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Canadian Market - TSX


longlake95

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none yet. I bought TD during the GFC at 0.9X Book - or so. and a 7% yield. If we get there I may start. I just read an article about how TD and RY have been the lead banks in ramping up energy loans the last year - yikes...

 

 

Yeah, there was a panic about energy loans in about '15 or '16 as I recall.  CIBC was viewed as a stinker back then.  But, the important thing to do is to ignore the hype and actually pull up the commercial loans by sector and see what the actual exposure is.  Give a big haircut to that exposure, and usually it still isn't catastrophic.  So far, I haven't dug into it.

 

 

SJ

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ya, that's on my to-do-list for TD at least...

 

Canadian banks in order of quality (I my opinion, but I'm probably wrong)

 

TD

RY

BNS

BMO

CM

NA

 

I think your list is mostly correct, imo. If you think Canadian residential real estate is going to drop badly, I'd probably move BNS 2 slots down the list. They are by far the easiest to get a mortgage on a residential rental property of the big banks, and have the lowest underwriting standards in my experience.

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ya, that's on my to-do-list for TD at least...

 

Canadian banks in order of quality (I my opinion, but I'm probably wrong)

 

TD

RY

BNS

BMO

CM

NA

 

I think your list is mostly correct, imo. If you think Canadian residential real estate is going to drop badly, I'd probably move BNS 2 slots down the list. They are by far the easiest to get a mortgage on a residential rental property of the big banks, and have the lowest underwriting standards in my experience.

 

 

Should we really worry about residential real estate?  Most of it is CMHC insured, and the rest is lower-ratio recourse debt (in almost all provinces).  How much of a haircut would we need to see in real estate prices before non-insured mortgages go upside-down?

 

 

SJ

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ya, that's on my to-do-list for TD at least...

 

Canadian banks in order of quality (I my opinion, but I'm probably wrong)

 

TD

RY

BNS

BMO

CM

NA

 

I think your list is mostly correct, imo. If you think Canadian residential real estate is going to drop badly, I'd probably move BNS 2 slots down the list. They are by far the easiest to get a mortgage on a residential rental property of the big banks, and have the lowest underwriting standards in my experience.

 

 

Should we really worry about residential real estate?  Most of it is CMHC insured, and the rest is lower-ratio recourse debt (in almost all provinces).  How much of a haircut would we need to see in real estate prices before non-insured mortgages go upside-down?

 

 

SJ

 

Rentals almost never have cmhc (as that has required 20% down for many years). BNS has by far the loosest requirements, and given these loans aren't insured I think they keep them all on their own balance sheet. I think 20% declines in many markets wouldn't necessarily be the bottom.

 

Also, residential property isnt fungible or liquid like a share of stock. When the banks sell foreclosed property, they do a bad job and dont provide any reps or warranties. So they get prices that are less than market value, and pay fees. In a big downturn, I think that gap would widen.

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ya, that's on my to-do-list for TD at least...

 

Canadian banks in order of quality (I my opinion, but I'm probably wrong)

 

TD

RY

BNS

BMO

CM

NA

 

I think your list is mostly correct, imo. If you think Canadian residential real estate is going to drop badly, I'd probably move BNS 2 slots down the list. They are by far the easiest to get a mortgage on a residential rental property of the big banks, and have the lowest underwriting standards in my experience.

 

 

Should we really worry about residential real estate?  Most of it is CMHC insured, and the rest is lower-ratio recourse debt (in almost all provinces).  How much of a haircut would we need to see in real estate prices before non-insured mortgages go upside-down?

 

 

SJ

 

Rentals almost never have cmhc (as that has required 20% down for many years). BNS has by far the loosest requirements, and given these loans aren't insured I think they keep them all on their own balance sheet. I think 20% declines in many markets wouldn't necessarily be the bottom.

 

Also, residential property isnt fungible or liquid like a share of stock. When the banks sell foreclosed property, they do a bad job and dont provide any reps or warranties. So they get prices that are less than market value, and pay fees. In a big downturn, I think that gap would widen.

 

 

Yes, rentals with low equity are probably the most vulnerable part of the market, particularly those owned by small corporations because they are not recourse mortgages.  But my sense is that it isn't such an enormous risk.  If I own my personal residence, a rental condo, and I have a job, is it realistic that I can just mail the condo's keys in to the bank?  I live in a recourse province, so if the bank cannot sell the condo for sufficient money, the bank can still come after me personally and attempt to get a judgement to garnish my wages or lien my residence.  How much mortgage debt is out there, that is 1) not CMHC insured; and 2) has less than 35% equity; and 3) is non-recourse (in Alberta or a corporation)?

 

I tend to focus on the traditional credit worries in a recession, which are credit card arrears and consumer loans arrears.  But, maybe this time there will be some residential mortgage losses too....

 

Beyond the issues related to consumer credit quality, there will probably be a fairly considerable compression of NIM, a significant haircut to asset management fees because the value of mutual funds has just been shaved 20+%, and I can't imagine that the investment banking revenues will be very strong.  Does all of this reverse by 2022, or are we in this for the medium-term?

 

 

SJ

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