Monday, November 19, 2007

Collusion in Canada?

I have a friend who is a CFA. We had an interesting conversation that led me to do some digging. He asked a simple question when we were talking about ABCP and how good a deal some US financial stocks are compared to their Canadian peers: "have you noticed how the banks aren't announcing write downs on the same day?"

I hadn't. But what would it look like if they did?

Today, National Bank Financial, the smallest of the Big 6, announced the biggest write down yet: $575 million. It's stock went up. It holds $2.25 billion worth of worthless paper. I'm guessing the other mortgages haven't reset yet?

Anyway, here's what they all have written down thus far:

NBF: $575 million
CIBC: $463 million
RBC: $360 million
BMO: $275 million
BNS: $190 million
TD: nada

Total: $1.863 billion

Now that barely equals the RBC quarterly profit thanks to yours and mine bank fees, so no sweat right? Wrong. Why do they simultaneously announce profit taking, like, say, selling off Visa and Mastercard assets to mitigate their reported losses? Because investors don't like any losses. Period. They panic. And sell. And panic and sell and panic and sell. You get my meaning.

Things are only just starting to get ugly for our friends down south. Citi, the world's biggest bank is rated by some as a "sell" stock today.

Our banks meanwhile, thanks to an assumed lunch date between bigwigs several weeks ago, decided in their wisdom to announce write downs little-by-little; and that's exactly what they did too, the smallest losses were announced first to numb the greater pain announced today. The situation is not rosy here, no matter what any of the so-called economists would have you believe.

Dodge was in South Africa over the weekend, where he hinted a rate cut would be necessary. This will only fuel the inflation that is already much higher than reported in N.A. 2010 could easily prove to be as disastrous as 1981.

Of course, none of this has anything to do with real estate (sarcasm intended) so carry on people.


Anonymous said...

HHV, My understanding is that it is legal for banks to write off losses over a FIVE-YEAR period. WTF????

That means they will, with the federal govt's blessing, sugarcoat this issue and play the losses out over the maximum period.

I bet that banks will postpone the deadliest reports until the eleventh hour. 2012?

It would not surprise me if one (or more) of our Big Five goes belly-up.

But meanwhile, psychology feels unthreatened. Dat IS de plan. Ponzi scheme. Tears in heaven....

Anonymous said...

CDIC is the federal insurer, I think.

Canada Deposit Insurance Corp.

EACH bank account in one name (or joint) in any ONE bank is insured for up to $100k. It USED to be $60k, years ago. Mutual funds are NOT covered.

So, for example, you may have a savings acct, plus some term deposits done like this:

BMO, plus TD, plus Scotiabank, plus Royal, plus CIBC :

1)One joint savings or GIC acct in both spouses' names: $100k, PLUS

2) Each spouse has their own savings or GIC valued at $100k each

Therefore, all $300k is covered , per bank. If I'm wrong, someone please explain? Thanks

Anonymous said...

And what happens to insurance when everyone makes a claim? If one of the big banks goes it could get ugly!

Anonymous said...

I would imagine that, like the ratings insurance firms that Mish blogs about, CMHC wouldn't be able to cover all the calls for coverage that would go on in a major rout.

Anonymous said...

May be this is the reason why CMHC has been loosening their lending policy and why they have been raising their insurance fees. Could they be seeing a future problem and be making a grab for the cash?


roger said...

Credit crisis that walloped market to show face in bank earnings this week

The credit crisis that swept through the summer will continue to rattle Canada's big banks in the latest quarter as industry analysts predict that a darker outlook is looming for the coming year.

roger said...

Stock markets turn negative as investors weigh more woes from financial sector

HSBC Holdings said it is moving two of its structured investment vehicles onto its balance sheet and providing up to US$35 billion in funding to prevent a forced liquidation of what it called "high-quality assets."

"I think it will just continue to be an ever-changing list of worries and the specifics change day to day but the market is likely to stay nervous," said Kate Warne, Canadian market specialist at Edward Jones in St. Louis.

"While the Canadian financials have less exposure to the loans that are currently causing most of the trouble, the other thing is we're still seeing very tight credit markets and if that continues... the greater the likelihood that we see a more general economic slowdown."

roger said...

Debt committee nears ABCP solution

The restructuring of the moribund asset-backed commercial paper market is moving into a final, critical phase, as the investor committee seeking a solution for the frozen investments will decide next week on a plan to get holders as much of their money back as possible.

That plan will then have to go to the banks, such as Deutsche Bank AG that are key players because they provided loans and derivatives trades that are at the heart of the lock-up in the market, which froze in August when buyers fled amid concern about exposure to subprime mortgages. If the so-called dealer banks sign off, then a solution should be ready before the Dec. 14 expiry of a standstill agreement governing 21 affected ABCP issuing trusts.

"Next week will be an important one for investors, and the following two weeks are important for us to be talking to the dealer banks," said Dave Mowat, chief executive officer of ATB Financial and one of the members of the investor committee seeking a solution under the so-called Montreal Accord. "Like anything, there's going to be negotiations, and it isn't done until it's signed, sealed and delivered. But it feels to me like there's a pretty strong momentum around the table to work this out."

If they don't work this out soon there is going to be a real ABCP mess resulting in a credit squeeze for those with variable rate loans.

roger said...

Hey - where has everybody gone?? Am I the only one posting these days??

greg said...

Hey Roger -

we're all out touring condos and preparing low ball offers.

roger said...


Glad you're back!! I thought you were touring around Europe...

greg said...

Hey Roger,

was over for around 5 weeks, now I am trying to get some perspective and get motivated to post again. My site doesn't get a lot of commentary, so if I don't post, it looks a bit stale....

roger said...


Better add Caisse to your list as the big ABCP loser:

Caisse holds $13.2 billion in risky investments

The Caisse de depot et placement du Quebec has $13.2 billion in asset-backed commercial paper, its president said Wednesday.

Of that total, $1 billion is invested in subprime mortgages, Henri-Paul Rousseau told the Quebec National Assembly's finance committee, and at the worst the Caisse could write off $500 million in losses on the investment.

Francois Legault, the Parti Quebecois finance critic, suggested Rousseau was low-balling the potential loss, noting that banks announcing loss provisions against bad commercial paper have estimated they will lose between 6.5 per cent and 25 per cent.

He also asked why the Caisse held about 40 per cent of all the asset-backed commercial paper in Canada?

Anonymous said...

I do love the Cheap Realty site and the commentary even though I don't comment often enough.


roger said...


No new posts in 10 days!! I hope you're not getting burned out with blogging.

VREB numbers will be out next week and we should see another drop in the median price. Don't let the blog die just as the fun begins.

All the best - Roger

Tony Danza said...

The bears are getting tired, or has HHV capitulated and sipped the Kool-Aid? Either way, a good sign for the beginning of a correction.