rules

[01:00:18] that I have

[01:00:19] because I think it's a good reminder

[01:00:20] especially for those

[01:00:21] who don't have a home

[01:00:23] are potentially wanting to buy them

[01:00:25] in a few years down the line

[01:00:27] and it's okay to make your own rules

[01:00:29] that are more stringent

[01:00:30] than the stress test

[01:00:32] because the stress test

[01:00:33] you know even if you meet

[01:00:34] the stress test

[01:00:36] and you go to the max approval

[01:00:38] you are stretching yourself

[01:00:39] like don't kid yourself

[01:00:41] like doesn't mean

[01:00:42] that you're approved

[01:00:42] for a certain amount

[01:00:44] that you should go for it

[01:00:45] because if you factor in

[01:00:47] increase you know

[01:00:48] your mortgage may be fixed

[01:00:49] for five years

[01:00:50] but your maintenance expenses won't be

[01:00:53] your property taxes likely won't be

[01:00:56] your cost of living in general

[01:00:57] likely won't be

[01:00:58] so you have to make sure

[01:00:59] you have some room

[01:01:01] to be able to absorb

[01:01:03] these higher costs down the line

[01:01:05] and I think

[01:01:06] that's where a lot of people

[01:01:07] got into trouble

[01:01:08] is they wanted to get

[01:01:10] you know I know

[01:01:11] it's an emotional thing

[01:01:12] and they wanted to get

[01:01:13] into the housing market so badly

[01:01:15] and prices just kept going up

[01:01:17] and up and up

[01:01:18] and then people probably would set

[01:01:20] an internal budget

[01:01:21] and then would throw out

[01:01:23] the window

[01:01:24] and essentially go to their max budget

[01:01:26] and now they're seeing

[01:01:27] the consequences

[01:01:28] and there's probably a lot of

[01:01:31] difficult discussion happening

[01:01:32] when their mortgages

[01:01:34] are coming up for a new renewal

[01:01:35] with their bank

[01:01:36] or their mortgage broker

[01:01:38] yeah I mean the only difficulty

[01:01:40] about setting a less stringent budget

[01:01:42] is when housing prices have

[01:01:44] skyrocketed

[01:01:45] and wages really haven't moved

[01:01:46] all that much

[01:01:47] I mean you can't get

[01:01:48] into much at all without

[01:01:52] without stretching yourself

[01:01:54] really thin

[01:01:55] which is like

[01:01:55] it's a terrible dynamic

[01:01:57] here in Canada with housing

[01:01:59] it's uh

[01:02:00] oh I yeah I definitely

[01:02:01] agree with that

[01:02:02] and that's why sometimes it's

[01:02:05] as much as

[01:02:06] it might be a dream of yours

[01:02:07] to own a home

[01:02:09] when I was in my early 20s

[01:02:11] I made a few bad financial decision

[01:02:13] and I was

[01:02:14] in a tough financial situation

[01:02:16] for a few years

[01:02:17] and I'm actually very happy it happened

[01:02:20] then because

[01:02:21] it is not a fun feeling

[01:02:23] to feel like you have

[01:02:25] like little room to maneuver

[01:02:27] and you know

[01:02:28] I'm just cautioning people

[01:02:30] I understand

[01:02:32] buying home for a lot of people

[01:02:33] is a dream of theirs

[01:02:34] but sometimes maybe it's just

[01:02:36] best to wait

[01:02:37] keep renting

[01:02:38] putting money aside

[01:02:40] if you buy a home

[01:02:41] and you're basically like

[01:02:42] barely making it

[01:02:44] trust me you will probably

[01:02:45] not be sleeping well at night

[01:02:47] because that will be stressing you out

[01:02:50] yeah it's a huge expense

[01:02:51] especially if you're stretching yourself

[01:02:53] thin on you know

[01:02:54] one of the basic necessities of life

[01:02:57] which is shelter

[01:02:57] I mean it's

[01:02:59] it's like I said it's weird

[01:03:00] like the cost of ownership

[01:03:02] is skyrocketing

[01:03:03] but then again like rents

[01:03:04] are skyrocketing

[01:03:05] so like

[01:03:06] it's even difficult to afford a rental

[01:03:08] I feel really bad for

[01:03:10] younger generation

[01:03:12] who like

[01:03:13] it's I don't even know

[01:03:14] how you get into home ownership

[01:03:16] just because they're so expensive

[01:03:19] yeah yeah no I mean it's

[01:03:21] hopefully things do improve

[01:03:22] over time right

[01:03:23] I think I try to stay positive

[01:03:25] overall and that

[01:03:27] you know Canada

[01:03:28] Canadians and humanity as a whole

[01:03:30] things do improve

[01:03:32] but you know

[01:03:32] we try to do our part

[01:03:34] try to you know

[01:03:35] show people

[01:03:36] you know kind of the basics

[01:03:37] on how to invest

[01:03:39] and how they can actually grow those savings

[01:03:41] I even probably the last thing

[01:03:43] is I even donated to a food bank

[01:03:45] recently because

[01:03:46] I've been seeing longer and longer lineups

[01:03:48] and we don't have that issue

[01:03:50] so I felt like

[01:03:51] it's the least I can do

[01:03:52] especially this time of year

[01:03:53] because I feel like they probably

[01:03:54] don't get that many

[01:03:56] donations in the middle

[01:03:57] or early June

[01:03:58] no I doubt it

[01:04:00] yeah in Calgary it's

[01:04:01] it's very bad too apparently

[01:04:03] cost of living is just crazy right now

[01:04:06] well on a more positive note

[01:04:09] I think good luck to all oilers

[01:04:11] yeah hopefully they bring back the cup

[01:04:14] to Canada

[01:04:15] I think that's a good episode

[01:04:17] ran a little bit longer

[01:04:19] probably steered away a little bit

[01:04:21] from the topic towards the end

[01:04:22] but that's okay

[01:04:23] you know we do appreciate all the support

[01:04:26] from people

[01:04:27] you can find us Dan and I on Twitter

[01:04:29] we're pretty active there

[01:04:30] both of us

[01:04:31] I'm at fiat underscore iceberg

[01:04:33] Dan is at

[01:04:34] I know it but I

[01:04:35] stock trades

[01:04:36] underscore CA

[01:04:38] perfect so thanks a lot for listening

[01:04:40] and we'll see you again next week

[01:04:43] the Canadian investor podcast

[01:04:44] should not be construed as investment

[01:04:46] or financial advice

[01:04:48] the host and guest featured

[01:04:50] may own securities or assets

[01:04:52] discussed on this podcast

[01:04:54] always do your own due diligence

[01:04:56] or consult with a financial professional

[01:04:59] before making any financial

[01:05:01] or investment decisions