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3 things to look for as Canada’s big banks reveal quarterly results this week

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It’s the final quarterly earnings season for the big banks in 2018, when Canada’s biggest lenders tip their hands to investors about how much money they’re making and where.

The Bank of Nova Scotia kicked things off with its quarterly results on Tuesday, revealing it had earned $2.27 billion in the three-month period that closed at the end of October. The Royal Bank of Canada followed suit on Wednesday, posting a quarterly profit of $3.25 billion for the same period.

Toronto-Dominion Bank and CIBC’s numbers land this morning, followed by the Bank of Montreal to close out the quintet next Tuesday.

The big banks are considered to be canaries in Canada’s economic coal mine at the best of times, and this go-around is being watched even more closely than usual. Anyone trying to get a handle on which way the winds are blowing for Canada’s economy is well advised to pay attention to what the banks numbers show about three key things.

How much exposure do they have to oil?

After marching higher for much of the year, the oil market has slumped over the past two months, and Canadian oil has been hit harder than any other type of crude. The oil price that gets the most attention is the U.S. benchmark, known as West Texas Intermediate, which has lost one-third of its value since the start of October and is now trading for barely $50 US a barrel.

But far more important to Canada’s economy is the heavy blend of oilsands crude known as Western Canada Select (WCS). It’s down by a whopping 70 per cent since the start of last month, at one point trading hands for under $14 US a barrel — less than what it costs to make it.

“Oil producers highly exposed to Western Canada are at risk of experiencing a material degradation in cash flow,” credit rating agency DBRS Ltd. warned on Wednesday.

That’s bad news for the banks that lend them money, too, which is why the topic of oil exposure was top of mind for some analysts who monitor the banks.

Scotiabank revealed Tuesday it has $14.8 billion in loans to the energy sector, which is only about 2.6 per cent of all the loans on its books. Only about $1.2 billion of that has been loaned to companies exposed to WCS, which is why the bank’s executives were feeling confident about the future.

“We feel very proud of the names that we bank,” Dieter Jentsch, Scotiabank’s group head of global banking and markets, said on a call with analysts. “I’m confident this will withstand a period of unsettlement.”

Royal Bank reported it has a similar amount of loans — $1.3 billion — out to companies whose fortunes are linked to the price of Western Canada Select. While the vast majority of those loans are still considered investment grade, RBC’s chief risk officer Graeme Hepworth noted that much of the plunge in oil prices has only happened in the past few weeks, so the WCS battering won’t have fully shown up in the numbers ending in October. That’s why the bank anticipates some “incremental losses” tied to oil that may turn up in the current quarter, he said on a call with analysts. 

While neither Scotiabank nor RBC were flashing red warning signs with regards to their oil exposure, it should be eye-opening to see what the rest of the banks have to say on the topic.

How much do they have in Canada’s housing market?

Considering their outsized role in the mortgage market, the banks’ cumulative exposure to the Canadian housing market is likely to be gargantuan. But smart investors are paying close attention to whether that huge chunk is getting bigger or smaller. 

New mortgage “stress test” rules implemented at the start of this year, designed to make it harder to get a mortgage, seem to be having their desired effect. Scotiabank says its residential mortgage portfolio only grew by 0.4 per cent during the quarter. That’s a fraction of what it was during the frothy years of 2016 and 2017, and the bank said it expects its loan book will only increase in the mid-single digits next year, too.

While the numbers are slightly higher at RBC, they’re trending in the same direction, as its residential mortgage loan book only grew by 1.4 per cent during the quarter. The bank still has more than $265 billion worth of residential mortgages on its books, but similar to Scotia, “growth is slowing,” said Mario Mendonca, an analyst with TD Bank.

After rising for years, Scotiabank is starting to see much smaller growth in the number of mortgages it gives out every quarter (Joan Dymianiw/CBC)

Even if the golden mortgage goose isn’t laying as many eggs, the Big Five can probably still bank on higher mortgage rates to come for existing customers to squeeze out more profit. But if any of Canada’s other big banks are handing out fewer home loans, that’s something Canadian homeowners will want to keep an eye on.

Are they feeling confident enough to hike dividends?

Dividend cuts are basically unheard of at Canadian banks, as many investors buy and hold the stocks for years, just for the steady income they provide. So management at the banks tend to only ratchet those quarterly stipends higher if they’re confident they’ll be able to maintain the higher payouts.

If recent history is any indication, we might expect some hikes in the near future. Since the start of 2016, none of the big banks that Mendonca tracks has gone more than two consecutive quarters without a modest hike in their dividend. (The exception is TD, which prefers to hike its dividend at the start of a calendar year and keep it there for the next four quarters. If that holds true, expect a bump up soon, but not until the next quarter.)

This quarter, Scotiabank and RBC both kept their dividends where they were — but both were expected to stand pat because they hiked them last time. If the two-quarter trend holds true, BMO will announce a hike next week, since they haven’t hiked in six months.

All in all, Mendonca said “we expect the banks to continue to raise dividends at a healthy pace,” of about eight per cent, on average, this year and next.

If it happens, that’s a good sign for investors that the banks are feeling confident about the future, even as distant storm clouds begin to rumble over Canada’s housing market and the oilpatch.

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Real Estate

Couple from Toronto buys dream home in Mushaboom

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MUSHABOOM – A couple who lived and raised a family in downtown Toronto developed a five-year plan in 2015 to purchase their dream home.

In September they moved into the home – located on Malagash Island in Mushaboom on Nova Scotia’s stunning Eastern Shore – that met and exceeded their best dreams for their retirement.

The Camerons, Bruce and Tanya, decided in 2019 they would explore the Maritimes to see what real estate was available to become their potential retirement home. In the spring of 2020, during a global pandemic, the real estate boom hit their city, and they were hearing the same for Nova Scotia. Our province was their first-choice for attaining their desire for an entirely different lifestyle – away from the busyness of the city.

“We had $300,000 to $350,000 as a home value in mind to buy. Our semi-detached located off Danforth in Toronto was priced at $850,000. We wanted to come out ahead, so we would be secure in retirement,” Tanya said.

Their century-old home had prime location near the subway and GO Transit Line for a great 13-minute commute downtown.

“We enjoyed our community,” explains Bruce “… we had great neighbours, young children around and street parties – lots of social activity.”

Bruce says, “Our agent suggested a starting quote of $899,000. We did not do any renovations and only some staging. Fifty couples went through and we received four significant offers. Six days later we sold – with zero conditions – and a price of over a million dollars. We just requested a closing of September 2020 to get the kids off to school – which we got.”

The couple got more than they had anticipated.

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Rabobank Announces Leadership Changes in U.S., Canadian Offices

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NEW YORK, Dec. 16, 2020 /PRNewswire/ — Rabobank, the leading global food and agribusiness bank, has appointed two of its top executives, Tamira Treffers-Herrera and Robert Sinescu, to become Co-Heads of North American Client Coverage, positioning the Bank for future growth in the region.

Treffers-Herrera has also assumed the role of Vice Chairperson and Head of the Atlanta office, where she additionally oversees Rabobank Mexico, which is led by Eduardo Palacios. Sinescu is the Head of the Chicago office, and also oversees Rabobank Canada, led by Marc Drouin, who was recently appointed as Canada’s General Manager.

Treffers-Herrera and Sinescu report to David Bassett, Head of Wholesale Banking North America, the Bank’s corporate and investment banking business for the region based in New York.

“Both Tamira and Robert have a demonstrated history of strong leadership, operational excellence and passion for our clients,” Bassett said. “Their broad experience and deep sector expertise will be invaluable in delivering dynamic results for clients while accelerating our growth trajectory in North America.”

Each office will have an even greater focus on key Food & Agribusiness sectors and clients: The Chicago office will drive growth in sectors including Dairy, Farm Inputs and Grains & Oilseeds, which are also key areas of focus for the Canada office. The Atlanta office will focus heavily on sectors such as Animal Protein, Beverages, Sugar, and Supply Chains, which are important sectors in Mexico as well.

“Rabobank is fully committed to our clients throughout North America, and we believe our new sector-focused coverage will improve our ability to provide knowledge-based, value-added solutions that benefit our clients,” Bassett said.

Treffers-Herrera was most recently based in London as CEO of Rabobank’s European Region from 2016-2020, where she took the organization through Brexit. Prior to that, she worked in the Atlanta office from 2002-2016. During her tenure in Atlanta, Treffers-Herrera served as Global Sector Head – Consumer Food & Beverages, and prior to that she was a senior banker for a portfolio of large beverage and consumer foods clients. She holds a Bachelor of Arts degree from the University of Kentucky, a Master of Arts from the Patterson School of Diplomacy and International Commerce and has studied at The University of Chicago Booth School of Business and Harvard Business School.

Sinescu has been with Rabobank for over 21 years and was previously General Manager of Rabobank Canada, where he oversaw all operations, business development, commercial strategy and relationships with regulators. In addition, he continues to serve as CEO of Rabo Securities Canada Inc. Prior to Canada, he was a senior banker, Head of Corporate Banking, European Sector Head for Sugar, and a member of the Management Team for Rabobank France. He holds a Bachelor of Science in Business from the Bucharest School of Business, a Master of Business Administration & Management and a Master of Science in Banking and Corporate Finance from Sorbonne University in Paris, and has studied at Brown University.

Drouin has worked with Rabobank’s Canadian team for more than nine years and most recently served as a senior banker, Head of Rabobank Canada’s AgVendor Program and a member of Rabobank Canada’s Management Team. He brings extensive wholesale banking experience within the Dairy, G&O, CPG and Supply Chain sectors. Drouin holds a Bachelor of Arts degree from McGill University and a Master of Business Administration in International Finance, Marketing and Management from the Schulich School of Business at York University.

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Real Estate

Greybrook Realty Partners & Marlin Spring Brand Jointly Owned Asset Manager – Greyspring Apartments

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TORONTO, Dec. 14, 2020 (GLOBE NEWSWIRE) — Greybrook Realty Partners and Marlin Spring are pleased to announce the new branding of their jointly owned investment and asset management firm, Greyspring Apartments. With a portfolio of more than 2,000 units and CAD$375 million in assets under management, Greyspring Apartments is focused on the acquisition and repositioning of multi-family assets throughout Canada.

The new name and branding is an important step in Greyspring’s evolution as an independent operating business. Formed in 2018 by long standing-partners Marlin Spring and Greybrook Realty Partners, Greyspring Apartments was established with the goal of building a leading asset management firm with a robust portfolio of residential rental real estate assets in primary and secondary markets across Canada.

Greyspring’s talented team of real estate, asset management and finance professionals is overseen and guided by the Management Board, whose members include Benjamin Bakst, CEO, Marlin Spring; Elliot Kazarnovksy, CFO, Marlin Spring; Sasha Cucuz, CEO, Greybrook Securities Inc.; Peter Politis, CEO, Greybrook Realty Partners; Chris Salapoutis, President & COO, Greybrook Realty Partners; Ashi Mathur, President, Marlin Spring; and Karl Brady. In addition to his role on the Management Board, Karl Brady leads Greyspring Apartments as its President. 

“We are pleased to announce the official name and branding of a business we formed with our partners at Marlin Spring a few years ago,” said Peter Politis, CEO, Greybrook Realty Partners. “Greyspring has been diligently focused on the execution of strategic value-add programs across its portfolio that are improving the quality of housing for tenants and overall asset values. For Greybrook investors, expanding from our core business in real estate development to the value-add space through Greyspring, has allowed us to provide our clients with investment opportunities that diversify their real estate investment portfolios.”

“Marlin Spring and Greybrook have partnered on many residential real estate projects in recent years,” said Benjamin Bakst, CEO and Cofounder, Marlin Spring. “To a great extent, Greyspring illustrates our approach to partnerships. We believe in, and strive for, responsible growth through deepening our relationships with our trusted partners. With Greyspring, we’ve formalized our focus on providing better and more affordable living experiences for Canadians. This vision aligns with our mission to deliver exceptional real estate value to all our stakeholders with an uncompromising adherence to our core values.”

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