The Canadian Investor - Nvidia’s Blowout Quarter and Canadian Banks

Episode Date: June 1, 2023

In this episode, we talk about the amazing quarter from Nvidia and what it means for AI related stocks going forward. We then look at Canadian bank earnings and how they are faring in the aftermath of the US regional banking crisis. Symbols of stocks discussed: CWB.TO, TD.TO, RY.TO, NVDA, EQIX, MSFT, TSM, GOOG 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 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  TCI meetup registration 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

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I encourage you not to look up the definition of that word because I don't know what it means. Sir, we have great topics here on the pod. We are talking about the thing that everyone else is quickly talking about, which is AI. And the NVIDIA report, it officially hit $1 trillion in market cap. We're going to talk about our thoughts and our hot takes around the business moving forward here. And then you're going to round it out with the Canadian banks. Some of them reported earnings recently. But my question for you that I want to know and the question that many of the listeners want to know, what was your first job? So my first job would have been with Pizza pizza pizza so i worked at oh yeah yeah of the

briar so the curling briar in ottawa it was at the civic center that's now like kind of lands down where the red blacks play for the cfl and the ottawa 67s play so for march break they had the briar going on and there was a little pizza pizza booth. One of my buddies, his dad was like a regional director. So we worked there. I worked the cash. I mean, it was definitely like one of the hardest like physical jobs I had because it was, I think, 12 hours a day. And you were on your feet the whole day.

You had like 15 minutes to eat and then you'd get back at it. I remember like I was kind of gassed after that. And then I guess I did a good job because they asked me to work at one of their call centers that took orders because I was bilingual. So I could take calls in French and English. That's a good call. $8 an hour, which was high at the time. Oh, baby.

I was like $1 and a half higher than minimum wage i think so i was pretty pretty pumped yeah oh wow so you've been killing it since day one dude some of those jobs you have to stand yeah for like 12 hours dude it's so taxing it really is my first job was a. And yeah, you're standing for like eight straight hours, not 12 hours, but bagging people's groceries. That's, it doesn't get any more first job grind than bagging groceries. But I did get promoted to cashier the next year, which was, oh baby, oh baby. All right, let's get into it. NVIDIA reported as of today, they did hit that exclusive trillionaire club that is just a few companies that live there. And NVIDIA is now one of of them this historic run up on the stock you know sure the earnings were impressive but we're gonna we're gonna break that down and then think about is this this is fact or fiction is this hype or bubble uh we'll have all our hot takes right here it's actually just out of the club now it's like 990 so it's losers but yeah i mean nvidia has been on a tear of course and we

had talked about how it looked pretty expensive as a stock and i think that was true and it's still true right now even despite them having a blowout earnings uh call and you know numbers were extremely good the stock was up 25 percent and gained a whopping 184 billion market cap in one day last week and it continued doing well this week I think mostly because of Jensen Huang who actually I think did a two-hour presentation and unveiled a bunch of different thing which got even people more excited about nvidia haven't had the chance to look at that but i heard kind of the big themes i think there was some robotics and different things uh that would be kind of ai related had you had a chance to to listen to it

or just kind of see the big themes i saw a clip on twitter somewhere of him showing the applications for video games in his keynote. Because their history is deep rooted in gaming, of course, with these GPUs. And I've always had a vision. Remember those games like Skyrim and like large open world games yeah oh yeah skyrim oblivion okay so i always had a vision for those games as a kid that is basically playing out exactly what jensen demoed which is when you talk to the characters in those games like the the npcs you have like three or four things that you can interact with them and that was game changing that it's not just like a direct sequence it's like you can pick four

things and they'll have defined response depending on which way you want to steer the conversation and he's saying now you can just converse in natural language though any way you wish and those players will be trained with backstories and respond virtual art artificial like intelligence instead of just defined scripts and this is like a vision i always had for video games and to see it kind of happening right now is pretty cool there was lots of cool stuff that he highlighted i think yeah i bet you uh mark zuckerberg was salivating with his metaverse in the background like oh this is going to be great for our products in the metaverse totally and i think that that's that's what gets people kind of excited is it's like it becomes more and more real uh and an important part of that is language and and conversing with

not real beings via human language is like kind of groundbreaking there so yeah i'm sure i'm sure you like that one too yeah definitely and now just do a quick overview of the earnings just kind of the the main points and then we'll have a more thorough discussion on you know where we think ai stocks are going some of the impacts other businesses that are being you know just pulled by this as well so for nvidia revenues came in at 7.2 billion which was about 10 percent more than the market was expecting. Data center revenues were up 18% to 4.2 billion versus the last quarter. They said that GPU demand was driven by cloud vendors and large consumer internet companies. The demand was driven by AI which requires significantly more

computing power than we're used to and the traditional internet in air quotes I would say and GPU is definitely well positioned to do that compared to the more traditional CPU. Gaming revenues was down 38% year over year but was up 22% versus last quarter. They generated 2.6 billion in free cash flow for the quarter which is more than double of what they did last year and it was a 53 percent quarter over quarter the guidance is what really got the markets excited so they are expecting sales of 11 billion this upcoming quarter so then the one they're currently in which is more than 50 percent higher than what the market was expecting. And that's really, I think, one of the big parts that drove the stock up 25%. But I think the broader conversation about AI in general and getting people excited about it, obviously, it's everywhere, right?

If you look, I mean, even non-financial websites are talking about it. So I think it's a whole bunch of different things, but I'll let you give your take and then I'll probably chime in as you give your perspective too. Yeah, that guidance blowout was like what kind of really set the stock to the stratosphere, if you know what I mean. Yeah. To the stratosphere, if you know what I mean. Yeah. And rightfully so, but I think that I'm going to do my best here.

I have some prepared stuff. I'm going to do my best to have a kind of balanced take on this business here. And importantly, the stock, because this is an investing podcast. So look, NVIDIA is certainly the real deal. They deserve a lot of credit here. And I have quite a lot of thoughts. So prepare, so just jump in as you wish. But I could take this a variety of ways. And I'll try to touch on them kind of sequentially here, which is the demand for GPUs in their data center business is going to be explosive. And they've guided that up to 11 billion from what, like seven, the market was expecting.

So that's a huge beat. And the word on the street is that these AI companies are lining up out the door to get their hands on these advanced, most advanced chips, aka GPUs. And as a result, NVIDIA has immense pricing power. And to kind of see their pivot, you mentioned the gaming business there. No one cares anymore, because this is now a B2B infrastructure play on the next era of computing. And so artificial intelligence generally requires very intense compute and they need GPUs over CPUs because GPUs can perform thousands of operations at once. This is largely due to it being operated with way more cores than a CPU. And fundamentally, the easy explanation is it operates in parallel versus

in series. So the same way electric circuits do. And rather than having to complete one operation of compute, and then move to the next operation of compute, like a traditional CPU chip, GPUs break the tasks into thousands of smaller tasks and operate them all at once in parallel. And they can compute thousands of operations simultaneously. And so this drives a fundamental advantage in this new computing age, while CPUs are still going to be very important, machine learning and deep learning in particular, like the two categories of artificial intelligence, become extremely important to the masses in terms of mainstream adoption. The demand for these chips is clearly off the page,

if you will. And so this is what has, in my mind, defined 2023. When we look back in 30 years, and we'll say, you know, what was this time about in human history? And it'll be the first time widespread adoption of artificial intelligence starts to creep into daily life, both professionally and personally. Is that, would you agree? I mean, ChatGPT came out in November of last year, but like, it wasn't until everyone had, you know, had heard of it until probably maybe February. Yeah. Yeah, I would.

I would think so. I think that makes sense. Yeah. And so there are, you know, distinct inflection points in technology and it's an adoption in both businesses and people using it in their personal life. And this is kind of no doubt where we are here in the boom. So NVIDIA and Jensen Huang didn't actually invent GPUs, but they brought the first commercially viable available GPU to market with the GeForce 256 and largely ever since. And that was in 1999 i believe yeah there there were a couple

other competitors at the time so i remember because i used to game in my early teens and i bought some of those gpus because back then right if you had like just a basic stand like not an integrated oh actually i think most computers didn't have integrated gpus so it was either you know your processor was running the graphics or you had a separate gpu and at the time there was ati which i i'm not sure if it was a canadian company or not but they got eventually bought by amd and then there was also 3d effects that had Voodoo these video cards that were quite popular and I think they went into bankruptcy and I'm pretty sure Nvidia actually bought the assets interesting okay so yeah there were other they didn't invent they sometimes get coined with

up like first inventing it but it's not case. It's more so just the adoption of- They could have, yeah, but it was definitely the G-Force was one of the big ones at the time. It was like three players and now it's more down to two, I would say, yeah. With AMD, would you say? Yeah. Yeah. 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 largely ever since they've been kind of the leaders, since the GeForce 256 came out in 99. And I'll take my technologist hat off now and put my investor hat on, which is probably more relevant here. And the day we recorded last week before their earnings report. Our timing was good. earnings report. Our timing was good. We said the stock was frothy and very expensive and everything needs to go perfect for it to work. And then it proceeded to bounce 25% up after hours. And my stance remains exactly the same because I know that this is everything that I just stated is knowledge prior to their earnings report, that there's going to be a huge category winner here in artificial

intelligence. But it's trading at 80 times next year's EBITDA. That's next year's it's well over a hundred, uh, on this year's. And so the business is projected to grow immensely over the next few years. And it probably will, especially on that data center segment. Uh, we can expect that to happen, but my two main concerns here are one, this industry has distinct bottlenecks in foundry capacity in meeting demand. There's a reason there's a line out the door to get these GPUs today because they can't make them fast enough. And my concern here is today that that is kind of outside of NVIDIA's circle of control. They're saying on, they said on the call that they're going to be able to meet all the demand in second half 2023. So I'll give them the benefit of the

doubt. Like I don't really see them lying about that. Of course, they're closer to this than me, but that goes without saying. But there are two critical businesses among many that sit here in their value chain, ASML and TSMC that we talk about all the time. ASML is the lithography required to build the foundry capacity that Taiwan Semiconductor actually makes all of NVIDIA's chips today. They are the ones that actually manufacture NVIDIA's GPUs. Not to mention there's other players in here like Equinix who are more in demand for GPU shelf space. These are real estate businesses that sell space, power, and interconnectivity. And there's a lot of demand for space and power for these GPUs. So where I'm going with this is that there's businesses that are clear beneficiaries from this over the next era of computing that are trading at more reasonable multiples that are not ticker NVDA.

Yeah, yeah, exactly. And I mean, I don't have a ton of pure exposure to AI, so I don't own an NVIDIA. Maybe I kind of own it through some of my index funds, but I don't own it outright. And that's how I get most of my exposure is I have a pretty decent allocation to Equinix. I have ASML too. And one thing that I'm looking at, probably more ASML that I'm kind of keeping an eye on. Well, you own Microsoft and ASML.

Well, yeah, yeah. Microsoft, Google as well. They're smaller positions for me uh but one thing i'm kind of looking at especially asml i'm thinking you know if it gets real frothy i'm not against i know i invest long term but having learned my lessons from 2021 and things getting really out of hand um if valuations just become all out of whack, I'm not against trimming a position or something like that. Because at the end of the day, I think time and time again, we've seen it, whether it was 2021, whether it was 1999, 2000 with the tech boom. When there's

a lot of hype like that, it's not a matter if, it's a matter of when valuations do come down. That's right. Number two is NVIDIA is a chip designer and they deserve the respect in being the de facto game in town for the most advanced GPU that the market clearly wants. That goes without saying. Absolutely hats off, you know, just pure dominance at the moment. And the designer business fundamentally is quite good. Very high returns on incremental capital, excellent margins, CapEx not required, like the foundry capacity and ASMLs have those huge CapEx. And not to mention that ridiculously complex supply chains to deal with.

But it's also the Achilles heel versus the the agnostic model versus the integrated foundry and designer like intel right oh yeah that's yeah yeah i mean who knows maybe it'll change and 15 20 years ago uh you could have made an argument that it was not the case uh maybe more 20 years ago but now clearly you know the agnostics is the best way to do it intel is betting that it's not and that's what they're betting to turn around on i guess i'll see i do hope they succeed but you can bet with what's happening right now with nvidia i think amd which has seen its you know its share increase quite a bit since nvidia has released uh you know its blowout quarter kind of being lifted like most of these kind of ai plays i mean i'm not super familiar with amd but i'm gonna go on a limb and say that management is

probably gonna be directing a lot of resources to their GPU design business because AMD is the other big player but they're a bit behind Nvidia in terms of the highest end chips so they compete actually I think from what I saw they complete quite well on the gaming side but you know to be able to compete on the AI side I think they're a bit behind so I would not be surprised if they start pouring a lot of capital to try and get some market share away from nvidia so yeah and i think that's one thing that we're gonna see is you know you have companies with very cheap very deep pockets that are chip designers they may not be gpu chip designers but they certainly have the resources, I think, to give NVIDIA a run for

their money. And I'm thinking about, you know, Apple, Meta here, like the large companies that, you know, we're familiar with the big tech, they're all designing their own chips now. Yeah, that's right. And that is where I'm going with this. Okay. Yeah, yeah, yeah. That's where I'm going with this okay yeah yeah yeah that's where i'm going with this is that today there's not a lot of competition uh right now but as we saw with apple get into the chip designer arena and eat intel's lunch microsoft announcing that they're taking this very seriously on their earnings call they're working on on something. Meta saying, hey, from our opinion, we already have the best large language model. We have the best supercomputer in the world.

And it's likely going to have designs up against NVIDIA as well in the GPU space. And if there's one thing that I've learned over the last two years is the design agnostic model came out as a winner and a place that I want to situate myself personally. But look, this thing may continue to rip higher and higher and it is in full momentum territory. So momentum is a hell of a drug. I don't expect this business to trade on real fundamentals for a while for here now out, but I'm definitely kicking myself as well for saying on another podcast and this podcast months ago that NVIDIA is a clear-cut winner in terms of winning market shares, the infrastructure, what the GPUs and the chips, the demand for chips that is going to be required

here, and then watch it rise like 500 million market cap since uh but such is life you can't own all of them so i hope that this is somewhat of a balanced approach on clearly what is the hottest stock in the market today yeah and you know what's funny is i actually was debating when you know buffett came out and said they sold all their tSMC position. I actually thought the stock was looking pretty attractive and was, I think, the mid-80s in terms of price. Now it's over $100, and the PE and price of free cash flow was pretty attractive. What I find interesting is people are completely forgetting about TSMC here in terms of there's still some geopolitical risk, which, you know, TSMC

produces 90% of the world's most advanced chip and they produce them, most of them in Taiwan. So it's like people are completely forgetting about the whole China-US situation with NVIDIA. It's like almost NVIDIA is completely immune immune to that but it's a big risk for tsmc which is i don't know it's that's why i think it's like it's like when people don't say that the uh this isn't a risk for apple it's like you know it's like when people bid up apple but then they'll say oh there's huge political geopolitical risks with tai Semiconductor. It's like, who's making the... There's a clear bottleneck here that's involved and it all goes through Taiwan and China for a business like Apple. And there just seems to be some businesses that get a pass that has no logic. And this is the exact same thing where it's like, there sure is geopolitical

concerns. And that risk is always going to play into the premium that Taiwan Semiconductor trades at for until that's not a concern anymore. But last time I checked, they manufacture every single NVIDIA chip. So, you know, you can't have one without the other. Yeah. And, you know, obviously the Americans are trying to onshore some of that production. So they're not as reliant and as, you know, exposed. The Arizona plant. Yeah, exactly.

Arizona. So there's also, I think, the Intel Brookfield partnership as well. So there's definitely, you know, some capital being there. But again, this we won't see fully the extent of those investment until probably two, three years from now. So there's still some near term risk. And even if you look at friend shoring, right. if you look at friend shoring right so friend shoring is similar to unshoring it's just aligning you know making sure that certain products are available with countries that you align with geopolitically so you know friend shoring for the u.s could be you know western

europe canada mexico these type ensuring that these countries also have the capacity so the u.s can depend on them but that's gonna it's not gonna happen overnight because these are complex you know factories to build very complex and asml is as a big backlog and other players i check they can only make so many ultraviolet fogger v machines every year exactly so i think i don't know i just find it a bit funny. And I think that's probably where the mania is the most obvious, is people are almost like disregarding this whole risk with NVIDIA while still pricing it in for TSMC. Which, anyways, that's probably the best example right there.

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. host. So ASML is their last four quarters of EUV units that they made. They made 12 in June 22 quarter, 12 in September 22 quarter, 13 in December, and 17, their highest ever, in April 23 quarter of EUV units shipped. so this is the ultraviolet lithography machines required to make the most advanced uh what like i guess nine or seven nanometer yeah i think it's lower i think now i mean i i may be wrong but i think they're they they can go as low as three now three nanometer holy shit shit. Yeah. So we're beating it. We've said this so many times. There's a clear select businesses that sit in the bottleneck

of this industry and ASML is certainly one of them. So it's weird how the market has just decided physics, you know, the laws of supply chains don't apply here. I don't really know how it's all going to play out, but I think that you're betting on perfection. It's priced like absolute perfection here, and I don't know how that works out for people. Yeah, and don't get us wrong. Clearly, NVIDIA will be a big benefactor, but being a big benefactor and having a huge tailwind versus the expectations priced into the stock, that's really what you have to look at. And I think for people interested in the name, I would just say, look, try to build a mental framework in terms of various outcomes that could happen with that investment and NVIDIA and probability for each. And, you know, it's not perfect. You kind of do your research, you try to assign probabilities, and then you come out with an input

and a potential value based on all of these probability. and i'm going to go on a limb and say that it's probably not as high as it is right now if you're being reasonable in your assumptions yeah i think that is a very fair take uh absolutely and look i mean i spent the first half of my segment praising their technological advancements and being the de facto player, commending Jensen, all the innovation and the products they've built, how they have really carved out the capabilities for us to advance artificial intelligence come from NVIDIA's work.

So they've been a key player in the R&D here. Technologist hat off, investor hat on. How do I make money? I don't see it. Perfectly. Well said. Now, I guess we'll go on to the thrilling world of banking. Yeah.

Boo. Valuations are much better in the banking world. So just think of that. It's not trading as extremely expensive. So, you know, I usually when, you know, earnings come out for Canadian banks, I don't want to go through all of the earnings. So I usually pick two or three. Last time I didn't pick the two biggest. So this time I will look at TD Bank and Royal Bank. And I even chose a smaller regional bank that some people, especially if you're living in the east, you may never have heard of or you're not very familiar with. So

that one is Canadian Western Bank. So I'll just go and overview, just say my thoughts on what I think is going on here as a whole. And then obviously feel free to chime in, Brayden. So first one, TD Bank. So net income was down 12% to $3.35 billion year over year, but more than doubled versus last quarter. However, it's important to keep in mind the numbers might seem good versus last quarter, but they had a one-time $1.6 billion settlement in Q1. So clearly, you know, that took a big chunk out of their earnings last quarter. Net income for personal and Canadian banking was down 6% versus the previous quarter. And I'm trying to do for the most part sequential, so just versus the previous quarter compared to year over year, because last year, if we remember,

it was quite different for banks. Interest rates were just a fraction of what they are right now. So I don't think it's necessarily the best idea to compare year over year, quarter over quarter actually makes more sense in my opinion. Net income for US retail was down 11%. Net income for wealth management was up a 2%. Net income for wholesale banking was down 50%. So the last two here, wealth management, wholesale banking, they're actually, you know, a smaller proportion of the revenue. The big ones for TD, it's obviously Canadian banking, personal and business, and US retail as well. And for those not aware, wholesale banking services are banking services that are done with large clients like banks, financial institution,

governments, large corporation. So not you and I, Brayden, we're not yet considered in the wholesale banking discussion. Not yet, sir. Not yet. One day, man. One day. One day with Stratosphere, you'll get preferential rates. get preferential rates i i bank with uh rbc for stratosphere and um i pay five dollars a month in fees so they don't they don't i would even show up on their radar like i am invisible to them one day one day but uh now where it gets really interesting here is loan loss provisions came in high again for this quarter at 600 million their ct1 capital ratio which is an important ratio for banks was 15.3 percent and

actually improved year over year but was slightly down quarter over quarter their net interest margin another thing that people should really looked at was down three basis points to 1.76%. And it looked like it peaked at 1.81%. So it's been trending down the last two quarter, not by a lot. The last thing that I forgot to check and I wish I had was just the status of their deposits. But just going on what I've seen the headlines, I don't think there's too much of a change here but I can always touch back on that in a future episode so overall I mean they decided to not increase their dividend although they had done so at the beginning of the year it's probably a smart move the loan loss provision I was reading an article where it may seem like a lot, but in terms of total

loans for Canadian banks, the amount of money they're putting aside for loan loss provisions are actually not very high. So whether I don't know exactly what that means, are they being too, you know, optimistic or is still, you know, is it the right amount? I'm not quite sure, optimistic or is still you know is it the right amount i'm not quite sure but i think it's just an interesting kind of nuance here to to put now royal bank they increased their quarterly dividend by two percent to a dollar thirty five per share net income was down 14 percent year over year but was up 13 percent versus uh the previous quarter personal and and commercial banking net income decreased 10% versus last quarter. Wealth management net income was down 13%. Insurance net income decreased 6%. And capital markets net income decreased 23%. This was all versus the previous quarter, of course. And CET1 ratio was 13.7%, up 100 basis point from last

quarter. Again, same thing as TD, they put 600 million for loan loss provisions, and net interest margins was up five basis point to 1.53% compared to last quarter. And that's up seven basis point if we compare to last year so a small i mean for both td and royal bank i would say you know it was an okay quarter clearly they're putting more money towards loan loss provisions and for those who are not aware it's basically a bank putting aside money uh in case there's people with or people or businesses who they have loans with that are not going to be paying in the future. So I expect, and from what I've read, and especially with rising rates, you'll probably keep seeing that from Canadian banks in quarters to come. It'll just be interesting to keep an eye on the amounts if they continue increasing quarter over quarter. Any comments for the two big Canadian

banks? I don't have any thoughts particularly on TD or RBC beyond what you've outlined here. My general observation from reading bank earnings reports since what I'd say this quarter and maybe the previous quarter, I think I'd say this one and last one was it's like watching businesses that have been operating a certain way for so long in an environment that has been that way for more than a decade have to reinvent themselves. So not reinvent themselves, but learn how to operate in a different environment and watching that come out both in the commentary and in the numbers. Because since 08, basically you had this like super low decreasing all the way to basically zero in 2020 interest rate environment to a regime shift very quickly, the Fed acting unilateral, and them just like their first two, three quarters of, this is us figuring it out. That's how I've read these earnings reports so far. And I actually think that these ones have been pretty solid compared to the regional banks in the US. I mean, seems quite solid, but I don't have any thoughts beyond that. Yeah, no, I think that's a good point. And I think we have to probably wait and see.

point. And, you know, I think we have to probably wait and see. That's how I'm seeing things the next couple of years, because usually, you know, financial or banking crisis, they don't happen all at once. You know, I'm listening to Navigating Big Debt Cycles right now by Ray Dalio. And one of the things when he goes through these big debt crises is that, you know, they can take a year or two for all the dominoes to fall, sometimes even a bit more time. Even if we're looking back at 2008, 2009, it happened over, I think it was almost a year and a half, two year span for things to kind of be resolved. But, you know, took definitely some more time. And I know some people are thinking oh banks are looking pretty attractive here and I would say just be careful they may be but for the most part if you're looking at p ratio price to book you're looking at the you know trailing 12 months and

you know especially if we're seeing a slowdown earnings will probably come down if they're putting more and more money for loan loss provisions. Chances are that going forward, earnings will keep going down. So that P ratio is not super reflective of what's actually going to happen. And the lasting year for big banks is that rising interest rate. There's a common perception that it's good for banks because it increases your interest margin. perception that it's good for banks because it increases your interest margin. And I would say that can be true. But it's also I think right now what they're seeing, especially in the US,

and it seems like maybe it's starting to translate in Canada, is the big banks have traditionally not increased the interest that they give on deposits as quickly as, you know as the interest that they charge on loans. So that would expand their interest margins logically. But now more and more, I think customers are starting to look for other places to get interest on their money because they're saying, OK, well, if I'm going to pay my mortgage at five and a half, six percent, I might as well get some money on the money that I have in cash at the bank. And I think customers are starting to shop around, which will probably force the big banks to offer better rates and therefore-

Pressure. Decrease their net interest margin. Yeah, there's competition for deposits. Exactly. And not to mention, when you have a rising rate environment, look at RBC's business lines. Look how big of a portion of their net income is from wealth management and capital markets, which are down both sequentially 13% and 23% respectively. and 23% respectively. So my tip here is that a lot of new Canadian investors, retail investors, have seen how well the banks have performed historically, which is very legit. They've seen the kind of yield on costs that they can generate from growing that dividend over time.

And they've seen their parents get extremely wealthy from bank stocks and real estate. And that's all fine. But we're talking about some of the most complex businesses in the world from an accounting perspective, the different segments, how it relates to the macro economy. And I see people blindly owning them. You have to know what you own. And these are some of, especially these big ones that have not just personal banking, but it's also commercial, wealth management, insurance, capital markets, and whatever long, long list that might be in there. and whatever long, long list that might be in there, these are very complex, large enterprises that are not easily understood by most people, including me. So that's one thing to think about. Yeah, and look, we don't have any reason to believe

that Canadian banks are any sort of trouble or there's any contagion. Yeah, don't don't even we're not saying i i'm actually not bearish on these companies at all like at all really yeah i mean i you but i think you are probably am more yeah i probably am more because i think there is just there's just things we still haven't seen i think that that may break in the financial markets because of those rapid interest rate increases. And from the sound of it, central banks, at least Canada and US, could potentially keep

raising rates because they're not seeing inflation come down as quickly as they want. And the one thing, you know, people might say, well, OK, well, TD and Royal Bank, they're, you know, they're G-SIB banks. They're too big to fail. And, you know, you can make a case that all major Canadian banks are too big to fail, which, you know, I certainly agree. Obviously, if there was something, the government would intervene. But what happens when the government intervenes, shareholders will often be wiped out. So just something to keep in mind. I'm not saying again that this is a likely scenario, whatnot, but just be aware that, you know, I think, you know, it's probably relatively

safe, but to think that they're not without risk, which unfortunately I think a lot of Canadians think that the Canadian banks are without risk, that's simply not true. It's just not true. We have a global financial system and it is interconnected. We may not be seeing the impacts of the regional banks in Canada right now. And I know people are pointing out to the financial crisis 2008, 2009. It's not the same thing. And it's not because it didn't happen then that it won't happen now. So I'm trying to you know make sure you're aware of some potential risk doesn't mean that they'll happen but you're aware of them you know i think that that's a fair call out you know you gotta know what you own and exactly a lot of people own banks without deeply understanding them because they're super complicated. There's no other way to describe it. It's not as easy to understand as Nike selling more shoes this year than last year means business equals good. It's more complicated than that.

Yeah, exactly. And now I'll finish off quickly with Canadian Western Bank, ticker cwb.to and obviously listed in Toronto. So they're primarily located in the West. They do have an online option that's available for Ontario. And I think they have some operations in Ontario, but it's primarily, I think, Alberta and British Columbia here. So they increased their dividend by 3%. Net income was 70 million, which was down 25% versus last quarter and down 6% year over year. Their CT1 ratio was 20 basis point higher to 9.3%. They had provision for credit losses or same thing as loan loss provisions here of 10

million, which is slightly less than last year. And net interest margin of 2.26%, which has steadily gone down since Q1 of 2022. And a big difference between Canadian Western Bank and TD and Royal Bank, for example, is their primary a traditional bank so they you know you deposit your money businesses deposit their money they loan out money for different different type of you know products but they don't really they don't have a big wealth management business or anything like that so it's more of a traditional bank. But what is clear here is, I mean, they're also feeling the pinch in terms of provision for credit losses or loan loss provision. So just an

interesting one. I think the dividend is pretty, pretty high for this one as well. Thanks for listening to today's show. It's been a all-over-the-map conversation about the sexy AI to the traditional Canadian banks. Despite their challenges with banks globally, Canadian banks have traditionally got the job done. But I think you raised some good points. We appreciate you listening to the show. If you haven't subscribed to the podcast on your podcast player, it's called Follow on Spotify, and it's called Subscribe? Yeah, on Apple Podcasts.

Yeah, subscribe question mark on Apple Podcasts. And it's really convenient because I'm a Spotify user personally. And the podcast that I'm not subscribed to, I end up not listening to them when I'm in a jam. Like, you know, I'm getting in the car and I have to load up the ones I'm subscribed to because they're all in one place. And we'll be slotted right in there if you're subscribed. So then you always get the show when you're in a pinch. When you need to put something on quick, the pod will be there for you. We are

here Mondays and Thursdays. We thank you very much. If you want to support the show, you can go to join TCI.com where you see our portfolio disclosures and this podcast on video you can see two guys that are built for podcasting the radio on video yeah yeah and uh you know some lululemon do you have a lulu that's right um if everyone on the podcast want to see my boxers then then yes. You have a hidden piece. Not up top right now. This is Uniqlo. You know Uniqlo?

Nope. You don't? No, I don't. It's good for basics. Okay. It's Japanese, right? Uniqlo. It's Japanese.

Japanese casual wear. Oh, it's publicly traded. Oh, wow. Ooh, stock on our radar. Oh, wait, maybe it's not. Oh, no, it is. It trades under Fast Retailing Co. Okay, see, it's fast fashion, clearly. It's a public Japanese multinational holding. It's a public Japanese multinational holding. Its primary subsidiary is Uniqlo. Okay, so a Japanese H&M.

That's basically what it is. Yes, it's a Japanese H&M. That's the perfect description of it, except the quality is still fast fashion, but it's not wear it three times, and it looks like it's been worn 500 times yeah it's mediumly fast fashion it's like me as a sprinter you know like i'm i'm pretty fast because i was like a runner but i'm rusty so i'm like, moderately fast fashion is Uniqlo. Dude, this stock's been a monster.

Yeah, I don't think H&M's publicly traded. I know it's Swedish. Yeah, it is, isn't it? They're everywhere, is it? H&M's publicly traded. At one point, it was one of the largest European stocks. Shout out to probably our five Swedish listeners.

It is publicly traded. H&M is publicly traded. Okay, okay. It peaked in 2015, and it's been a rough stock to own since. But Uniqlo has clearly taken, here, I'm putting it on the screen here. It has clearly taken over its position.

Uniqlo stock is up like 2000% since 08. You heard it for your first. It trades under ticker 9983 on the Tokyo Stock Exchange. There you go. Stocks on a radar thrown in there, presented by our friends at EQ Bank. It is Fast Retailing Co. LTD, the owner of Uniqlo.

We'll see you in a few days. Take care, guys. Bye-bye. The Canadian Investor Podcast should not be taken Fast Retailing Co., LTD, the owner of Uniclub. We'll see you in a few days. Take care, guys. Bye-bye.