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Rough times for Canadian Western Bank
September 1, 2016
6:52 am
xxxx
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http://www.theglobeandmail.com.....3175?ord=1

Canadian Western Bank significant drop in profit due to the economic downturn in Alberta caused by struggling oil and gas industry - Canadian Direct Financial one of the "high interest" online banks is owned by Canadian Western Bank.

September 1, 2016
6:49 pm
AltaRed
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Not an issue though if one stays within CDIC insured limits.

September 1, 2016
8:19 pm
NorthernRaven
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Their profits are down a little, around 10% for a single quarter, year over year. Ho hum... :)

September 1, 2016
9:50 pm
Loonie
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Need to look at this in wider context.

CWB does have broader exposure to oil and gas than most if not all other banks.

On the other hand, in the previous quarter Scotia was down 12%, and National Bank was down a whopping 48% (but increased its dividend anyway).

It's not a concern for savers as long as within CDIC limits, as AltaRed said.

It might be a concern for investors though. Personally I find it frightening that National Bank raised its dividend 1.9% when they had 48% loss. No doubt their accountants found a way to justify this. However, it shows the importance of keeping your eyes on the road if you invest in bank stocks. They will continue to churn out the dividends because they want you to believe all is well so that you will not sell. Maybe it is, but you do need to pay attention. And profits will continue to be affected by the price of oil. It is (still) too big a piece of our economy to not have that impact.
In some other quarter (next year?), the problem might be a collapse in the housing market. Ultimately, the question is how well a given bank has managed to insulate itself from fallout in various sectors. Smaller banks may have less insulation. When you get a satisfactory answer to that question, then go ahead and invest. But don't do it just because you imagine this to be an unassailable gravy train.

September 2, 2016
2:02 pm
xxxx
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National Bank is much smaller than the large banks like TD, BNS and RY - less than half the size of each - perhaps not as diversified as these 3 which had great profit increases as announced last week. If National Bank has now provided fully for losses on loans in oil and gas sector, I predict their next quarter will bounce back favourably. Actually, their normal operating results were good - a profit of $478 million for the last quarter is not exactly shabby. (there was no bottom line loss.) The summary of financials below set out the still very profitable results.
https://www.nbc.ca/content/dam/bnc/en/about-us/investors/investor-relations/quaterly-results/report-shareholder-q3-2016.pdf

September 6, 2016
1:26 pm
Doug
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AltaRed said

Not an issue though if one stays within CDIC insured limits.

Agreed - this is a non-issue, and even then, banks usually have multiple subsidiaries that are CDIC members that allow you to maintain multiple GICs and accounts with multiple CDIC members of that institution from within your single online banking profile. And even further, if this concerns, adding just one new person onto an account (i.e., three people instead of two) becomes a new "depositor" in CDIC's eyes and is separately insured. So there's lots of creative ways to have everything CDIC insured - if you trust all your family members, of course. :)

Also, something that shouldn't be overlooked - in a bank failure, what would likely happen, CDIC would step in, operate the institution on an interim basis and would most likely find a financial institution willing to acquire its assets and liabilities in full with no negative impact on the deposit insurance fund. While the acquiring institution wouldn't likely be liable for unpaid interest over the CDIC limit per depositor and per issuer, they would be acquiring all deposits, both those under CDIC limits and those above, thereby ensuring your deposits would remain fully intact, though they'd likely have a lower interest rate than the failed institution.sf-cool

CDIC is a nice "security blanket" that gets mentioned too often in these forums but, in reality, it's really never used. Even in the largest financial institution failure, the Bank of British Columbia, in 1986, I don't believe any deposits in excess of CDIC limits were lost. They simply found a more than willing suitor in then Hongkong Bank of Canada to acquire its assets and liabilities. The only real "loser" in that case would've been the province of B.C., which was the shareholder as it was a Crown corporation at the time, and would've got nothing. :)

Cheers,
Doug

September 6, 2016
3:27 pm
Loonie
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CDIC was used during some or all of the failures in the 1990s, according to a relative who received money from them.
What we are looking for is insurance, not assurance that something-or-other will never happen. That's why we refer to CDIC as often as we do. Speculation as to what might happen is just that, interesting though it may be.

September 6, 2016
5:36 pm
NorthernRaven
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From the 1997 CDIC annual report (1997 is earlier year online I've found):

On [June 4, 1996], [Security Home Mortgage Corporation]'s policy of deposit insurance was terminated, and shortly thereafter CDIC made deposit insurance payments (totalling $42 million) for all the insured deposit liabilities of SHMC.

Also, even if the insurance payout system isn't activated, the process of resolving a problem institution may consume CDIC funds, to subsidize purchases by an acquiring institution. From the same year, there was continuing work in cleaning up the North American Trust Company problem:

CDIC’s final net cost of facilitating the Brazos and Laurentian trans- actions, over and above the funds committed under the 1992 facilitation agreement with NAL, amounted to $125 million.

Since the last of those 1990s problems, CDIC and OSFI seem to have made it a point to prevent any more of those cowboy mortgage firms, flaky western business banks, etc. I don't know if they've had to tap funds for any quiet tiddler resolutions, but I suspect something like DICO has had to fund some small cleanups for provincial credit unions.

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