The Canadian Investor - Are Canadian Banks Priced to Perfection?
Episode Date: September 4, 2025In this episode of the Canadian Investor podcast, Simon (fresh off vacation) and Dan Kent dig into a jam-packed news and earnings episode. We start with the U.S. antitrust ruling on Google. Then we br...eak down Alimentation Couche-Tard’s quarter which was mostly positive. We finish with earnings from TD and Royal Bank as well as our takeaways from Banks earnings this season. Tickers of stocks discussed: TD.TO, RY.TO, GOOG, ATD.TO Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor Spotify - The Canadian Real Estate Investor Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.
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Welcome back to the Canadian investor podcast. I'm back with Dan Kent. We are back in a regular setup.
Well, I should say I'm back in my regular setup.
So I'm back from vacation.
It should be fun.
We have pretty packed news and earnings today.
So we're going to start off with the Google Antitrust.
We'll also talk about Alimentation Christian's earning.
Then you'll recap some more of bank earnings and also some of the big picture takeaways.
And then we'll finish off if we have time with the firm holdings earnings that happened, I think about a week ago.
If we don't have time for that one, that's fine.
We'll talk about it.
week, but I figured if we do, it would be good because they're also a lender. I mean, I'd
consider them more a subprime lender of some sort, but it'll be interesting to see the divergences
there. Yeah, definitely. I mean, the banks, we pulled a couple that I guess had the most notable
quarter. We won't go over them all, but two pretty big quarters from Royal and TD. So that should
be pretty interesting. And then we just have kind of a basic recap on the banks in general,
because, man, they reported a crazy, crazy good quarter.
Like, it just seems like nothing can stop these banks right now.
It's going to be an interesting episode for sure.
Yeah, yeah, exactly.
And we'll look at some of the different metrics for the banks,
and we'll just get started because it's pretty jam-packed.
So news came.
We're recording this on September 3rd.
So last night or yesterday afternoon, evening,
I guess it was in the evening because it was up after market.
It was afterclose, yeah.
Yeah, so Google or Alphabet, there was an antitrust ruling.
So for those not familiar, the U.S. government was suing for antitrust purposes or competitive purposes.
Google, in other parts, they were saying that they were using their position of monopoly to try and stifle competition,
lack of better word, especially with search and some of the potential outcomes.
I think originally they were saying that potentially they would force them to sell off YouTube,
but didn't hear much of that in the last few months or late last year.
This has been ongoing for quite some time,
and the most recent speculation was that they could be forced to sell Chrome,
the actual browser, which also didn't happen.
So it's definitely a partial win for Google,
but the market are definitely seeing this as a big win
because they seem to be perceiving that this is the worst case scenario avoided by Google.
The worst outcome, like I said, would have been breaking.
up the company, although you can make an argument that it would not have been, I don't know,
you can definitely make some arguments that it would not have been that bad, especially if they
would have had a really good price for some of those assets. But again, they do get a lot of data
from something like Google Chrome. So I think that's probably the portion that the market was
happy to see that happened. Yeah, I think their long-term strategic edges, like the data they have
access to so i think having to sell off chrome where they effectively just like a ton of people
use chrome obviously and they're they're monitoring your data they're tracking your data and access
to that data obviously allows them to provide a much better ad experience for companies so i think
if they did end up having to sell that it probably would have been a big hit to the to the moat of the
business the one thing here and you'll talk about is they're still allowed to pay because that was
another thing that was an issue was
they were pretty much paying
Apple to provide the
search engine where they're still allowed
to do that. That was another thing that they were going to be
was expected to be taken
away from them. But I think
just with the emergence of
LLMs, I think
maybe they don't feel that
their moat is that big
anymore. But the one interesting thing
I've seen on X, since
ChatGPT has been released
back in 2022,
Google has doubled the returns of the SP 500, despite, you know, a lot of people thinking that these LLMs were kind of going to replace the business.
They definitely haven't thus far.
I mean, they're advancing quite a bit now, but it really hasn't shown any indication that it's taking any sort of market share away from Google, at least thus far.
Yeah, and I'm kind of remembering back then, too, a lot of it was there was a lot of fear happening with Google.
So when, of course, Chad GPD launch, a lot of people were fearing,
especially when the web stuff was rumored to be happening.
But it's done pretty well since.
Like you said, the performance have been really good for Google.
And part of the ruling here is they will, like you said,
they'll still be allowed to pay third parties.
There's not just Apple, but there's also Mozilla,
who's the parent company behind Firefox to be able to basically pay them
to have them use Google as a default search engine.
They will be required to data share some information that they have that are proprietary to them.
So they will now have to share portions of their search data and index access with rivals like Bing, dot, dot go,
which technically should create some stronger competition there.
And a big reason for the lighter than expected ruling was the emergence like you mentioned of AI search engines
or chat GPT large language models that eventually originally it was not a search engine I would say but as it became connected to the web and not just trained on data that was I think originally was like six or a year old six months or a year old so it wasn't as super accurate it's still not the most accurate you still have to validate what you get from them but again there are some things that it's a partial win and I think that's important to remember but clearly the market liked it I think
right now, I don't have it open in front of me, but it must be up around 7, 8%, I think it was
earlier when I was checking.
Eight and a half right now.
Yeah.
Yeah.
Where I still think there's going to be challenges and some headwinds for Google, because
the competition is definitely intensifying when it comes to search and AI search.
And you had Google for what decades that essentially had zero competition for search,
and now that they will have some.
They're definitely trying to pivot.
I'll give them that,
whether the market now is underestimating some of the risk associated with Google.
I make the case that that's probably the case here,
but the market seems lack of better words,
high on anything related to AI,
and Google is definitely an AI play right now.
Yeah, like their search engine has kind of evolved
from like a text-based link system now to like AI queries,
even when you enter in the search that doesn't require any click-throughs.
I mean, how they monetize that, I'm not exactly sure.
I know they've started the show ads in there, stuff like that.
I mean, obviously, as a publisher, those AI interviews have really impacted us.
It's definitely not good for, I mean, any sort of publication company,
because nobody has to click through anymore.
But, I mean, ultimately, they're probably going to find a way to monetize it
and make a ton of money off of it because that's just what Alphabet has done for a very long time.
And I just think, like, YouTube is doing so well right now.
So the fact that they got some relief on this end, which was like mainly what was holding the stock price back was, you know, a lot of this stuff possibly impacting its, its moat seems to be resolved in a reasonable manner.
I don't know what data they actually have to give access wise to companies like Bing and duck, duck go.
But, I mean, even if they give this data, I mean, I don't know if those search engines are really all that up to par with Google just in terms of quality results.
So, yeah, it's, I mean, it's a big win for Google, I think.
Yeah, and I guess the bullish case for Google before we move on here is probably YouTube, I would say, for a lot of people, it will become, they're probably betting that YouTube will become more and more ingrain in the entertainment space.
So we'll have to see, we'll move on because we have a lot on the slate here.
So Alimentation Couchard had their earnings.
Unfortunately, it released this morning, so I just had basically their earnings release.
I wasn't able to access the call just yet.
So I wasn't able to see exactly what they were saying on the actual call
and some of the questions of the analysts, which I do like to do whenever we do these earnings roundup.
But I wanted to add a bit more Canadian content to the earnings.
And it's definitely fresh, so it's newsworthy.
So revenues were down 5%.
The good news here is that almost all of the negative sales growth was tied to transportation fuel or gas,
which clearly was affected by the price of gas.
Of course, if the price of gas is lower, it's going to be comparable.
And the total, even if the volume is the same, you're going to get lesser sales.
So that makes sense over there.
As I'm readjusting my screen, I thought that was pretty good.
Usually I do a shared screen and I completely forgot when we started here.
Aside from that, just pardon me while I go back to my notes here,
aside from that, merchandise and services revenues were higher for all regions,
U.S., Canada, Europe, and other, that's how they break it down.
Europe saw the largest increase at 13% while Canada and the U.S. saw a modest 2% increase.
same store merchandise here
were revenues were barely up in the U.S.
But it was up.
That's something they mentioned on the earnings release.
It was the first quarter in several quarters
that they saw an increase in the same store sales in the U.S.
So it's definitely an encouraging sign here.
Same store sales were up pretty significantly in Canada and Europe
at right around 4%.
The growth in Canada was in part attributed to strong growth
in the alcohol category.
He actually mentioned that specifically.
They did mention that it was specific to Ontario, but I'll just assume most of it came from Ontario, because it does align with the timeline that the Ford government kind of passed legislation. They had to do this deal, I guess, this buy out with the beer store, the agreement, so they'd be able to allow convenience store to sell alcohol in stores. So that lines up pretty close to like a year ago when that started. So that makes sense that they would have seen an increase when comparing to last year.
Yeah, I think you're definitely not allowed to sell alcohol in convenience stores here.
I know there was like a big kind of outcry here because obviously if you do this, I mean,
there's a lot of liquor stores that are conveniently placed right beside Circle K's and stuff like
that because it's, again, it adds to that convenience.
So it probably put a lot of those, a lot of those companies out of business borderline if you
can just go to the gas station and get it.
But I mean, Kustard is up quite a bit on these results.
And I think it's like, it wasn't exactly a good quarter, but it was like better than not that bad, you know, there's a lot of, you're kind of noticing a lot of these cyclical companies, like just three off the top of my head I can name would be BRP.
Yeah.
Didn't really post all that good of a quarter, but posted much better than expected.
Same with Kustard.
We got like Boyd Group Services had a big 20% plus day on like still soft results, but like kind of early indications of a of a potential term.
around here. Like even a company like BRP, they reissued their guidance, which is like a huge sign that, you know, the forward environment's becoming a bit more clear, I guess.
Yeah, they have not been doing that talking of BRP. But yeah, I guess it's just, it's funny how investors are just seeing this and they're just assuming there's going to be a turnaround.
For me, these cyclical companies, I'd probably wait another quarter to see what's exactly happening. You know, it could small uptick for one quarter.
doesn't necessarily mean that things are turning around for cyclicals.
Not to say that it's a bad business.
I think Kustah is definitely one of the better ones
if you're looking for convenience stores out there.
But one of the issues they are facing is that expenses were 4.7 higher than last year.
And that's always an issue when your expenses are higher than the revenue growth.
Even if you zero out the gas here, it's still higher.
Obviously, they said they're like when they do this normalization,
they remove some impacts of expenses related to acquisitions for an exchange and a few other items.
But at the end of the day, I always take that with a little bit of grain of salt because sometimes the
extra acquisition related costs tend to stick around a little longer than expected.
So they said it was 2.4%, not 4.7 when it's normalized, but maybe in reality the true
normalization might be closer to 3.5 instead of 2.4, maybe a little bit more.
bit overly optimistic here. But definitely something I'd keep an eye on because if sales are just
not outpacing really expenses, it's not a great sign. Obviously, that just means that the
margins will be shrinking here. And net income was down 1% for the quarter. They did not
repurchase any shares in the quarter, but I'm sure investors will like to see then. That's probably
part of the reason why the stock is up. The market does like buybacks. They approved and got approval
for a new buyback program that would allow them to repurchase up to 10% of their outstanding shares for the next year.
So we'll have to see if they actually do it.
You know, an approval of a program doesn't mean that they'll execute on all of it, but it is there.
So I'm assuming it's probably that.
And then maybe analysts, I'm assuming the call already happened a bit earlier this morning.
So there may have been something set on the call that really pumped the markets up as well.
yeah i think like the u.s has struggled for quite a while so to see that flip positive in terms of
the same store sales growth probably a sign that it could be turning around and obviously the buyback
is like a big swing from you know even like three months ago we there would have been massive equity
issuances if they had bought seven and i so you're going from that to you know potentially bind back
10% of the shares it was it was like a bad quarter but not as bad as expected which you know could be
sign that things might be turning around. And I've like, I've just kind of noticed it in a lot of
these cyclical companies that they're, they're reporting, you know, kind of an upswing and
results. But like you said, like, who knows if it sticks around. But these kind of, these companies
tend to be kind of like front run in that regard. Like people like to buy into them on the
potential of an upswing because they can go up quite a bit in the event things start to swing.
My problem with these results, though, is when you think about inflation and you can
debate, you know, people will say, oh, it's around 2%, 2.5, whichever inflation data you're looking
at, depending on the basket, right? Like, it's, the official inflation metrics are not necessarily
going to reflect what the true inflation is. And it's very possible that for a lot of their
items, inflation is actually higher, right? Like, it's not, I'm not saying it is necessarily,
but when I see these numbers here, especially when you factor in that, the increased Canadian
sales were boosted by alcohol.
sales my first glance here is like this is barely keeping up with inflation like if it is at all so
I think that is one of the things if you're interested in the business is always keeping that in
mind nominal numbers are nice but if they're inflation adjusted and in real terms they're not
really keeping up that's where it gets a little bit worrying well yeah and I mean you have
the cost of items in these stores are just absurdly high because of inflation
to the point where like a lot of people probably I mean I know I don't I'd rather go to a grocery store now instead of you know maybe spending less of a drive to go to these stores because it's like nine bucks for a bag of Doritos in the store it's just craziness so I think a lot of people will still opt to go get cheaper items at larger stores like the convenience element only really works when the price is worth it and I think now like a lot of their products are so expensive that a lot of people just aren't seeing it worth it overall yeah or if you
have like a really bad case of the munchies and you need it right away and you don't
yeah then you hit up the old circle k yeah exactly that's it so no overall i think definitely
an optimistic quarter i would say like it's i think it's yeah i think that's probably the best way
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So let's just move on here.
Go with the banks.
So I'll let you lead the way.
I'll probably chime in a little bit as well.
I'll do a little bit of screen sharing,
although the Royal Bank information wasn't up just yet for Fiscal.A.I.
There's always a little bit of a delay for the Canadian data,
although they will be making that almost real time.
I think it's in the next little while.
I don't know the exact same frame.
For the U.S. data, it's always out very quickly.
But Royal Bank, not out quite yet,
but really interested to see how they did because clearly it's still the number or the biggest bank in Canada.
Yeah, it actually, I believe on this quarter, it overtook Shopify again for top company.
I don't know if it's still held, but it took it over because it, I mean, it posted, in my opinion, the best quarter out of the big six banks.
And this is kind of saying something as well because they all posted like, I would say borderline outstanding quarters outside of national.
and I think in the case of National
like it wasn't a situation
where National's quarter was all that bad
it's just the other ones were so good
that there was probably a bit of rotation out of that one
and into other banks
but revenue increased by 16%
year over year and earnings by 18%.
And if you look to pre-tax pre-provision earnings
which would just, it takes their earnings
kind of if their provisions are isolated
and their taxes are isolated,
those actually went up by 25%.
Capital markets hit all-time highs
in terms of revenue assets,
management in its wealth segment wealth management grew by 12% and personal banking continues to
accelerate growing 13%. On the personal side, both loans and deposits were up by 3%. Mortgage and
heat lock activity remains pretty healthy. It's one of the larger growth drivers of that
personal segment. On the commercial side, still seeing pretty solid growth as well. Loans were
up 6%. Deposits up 3%. And impaired loans increased on the personal side of things to sit
at just under $2 billion, and they had mentioned the bulk of this is due to residential mortgages.
However, they reported a decline in overall gross impaired loans across pretty much every other
segment of the business. It's gross impaired loan ratio actually dropped from 88 basis points to
85. Overall provisions came in at $881 million, which is actually way lower than last quarter,
so it dropped 38% sequentially. So from, you know, this quarter to the one previous.
This is, I think, what is actually what caused it to beat earnings estimates by as wide of a margin as it did.
So the market was actually expecting provisions to come in at around $1.07 billion, and as mentioned, 881 million.
So that's a pretty big beat.
And I think-
Yeah, those provisions, though, like, they're such a wild card, at times.
Oh, yeah.
It could, now they're down.
Now the market is loving these earnings.
And then we could find ourselves next quarter with the big ramp up in PC.
in provisions for credit losses
where they just add way more money
because they saw some things that happened during the quarter.
So I always find it fascinating
because on a quarter to quarter basis,
you can see such a big shift in sentiment from the market.
The reality is right now,
especially with as much uncertainty that we have
on the trade front, the economy slowing down as well,
there's going to be some pretty big swings
in terms of provisions for credit losses.
Because one way or the other, I think the overall trend, we were talking about that before we started recording is that the overall amount of money that they're keeping on their balance sheet, not what they're adding every quarter, is actually still increasing in terms of percentage of their total loan portfolio.
So it's not like they're out of the woods.
It's still relatively low, but they are, they still have been increasing that total amount compared to their loans.
Yeah, and I think what it was last quarter, last quarter was a bunch of performance.
loans that they ended up booking like I think the vast majority of the increase was performing which I mean we mentioned it a few times but those performing loans are they haven't necessarily gone unpaid yet but they figure you know like even a small decline in the in the macro environment could push those loans into default so they kind of set those aside and I think like due to the tariff situation last quarter they probably booked a ton of those like not exactly knowing what was going to happen yeah and now I'm sure of one thing they would
do is looking at by regions, right? They may have a ton of mortgage in a smaller municipality that
they were looking at and say, you know what, they're going to get pretty impacted by these new
tariffs. These are performing loans right now, but we have to add a bit more on our balance sheet
because we know that some of those mortgages will likely enter delinquency because there's going to
be people losing their jobs and they will not be able to make the mortgage payment and so on.
So that would be, I would assume I've never worked in the underwriting or, I guess, credit risk for banks or I guess it would be credit risk.
I'm not quite sure the division, but I would assume that is the kind of reasoning that they would have and they probably have a formula they apply for that.
I think so, yeah.
And like now we're kind of seeing, you know, that tariffs aren't having as large of an impact overall as they expected, but could still very well have a larger impact moving forward.
So you could see, like you said, you could see big fluctuations.
I would expect actually these numbers to be like the wildest they've been in a while just because the banks really don't, like they have some of the best economists in there predicting this type of stuff and it's very difficult to predict.
So it's, yeah, I wouldn't say they're out of the woods yet.
I mean, if we get two or three more quarters with like lower and lower PCLs, it could be a pretty big tailwind for the banks moving forward.
in terms of their ACL ratio.
So if you think of like, you know, the ACLs, I kind of say would be the piggy bank
and the provisions are the money you put in it every quarter.
You know, that's like kind of your total provisions you've set aside for loans.
That came in at 74 basis points.
So this is an 11 basis point increase year over year, but it was flat quarter over quarter.
I think it increased like one basis point or something like that.
Royal Bank's kind of middle of the pack, I think, in this regard.
I think National has a lower ratio than them,
but National is also in this situation
where their provisions are actually increasing a bit more
than the other banks.
But Royal Bank does have one of the best allowance ratios
at 74 basis points.
There's a couple of banks that are above 100 basis points.
So, I mean, overall for me,
I can't really see a single area of weakness
for this bank right now.
It moved up like 6% post earnings,
which for a Canadian bank,
I mean, they very rarely move that much
in either direction, like up 5, 6% is a pretty big move for a Canadian bank, especially for
Royal, because Royal is, it's expensive.
Like, it's trading at, you know, 20, 30% premiums to what it typically has over the last
five or 10 years.
So there's a lot of people who are very bullish on this bank.
And I mean, it posted its quarter was just great.
So, I mean, I can't exactly blame them, but it's getting pretty pricey at this point.
Yeah.
Yeah, exactly.
And I'm just showing here we don't, like,
I said that not all of the data has been updated, but this one kind of shows the trend
in terms of the, I guess, what they have on the balance sheet.
I always found the allowance, allowance for credit losses on the balance sheet.
And it bought them around that 440.0.46% in 2022.
And now it's almost not quite double, but it's getting towards there.
I would not be surprised if that keeps increasing because we saw the numbers for the GDP in
Canada wasn't good recently.
I think it was Q2.
Data that came out wasn't good.
We're also seeing the U.S.
There's a lot of uncertainty with courts rejecting a lot of Trump's tariffs
and then this going over most likely to the Supreme Court pretty rapidly.
It looks like Trump wants to expedite that.
All that to say, not to go into detail about all the trade front,
it just shows that there's more uncertainty.
And again, we may see a lot different picture when it comes to provision for
credit losses because of that uncertainty. So don't be surprised if it gets big next quarter or it's
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Do you want to move on to TD?
Yeah, TD, the Mold.
Most ethical bank in Canada. Go ahead. Yeah. Yeah. Well, they're ethical here. They just
haven't been so ethical. Yeah, yeah. They're not in the U.S. exactly. Yeah, people may be wondering. I mean, you'll talk about that, the anti-money laundering, that issues that they have in the U.S. So go ahead.
Yeah. So it was like, it was a very strong quarter from TD as well. And it ended up opening up in the green by a wide margin. I think it was up five or six percent as well. But then it's sold off like massively after the conference call. And I don't.
know exactly what sent it down, but I do know in the conference call they guided to the higher
end of expense growth. And I know they had mentioned that AML remediation costs are going to persist
into 2026 at a cost of around 500 million US dollars a year. Like again, I don't know, but I would
imagine this. I looked at the call and I didn't really see anything else that would have sent it
down by as much as it did. So I would imagine the, you know,
guiding to the higher end of expenses and kind of mentioning that these costs are expected to
persist is probably what sent it down. Much like the other bank, the Canadian arm is just doing
outstanding record revenue, earnings, deposits, loan volumes, net interest margins ticked up.
And much like Royal TD's provisions came in well below expectations, which is, you know,
what caused the big beat on expected earnings. So the market was expecting around 1.2
billion in provisions and they only reported 971 million. So that's, that's a big, big,
you know, coming in at well ahead of what is expected. And obviously they're going to base their
earnings projections on a lot of these provisions because ultimately they come out of earnings.
So yeah, and just for people for context here. So contrary to Royal Bank, TD has been setting aside
increasingly higher amounts
for what the last 10
9 quarters
pretty much now
so increasingly it started
like at bottom in April of 2023
and then Everest at 599
599 million
and then has been steadily increasing
up to the last not this quarter
the previous one at 1341
so almost essentially double
in terms of what they were setting aside every quarter
and now it's gone back down like you just said to
971 so just wanted to
to explain that a little bit because Royal has been more a bit all over the place when it's been putting money aside.
It's not been a consistently higher up trend, whereas TD was, but now it's down.
But again, I still think, you know, the next quarter could again go the other way, although TD does have quite a bit on the balance sheet compared to Royal.
Yeah, like TD's probably been one of the worst banks over the last few years in terms of provisions.
I know CIBC went through like a short period where it was, it was getting pretty bad.
Same with BMO, but they've kind of settled down now.
But TD has reported like continuing escalations over the last while.
And again, like last quarter, it was kind of much the same.
They set aside a bunch of performing loans just due to the uncertainty in terms of tariffs.
This quarter, they booked very few performing provisions.
So when you compare this quarter to last quarter, their performing provisions declined by
83% and their US arm like continues to struggle and this is primarily due to it due to the
AML issues and I mean just to give you an idea on the earnings drag it has caused so expenses in
the US arm were 1.75 billion while the Canadian arm were around 2 billion but the thing here
is the Canadian segment is more than double the size of the US segment so you're seeing very
similar expenses for pretty much half the business and it's it's really impacted them the company
is seeing loans and deposits fall in the United States. I do think a good chunk of this is due
to the restrictions it has on it in terms of the asset cap. So it's currently selling off a bunch of
its U.S. assets. I would imagine they're probably targeting like lower performing U.S.
assets that aren't making it a lot of money so that it can kind of get below that buffer and it can
start getting a bit more flexibility when it comes to lending again. And as I had mentioned,
the company is targeting expense growth at the higher end of the guidance and the, and the more
majority of this is due to that AML drag and I do think that's what kind of what caused it to sell
off after it opened way in the green because obviously it opens way in the green it exceeds
earnings expectations provisions come in lower but then the call comes and they kind of mention
that things are going to get maybe a bit tighter on the expense front and that's what caused
the cause the pullback I'm kind of curious to see if this is like a one-off or kind of a sustained
turnaround for TD I mean it's done very well stock price wise over the last while but I mean
Over the last five quarters, provisions have kind of slowly escalated.
And the bank has been putting aside quite a bit of money in terms of bad loans.
Their ACL ratio, I believe, is the highest out of any of the big six banks.
But again, provisions...
If it's not the highest, it's up there.
Yeah.
Scotia and TD will be among the highest, for sure, out of the two banks.
I believe TD is the highest.
If not, it's lower by a few basis points.
But, yeah, I mean, provisions much like...
You know, Royal, they kind of fell off cliff this quarter, 30% below.
And it actually posted a big difference between a lot of these banks is on a year-over-year basis,
provisions are still higher.
Like, they're not as high as they used to be, but they're like, you know, still double-digits higher.
TD is actually posting year-over-year declines in provisions, which is not a situation you see
with many of the other banks.
However, on the flip side, you know, they've been reporting a lot more than the other banks.
So it's kind of, it might be a wash in that regard.
But yeah, they had a pretty good quarter.
It's just kind of guidance, I think, that held them back.
Yeah, I mean, from an investment basis, I think we've been pretty critical about TD.
And if you didn't listen to us and you invested in them last year around the time that the res, well, resolution is a big word, but they got more clarity on the old AML issue in the U.S.
you would have done pretty good and be up for like 35%.
So hopefully a lot of you didn't listen to us.
No, I just kid here, but for those who own it, very happy you had good returns ever since.
My view remains the same.
I would not touch this bank with a 10-foot pole even if it doubled from here.
I just see way too many risk, whether it's the amount of money they have on the balance sheet,
clearly showing some doubt into the loan quality that they have in their portfolio.
There is a reason.
They're not putting money aside for bad loans out of the goodness of their hearts.
They're doing it because they're worried about the credit quality of a decent chunk of their loans.
So that's the first reason.
But then the U.S. was by far their fastest growth vector before this whole investigation and this somewhat resolution or more clarity happened for the AML stuff.
But it's still going to really have a big impact on their growth.
and it's probably going to force them to try and focus more on Canada,
which I don't know if that's the best idea right now
with how the Canadian economy is doing,
so it could force them just because they want to grow assets
for the sake of growing assets.
It may force them into like some subpar loans
because they just want to grab some market share.
And I know talking with some mortgage broker,
I was talking with Nick and a couple of other mortgage brokers that I know.
and some of the big Canadian banks are being very aggressive in the mortgage market.
So I'm just saying that because, yes, the stock is up and again, very happy for those that
had that nice performance, but I still think there's some pretty big risk for TD, especially
if, like I said, they're kind of being aggressive on the Canadian side because they keep to
compensate for the U.S. side. Yeah, because you never really know when that asset cap is coming off.
What was Wells Fargo?
Like seven years, I think it was on there for?
I know.
It just got removed?
Yeah, I think they removed it this year.
Yeah.
Okay.
It kind of went on a bit of a run, but yeah, you just never know.
Like, I'm sure these U.S. regulators are in no rush to remove it.
No.
I mean, why would they be until they really, you know, prove that it's not going to happen again,
which comes with, you know, a ton of costs in terms of building out, you know, better systems,
things like that.
But, yeah, I mean.
Plus TDs is that foreign bank, right?
It is like, you know, TDs are like still predominantly a Canadian bank,
and you would think U.S. regulators would be probably a bit more flexible
if it was a fully owned U.S. bank.
I'm not saying it would be removed right away,
but maybe they'd be more apt to remove it faster than a Canadian bank,
especially with a kind of rhetoric that we're seeing with the U.S. administration
where they're favoring everything American.
I'm just putting that out there as they may be even more strict,
because the fact that it's a Canadian bank doing business in the U.S.
Yeah, that's like why are they going to be in a rush to remove an asset cap from a company
that was like providing money laundering situations, like a Canadian institution.
I just, I don't really see it.
But just kind of what's your big, yeah, big takeaways from the bank's earning.
So you kept a closer eye on that.
Like I said before, we rented a cottage for a few weeks right into banks earning season.
and even though I did some podcast work
and we record an episode
we did a lot of upfront stuff
so I could actually take some time off
from the podcast, relax, recharge with the family
and spend time with my family, of course.
I've stayed a little bit on top of bank earnings
but not as much as I usually do
so I'd like to just get your, you know,
pick your brain for the big picture takeaways
that you saw this earning season.
Yeah, I mean from pretty much
all the banks provisions are coming downwards.
I mean, national like I said,
national reported the weakest quarter, but it was still a relatively good quarter.
I think it just kind of got sold off because of how well all the other banks did.
Like even Scotia Bank, like Scotiabank hasn't reported a good quarter in a very, very long time.
And even their quarter was, it was great.
Obviously, they still have a very long way to go to kind of prove that they've turned things around,
especially on the international side.
But the fact that provisions are trending downward, all these banks, Canadian arms,
are performing exceptionally well.
And then you also have situations where like each bank in a way was kind of struggling
in a particular area.
Like I know with BMO, a lot of it was U.S. commercial with Scotia was obviously the
international with TDE was the anti-money laundering.
It seems like a lot of these issues are kind of resolving themselves over the last bid here.
Like BMO kind of had that escalating provisions due to a lot of those U.S. commercial
loans.
And now that's kind of coming down.
They're reporting lower, lower provisions.
TD obviously has a lot of issues left there, which is probably why the stock bombed after the conference call when they mentioned that.
But the one thing I'll say is, like you had mentioned, that the economy is contracting at a 1.6% annual pace.
So definitely not out of the woods.
Like a lot of these banks have international operations, but the bulk, like the bulk of all these banks, the bread and butter of these banks is the Canadian end.
And obviously the Canadian economy is not doing very well right now, despite, you know,
I contracted at 1.6% on an annualized basis or 0.4% for Q2 alone.
But the technical definition of a recession would be if we get another quarter of contraction.
So two in a row.
That would be the definition here.
So we'll have to see.
But again, well, yeah, it's just for the banks, I mean, it's always that feeling of, yes, they're doing well, but they're loaning money.
As long as people are making their payments on their loans.
it's fine until they don't, right? It's always the issue for banks or any kind of lender.
The main difference with a bank versus a subprime lender is the bank will typically have
much better credit quality, less of an interest margin, but they'll have much lower losses
than a go easy. For example, obvious I'm talking about two extremes here. Yeah. Yeah, like if you were,
if you were to tell somebody that, you know, the Canadian economy is declining by that much
that the Canadian banks would be outperforming the S&P year to date.
And over the last year, they'd probably say you're crazy, but they are.
They've done like the BMO, like the ZEB, the BMO equal weight banking ETF.
It's up 31% over the last year.
And that wouldn't include dividends.
So what, they yield probably 4%.
So you're probably looking at 34%.
And even year to date, like nearly 20%.
They've just had a crazy good run.
Now, whether or not it continues, I mean, obviously if the Canadian economy,
economy keeps contracting, like it's probably not a good sign, but like, I don't know, loans are up,
deposits are up. Like, it's crazy. Yeah, exactly. I mean, I think people know I don't really
invest in banks. I have in the past a bit here and there, but personally, I think there's
better places. There's some opportunities. There's some sectors that are really, the market is
really down on. But I know there's a lot of listeners that own banks. So congratulations,
you've done pretty well. Hopefully, I mean, from an economy and in,
investment perspective for those on the banks.
Hopefully it keeps going again, I'd have no skin in the game.
So for me, it's just watching it, trying to make sense of it as much as I can.
Yeah, I mean, I have a bit.
I don't own a ton of banks, but I do own like a small, it's like 5% of my portfolio, probably.
I don't have any plans to sell them.
They're great companies.
They just, I mean, the market's really high on them right now.
I would, like, if I were to say one thing, they're probably like price to perfection right now.
really need some good results moving forward because a lot of them are pretty rich
like valuation wise but obviously people are bullish moving forward they obviously they expect
provisions to continue to decline and maybe the economy to turn around a bit here but we'll see
yeah yeah exactly i think that's a good point to ramp it up or uh to not make the episode too
long so stay tuned next week we'll talk about affirming holdings especially as earnings are
starting to slow down a little bit i think little lemon will be reporting uh
So that's one we'll be able to talk about.
We'll talk about a firm earnings season slowing a bit down.
So I think it's a good move to keep her firm for next week
and see how the buy now, pay later company is doing.
I hope you enjoy the episode.
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