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LBC Digital HISA interest to be tiered starting January 2020
December 20, 2019
2:33 pm
Norman1
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LBC Digital HISA will become a tiered-rate account in the new year, according to their product page LBC Digital High Interest Savings Account:

ACCOUNT BALANCE INTEREST RATE
Up to and including $500,000 3.30%
$500,000.01+ 1.25%

How is the tiered interest calculated?

The 3.30% interest rate applies to deposits up to and including $500,000 and the 1.25% interest rate applies to deposits above $500,000. The applicable tier interest rate applies to every dollar in the tier. Interest rates are annual. Interest is calculated daily on the closing balance and paid monthly on the last day of the month into the account. All rates are subject to change at any time without prior notice.

December 20, 2019
5:19 pm
hwyc
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... B2B as well. But $500K to me seems well above the CDIC coverage.

December 20, 2019
7:41 pm
COIN
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If someone has $1 million (not me) to deposit, can they deposit $500,000 in their LBC HISA and $500,000 in their B2B HISA to obtain 3.3% on the full $1 million?

December 21, 2019
6:48 am
Norman1
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Yes, someone likely can split $1 million and get 3.3% on the entire $1 million that way.

The LBC Digital HISA and B2B Bank HISA are actually accounts with two different banks:

  1. CDIC member Laurentian Bank of Canada and
  2. CDIC member B2B Bank.
December 21, 2019
6:58 am
Norman1
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hwyc said
... B2B as well. But $500K to me seems well above the CDIC coverage.  

It is above the CDIC coverage limit of $100,000. However, the LBC Digital HISA is a deposit with Laurentian Bank of Canada. That bank currently has a DBRS debt rating of A(low). Same rating as the Province of Newfoundland and Labrador:

Norman1 said
Here's the top eight rungs of the DBRS debt rating scale with the position of some banks, governments, and companies:

DBRS Rating Borrower
AAA Government of Canada
United States of America
AA(high) Toronto-Dominion Bank
Royal Bank of Canada
Province of British Columbia
AA Bank of Montreal
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
Province of Alberta
Province of Saskatchewan
AA(low) National Bank of Canada
Province of Ontario
Government of Nunavut
A(high) HSBC Bank Canada
Province of Manitoba
Province of Nova Scotia
Province of Québec
A Province of Prince Edward Island
A(low) Canadian Western Bank
Laurentian Bank of Canada
Province of Newfoundland and Labrador
Brookfield Asset Management Inc.
TransCanada PipeLines Limited
BBB(high) Bell Canada
TELUS Corporation

So, the estimated risk of default is about the same as that of a Newfoundland provincial bond. CDIC coverage is not as important when the estimated risk is as low as that of a provincial bond.

December 21, 2019
8:29 am
Doug
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Norman1 said
LBC Digital HISA will become a tiered-rate account in the new year, according to their product page LBC Digital High Interest Savings Account:

ACCOUNT BALANCE INTEREST RATE
Up to and including $500,000 3.30%
$500,000.01+ 1.25%

How is the tiered interest calculated?

The 3.30% interest rate applies to deposits up to and including $500,000 and the 1.25% interest rate applies to deposits above $500,000. The applicable tier interest rate applies to every dollar in the tier. Interest rates are annual. Interest is calculated daily on the closing balance and paid monthly on the last day of the month into the account. All rates are subject to change at any time without prior notice.

  

That's fair. I'd even be fine if they made the cap on the premium rate of $250,000. In fact, I prefer this strategy to Alterna Bank's strategy of outright limiting customer balances to $250,000 across all accounts It's the main reason why I've, sadly, ruled making Alterna making my day-to-day bank. 🙁

Also, this is a really well worded fine print. Motive should take note.

Cheers,
Doug

* Not that Alterna's HISA and GIC rates are anything to write home about...

December 21, 2019
8:35 am
Doug
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Norman1 said

It is above the CDIC coverage limit of $100,000. However, the LBC Digital HISA is a deposit with Laurentian Bank of Canada. That bank currently has a DBRS debt rating of A(low). Same rating as the Province of Newfoundland and Labrador:

Norman1 said
Here's the top eight rungs of the DBRS debt rating scale with the position of some banks, governments, and companies:

DBRS Rating Borrower
AAA Government of Canada
United States of America
AA(high) Toronto-Dominion Bank
Royal Bank of Canada
Province of British Columbia
AA Bank of Montreal
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
Province of Alberta
Province of Saskatchewan
AA(low) National Bank of Canada
Province of Ontario
Government of Nunavut
A(high) HSBC Bank Canada
Province of Manitoba
Province of Nova Scotia
Province of Québec
A Province of Prince Edward Island
A(low) Canadian Western Bank
Laurentian Bank of Canada
Province of Newfoundland and Labrador
Brookfield Asset Management Inc.
TransCanada PipeLines Limited
BBB(high) Bell Canada
TELUS Corporation

So, the estimated risk of default is about the same as that of a Newfoundland provincial bond. CDIC coverage is not as important when the estimated risk is as low as that of a provincial bond.  

Speaking of Newfoundland and Labrador, heard on BNN Bloomberg yesterday or a few days ago, economists and market strategists are increasingly predicting looming defaults of Newfoundland and Labrador and New Brunswick in the next 2-3 years. Those comparable FIs are nowhere near as close to default as those two provinces, so in many respects, it's sort of an unfair comparison in that, at least for federally-regulated institutions, their balance sheets are more closely regulated and scrutinized than provincial balance sheets. No one regulates the provincial balance sheets except the respective provincial government and their provincial legislature.

In short, I wouldn't trust the deposit "guarantee" of those two provincial governments, and I would feel far more secure parking my money with Canadian Western Bank and Laurentian Bank than I would in Newfoundland and Labrador government bonds. 😉

Cheers,
Doug

December 21, 2019
9:41 am
Bill
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Doug, I agree, I wouldn't rule out provincial gov't defaults in the not-so-distant future. Whether or not Federal gov''t would be in a position to bail out like when Alberta defaulted 90 or so years ago is in question in my mind too. We all know govt's are in debt to the tune it's never pay back-able.

And you must do a heck of a volume of day-to-day banking to rule out Alterna for that function on the grounds it limits you to $250K in its accounts.

December 21, 2019
10:18 am
Norman1
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What has changed in Newfoundland and Labrador since September?

DBRS wrote the following in their September 26 press release. Doesn't seem like looming default to me in September:

Newfoundland has forecast a surplus of $1.9 billion in 2019–20 as a result of a renewed Atlantic Accord. Excluding the Atlantic Accord, the budget shortfall would have been $577 million, down from a peak shortfall of $2.2 billion in 2015–16. Despite the significant progress in addressing the budget gap, the outlook remains challenging and requires further structural measures to recast the government’s expenditure profile and ease annual spending pressures.

The DBRS-adjusted deficit is projected to be 2.4% of gross domestic product (GDP) in 2019–20, falling to 0.5% of GDP by 2022–23. As a result, the debt-to-GDP ratio is now forecast to rise to about 56% by 2020–21 (the highest debt burden among provinces) before gradually declining thereafter. This is a lower peak than anticipated by DBRS last year and meaningfully below the projected peak of 65% when DBRS downgraded the Province’s ratings in 2016. DBRS notes this outlook remains subject to downside risks, including the outlook for commodity prices and the possibility that the full costs of the Muskrat Falls project are not recovered through the electricity rate base. Regardless, DBRS expects the debt outlook to remain within an acceptable range for the current ratings.

December 21, 2019
11:29 am
Doug
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Norman1 said
What has changed in Newfoundland and Labrador since September?

DBRS wrote the following in their September 26 press release. Doesn't seem like looming default to me in September:

Newfoundland has forecast a surplus of $1.9 billion in 2019–20 as a result of a renewed Atlantic Accord. Excluding the Atlantic Accord, the budget shortfall would have been $577 million, down from a peak shortfall of $2.2 billion in 2015–16. Despite the significant progress in addressing the budget gap, the outlook remains challenging and requires further structural measures to recast the government’s expenditure profile and ease annual spending pressures.

The DBRS-adjusted deficit is projected to be 2.4% of gross domestic product (GDP) in 2019–20, falling to 0.5% of GDP by 2022–23. As a result, the debt-to-GDP ratio is now forecast to rise to about 56% by 2020–21 (the highest debt burden among provinces) before gradually declining thereafter. This is a lower peak than anticipated by DBRS last year and meaningfully below the projected peak of 65% when DBRS downgraded the Province’s ratings in 2016. DBRS notes this outlook remains subject to downside risks, including the outlook for commodity prices and the possibility that the full costs of the Muskrat Falls project are not recovered through the electricity rate base. Regardless, DBRS expects the debt outlook to remain within an acceptable range for the current ratings.

  

I'm not sure, but I wouldn't rely on DBRS ratings reports. They're notoriously unreliable in that they're biased to the positive to the corporations and governments that pay them. Remember 2008? sf-cool

Note, too, how they significantly downplay the costs of the Muskrat Falls by characterizing it as only a possibility ratepayers won't cover the costs. This story from CBC News elaborates on this, and could be, in part, what those market forecasters and economists are alluding to. I tend to think they're right.

Cheers,
Doug

December 21, 2019
4:46 pm
COIN
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The DBRS ratings has Alberta and Saskatchewan (both AA) higher than Ontario AA(low). Interesting.

Maybe Motive is less risky than LBC and B2B?

Question: Does anybody remember what LBC/B2B were offering on balances above $1mm? Was it 1.25%?

December 21, 2019
7:27 pm
Bill
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Doug, totally agree, the bond rating agencies have a checkered past when it comes down to it. Anyway, there is info out there that everything's fine, debts are manageable, and then there's other info that we're in dire straits re gov't debt, you can always find views everywhere along the spectrum. All I know is when we have had persistently low interest rates for well over 10 years now and there's even increasing talk of negative rates (never in my life heard of that before) it's clear to me the patient's on life-support and it's only a matter of time. To me, to have money locked up and inaccessible in GICs is an extremely risky strategy in this environment when the next crisis could ignite sudden inflation, thus the appeal to me of the HISAs featured on this site for some of my money.

December 22, 2019
8:39 am
Norman1
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Doug said

I'm not sure, but I wouldn't rely on DBRS ratings reports. They're notoriously unreliable in that they're biased to the positive to the corporations and governments that pay them. Remember 2008? sf-cool

Note, too, how they significantly downplay the costs of the Muskrat Falls by characterizing it as only a possibility ratepayers won't cover the costs. This story from CBC News elaborates on this, and could be, in part, what those market forecasters and economists are alluding to. I tend to think they're right.

Cheers,
Doug  

That CBC article is garbage. Factually wrong about the Churchill Falls issue. Counts on people being ignorant of the fact that Quebec had agreed to guarantee all the Churchill Falls debt and that Newfoundland would own Churchill Falls at the end of the contract in 2041, free and clear. In return, Quebec got that fixed-price electricity. Kind of like a rent-to-own with the payments in electricity instead of money. Canada does not owe Newfoundland and Labrador anything over Churchill Falls.

Also wrong about the borrowing. At worst, Newfoundland and Labrador borrows the $9 billion. At current interest rates, that would be 2% to 3% per annum or at most $0.27 billion per year. Newfoundland is forecasted to have budget surplus of $1.9 billion, over 6X that.

As well, Newfoundland and Labrador has annual budget of about $8 billion. $0.27 billion extra a year is just an extra 3.3%, not an extra 20%, 30%, or 40%.

That is a favourite trick that politicians and some journalists use to bamboozle. Throw around numbers involving of millions or billions of dollars without context. $270 million is a lot of money to one person. But, it isn't that much when it comes to provincial or federal governments.

DBRS is right and they have taken this into consideration. It is what I call an informed opinion, in contrast to what the CBC article is. This is just like an earlier discussion about Ontario's debt rating.

From the press, it looked like Ontario was in very sad shape. But, then there is an inconvenient fact that Ontario was servicing its debt with less than 10% of its revenue! If only consumers needed just 10% of their income to service their debt!

December 22, 2019
9:26 am
Norman1
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COIN said
The DBRS ratings has Alberta and Saskatchewan (both AA) higher than Ontario AA(low). Interesting.

Maybe Motive is less risky than LBC and B2B?

Motive Financial accounts are deposits with CDIC member Canadian Western Bank. Canadian Western Bank has the same DBRS debt rating A(low) as Laurentian Bank of Canada. So, the estimated risk is about the same.

B2B Bank does not have a DBRS debt rating. I haven't found a statement from Laurentian Bank that they unconditionally guarantee the deposits of B2B Bank, like TD Bank does for deposits of some of its subsidiaries. So, the estimated risk is unknown.

One shouldn't read too much into small differences within the same rating category such as AA(high), AA, and AA(low). All three are AA for "superior credit quality". Some are around the middle of the range and given AA. Some are a bit better and given AA(high). Some are not as good as the middle and given AA(low).

December 22, 2019
12:06 pm
Bill
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Norman1, I agree with you, especially re the inaccuracy of CBC content. Re B2B, to me it's a given Laurentian would bail it out, if needed & if it could, lest the contagion spread to Laurentian as confidence evaporated.

I've heard that Ontario, per capita, has the largest sub-national debt, per capita, on the planet, and by far. Do you know if that's true?

December 22, 2019
3:05 pm
Norman1
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There would be no contagion if the serious issues were unique to B2B Bank. Laurentian Bank could just write off their shares owned in B2B Bank and that would be the end of it.

If the issues were not unique, then Laurentian Bank would be in no position either to bail out B2B Bank. It's not like Laurentian Bank doesn't share operational knowledge with their B2B Bank subsidiary. Just consider the common issues in the B2B Bank and LBC Digital online banking systems.

I think Ontario is the largest sub-national debtor by amount (around $350 billion of debt), but not per capita. According to Financial Accountability Office of Ontario: Comparing Ontario’s Fiscal Position with Other Provinces (Feb 2019), Ontario was #2 in Canada (not in the world) at $18,866 per capita, behind Newfoundland and Labrador at $20,211 per capita.

December 22, 2019
4:46 pm
Bill
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By contagion I meant damage to consumer confidence in Laurentian group, depositors might flee Laurentian Bank fearing (rationally or irrationally) it's next. Hard to say, would a failure of Tangerine affect confidence in BNS? Can't know for sure how it would go.

Guess it depends who's counting the debt. This NP article from early 2018 indicates Ontario per capita debt at close to $23K (total $312 billion), about $4K higher per person. And if it's really $350 billion then it's closer to $24K per person, based on today's population of about 14.5 million. Lies, damned lies and statistics, who knows?
https://nationalpost.com/news/canada/how-crushing-is-ontarios-312-billion-debt-really

December 23, 2019
10:40 am
Doug
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Norman1 said

COIN said
The DBRS ratings has Alberta and Saskatchewan (both AA) higher than Ontario AA(low). Interesting.

Maybe Motive is less risky than LBC and B2B?

Motive Financial accounts are deposits with CDIC member Canadian Western Bank. Canadian Western Bank has the same DBRS debt rating A(low) as Laurentian Bank of Canada. So, the estimated risk is about the same.

B2B Bank does not have a DBRS debt rating. I haven't found a statement from Laurentian Bank that they unconditionally guarantee the deposits of B2B Bank, like TD Bank does for deposits of some of its subsidiaries. So, the estimated risk is unknown.

One shouldn't read too much into small differences within the same rating category such as AA(high), AA, and AA(low). All three are AA for "superior credit quality". Some are around the middle of the range and given AA. Some are a bit better and given AA(high). Some are not as good as the middle and given AA(low).  

Actually, Norman, Laurentian Bank, as shareholder of B2B Bank, would implicitly being guaranteeing B2B Bank's deposits by virtue that OSFI and CDIC could step in and seize B2B's or Laurentian's assets if they failed to put up the required regulatory capital.

Lots of issuers don't have DBRS ratings because they don't issue bonds on the secondary market, so there's no need. That doesn't make them less risky. It's simply false to say, though, that Laurentian would not be required to backstop B2B Bank—they would, if they wanted to protect their own capital and assets from seizure by banking regulators. sf-cool

Cheers,
Doug

December 23, 2019
1:24 pm
Norman1
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Doug said

Actually, Norman, Laurentian Bank, as shareholder of B2B Bank, would implicitly being guaranteeing B2B Bank's deposits by virtue that OSFI and CDIC could step in and seize B2B's or Laurentian's assets if they failed to put up the required regulatory capital.

Lots of issuers don't have DBRS ratings because they don't issue bonds on the secondary market, so there's no need. That doesn't make them less risky. It's simply false to say, though, that Laurentian would not be required to backstop B2B Bank—they would, if they wanted to protect their own capital and assets from seizure by banking regulators. sf-cool

There's no such implicit guarantee and there is no such regulatory power.

Bank Act subsection 18(1) specifically insulates bank shareholders just as other corporation acts do:

No personal liability

18 (1) The shareholders of a bank are not, as shareholders, liable for any liability, act or default of the bank except as otherwise provided by this Act.

The most CDIC or OSFI could do is ask Laurentian Bank to put in more capital or else face loss of their B2B Bank shares. Laurentian Bank can inform the regulators not bother with a court order. Just come by in two hours. We'll have the B2B Bank share certificates endorsed and ready for you to pick up.

December 23, 2019
1:36 pm
Doug
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Norman1 said

Doug said

Actually, Norman, Laurentian Bank, as shareholder of B2B Bank, would implicitly being guaranteeing B2B Bank's deposits by virtue that OSFI and CDIC could step in and seize B2B's or Laurentian's assets if they failed to put up the required regulatory capital.

Lots of issuers don't have DBRS ratings because they don't issue bonds on the secondary market, so there's no need. That doesn't make them less risky. It's simply false to say, though, that Laurentian would not be required to backstop B2B Bank—they would, if they wanted to protect their own capital and assets from seizure by banking regulators. sf-cool

There's no such implicit guarantee and there is no such regulatory power.

Bank Act subsection 18(1) specifically insulates bank shareholders just as other corporation acts do:

No personal liability

18 (1) The shareholders of a bank are not, as shareholders, liable for any liability, act or default of the bank except as otherwise provided by this Act.

The most CDIC or OSFI could do is ask Laurentian Bank to put in more capital or else face loss of their B2B Bank shares. Laurentian Bank can inform the regulators not bother with a court order. Just come by in two hours. We'll have the B2B Bank share certificates endorsed and ready for you to pick up.  

I never said it was a Bank Act power, but per the powers afforded to CDIC vis-à-vis bail-in, my understanding is CDIC, whether independently or in tandem with other regulators, do have the power (either directly, or through court petition) to seize the assets of controlling shareholders.

Cheers,
Doug

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