Q: Thoughts on the Canadian Banking sector and specifically CIBC. Seems like the banks are fairly 'flexible' in what they choose to include in there Adjusted Earnings.
Generally Loan Loss provisions have increased? That would seem to suggest they seem storm clouds on the horizon -Mortgage debt renewal pulling money out of the economy is obvious headwind. Were they bailed out by strong capital markets?
Generally Loan Loss provisions have increased? That would seem to suggest they seem storm clouds on the horizon -Mortgage debt renewal pulling money out of the economy is obvious headwind. Were they bailed out by strong capital markets?
5i Research Answer:
Strong capital markets have helped. Banks like to provision ahead of time, certainly. While the Canadian economy is not great, if we do not get a big recession then we expect some of these provisions will be reversed to manage earnings. The sector, and CIBC, are basically already pricing in a recession, so because of that we are still mostly positive on the sector. Dividends continue to go up. Housing as ususal remains a risk, but if rates in Canada do come down this year a lot of pressure will be relieved. So we are fine with the sector, but the TSX is at 31% financials, and we would be at more like 15%. Other sectors such as tech and industrials will likely do better, until investors are more convinced on the economy.