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GICs Vs Canadian Bank Stocks
June 25, 2023
11:48 am
RetirEd
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Dean: I'm only in laddered GIC and bond assets now, with a small operating amount in HISAs. I've been watching the ETF market for a few years now but have not bitten in because my back-checking of possible investments has shown I am not likely to do well in that market, absent better understanding or advice. Equities seem heavily overvalued at the moment and have seemed that way for some time. Risk avoidance at my age and the advantage of knowing what I'm going to get has kept me conservative in investments. Yes, I've missed some opportunities, but also major pitfalls. I'm not short of funds and don't need the risks.
RetirEd

RetirEd

June 25, 2023
12:23 pm
Doug
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mordko said
I might not be a fan of Freeland (to put it mildly) but we cannot seriously draw parallels between Canada’s government and Chinese communist dictatorship which does nothing except lie and oppress.

One of the problems with our government is that it has ignored the threat from China and abrogated responsibility to protect Canadian citizens while benefiting electorally from Beijing’s machinations.  

We also cannot ignore the fact that Canada would've subjugated its responsibility for human rights and governance around that to the U.S. because of a bilateral treaty it had with the U.S. around U.S. Office of Foreign Assets Control sanctions in fighting aggressively to deport Meng Wangzhou. It was only China that protected those rights (albeit doing so by infringing the rights of two others). And two Canadian citizens had to spend years in a Chinese prison as political pawns because of the Canadian government not telling the U.S. to go stuff themselves (which they could've done) by threatening to tear up the treaty if they did not engage constructively.

That said, I agree with your second paragraph, too. 🙂

Cheers,
Doug

June 25, 2023
12:47 pm
Loonie
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savemoresaveoften said

All Canadian banks runs a buffer above the min. requirement, now that buffer is reduced by 50bps. You may think it is no impact, Daryl White will say different. He may not need to raise capital, if that’s the definition of ‘no impact’.

It will 100% affect the bank’s money making ability, as it affects the amount of risk weighted assets a bank can carry. Corporate loans, non govt bonds, etc. even for deposit product, a bank will be less inclined to pay a higher rate. What they lose out on reduced RWA profit will be made up by offering less in deposit products.  

I'm inclined, in general, to agree. If it weren't intended to have an impact, why would they change the requirement?
There may be disagreement, however, about what the impact would be precisely.

June 25, 2023
5:51 pm
Doug
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Loonie said

I'm inclined, in general, to agree. If it weren't intended to have an impact, why would they change the requirement?
There may be disagreement, however, about what the impact would be precisely.  

I'm confused...OSFI has raised, or lowered, the capital buffer by 50 bps? savemoresaveoften said lowered, but that would be a net positive to the bank (i.e., reduced capital being required to be held). If that is the case, this may have been a regulatory 'gift' to the Big Five banks, owing to reduced lending activity with higher interest rates and significant pressure on margins that would, in turn, make it more challenging to continue growing their dividends or buying back shares. OSFI may have attached conditions on this, such as that it be used to help borrowers by being able to offer below mortgage renewal rates to mortgages coming up for renewal.

Cheers,
Doug

June 25, 2023
5:54 pm
Doug
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To the OP's question, while the Canadian bank stocks offer attractive dividend yields and have attractive P/E ratios, because of the current economic environment and likelihood for significant margin pressure going forward as mortgages and GICs renew, and the possibility of higher loan loss provisions, I believe those are lagging indicators, so would not be adding to my bank stock positions, outside of regular DRIPs, at this point. There simply isn't the a high enough risk/reward premium relative to the risk-free alternative (i.e., 4.75% Scotiabank HISA and 4.5-5.0% GICs from Scotiabank).

Cheers,
Doug

June 25, 2023
6:25 pm
savemoresaveoften
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Doug said

I'm confused...OSFI has raised, or lowered, the capital buffer by 50 bps? savemoresaveoften said lowered, but that would be a net positive to the bank (i.e., reduced capital being required to be held). If that is the case, this may have been a regulatory 'gift' to the Big Five banks, owing to reduced lending activity with higher interest rates and significant pressure on margins that would, in turn, make it more challenging to continue growing their dividends or buying back shares. OSFI may have attached conditions on this, such as that it be used to help borrowers by being able to offer below mortgage renewal rates to mortgages coming up for renewal.

Cheers,
Doug  

Doug said

I'm confused...OSFI has raised, or lowered, the capital buffer by 50 bps? savemoresaveoften said lowered, but that would be a net positive to the bank (i.e., reduced capital being required to be held). If that is the case, this may have been a regulatory 'gift' to the Big Five banks, owing to reduced lending activity with higher interest rates and significant pressure on margins that would, in turn, make it more challenging to continue growing their dividends or buying back shares. OSFI may have attached conditions on this, such as that it be used to help borrowers by being able to offer below mortgage renewal rates to mortgages coming up for renewal.

Cheers,
Doug  

Regulator sets the min capital requirement, they don’t set the buffer. Individual banks decide how big a buffer they want to run above the min. requirement.
OSFI raises min. capital requirement by 50bps, effectively trimming the buffer by 50bps. If a bank chooses to maintain similar buffer as before, they will scale back their risk weighted asset accordingly.

June 26, 2023
5:38 am
JenE
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Doug - “Freeland is also woefully out of her depth…..” you don’t give her financial experience any credit (pun not intended). Here’s what Steve Paikin wrote:

“Freeland successfully led Canada’s efforts to renegotiate the North American Free Trade Agreement, looking across the table at representatives from the most disruptive, bizarre U.S. administration in our lifetimes. She also wrote the book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, researching and then bringing with her into politics some pretty clear views on how to make society more equitable through different economic and taxation policies.”

Cherry picking from a person's education/experience was what was also done to Justin Trudeau in 2014/2015 when, in some publications, he was written off as a drama teacher - ignoring the fact that he taught math. I prefer the whole story, and then I form my opinion.

Why don’t we all just keep politics out of this website.

June 26, 2023
10:15 am
Dean
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JenE said

. . .

Why don’t we all just keep politics out of this website.
 

'Amen' to that ⬆ ❗

Yes, as we all know, there are a few *&^%$# here who are unable to restrain themselves, and can't help but bring their Political Dribble here.

If only they would take it ... Somewhere Else. sf-confused

    Dean

sf-cool " Live Long, Healthy ... And Prosper! " sf-cool

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