The Canadian Investor - Canadian Bank Earnings Takeaways and Remembering Charlie Munger

Episode Date: December 7, 2023

In this episode, Simon and Dan talk about 6 quotes from Charlie Munger that have special meaning for them. Then they talk go over the earnings of the rest of the large Canadian banks and share their main takeaways. Symbols of stocks discussed: CM.TO, RY.TO, TD.TO, BMO.TO Check out our portfolio by going to Jointci.com Our Website 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  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kand. We're doing our Thursday release with news and earnings. But before we get started, please be aware there may be a little bit of coughing because right now, Dan and I are both sick with some kind of virus. So we're not feeling great. You caught it, what, probably coming back from Arizona, right?

Yeah, so I was sick probably like a week and a half ago. And then it went away. And then I went away for the weekend here and come back. And it hit me again. Worse this time. Yeah, and for me, it's a different context. I love that, you know, I envy you that you're traveling and I would love for that to be the case. But I have a little walking cesspool of germ.

Well, not quite walking, crawling. So we end up being exposed to a lot of viruses. I think that's how I caught it. But last thing before we get started, Dan, I wanted to ask you a couple of things on your haircut. So for those who do not see the videos, Dan is like cleanly shaved. How often do you do it? Like, that's my first question. Every day.

Every day. Every day. Yeah. Not like with like a Bic razor, but like with a little electronic one. Yeah. Yeah. I started, I started balding when I was like, I don't even think I was like 20 years old. Okay.

And then it guys started to get really thin and it was terrible. And I know a lot of people will remember when I first started making YouTube videos. I used to wear a hat all the time. And most of the time it was because my hair was so thin and gross that I didn't want anybody to see it. So probably like four years ago, I just shaved it off and never went back. You don't want to see it so probably like four years ago i just shaved it off and never went back oh no you don't you don't want to see me with hair for sure well the reason i'm asking is uh you know it's getting thin for me as well i don't know if it's the baby or whatnot but i feel like it's increased in the last couple years so i'm debating i'm not sure if i would go like completely razor

to zero but i've done in the past when I was younger, like the shortest you can do with an actual electric razor. And the added benefit, I mean, the haircuts are getting more expensive. Like it's like 50 bucks. And if you're a guy and you want to look somewhat put together, right, you have to do it like pretty much once a month. So that would be an easy way to cut expenses.

I promised my wife I would do one last haircut. And I think 2024 for those watching, I may pop up at some point with a different haircut. Yeah, the haircuts is a big cost savings. You don't need to buy shampoo anymore. You just need body wash. It's pretty nice. Oh, there you go. Just keeps on giving. Well, we'll get started now because we do have a jam-packed episode like we talked about last week. It'll mostly be bank earnings, but there are a couple news items we wanted to touch on first. First thing is first, obviously, when we recorded last week. So the way we usually record, we'll record on Tuesdays and then I hop on another call with Brayden and then we'll record as well for the Monday episode.

So I had done back-to-back episodes. After the last one, a couple, maybe half an hour later, the news came that unfortunately Charlie Munger had passed away at the age of 99. It was actually just a month from turning 100. And, you know, he's obviously a legend an investing legend here and I wanted to share a few quotes and I know you have a few as well because he's been he has a history of just you know offering some great quotes whether it's investing but also just life in general and there's some quotes I think for everyone and there's three that really resonated for me

so I'll just quote here, like Warren, I had considerable passion to get rich, not because I wanted Ferraris, I wanted independence, I desperately wanted it. And for me, that resonates. I'm not saying I want necessarily to get rich, but I definitely want to get to a point that I have more independence. And for me, that's my main goal for investing is just having more independence on my time and me being able to, yeah, to choose what I do and not being constrained with a nine to five job, for example. So that would be the first one. The second one, you must force yourself to consider opposing arguments, especially when they challenge your best loved

ideas and I know this is not easy for a lot of people it's not easy for me sometimes right when you believe in something a company an investment whatever it is and someone starts challenging that I think it's very easy for a lot of people to dismiss that and just automatically go to a bit of an echo chamber with people that follow the same beliefs. And I think it's important to keep that open mind. And that's why, you know, people who listen to this podcast regularly know that I've, you know, we looked at the short report for BIP. It's a pretty decent position for me. Another thing I did is i believe in bitcoin for example and i read the easy money book by ben mckenzie who's very critical of crypto and bitcoin i knew it was going to be

very critical but i wanted to still read it to get that kind of opposing view so i think that's really important what are your thoughts on those two quotes before i go to my last one yeah they're they're two of his best know, like not necessarily just investing, but life ones, especially in terms of the first one, you know, the financial independence. I mean, the one thing that money can buy you is time, really. I mean, the more you have, the more, you know, spare time you're going to get, the more time you can spend doing things you enjoy. And in terms of the opposing arguments, I think that's pretty important too. Like I think, especially when you're looking at an investment, I mean, if you're not looking at both ends of the spectrum, you're probably not looking hard enough. And I find some people get a little

biased with their holdings, which I do too. I mean, everybody has some level of bias to the companies they own. And although they might not want to hear the other side of the story i think it's important to take it you know take it and learn from it or maybe consider if it'll change your views at all but yeah they're two great quotes for sure yeah yeah well put and the last one here and that's because i do have a poker background like people who've been listening for a while would know, life in part is like a poker game wherein you have to learn to quit sometimes when holding a much-loved hand. You must learn to handle mistakes and new facts that change the odds. And that one really resonates for me for obvious reasons there, but I've seen it time and time again at the poker game where you'll see people, the easiest example for those who are familiar with Texas Hold'em, they'll have pocket kings, which is the second best hand before you see the cards on the flop,

the second best possible hand. But then you'll see like an ace, for example, that comes on the flop, which clearly shows that you may still have the best hand, but there's also, if there's multiple people in the hand, there's going to be some decent chance that someone may have an ace and you're much, much, much behind at that point. And I think that goes for investing as well, because you may have the you may have done the best research on a company. You had the best thesis.

Everything was perfect. You know, your thesis made a whole lot of sense. And then something really changes and you have to make a decision accordingly. And you have to be able to, you know, change if like the information you have is changing. And I think sometimes it's a bit hard for people to do that. And that's why these, these three quotes resonated for me. But now I'll pass it over to you. I want to hear the ones that resonated for you from Charlie. Yeah. So I kind of took more of like just some of his straight up investing quotes. And the first one is we have three baskets for investing. Yes, no, and too tough to understand. I think this is a lot of particularly aimed at like newer investors.

I mean, you know, you see a lot of businesses, a lot of these businesses are not easy to understand. And, you know, the one example I could take would be a Brookfield, like with so many subsidiaries and so much structure, like it's hard for me to even understand Brookfield at some points. So, I mean, I guess, you know, there's a lot of people talking about a company like that. You might be seem kind of rushed to invest into something like that just because it's being talked about a lot. It's, you know, very prominent, but I think it's being talked about a lot. It's very prominent, but I think it's pretty important that... I mean, the most important thing you can do when you're investing is understand the businesses that you own. And no matter how good an investment looks, I mean, if you don't understand the business, don't buy it, or at least make an attempt to

learn the business. The second one would be, it's not supposed to be easy. Anyone who finds it easy is stupid. And I actually couldn't get his context of this. I was looking for the context of this quote, whether or not it was solely like dedicated to investing, because it is not easy. I mean, investing in the stock market is not easy. And I would imagine if his context was with this was in relation to investing, it would have been buying individual holdings instead of a broad-based index fund. That makes it a bit easier. But I mean, there's still a lot of people, even if you buy index funds, all it takes is one bad panic decision to sell those off during a pretty tough condition. And it can end up with some

pretty suboptimal results. And the last one would be actually my all-time favorite by him. I say it all the time, and that's invest in a business any fool can run because someday a fool will. If it won't stand a little mismanagement, it is not much of a business. And again, sometimes the simplest businesses are the ones that end up producing the best results, because of that simplicity, because of how easy they are to run, because of how easy they are to grow things like that. So yeah, I don't know, what are your thoughts on those three? Yeah, no, I think they're all great quotes. I especially like the first and last one. Because yeah, I i mean we've all seen businesses that have had

great leaders and then the leaders you know retire pass away whatever it is and then the business kind of goes down goes sideways because the uh subsequent leadership is not as good so you you know one that comes to mind i I mean, he probably worked hard, but Microsoft, right, from Bill Gates to Steve Ballmer. You know, I don't know if it was self-inflicted or whatnot, but Steve Ballmer definitely found a way to make Microsoft a little worse with some bad acquisition. But I think that one really resonates. That one really resonates. And the first one that I think they're Buffett and Berkshire and Charlie are the best examples of it in terms of three basket for investing. Yes, no, too tough to understand. And, you know, I think the fact that they have not invested a lot in tech companies and Apple being an obvious outlier there, I think shows that for them it was just too hard to understand.

I think shows that for them, it was just too hard to understand. And they'd rather invest in things like banks and insurance, and other types of companies, of course, but things that they really understand. So I think that's important, because at the end of the day, you can't, you're not going to understand every single business. And it's, it takes a lot to be able to admit, look, I don't think I want to put the time to understand this. It's not worth my while. And you just move on to the next one. I think that's real important for people to know.

Yeah, I think you're better off passing up an opportunity you don't understand, even if that opportunity ends up being a strong investment. You might look back on it five, 10 years from now and be like, oh, dang, I was going to buy that. But like, if you don't understand how the business works, I mean, you don't, you could end up in the hole on that as well

and really not understand, you know, if you don't understand the business, you can't exactly develop a thesis as to why you'd want to buy the stock. Besides the fact that everybody's saying to buy the stock, you know what I mean? I find that's often when stuff like this comes up. Because it's not like you actively search out businesses you don't understand.

It often comes with, you know, the business being in the spotlight, a lot of people mentioning it and things like that. So, yeah. As Braden would say, boring conviction from other people. And the issue with that is if you don't understand the business well and there's a drawdown you won't know what to make of it is it a good buying opportunity or is the company really in trouble is the market being short-sighted looking too much at the short term and it's a great buying opportunity or the company's going down the drain so i think that's really important well i i think on that note i mean obviously uh rest in peace charlie and i think uh you provided a lot of wisdom. I'm the first one to admit I did not always agree with what he said, particularly on Bitcoin. Obviously, people know that I'm pretty bullish on that. But again, that's fine. And I've tweeted about that recently. Like you, there's really like no one you should agree with 100% in life. Like, you know, even your spouse, you'll have disagreement, your kids, whatever it is.

And I think it's important to remember you don't you know, it's fine if you don't agree 100% with someone. You can still pull a lot of useful things from different people. And I think Charlie for me is that I mean, I think the good definitely outweighed the stuff that I didn't agree with him. And I think he was definitely a great investor and investing legend. Anything else to add before we move on to the last piece of news before the thrilling Canadian banks earnings? I mean, I guess I would just say on the crypto end, I mean, it could be a situation for them,

you know, the first quote, just too tough to understand. It's not to necessarily say that, you know, you're right and they're wrong. But but yeah i know they were pretty big bears on crypto but yeah rest in peace he was lived a long life 99 and he seemed like he was all there at 99 which is uh which is pretty rare i haven't met too many people that age that that are still managing managing companies so yeah no i think that's what was the most amazing is how great he was. I mean, you heard, I heard him talk like a few months ago and he was still like, you know,

all there and, you know, cognitively like as good as he's ever been. So a lot of respect for him for that. Definitely. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the

ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work

and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now we'll move on to the next piece of news. So Uber will be added to the

S&P 500. They will be joining the S&P 500 on December 18. And it's kind of funny because Braden and I actually did a segment on what it takes to join the S&P 500, or at least a criteria that they look at. And I'll be honest, I mean, I'll have to hand it to Uber is they've gone a long way since going public in 2019. They were losing a lot of money back then. And they've really turned things around and it's become quite profitable. And honestly, there's still a lot of competition, but it's more, you know, there's competition with Lyft. There's competition with Lyft, there's competition with food delivery, but I think they've done quite a good job so far of like just kind of being the super, if you want to call it super app of delivery slash transportation, whatever you want to call it. And what I'm showing here is just their free cash flow on an annual basis and their profitability. And they're both in the green for that on both of those metrics.

And I don't know all of their competitors extremely well, but I would assume that most of them are not this profitable or are losing a lot of money. And it's a very different environment than just a few years ago. So I think that gives Uber a big edge because they can actually operate from a profitability basis. Yeah, this isn't a company that I had paid attention to too much just because of how much it was losing during the first few years of its IPO, but it definitely has turned it around. The ride sharing I use quite a bit. And like you said, like they just have everything. You can do everything with them. Like even when I order food, which is actually like very rarely because it costs an absolute fortune. I use them as well. I mean,

they've done quite well. The one thing I was wondering about the S&P inclusion is I was reading that you had to be profitable for four straight quarters. And I don't think they have, which is kind of weird to me. Let me check here if I pull it. I think they have because I was pulling the info on an annual basis. Let me just check this. I guess, hmm, maybe their most recent quarter they will be but it does show i think you're right they were slightly negative on the one but maybe they were able to show that

they're gonna be their upcoming quarter is gonna continue yeah yeah i'm that's a good point uh yeah i just assumed they were because i was looking on the trailing annual profitability. But no, you're right. Yeah. Yeah, I figured that was, I think that's one of the inclusions. I was looking it up this morning. And I mean, they've been profitable for three out of four, but they posted. I mean, maybe they could prove it was because of something, you know, maybe just a one-off

cost or something. Yeah, it may have been that. Yeah. Yeah. That would be a good guess. But anyways, I think it's interesting. Obviously, there may be some ramp-up demand because of being added to the S&P 500 and how all the index ETFs and index funds have to mimic the index, so they'll be buying Uber.

But I thought it was an interesting mention. But before we talk too long about this, let's move on and talk about the long awaited Canadian bank. So the rest of the big banks reported, we won't do all of them because it would take quite some time. We also pulled some different data that I think will be interesting for people. Do you want to kick us off with that, Dan? Yeah, sure. So TD Bank, on a year over year basis, earnings were down around 4% while revenue is up 12%. This isn't really all that surprising because PCLs relative to last year have effectively tripled. So they came in at just under $3 billion, $2.93 billion versus $1.06

billion last year. So the Canadian banking segment is effectively flat year-over-year. Canadian banking segment is effectively flat year over year. Revenue is up 7%, but earnings are down 1%. Its US retail segment saw declines across the board with revenue down 3% year over year and net income down 17. Wealth management and insurance saw a 9% increase in revenue, but a 39% increase in claims. They say it's mostly from weather related issues. So as a result of that, net income was down 3% and it's wholesale banking saw revenue grow by 28%, but net income fall by 35%. Overall, it was not a bad quarter and not a bad year for TD, but it's actually a pretty soft year considering TD Bank's been pretty consistently one of the best performing Canadian banks, especially with just,

you know, their exposure down South. And I actually pulled a quote and this is kind of in relation to maybe the capital markets end of things, but TD released a report this morning, I think, in terms of just the overall investment health of Canadians. And they state, just quote unquote, almost half of Canadians, 47%, have not made or are not planning to make any contributions to their investments this year. And 46% of them say it was because of their cost of living, how bad it's increased. So that is like half of Canadians. That's a huge number. And I mean, we've seen it on our end, just in overall investment traffic. It's nowhere near the interest of even pre-pandemic levels.

So I think interest rates are, they're definitely starting to hit Canadians even harder now. I don't know your thoughts on that before I speak on the rest of the... No, that's great. I didn't know that came out. I'll ask you to share that report for me when we're done because I definitely want to look at it. But it's not surprising because obviously, you know, investing and saving is down the list when you have to pay for everything else, whether it's an increased mortgage costs, increased rent, food, whatever it is, you know, people will make those will have to make sacrifices. And typically saving will be an investing will be one of them. So definitely not surprised. And I think it's starting to show that more and more data is coming in and we saw the GDP that contracted. I think I'm just

going on memory. I think it was 1.1% on an annualized basis that it contracted. Yeah. It was 1.1 or 1.3, one of those two. Yeah. And yeah, I think, and 0.3 when not annualized, but I think this just goes to show, I've been pretty vocal about that since like late summer that just based on what the companies are saying that I thought we were already in a recession and I think we're starting to see that we are in fact in a recession and it's probably started like about at least four or five months ago at this point I guess we'll know after the fact but I think people are just being prudent and I guess that's a good thing in the end. Yeah. Yeah. I mean, when you got to pay your mortgage and cost of living has skyrocketed, there's not exactly a lot of money left over for investing. The CET1 ratio, which is pretty much,

it's a liquidity measure for how well these banks could survive, say, a financial shock. It has to be a minimum of 11 or 12%. I can't remember which one it was. Oh, yeah. I had done a segment on that. I think there's different levels depending on if they're a – they all are, but if they're a G-SIB bank, there's a certain level, and then a Canadian systemically important bank. I think there's also a Canada-specific one.

So they have they have different kind of requirements because a bank like canadian western bangla rationed banks they're not at that threshold so they don't need as much as the large okay yeah yeah that makes yeah there's like i remember i'm like going on memory because it was like maybe a seven eight months ago but there's different levels required depending on the size. So I would imagine all the big five are probably national too. Yeah, I think national falls in. Yeah, I think they're in there. But TD was 14.4, which is well above the average,

typically higher than you'll see. But the thing is, it's mostly due to the fact their first Horizon acquisition failed. So pretty much they had a bunch of capital because of that. I think even at one point it sat at 16%. And what they're planning to do with that capital, which will probably just get it down to normalized level is repurchase shares. So they repurchased 38 million shares on the quarter. And this CET1 ratio dropped as a result by around 81 basis points. Just to give you an idea of how much of that was share repurchases, 57 basis points.

So for the most part, it's just lowering this. When you see this ratio drop, it's pretty much just from them buying back shares. Then interest margins at 2.78, which is effectively the money they're earning on lending versus what they're paying for things like deposits and stuff it increased eight basis points and this 2.78 is actually the best out of the big five at least i don't know if it's if it's the best out of national but a lot of this is highly dependent on just total like loan structure and things like that yeah i was gonna say that seems like the highest just based on the number and the other banks I looked at. And yeah, that's that's a good clarification,

because doesn't mean that the other banks are necessarily bad. It's typically just the way the loans are structured. Maybe they also have more like institutional clients versus the other, which will tend to get higher rates on their deposits. So different things will impact that. Yeah, it's not like you can't look at this apples to apples and see like BMO, I think is 1.6. So you couldn't just look at this, you know, TD at 2.7 and just automatically think that they're the far superior bank. But in terms of PCLs, they were up 15% on a quarter over quarter basis.

So much like other banks, it is reporting its largest increase in its Canadian segment. So it saw PCLs jump by 23.4%. So in contrast to its US retail portfolio, it actually witnessed a PCL recovery. And I guess I should mention that this is on performing loans. So again, loans that are currently being paid, but they think that could go unpaid. And as of right now, I guess we're going to look at that chart later, but TD Bank actually has the highest PCLs as a percentage of their total loan portfolio, but they had some of the lowest PCL growth on a quarter over quarter basis, which kind of leads me to believe that maybe they were a little bit aggressive over the past quarters and they might slow down now. It's so hard to tell. I mean,

in terms of earnings declines, TD has had one of the largest earnings declines across the big banks. So it'll be interesting to see if they've been aggressive in terms of reporting and might report some recoveries or at least slower PCL growth moving forward. But in terms of reporting and might report some recoveries or at least slower PCL growth moving forward. But in terms of outlook, and this is, I don't know if you've seen any outlook on the banks on CIBC or Royal, but TD pretty much came out and just said it's not going to meet its growth targets. So it has medium-term growth targets of 7% to 10% in earnings growth and 16% returns on equity. And it just pretty much said that it's not going to meet these because of the macro environment, which is kind of nice for them to

just come out and just say it. Yeah, we're not going to meet growth targets. The environment's too tough, which it's kind of a band-aid, just rip it off, get it over, instead of saying, oh, if the economy improves or things like that. But I know you had noted a lot of credit card balances. So TD, over the last two years, they've grown about 26%, which is probably one of the lowest ones, I think. And the percentage of its mortgage book that is negative amortization actually reduced. So it went from 18% to 14%, according to, I was listening to the conference call. And the guy pretty much said that either people made lump sum payments or they transitioned to a fixed rate mortgage, which a lot of these banks, I mean, they kind of take advantage of people at this point. Their variable rates are

sky high and they really put a lot of pressure on people to lock in. So I mean, it's probably not optimal that a lot of people locked in if rates are capped, but I would guarantee that they put a lot of pressure on people who were worried about rates going even higher to lock into a fixed rate mortgage, which is probably what's got them back to normal amortizations. And then just a 6% dividend raise, which is bigger than all the other banks, but TD only raises once a year, whereas the other ones often make multiple raises. only raises once a year, whereas the other ones often make multiple raises. Yeah, and that aligns. I was reading something that Ron Butler posted, which he's very well informed in the mortgage space. And he was saying the same thing where a lot of people are switching from variable to fixed because they just can't handle the payments. And then they get a slightly better rate with fixed rate compared to what they're paying right now. right now but obviously may not be the best outcome for them in the long run but i guess payment certainty is definitely worth something and i think the banks were probably also starting to get nervous with having too many

negative amortization mortgages on the books but but no i didn't pay too much attention i'll be honest for the ones i looked at for the guidance just because i think you just uh just you know throw a blindly at a dartboard and basically there's your guidance like there's so many things that could happen that could impact that guidance that i find like i'm actually surprised that the banks are not potentially even just saying like look either we're not going to meet our targets or we're actually pulling guidance from now on. We'll keep you updated on a quarter to quarter basis. Kind of pull a Tiff McLean with the interest rates and just say like, look, I'm not going to tell you

what I'll be doing for it. It'll be based on the data. So I think they could take a page out of that book. So that's why I didn't pay too much attention to the guidance. Yeah, TDs kind of looks like a pull. I mean, it's not like they revised it. They just said, I mean, they didn't outright say they won't meet it, but they said it will be very difficult, which pretty much means they're not going to hit it. If there was any chance they were going to hit it, I think they'd kind of stay a little bit positive, but yeah.

No, no, that's great. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want and they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email,

every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income.

But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So now we'll move on to CIBC here. And it was definitely an interesting quarter before I started comparing the total provisions for credits losses as a percentage of the loan book. So here, and we'll talk about it at the end. So what I did some calculation is just looking at

on the balance sheet, because these provision from credit losses that we are talking about now is the ones that have been set aside during the quarter. So they come out of earnings and they go, they go, essentially, there's an expense that takes a hit to their earnings, and then it goes to the balance sheet. But on the balance sheet, you actually see what they've set aside cumulatively. So it gives you a better idea on how the percentage of their loan books that is actually sitting in provision for credit losses and i think the last thing that we should add here and a lot of people pointed out and it's completely true and i've said it before and i'll say it again but these are provisions so things can change provisions can be reversed they can be released

i had people tweeting at me saying like, oh, the banks will release them last next year. I think that's very unlikely considering what we're seeing and what we're seeing in terms of ratios, especially for some banks and the way the Canadian economy is going and the amount of fixed mortgages that are coming up due next year in 2025. We will see. But there's always that that possibility and i think that's important to to notice is that not you know it these are just provisions so it's not certain that all of that money will be written off for example now i'll mostly look at the numbers here on a sequential basis because i find you know you see a lot of financial media, they're kind of comparing year over year.

And I do find it a bit misleading because a lot has changed in a year. I mean, last year, we're still kind of full on, you know, hiking cycle, right, at this point. So I think it's really important to make that distinction. Things have changed a lot. I mean, people have been coping with higher rates for quite some time now. And businesses, not just household, but businesses too. Net income was up 4% versus the previous quarter to $1.48 billion and up 25% compared to last year. Net income for Canadian personal and business banking was up 27%. So definitely that was their best segment.

Net income for Canadian commercial banking and wealth management was up 5%. Net income for US commercial banking and wealth management was down 31%. Although this is actually a very small part of their business. So do take that into account just to be fair to CIBC. Capital markets net income was down 22% which is also not a huge segment for that. So that kind of explains why overall their net income was up. They set aside an additional 541 for provision for credit losses in the quarter. And that was actually down 26% from the previous quarter.

So that's interesting there. The loan loss ratio was stable at 35 basis point compared to the previous quarter. They did mention there's been a small uptick in 90 plus day delinquency rates on all their consumer lending segments. So mortgages, credit cards, personal loans. Overall, it went up from 23 to 27 basis points. So not crazy, but definitely trending in the wrong direction. So not crazy, but definitely trending in the wrong direction. And we've talked a lot about fixed mortgages. So they have $34 billion in renewals coming in 2024, $56 billion in 2025, and $60 billion in 2026. And they actually, in their investor presentation, they have something pretty interesting.

They show what the impact, the average impact of higher rates will be on mortgage holders. And I think that's I don't think they all do this, but CIBC definitely does that. So they look at the monthly payment increase by year and the percentage that it would increase. And I'll just go quickly because I find it interesting. So for fixed rate mortgages, well, actually, they include both of them. So I'll give them that. But most the bulk of it, it's fixed rate mortgages. So the monthly payment increase for those renewing in 2024 will be 21% in 2025, 26%, 2026, 28%, 2027, 30%. These are obviously projections. And then 28 and later 10%,

because I guess at that point, you'll be working off of a higher base and interest rate. That's probably the assumption. But what are your thoughts on that? I thought that was pretty interesting. I mean, I looked through quite a bit of the bank's quarterlies, and I've never seen something like this. I know national uh i think they came out last quarter and said that they on average would see a 13 increase in in payment whereas this is this is quite a bit higher i mean i would imagine the the fiscal year 2027 would be those who just got a five-year fixed maybe like in 2022 and that's why you know i would imagine this is, this would be

their projections of rates were to stay the same as well, I would say. But yeah, that's why, you know, in 2027 is probably the largest increase. And I mean, that's a massive increase in mortgage payment on a monthly basis. Yeah. And you, you know, PSA, we've been saying it for a long time. If you have a fixed mortgage coming up next year in 2025, make sure you prepare accordingly. Yeah. I mean, for me personally, I've been putting money because I have some spare TFSA room more than enough. So I've just been buying GICs or high interest savings ETF, for example, just in preparation of that. But I think it's really important for people to start preparing for that because it is quite a big jump. Yeah, now just to

finish here with CIBC. So net interest margin was stable at 2.38%. So obviously lower than what you just talked about TD, but their highest, it's basically the highest level since it's been since q4 2021 so pretty interesting the ct1 ratio is up 20 basis point from q3 and then one thing i found interesting was the average credit card balances keep increasing so it went from 11k in q4 2021 and then 18 000 which is a 60 increase so definitely some exposure here they've increased four percent on a quarter over quarter basis and the provision for credit losses for credit card have gone from 49 million to 117 million since q4 of 2021 so it's essentially more than double like probably close to 2.5 x since q4 2021. So clearly, they're seeing some additional stress for consumer

on the credit card side. And the last thing I'll mention here, and we'll talk about a full comparisons towards the end, but I was kind of surprised that they didn't add that much for their provision for credit losses, because I always thought of CIBC being similar to Bank of Nova Scotia in terms of their Canadian residential mortgage exposure. And they are quite similar. CIBC has $266 billion. Bank of Nova Scotia has $290 million. But what really stood out here is as of October 31st, 2023, the total PCL as a percentage of their loan book was 0.72% for CIBC and 0.45% for Scotiabank. And I think that answers our questions from last week is that Scotiabank is clearly doing catch up here. And I think it's safe to assume that we'll see probably another few quarters of scotia bank kind of ramping up those pcl to at least get to the average of the canadian banks

which they're clearly below at this point yeah when there's like a single outlier it usually means that you know eventually they're going to be playing catch up and scotia bank is below pretty much every single other major bank but by quite a bit i think actually yeah yeah they are and i mean we we can just talk about it now before we instead of going back and forth so the way it looks so q4 2023 i'll go in order from the highest pcl on the books versus the lowest and then i'll say the average so you have td at 0.79%, CIBC at 0.72%, Royal Bank at 0.58%, BMO at 0.58%, Scotiabank at 0.45%. National Bank was actually a bit higher, was 0.54%. So you have Scotiabank here is clearly the lowest. They're below the average, which is 0.61%. And I also did a comparison with

2007, 2008, 2009, because I was curious to see how they would be faring and how much the banks are putting now compared to then. Obviously, there are some clear differences. Loan books will be different. The proportion with commercial versus you know, the amount of mortgages they have on the books. TD has a lot more exposure now to the US than they used to back then. There's been some accounting changes with how they account for provision for credit losses, which have actually become more stringent following the great financial crisis. I just wanted to mention that, but I still think it provides good context. So in Q4 2007, so not, you know, financial crisis was not happening just yet. I think there was some cracks showing at that point.

The average for Canadian banks was 0.75%. Q4 of 2008, the average of the banks was 0.82%. So we were starting to see some big bank failures or investment banks in the US back then. And then it peaked in Q4 of 2009 at 1.08%, when clearly, we knew it was pretty bad. And I think the Canadian banks just didn't know to what extent it would impact them or not. And then compare that to right now to 0.61%. So that kind of leads me to believe clearly, it's not Apple to Apple, there's a lot of things that are different from then and now, because I had someone point that out on Twitter. So I just wanted to make sure yes, I'm well aware that things are not

exactly the same. There's still I think some ramping up to do just based on that, especially considering that the current situation is that the canadian economy is in worse shape than the u.s economy back then it was actually the reverse yeah i mean it's hard to it's kind of hard to tell like where it'll all balance out i mean like you could see you could see banks like td and cibc maybe slow down moving forward just because they're so high right now it's kind of tough to tell where the baseline is, but usually when you get an outlier like this, like Bank of Nova Scotia, that's just way lower than everything else. It's a pretty good sign. And they did this during the pandemic, same thing. So then forward earnings, they came in much lower, which ended up

kind of hurting the stock price in a way, but it's kind of tough to tell. I mean, the one thing that I will say is the three banks that are the highest do have the highest exposure in terms of loan book to the Canadian housing market, like CIBC, TD Bank, and Royal Bank. I mean, CIBC is like 50 some percent. I know Royal Bank's over 53%. And TD, in terms of their Canadian loan book, they do have very high exposure. I think in terms of their totaladian loan book they do have very high exposure i think in terms of their total loan book it's not too bad it's similar to scotia bank but i mean it's kind of a guessing game as you said like their provisions like these these banks are just putting money aside in case so i mean depending on the environment like i think i think rate cuts or you

know if they ever happen in 2024 will will key, like just to get some relief, some Canadians, some relief, especially the ones that are having to renew. So I think, you know, policy rates will have a huge impact on, you know, how elevated these stay. Yeah, no, I think so. And the purpose here was just to put some additional context because you hear in the news, right, you'll see the headline like, oh, Scotiabank put $1.2 billion in provisions for credit losses this quarter. Well, you know, if you don't put context around it, like just one number doesn't really mean all that much. And I know it's great for selling, you know, for clickbait and stuff like that.

But I thought it was just interesting for people to just get some more context here. So we'll finish up with the last two banks here. Do you want to do the next one on the slate, which is Bank of BMO? So Bank of Montreal, pretty similar to TD. Earnings were down 4% while revenue was up around 16%. So Canadian banking saw revenue grow 13% and net income grow 5.3%, which is kind of similar to like CIBC. It was a pretty positive quarter in the fact that the Canadian segment still saw growth. Its US segment was up 44% year over year, but I'm pretty sure the bulk of that would have been due to the Bank of the West acquisition. Earnings grew around 11%. Wealth management struggled,

relatively flat revenue earnings down 12%. The company pretty much said it still saw good growth in clients, but it was offset by smaller deposits. So the one thing they're doing, BMO is aiming to actively trim some of its exposure in a lot of areas. So it said this should result in a $ u.s run rate savings by the end of 2024 so it said it's going to trim its real estate and lending activity along with this is not old news but it's you know happened a quarter or two ago they're getting rid of their indirect automotive lending unit which i think i don't even think a lot of banks deal with this anymore. So I'm not sure. Yeah, they announced that a few months ago, I think.

And I think they're one of the last banks to ditch it. I don't think many of them do direct automotive lending. So net interest margins of 1.66%. That's a dip of two basis points on a quarter over quarter basis. But it is a 20 basis point jump year over year. PCLs continue to climb on a quarter over quarter basis. So they're more than double what they were at the start of 2023 and they grew 22.5% over the last quarter. And again, like much like every other bank, the bulk of this is coming from the Canadian personal and business banking sector. Bank of Montreal has historically had some of the lowest exposure to residential mortgages out of all the big six banks.

And it could be why it has one of the healthier PCL ratios as a percent of total loans. I can't remember what the numbers were. So it's sitting at the second lowest, pretty much flat with Royal Bank though. But they do have, I believe only 30% of their loan book is exposed to residential mortgage rates. So that's ultimately probably going to be a benefit moving forward. But the one negative, I guess, would be the company reported that 20% of its mortgage portfolio and 62% of variable rate mortgages are in negative amortization. On the flip side, it only has 11% of its mortgage portfolio renewing over the next year. So that's much lower than I believe Scotia is about 14.5%, 15% and 16% for CIBC. This is a fairly small percentage-wise, 11 to 15 or 16. But if you see rate cuts in the latter half of 2023 or even in 2024, 2025, that low mortgage renewal rate over the next year could end up being pretty considerable in terms of just Canadians ending up locking in at a much lower rate.

Credit card balances, they've grown 20% on a year over year basis, 5% from last quarter. When we look to two years ago, much like every other bank, they're up quite a bit, 41%. And the CET ratio sits at 12.5, which is pretty normal. It's down quite a bit on a year over year basis just because of the Bank of the West acquisition. And for a lot of people who didn't know, BMO actually had to do a share offering. I believe it was like late 2022 or maybe even early 2023, just to shore up at CET1 because of that acquisition. So I don't think there was anything really surprising in BMO's quarter. It was kind of all of the banks kind of posted meh quarters, but I think that was

kind of expected. Yeah. No, I think so. I quarters, but I think that was kind of expected. Yeah, no, I think so. I mean, obviously, I think now it's pretty well known that the banks are definitely entering a more uncertain period. I'm not sure if, you know, I don't think you own some banks. I've traditionally been a bit bearish on banks in general, but I mean, I know a lot of people own them. And if you're interested in banks, I mean, the next year will probably create some pretty good opportunities to start some bank positions or add to some existing positions. Because obviously, I think what we're seeing with the economy, I think the bank's results are probably going to suffer at

least for the next couple of quarters. But I'm going to say I would put the decent chance that they're going to suffer for the next year. I mean, they'll still be profitable. I'm sure most of them will still pay their dividend and won't reduce it. I mean, I'd be very surprised if they reduce it, because that would be a last resort kind of thing. But I think it may create some good opportunities for people looking to start positioning banks. Yeah, if you look to like the financial crisis and the COVID crash, I mean, both of those like exiting both of those situations, like Canadian banks provided like outstanding returns, which is never really a guarantee moving forward but no they've they've showed that you know after technically after a few rough years they generally tend to post some pretty big rebounds whether or not i mean i again i think rate cuts will come into

play huge there as to whether or not they do and a little yeah like just to get some relief on you know for a lot of canadians and i mean to get some relief on you know for a lot of canadians and i mean i think even rate cuts you'll see a lot of recoveries elsewhere i mean you know spending wise capital markets wise things like that but i mean out of the out of all the banks i think cibc was probably the most surprising quarter to me because they've they've had a rough go over the last while yeah yeah i think for me think for me, I mean, originally it was CIBC and sorry, originally it was Scotiabank because I was like, wow, like these provision for credit losses are something else.

But then when the other bank earnings came out and I did that calculation to see what they currently had on the books just compared to their loan book. And of course, it's not like meant to be a perfect calculation or anything like that. It's just meant for creating context. I'm like, oh, OK, that makes sense. I mean, they're clearly they clearly need to be ramping up their PCL because they were a bit behind. So that's probably the one. The last one here, I guess, would be Royal Bank. I'll go quickly because we are running a little bit long. But Royal Bank, their net income was four point.1 billion, which was up 7% compared to the previous quarter. And Royal Bank, for those not aware, is actually very well diversified.

It's a very large bank, but it has some pretty major other units aside from their traditional kind of savings and loan banking. aside from their traditional kind of savings and loan banking. So personal banking income was down 2% versus the previous quarter, primarily due to higher provisions for credit losses. Wealth management net income was down 68%, primarily due here, they said, to impairment losses. Insurance net income increased 27% because of favorable actuarial assumptions, which that's, you know, for people

not familiar with that, that's just basically on, you know, assumptions for capital. I would assume that they have to set aside for insurance claims. So there's probably better returns on those that actuarial assumptions provided them. That would be my guess. I didn't go into that much detail. Capital markets net income increased 4% mainly due to lower taxes. They set aside an additional $720 million for PCL. Net interest margin was pretty similar with previous quarter at 1.51%. But again, goes to what you were saying earlier about these interest margins will vary from bank to bank, just depending on how the loans are structures and the different kind of clients that they have. Same thing for credit card balances. They've gone up significantly. Well, not as much as some of the other banks, but they've gone up quite a bit. And the CTA1 ratio was a 40 basis point to 14.5. And there is

something I found interesting about their operations is that they, of all their net income, they get roughly 53% from personal and commercial banking, 26% from capital markets, 16% from wealth management and 5% from insurance. And from a geography perspective, 71% is Canada, 15% US, and the rest is international. So it is a pretty well diversified bank, definitely more diversified than some of the other Canadian banks. I wanted to add that piece of contact for a Royal Bank as well. Yeah, I think their exposure to 40 different countries, Royal Bank as well. Yeah, I think their exposure to 40 different countries, I think that was one of the things during the pandemic that actually caused them to do so well, just because not everywhere in the world was shutting down at the same time. So I think the fact that it had all of

that international exposure actually caused it to do a bit better just because of, you know, just the geographical, like Canada was, you know, in maximum lockdown, same with the United States, whereas some international countries weren't locked down at all, right? So it definitely is the widest bank, not as much Canadian exposure. I mean, it probably has the most Canadian exposure in terms of just raw dollar value of its loan book, but it's also quite a bit larger than any of the other ones too. So it's RBC, if I were to pick one bank personally, it's my largest big bank position. It is RBC primarily just because of that, just the broad exposure that it does have. No, I think it's if I were to hold a bank,

it would probably be that one or a national bank. Those are the two that I'd probably be leaning towards. But I think that's a wrap up for the bank earnings. Definitely an interesting quarter. Now I will have to wait three months to know what comes out for Q1. It'll be very interesting. I mean, I've never been as interested in Canadian banks that I am right now because there's just so much moving parts. There's so much I can tell you us about how it's impact,

like what's happening with the Canadian economy too. There's other businesses that we can look at, but the banks are definitely a good pulse for the economy. So I think we'll leave it at that. For those who haven't done so already, make sure you follow us on Twitter.

We're both there. So I'm at fiat underscore iceberg. Dan, what's your Twitter or X handle again? I ask you every time. I'll know. Stocktrades underscore CA. Yeah. And you can also check out stocktrades.ca where there are stocks, ETF, like recommendations and reviews.

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No, that's about it. Thanks for listening, everybody. Yeah, thanks for listening, everyone. And we'll see you next Thursday. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.