The Canadian Investor - Have We Seen the Last Rate Hike from the BoC?

Episode Date: December 14, 2023

In this episode, Simon and Dan discuss the Bank of Canada deciding to keep interest rates at 5%, spotify layoffs, Google’s AI mishap and earnings from smaller Canadian banks. Symbols of stocks discussed: EQB.TO, CWB.TO, SPOT, LB.TO, LULU 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 Kent with one of our Thursday episodes. We'll be talking about earnings and news for those who are new to the show. Before we get started, we will talk about some news, but non-investing news the talk that made headlines pretty much everywhere in

Canada in the U.S. the Blue Jays were in the running for signing Shohei Hotani for those who are not well versed in baseball he's basically a unicorn I mean you hear that term a lot where special players well he's a very special player because typically in baseball when you start as a kid and I played a lot of competitive baseball the best players will tend to be really good pitchers and hitter but then as you progress and those that really make it all the ways to the big leagues you narrow your craft down so you either become a really good hitter and you play in the field and you stop pitching or the other way around you only focus on pitching and then

you don't hit anymore and the reason why Otani is so special is that he does both at a very high level he's essentially a top pitcher but also a top hitter all in one and he's kind of he's famous worldwide very popular in Japan his home country and the Jays, along with the LA Dodgers, were really in the running for signing him. Unfortunately, the Blue Jays and Rodgers did not manage to sign him. They ended up signing, I think it was a 10-year, 700 million contract. Yeah, I can't remember if it was 10 or 12 years, but nonetheless, it was $700 million dollars a lot of money and

he's going to stay in California he was previously with the LA Angels were you following Twitter I mean people were did you see the thing about people were looking at private flights from LA to Toronto and there was one that they thought Shoi otani was on before i had actually got out that he was signing with the dodgers and it turned out to be that the flight was actually robert um anyways the guy from the guy from dragons then yeah yeah and his family that were coming from to toronto that's how great they had like the air traffic controllers say like welcome or something didn't i watch something like that. It was ridiculous. Yeah, it was pretty crazy.

But from an investing perspective, I mean, from Rogers, it would have been such a like he's such a special player that just the marketing that would have been able to do around him and the jersey sales and all the marketing around like all their offerings, but not only in Canadaada but in japan in the u.s around the world most people were saying that even at six seven hundred million dollars it would actually be a bargain and people were comparing that to their contract with the nhl that apparently is not doing quite well with first sports net no i mean like just in terms of just the overall salaries like when you look at it

just shows you like how much bigger baseball is compared to the nhl like you look at him who gets a 70 million dollar a year contract and then you look at a guy like mcdavid or mckinnon who are like just elite athletes in the nhl and they're making 12 and a half i think 12 and a half 12.6 so not even close like that's that's a crazy amount of money but i mean i think i have a bunch i don't follow baseball much at all like if i were to watch it it would probably be the blue jays but i have a lot of blue jays uh fans of my family so they were going pretty crazy over this for a while and it was just like somebody somebody messed up calling that early i

can't even remember the reporter but he came out with like an apology but yeah that uh it was pretty interesting on twitter for sure yeah and i mean i and apparently shohei otani is a very private person so it was very doing all of this in secrecy and i honestly admire that because yeah um you see a lot of people that want to be famous and stuff like that and I don't know about you Dan before like I know we're a little bit off track here but I value my privacy and I see those paparazzis for celebrity sell with famous people sorry I'm having trouble with the words right now I do not envy them no matter how rich they are like to me the privacy part is worth way more than what amount of money they can make i don't know if you're kind of that same thing or

absolutely you don't have to be yeah yeah you're like that too so anyways congrats to shoey i think you'll uh you'll do pretty well 70 million a year and best of luck in LA. Yeah, hopefully the Jays can win next year despite that. But now we'll get started. First news item, the Bank of Canada announced that it was maintaining rates at 5%. So Tiff McLean didn't have a press conference, but there are some key points that they mentioned in the press release that I'll go over. First, they said the global economy continues to slow and they expect the U.S. economy to slow in the coming months. The U.S. dollar as weakened against other currency. They didn't state this explicitly, but this would put a downward pressure on inflation if the U.S. dollar

weakens against the Canadian dollar, because a lot, you know, people might think, oh, yeah, of course, the trade we do with U.S. and Canada, that makes sense for things we import. But it's more than that because the international trades, because the U.S. is the dollar currency. If Canada, you know, a company does business with a company in Africa, for example, they will probably not want Canadian dollars. So they'll probably end up doing business in US dollars. So that's something. It does impact a lot of imports, not just the ones coming from the US.

They also mentioned higher rates are clearly restraining the consumption in Canada. I would say, thank you, Captain Obvious. Yeah. But, you know, that's what they said in their press release. Energy prices are lower than expected and contributing to lower inflation. And I think that was a good point because I don't think anyone would have seen the price of oil at the current level right now. I think it's in the, what, the low 70s, high 60s, I would say.

It's definitely dipped quite a bit. And even, like, even gas prices here are crazy. Like, I think you can fill up at Costco here today for under $1.10. Oh, wow. Okay. Yeah, it's pretty cheap. Yeah, we need premiums, so maybe it's $1.30, but it's not too bad. Canada's economic growth has stalled with GDP declining 1.1% in Q3 on an annualized basis. The labor market continues to ease with job

creation being slower than labor force growth and vacancies trending down. For a little bit of context here, I wanted to provide that that was not from their press release, but job vacancies are actually down 20 percent since peaking in Q2 of 2022. That's compared to Q2 of 2023, which is the latest data that we have. For additional context, the latest job vacancy rate was 4.6% and it peaked at 5.9% in the same respective quarters. In 2019, the job vacancy rate was in the low 3%. So we're still a ways off, but we're definitely starting to trend there. For those not familiar, the job vacancy rate is the number of vacancies

compared to all available jobs. So vacant plus occupied jobs. They also mentioned that shelter price inflation has increased with higher rents and increased mortgage costs for homeowners. They are now more sign, according to them, that monetary policy is moderating spending and relieving price pressure, which is why they decided to keep the rate at 5%. But they definitely snuck in one last sentence in here that they could hike rates if it is needed.

They always have to do that. It's kind of funny. rates if it is needed they always have to do that it's kind of funny like basically 95 of the whole press release is like oh well you know it's working and this is restraining and blah blah blah like all these points that are supporting the same argument and then the last phrase but we could we could jack again yeah rates we could jack them up if we see the need to so i thought that was interesting and i just wanted to provide a little bit more context with the job vacancy there. But I mean, that was widely expected.

I think the market was almost pricing that 100% that they would keep rates flat or stable. They would be unchanged. So nothing too surprising there. Anything else you wanted to add, Dan? No, I mean, I think it would look pretty crazy if they kept raising when gdp declined one 1.1 where it was 1.1 on an annualized basis but still any decline really oh yeah well i've been saying it's essentially since since the

summer when we've started canadian retailers and canadian companies like towards the end of Q2, they started announcing or saying that, wow, we saw like quite a shift in spending from consumers. For me, that was a clear sign that this was coming. The banks, for whatever reason, the central banks have a hard time looking at earnings from companies that are really good bellwether for the economy. So they kind of wait and wait, but I think that was pretty obvious at the time, and we're starting to see it. I'm not a macro analyst or anything like that, but I listen to what companies that have a pulse on the economy, on oftentimes certain sectors of the economy were saying,

and they were all saying the same thing, and now we're starting to see it in the more aggregate data. Well, the one interesting thing is the mention of, you know, they expect the U.S. economy to slow. But the U.S. economy, I mean, I think unemployment was, what, 3.7 percent. And they blew away, like, the jobs report the last while here. So, I mean, I don't know. It doesn't look like the U.S. economy is slowing anytime soon and i think when we talk about uh lululemon even into when you compare that to like a smaller cap here in terms of aritzia like who still has you know 50 exposure to canada i think

you can tell the canadian economy is struggling much more in terms of the shelter price i don't know if you've seen this but they had the hotels in tor Toronto were offering better prices than rent. So you could go get a month at a hotel and it would be cheaper than the cost of rent. And I mean, that's interesting. Your room is cleaned, your bed's made every day. Yeah, the situation there is getting pretty crazy. Yeah. And I mean, I think we're going to see the US economy slow down.

I think you're starting to hear from companies when you listen on earnings call, like what Snyder of Eurodollar University. And he had a video with MacroAlf, who's pretty well known on Twitter. And they were looking, they're very good at macro, they really know what they're talking about. And the long story short here is they were saying that a lot of people think the US may do a soft landing. But I think a lot of people tend to miss the point where, you know, it's not the economy never goes into a gradual linear path. It's much more unpredictable than that. So we may look like it's a soft landing right now, but typically things will happen where it looks like it's leveling off and then a little bit more down the line, you have a sharp drop off. And they did a very lengthy video really well explained and essentially saying that,

you know, a recession is most likely coming. The fact that it still hasn't happened yet. A lot of people are saying that because it hasn't happened, it won't happen. And that's a dangerous conclusion to make. So we'll have to see whether they're right or not. But it was really interesting and encourage people to look that up if they're interested in this kind of stuff. 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. That is questtrade.com. on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then

once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the app store and I'll see you there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. So we'll move on to our next point here. You want to, this is a good one. I actually haven't

had the chance to look at the video, so I'm going to be listening in well. So you want to talk to us about what Google or good old Alphabet did? Yeah, so they essentially came out with a kind of a highlight on their AI platform, which is Gemini. It's kind of a competition to chat GPT. So initially, the video was pretty mind blowing, like they would have, so they would have a person in the video, he would draw a picture of a duck, and ai would respond and say like oh that's a duck or they would put a piece of paper under a cup and play the game you know where you have three cups and you rotate it and you can do it as fast as you can and the thing would still be able to tell where the ball of paper was and another thing they did some guy drew like two cars going down a hill on sticky notes and he changed the slope on each of the hills

and it the ai could tell like which one would travel faster so like it went off i think google stock was up like five six percent after this video came out but then you know they it kind of circulated that it was edited by google and Google was actually feeding the AI text prompts to get it to say what it what it wanted it to say. And then like it kind of had to play like it had it had to backtrack. And Google said, you know, this was never meant to be a full demo on on what it is doing. Instead, it was supposed to be an illustrative demo on what it could do once it was ready. So, I mean, I don't know. It's coming off like i have a pretty big position in google and even to me this like comes off as a little desperate like right now they're way behind microsoft in terms of overall ai and

this kind of seems to me like they're trying to play catch up but like i don't know it looks really bad on google yeah didn't they like mess up when they released baird too didn't they like show like they asked him a question gave the wrong answer a question and gave the wrong answer and that was their video so i don't know like i mean i used to own google i don't own it because i just sold it to buy an index fund and it's obviously heavily weighed in the index fund but yeah i don't know they they they sound like they need a better pr team or a comms team because my god they really are good at you know messing that up creating some hype and then yeah i don't know how how do you not think you're gonna get caught doing that i mean even if you never got

caught even if that video was like you you know, everybody thought it was authentic, like when it actually comes out and it can't do these things, like you look even worse. I mean, I think they will catch up to Microsoft eventually, whether it happens now or a year down the line. That depends. I mean, Google, like on a valuation basis, Google is much cheaper than Microsoft. Mostly it's for a few things. I mean, Microsoft is so subscription based, whereas Google is ad based, which is fairly cyclical. And just Microsoft is so far ahead in terms of Google, in terms of AI. And it's such a larger portion of the company and growing much faster. But this wasn't a good look for Alphabet at all. No, I think they'll be okay. But no, I agree with you. Definitely was not a good look. We'll move on here to the news that Spotify is laying off 17% of its global workforce.

They cited the need to be profitable. They also parted ways with their CFO in the process. And some people were surprised. But to me, and I don't know about you, to me, that's not a surprise at all. I mean, as much as I love the product or the services, Spotify has not shown that it's actually that good of a business, to be honest. Like, it's not been profitable since it's been public in 2018. They have generated some free cash flow, but again, it's been, a lot of it's been offset by share dilution. So the free cash flow per share again, a lot of it's been offset by share dilution. So the free cash flow per share has not been great either. The share count, like I said, growing annually at a rate of 1.61%. And since going public, Spotify is up 22% while the S&P 500 is up 91%. So were you

surprised by this? I really wasn't. What's your thought on this? Well, the one thing that was interesting to me in terms of the layoffs, and I actually looked up a piece this morning. So Spotify has, I think they said 9,500 employees and about 12 billion in revenue. And then you look at a company like Netflix has 32 billion, 33 billion in revenue and has like 12,000 employees. So I'm not really like, I'm not sure what Spotify needs like this large of an employee base to do. I mean, it seems like it's a pretty simple business, but it's difficult to understand

like how they can't become profitable. I mean, they still have negative operating margins, I think. And I think they've tried to, they've kind of said their guidance is to grow gross margins up to 35 or 40%, but they just can't get it above 25%. And it just seems to me like maybe the artists kind of have this company in a bit of a stranglehold and they can kind of demand whatever they want in terms of royalties, which could get quite difficult for a company like Spotify. I'm not exactly sure.

I mean, the podcast segment of it has to be pretty profitable, I would think, but I'm not sure. Yeah, and for those on Join TCI, I'm showing the revenues and then the net income from Spotify. It goes back to pre-going public, but still, I mean, you see revenues are increasing nicely, but it's not translating into profits. And that's the biggest takeaway here. And we've talked about this before. And I mean, when interest rates are super low, there might be a demand for these kind

of businesses that are growing revenues quickly, but not profitable. But I think now with higher rates, there is more and more demand on seeing businesses being profitable. But I think now with higher rates, there is more and more demand on seeing businesses being profitable. And I think they're probably trying to achieve that. We'll see if they have, if it affects the service or whatnot, but it's probably, you know, unfortunately for the people impacted,

it's probably a step in the right direction because yeah, it just hasn't panned out. And I know Braden's not here. He used to own it, sold it, because because again he thought that they could unlock those margins and it just has not happened yeah i think they've promised it for a few years now but they just can't can't seem to do it and i mean they have a lot of member growth which is kind of one of those like fancier numbers but really doesn't mean anything if you can't turn it into profitability and i think i think something like half of their members are free like i pay for it mostly because i forget i have it i don't really use it too too much i mean

a lot of the podcasts that i listen to are available for free on youtube so i can listen to it there i don't listen to much music on there but um yeah yeah i don't know for me i i've had it for a long time we have like the family subscription for my wife and i so it's relatively cheap for both of us she uses it more for music i use it more for podcasts but like you said i could probably get most of the podcasts like one that i couldn't would be the joe rogan experience um i don't listen to all the episodes but I will listen to some every now and then if I like the topic or while the person being interviewed. But we'll see. It'll be interesting a year from now if we really see, you know, them turning a profit or not. So I guess on that, we'll move on to more of the earnings section here.

So this one, really interesting. You referenced that a little bit. So Lululemon released their Q3 2023 earnings and it was quite good. Actually interesting. I don't know if you noticed that they released it at night. I can't remember the, so it was after market

and then the stock was down like 5% after market after the earnings release. Then was only down a couple percentage. Well, I mean, it was only down maybe 1% or 2%. And then the next day, the stock ended up having quite a good day. So that's always interesting. And I think it's a good reminder for people that after markets, it can be pretty wonky because there's some limited volume there too.

But I don't know if you see. Yeah. Did you see that or no? I didn't notice that, no. But a lot of the times too is you can get something said in the conference call that ends up sending the stock price up or down. It all depends. I mean, I would never focus on pre-market or aftermarket numbers, especially like on Canadian stocks, it gets particularly thin. Like if you look up like u.s traded or u.s listed canadian tickers sometimes they'll show big moves in the pre-market or

aftermarket after earnings but then you'll look at the volume and there's like 600 shares traded so i think it's pretty important to uh understand that it's like razor thin volume most of the time on canadian stocks at least yeah no and that's a really good point. Now, Lululemon, their net revenue was up. Yeah, I think I got that wrong. So I put 49%. I was looking at that and I was like, that is massive. Yeah, that's not the right amount. Yeah, exactly. So I doubled, definitely put the wrong number there. So it was up, if you want to look that up, I think it was up in the 17, 18% range. was up in the 17 18 percent range i did a typo so i do i do apologize for that it was up 12 percent in north america and 49 internationally so i think i just by accident put the the same number twice 15 15 okay i was around there yeah so apologies for thatparable sales were up 13%. Comparable store sales were up 9% and direct to consumers were up to 18%. Direct to consumer as a percentage of all sales represented 41% and that was actually flat compared to last year.

up 110 basis point to 57%. Operating margins were down 370 basis point to 15.3%. However, that was impacted by a one time write off of the mirror acquisition. I think now it's fully written off because they did write it off as well in the previous quarter. So I think they should be good now. But if you kind of remove this from the operating margin so that write-off it's actually only down the operating margin by 30 basis points so pretty stable there so it's kind of nice to see in this current environment and to continue on that mirror theme the company will no longer put um offer the product and they will also no longer produce content for its lululemon mirror studios and they've entered in a partnership with peloton for digital fitness content where lululemon will be their primary athletic apparel partner so definitely makes a whole lot of sense that was

actually announced a while back for the peloton partnership and to me it makes all the sense in the world i mean peloton still has i think a decent brand uh even though the the stock has been down quite a bit well yeah a lot something like 90 if not 95 since the peak but i think it's still pretty widely used and we'll probably have a decentick, especially for the winter months for people who use it. And they opened 14 new stores in the quarter. Inventories seem to be stabilizing with a decrease of 4% over a year. They repurchased 210 million worth of stock during the quarter and they slightly increased their guidance for 2023 fiscal year as a whole. And when I say slightly, when I did the calculation, it was like 0.4% increase compared to what they were previously guiding. So I'm like, yeah, it's a headline boost. But overall for Lululemon, I think just a really solid quarter,

especially as retailers or some retailers are starting to see shift in consumer spending. Their consumers seem to be pretty strong. And I was actually watching a video and it was on Yahoo Finance and the interviewer. I mean, they clearly don't know too much about the fashion space because the interviewer was asking this analyst like, oh you know Lululemon seems to be doing quite well in the aspirational space compared to an LVMH or a company like that I'm like they're not in the same category at all like LVMH you're looking at like high luxury things where Lululemon I mean it's more expensive than a lot of clothes you can get but apparently they did a lot of surveys and most people that buy lululemon actually do it because they like the quality of the clothes

and are are happy to pay a little bit of a premium for that and i wear a lot of lululemon and that's the main reason like i will pay a bit more for it because they last four five six seven years so i'm ready to pay more for a hoodie or something else because i know it'll last and that they're comfortable they wash well and you know when you make the calculation you probably end up saving money because you don't have to buy a new shirt every like year and a half two years because it's you know it's no longer black it's like a washed off gray or whatever it is. Right. Yeah. It's not like the American Eagle shirts where the neck is all worn out and like the

shirts fading away after like not even a year, but yeah, they have like, they have a crazy strong brand and like a crazy high quality product. I actually didn't know about this mirror thing until this morning, but that that's pretty bad like terrible acquisition they bought that at absolute peak covid like i remember like when they acquired i remember looking back like in 2020 because the gyms had all shut down so we were looking at buying gym equipment for our basement and the price of gym equipment was absolutely absurd like just if you could get yeah your hands on it yeah yeah if you could even find it like facebook marketplace people wanted we're looking at like 50 bucks

for a 25 pound dumbbell like it was absolutely insane so i mean they bought a startup in the midst of a lockdown hype i guess like is it completely written off like there's yeah i think it's pretty if it's not it's very close um because they wrote off a much larger chunk i think it may be one or two quarters ago i think it was earlier this year i'm just going on memory so i think it's pretty close to being fully written off i would think so especially if they're going out of the business pretty much completely at this point. So, I mean, they can definitely afford it. It's a company, like, obviously you don't like to see that, but, you know, it's in the rear view mirror at this point,

no pun intended. And, you know, I think going forward, they have a really solid business, really strong growth internationally. And I think, you know, I've said it before, and I'm going to repeat myself, but I think they're in another category now where in terms of fashion, they've really shown that they can stand the test of time. There's not many companies that are in that category because you see fashion companies that will do well, but then it's, you know, in a few years from there, they're not really.

Yeah, they just fizzle out. They just fizzle out. They just fizzle out. Very few end up in that, you know, in that Lululemon or even Nike type of sphere where they can stand the test of time. And I'm going to go ahead and say, like, obviously Nike has been around way longer, but I think Lululemon is starting to enter that level now and they're still growing quickly. Yeah. Oh yeah, for sure. is starting to enter that level now. And they're still growing quickly. Yeah. Oh yeah, for sure. 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. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time.

And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me. Search me up.

Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in App Store, and I'll see you there. So now enough with fashion, we will move on to some more banks in case people weren't satisfied with our recent episode on bank earnings. We'll actually look at some smaller Canadian banks on this. So I think it'll be interesting just to see the differences between the big Canadian banks or the big six. I think we've talked about all of them except National Bank, but we'll be looking

at Canadian Western Bank, Equitable Bank, which is obviously EQ Bank, one of our sponsors. And then we'll also be looking at the tire fire that is Laurentian Bank. So do you want to get us started with EQ Bank or Equitable Bank Earnings? Yeah, so they pretty much continue to be one of the best performing banks in the country. Revenue and earnings both beat expectations by quite a bit. It was a bit of a weird quarter for the company because they're changing their fiscal year end. So it used to be in January, and now they're pulling it back to october so this fourth quarter is actually four months worth of earnings and it's like they won't

have a q3 2023 it's it's a bit weird okay i'm not exactly sure they're gonna be aligning with the big banks yeah i think yeah i think that's what they're yeah they just kind of want to get in line yeah no that makes i mean probably makes sense just uh to be able to compare them to uh to those banks obviously completely different model but yeah so it yeah it's just like this is four months worth of earnings and then i think they compare it to four months like when you're looking at year over year numbers they're comparing it to four months worth of earnings last year. I'm not exactly sure on that, but I'm pretty sure that's what they did. Book value per share is $70.33, which is 12% growth. And they have assets under management

of $111 billion now, which is 8% growth. And they finally cracked the 400,000 customer mark, which is actually pretty crazy because I'm not a hundred percent sure on this, but I'm pretty sure in 2019, they had like 90,000 customers. So they're seeing some insane customer growth, 30% year over year. And even myself, I swapped equitable at the start of the year. So me and my wife went in to get a joint account at a bank that I bank with here in Alberta. And it was such a pain to actually get it set up. I started looking at other banks and I found equitable and I had a joint account set up in like 10 minutes. So instead of filing like all these documents and all this paperwork and visiting the branch, I just had to

send my wife an email and she just clicked the button. And then we had a joint account. So I moved that, my checking, and pretty much I just run off of a credit card and then pay the credit card off with my equitable bank. And even the EQ card's pretty good, especially for ATM withdrawals. They'll refund it anywhere in Canada. They'll refund the ATM. So I think for this reason, there's a large influx of customers who are earning pretty much nothing at traditional banks and they're kind of

gravitating towards equitable. For the most part, I think due to these savings and checkings accounts, like even me, I'm noticing a $200 a year swing in my banking fees. So I used to pay like 13 bucks a month and now I'm, I'm earning like probably 70, 80 bucks a year just having money sitting there. Yeah. Unless you kept what, $5,000 in the account at all time, then they would Yeah. Then they would waive the fees. That's usually, that's usually what they do. Yeah. I mean, as soon as like we, we bank our bank our business banks with a major institution and as soon as Equitable gets business accounts, I'm out of there so fast.

It's not even going to be fun. Like we still get charged for e-transfers with our business banking. Yeah, same for us. Yeah, yeah. I mean, it's so painful dealing with the big banks. Yeah. It just, they really want to make you want to switch as soon as there is a better product available. Yeah. Yeah, but I'm with them too from a personal basis did the same thing with my wife for a joint account

super easy um same thing with the eq bank card um it's really easy to use you can use it pretty much haven't had any issues to use it so and you still collect i think two and a half or three percent whatever it is right now yeah kind of forgot but i think it's three yeah it's uh so yeah two and a half percent and then i think if you set up direct deposit they'll bump it to three that's right and then you get half a percent cash back yeah and i think that's that shows that if you have a good product people will switch but i guess i'm sure the big banks will complain to the regulators uh to osfi yeah exactly the superintendent of financial institution for those uh not familiar with the acronym and i mean i'm i don't know i i i think people can know by now i'm not a big fan of the big six so um yeah go on

sorry i went on a little bit of a rant there. I'm not exactly sure what they could do with Equitable, but I don't know. Who knows? The big banks, they tend to always win. It does have some competition from the deposit end, from places like Wealthsimple, but it does have a much larger suite of products. But the one thing people need to distinguish is that the bank is very deposit heavy, And that's what's causing the vast majority of the growth. So their actual personal lending only grew 1%. So it pretty much highlights the difficulty in terms of Canadians and the lending, but in terms of their like accounts, so their savings accounts, things like that, and the GICs, they typically offer much higher GIC rates than the big banks. So a lot of this is what is driving the growth. And that's why you see huge growth in deposits and not necessarily

in lending. No, I think that's a really good point. And I mean, it's definitely a different model than the big banks. And for those who haven't noticed yet, Dan and I are still a bit sick. Dan's coughing and I'm just talking from my nose so um at least uh yeah it's a it's a little different experience but anything else to add on eq bang before i move on to uh canadian western bank no the only thing i would say is that it does expect loans to slow down so it's guiding to eight to twelve percent growth however it does expect customers to still grow at a 30 to 40 percent clip, which is pretty much probably due to the attractiveness of its checking accounts, savings accounts, GICs, and not necessarily the overall lending. So again, it's pretty deposit heavy. I think that's important for a lot of people to understand.

for a lot of people to understand. And you could potentially see a slowdown in the future, you know, if the big banks start to offer more or maybe if rates come down and the GICs aren't quite as attractive, it might see a slowdown in this regard. But this is still probably my favorite bank in the country for sure. No, no, I think that's a good breakdown.

And I think in the loans not growing as quickly, I think that's normal. So for i think in the loan loans not growing as quickly i think that's that's normal so for people not fully um you know that haven't looked at financial institution i researched them in the last couple weeks a little bit because we did a lot of bank earnings and looking back at past recessions i mean that's pretty typical from banks as generals their loan books will tend to go down during periods of during recession periods. So they tighten the credit, they tighten their requirements. And it's pretty consistent, the loan books actually goes down. So obviously, QBank is still

a bank that's growing. So I'm not surprised to see that the growth is going to be a bit smaller there, because that's in line with what we typically see from banks in these kind of environments where for them they're obviously more established so it's not the same kind of thing but it's uh it usually goes from you know growing their loan book to a declining loan book in general um so i just wanted to mention that now we'll move on to a bank that dan forgot existed yet um the majority of it or a big chunk of its business is in Alberta where Dan is from so that's uh that's pretty funny so this is Canadian Western Bank they mostly have their branches like I said out west and Ontario is the other place so

or their business should I say in terms of the total loans that they do. So 32% is BC, 30% Alberta, 25% Ontario. And then you have like essentially peanuts in Saskatchewan, Manitoba, Quebec, and then even less in the Atlantic region. They are growing relatively quickly though in Ontario with a 11% compound annual growth rate of loans in the last five years. And then to get a better sense of how small Canadian Western Bank is compared to the big six banks, I did a small comparison in terms of assets and assets are just a good measure. You know, it's not, you know, like it's not necessarily like catchall, but I think it's a good overall measure to just measure the side of the bank because it includes the loans, which are usually a big part of it. And the loans, obviously, banks generate interest on those. So TD and Royal Bank are the two largest Canadian banks.

Royal Bank is slightly larger in terms of assets, but not by much. I will just say that they have $2 trillion both in assets. For some context here, JP Morgan, the largest bank in the world, has $4 trillion. So it just goes to show how large TD and Royal Bank are, and they are both G-SIB banks with our G, globally systematically important banks. They're the only two Canadian banks that fall in that category. BMO has $1.3 trillion in assets. I think I didn't write them, but you have also CIBC and Bank of Nova Scotia that are around a trillion, maybe a bit less, just around there. So slightly smaller on an asset basis. And then you have the smallest of the big six, which is National Bank at $423 billion in assets. And then you have Canadian Western Bank at $42 billion. So it's 10 times smaller than the smallest of the big six. So and about 50, 45, 50 times smaller than the biggest

Canadian banks. So just gives people context on how small these banks are. I think it's fair to call them regional banks right then. Pretty much, yeah. And I think Canadian Western is pretty much BC and Alberta, for the most part. What is it? 65%, 62% of their overall business. Yeah, There is quite a few of them in Alberta. I was saying I don't notice them anywhere, but they do exist. Like I said, it's a bank I forgot about, really. Yeah, and they have a few branches, I think, in southern Ontario, not in the Ottawa region.

But I did have a while back, have like their online version of a bank which is called motive financial I got them years ago because they offered pretty decent interest rates but then we switch over to EQ bank but there's the you the user interface is pretty crappy I'll be honest compared to EQ and. And it's not, it didn't have two factor authentication for the longest time. So we ended up switching to EQ bank. But a couple more things here, net income was down 7% to 77 million. Provision for credit losses was 10 million during and which was definitely which was lower than the previous quarter. They said that the lower PCL was primarily because they recovered more on impaired loans than they had anticipated.

The net interest margins was 2.4%, which was the highest since Q3 of last year. Deposits were down 1% versus last quarter. It is something that I wanted to check out because it is a regional bank. Their total provision for credit losses, so PCL as a percentage of loan, is actually quite low. I forgot to write the percentage here, but it's much lower than the big banks. So I was kind of surprised to see that as something to keep an eye on, but it couldn't make sense because it's a smaller regional bank. Maybe they actually focus more on their underwriting and who they provide loans to. Therefore, they're more aware of the credit risk. And because of that, they don't have to put as much money aside. So that's something

I found pretty interesting. It's definitely lower than the big six, whether they ramp up those PCL in the next quarters, who knows. But I thought it was interesting to get that perspective. So it was definitely, apparently, I don't follow this bank all that much, but apparently it was a pretty decent quarter compared to what the markets were expecting. Yeah. And it has, I think it's raised its dividend for 26 or 27 straight years so i mean even during the financial crisis when a lot of the banks had to had to suspend raises not suspend the dividend but suspend the growth of the dividend uh canadian western still grew it i kind of wonder in terms of the provisions and this is like complete speculation i have no idea but maybe it's just

due to the fact that being alberta and bc based they might have a lot of oil and gas exposure maybe which i mean the oil and gas sector is doing pretty good right now so maybe that's why provisions are yeah no i i had a look and i don't think they have that much exposure oh really oil and gas sector yeah yeah i'm pretty sure i mean i'm going on memory but i remember just um being curious about that because i had the same thought process and i don't think they have that much exposure to it i think they have a little bit but i think that sector tends to um the large banks tend to be attracted i think rbc has a decent chunk and just because they've been getting a lot of flack in the news for uh yeah their exposure to uh to that sector yeah but no that's

still a good question but overall pretty good quarter and now we'll move on to laurentian bank and wrap it up because i know uh your throat is probably starting to hurt you so uh we'll wrap it up after laurentian bank yeah so laurentian has not had a good quarter in quite some time. So results, again, they missed on both top and bottom lines. So revenue, earnings, net interest margins, return on equity all saw a drop compared to fiscal 2022. And if you listened last week, most of the banks are reporting solid net interest margins, solid revenue. But the only thing is their earnings are declining due to provisions, whereas this bank is just seeing a decline across everything. So the company's total assets, deposits and loans all dipped on a year over year basis as well.

Not much, but they did drop and they had they had medium term targets of earnings growth of 7% to 10%, return on equity north of 10% and positive operating leverage. And it came absolutely nowhere close to any of these targets. I think earnings declined 13%, return on equity was, I believe, 7%. So I mean, it just hasn't really performed that well. And in terms of the dividend, because I know a lot of people look into the major institutions, the major banking institutions for their dividends. So they have a relatively sporadic payout ratio history. However, whenever things are normal, it seems to pay out 40 to 50% of its earnings. So right now they're sitting at 46% of trailing 12 month earnings. So with earnings

dropping by double digits this year, I don't really see this company being able to grow the dividend unless they wanted to maintain that higher payout ratio, which I mean, I don't really see that. It would have to have a pretty significant operational turnaround for me to ever consider looking at this. And I mean, I'm not the only one. The company pretty much put itself up for sale in the summer and nobody wanted it. It couldn't even sell it to a major institution or anything. And in terms of earnings, they haven't grown in 15 years. So they reported earnings per share of $3.80 in 2008, and they reported earnings per share of $3.89 to close out 2023. So almost 15 years of no earnings growth. Yeah, that's quite the accomplishment, to be honest. And I can't go as long as 15 years, but I think you can see for people watching on JoinTCI, I'm going back to 2014,

where it was $4.50 per share, and then you have $3.09 per share. It looks worse on a 10-year chart. Yeah. Yeah. So the worst, yeah, like, I mean, it's just not great. I mean, here are the total returns. It's given negative 12.4% over the last five years and then negative 9.32% over the last 10 years. Canadian Western Bank, so they're pretty,

I think they're good comps here for Canadian Western Bank, which is pretty similar in terms of asset size. I think Laurentian Bank is slightly bigger, but I think they're both regional banks. So Canadian Western Bank has outperformed over 10 years, at least. It's not done that great, but it's up 18% and total returns includes dividends. And then you have them over five years. Canadian Western Bank is up 47%, where you have down 12% again for Laurentian Bank. I mean, no matter how you look at it, whatever time period, I think it's pretty much Canadian Western Bank has performed better.

I'm not even obviously comparing it to the large Canadian banks that I think, for the most part, have done much better than Laurentian Bank. But I think it's, I mean, the proof is there, right? And they've had some scandals with some underwriting that with mortgages, I think it was in 2017 or 2018, where they sold off to a third party, but then they had to, I think, compensate them because they would the underwriting wasn't done properly. And they sold them with telling the other party that they had done certain criteria and it was actually not done i think that's what i in part started the whole downward trend in in the recent years and i think it's also a good lesson for people because it's been yielding in terms of percentage it's been quite a high yielder for a lot of the last five years and the total returns

i think show that this is just i mean it just shows the cautious like the how you know how cautious you have to be when there's high yield there's usually a reason why something is yielding very much more than its peers and you, you know, you have to figure out whether that reason is warranted or not. If you think the market is overreacting and that there is some upside left for that, of course, it could be a good investment. But I would say the market is more often right than wrong

when you're seeing some really high yield compared to a peer. And I think, you know, Laurentian Bank is basically exhibited hay over here. Yeah, it's one, well, it is the worst performing, I would call it not a major bank, but out of all the larger banks. I mean, it's pretty evident, like this should tell people that yield doesn't necessarily equal return. So I mean, if you bought this company 10 years ago, you would have had to reinvest all your dividends in order to lose 9.2% today. So you'd be down about 9.2%. You would have had to reinvest all your dividends as well. It's really struggled. And again, like, as you mentioned, the only thing that can really

cause yield to go up is either a big boost in the dividend or a fall in share price. And when you have something that's yielding that much more than everything else, like, clearly, you know, sometimes the market can be irrational, like you said, but a lot of the times it's just due to performance. Yeah, no, exactly. I mean, the gap between in the last five years, and I just picked Royal Bank just like that, but the gap between Royal Bank and Laurentian Bank in the last five years for total returns, it's 75%. So difference in returns, which is, it's just massive. I think it's just a good reminder for people just be careful with those high yield.

You know, I know one of our sponsors is Blossom and we'll be doing a mailbag episode with listener questions, some of them coming from Blossom, some from Twitter slash X and some from emails. And I know a lot of people on Blossom like to look at these like double digits yielding, you know, 15 percent and things like that. And unfortunately, most of these end up in the same story where the dividend distribution gets cut and then the underlying value of the asset or the stock just drops. And, you know, people end up losing a whole lot of money because they got hypnotized by that high yield and didn't look at the actual business, the payout ratio

to see if it was sustainable or not. And honestly, when you see something 15%, I would say probably nine times out of 10, you're going to end up losing money because the dividend is going to be cut. Yeah, a lot of those, I call them financially engineered funds that can somehow provide massive dividends, especially split corporations. I know DFN is one of them that hasn't, I don't think it's paid a distribution for four months now, three or four months, just because once the NAV gets under a specific limit, it just slashes the distribution. So yeah, I mean, it's just, it is kind of a cautionary tale.

And I mean, this isn't like Laurentian Bank is not a split corp or a high yielding covered call fund or anything. It's actually like an equity. That's just, the bank has just struggled so much over the years. And I mean, its yield has gone up only because its price has gone down and its price has gone down because it hasn't grown earnings in a decade and a half. So, I mean, pretty tough sledding for the smaller regional banks. Because like you said, even Canadian Western is 18% over

10 years. I mean, I think you probably would have been better off owning a fixed income fund in terms of total returns than even something like Canadian Western. So yeah, it's been pretty tough for these smaller regional banks, whereas the major Canadian institutions like the big six have kind of thrived, not so much recently, but over the last like post financial crisis up until the pandemic, they were pretty much the best performing large caps in Canada, I think. Yeah, yeah. And at least and right now, I think it's yielding a bit more than 7%. You can get 4.5% on Royal Bank. You can get 4.5%, I think, around there for National Bank as well. And those, I think, are pretty widely viewed as the best two.

Maybe you can add in TD with the U.S. exposure. I think some people like that as well. In terms of the big banks, maybe BMO as well. But you can get some pretty decent yield from those bigger banks that, you know, I think are much better shaped than Laurentian Bank or, you know, just buy some treasury bill ETF that'll be yielding five and a half percent instead of betting on a bank that, you know, is a value play, but has been a value play for a better part of a decade, if not more. So I think you have to just be careful, obviously, you know, is a value play, but has been a value play for a better part of a decade, if not more.

So I think you have to just be careful, obviously, you know, maybe people make an analysis and end up thinking that it's a great turnaround play. Maybe it'll pan out. But, you know, I think you just have to be careful and just a PSA on that. Obviously, it's not investment advice, but I think more often than not, it's definitely a cautionary tale for people. So I guess we'll wrap it up here. I think it's a good point to wrap it up. The last of the bank's earnings, I think I would say, we'll be having some special shows in the next couple of weeks for the holidays. So we're doing some early recordings because like everyone else, we do like to have some time off during the holidays, spend time with our families.

So we'll be doing a recording this week, our year in review, our bold predictions. Dan will be part of that. We'll be recording me, Brayden and Dan. So it should be fun. A little different format than in previous years. If you haven't given us a review on Spotify, please go ahead and do it if you're listening to us from there. Five star takes a second. Apple podcast, write us a nice little review, share with your fans and family during the holidays. If they're looking

for an investing show, that's always a great way for us to grow our audience. And you can follow us on Twitter at CDN underscore investing. I'm at Fiat underscore iceberg and you can follow us on Twitter at CDN underscore investing. I'm at Fiat underscore Iceberg and you can follow Dan at StockTrades underscore CA or at www.stocktrades.ca. Thanks for listening, everybody. It was fun. Yeah, thanks a lot, everyone.

And we'll see you soon. 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.