RBC’s CEO vows improvement on bank’s disappointing mortgage performance

Royal Bank of Canada Chief Executive Officer David McKay is vowing to do better on Canadian mortgages after a couple years of disappointing performance.

“We competed poorly in 2017 and ’18 in the mortgage space,” McKay, 55, said at the RBC Capital Markets Canadian Bank CEO Conference in Toronto on Tuesday. “We lost market share.”

Margins in the domestic mortgage business “were challenged” and the market was “super competitive” last year, McKay said. Toronto-based Royal Bank, Canada’s largest mortgage lender, with $246.9 billion (US$185.6 billion) of home loans as of Oct. 31, will do better and gain back some market share this year, McKay said. He expects the domestic mortgage market to expand at a rate of less than 5 per cent this year.

“We were disappointed in our performance and you’ll see us perform better,” he said. “We’ve really amped up our focus on where our deficiencies were, and our sales force and our product and our pricing.”


Mortgage growth will be flat or in low-single digits for ‘foreseeable future’: CIBC CEO

TORONTO — The chief executive of Canadian Imperial Bank of Commerce says he expects overall mortgage growth in the country to be flat or in the low-single digits for the “foreseeable future.”

Victor Dodig says the potential for mortgage growth to turn negative will hinge on whether the Canadian housing market takes a negative turn, driven by other macroeconomic factors.

The CIBC chief’s comments at the RBC Capital Markets Banking CEO conference Tuesday come after the Canadian Real Estate Association said national home sales are projected to fall to a near-decade low this year.

CREA last month said rising interest rates and strict mortgage stress-test rules continue to weigh on homebuyer sentiment.

Toronto-Dominion Bank chief executive Bharat Masrani told the conference today that he expects mortgage growth in the mid-single digits for 2019.

Scotiabank’s CEO Brian Porter says that mortgage activity in the first couple months has been “quite strong,” but it remains to be seen what will happen during the crucial spring real estate season.


True North Mortgage moves toward opening its own bank

True North Mortgage Inc., a Calgary-headquartered mortgage broker, has taken a step toward opening a bank of its own.

According to a recent notice in the Canada Gazette, the federal government’s official newspaper, True North plans to apply to the Minister of Finance for the letters patent needed to incorporate a Canadian bank.

The proposed bank would be named Think Bank, and it would provide “consumer retail and mortgage services to Canadian residents,” the notice said.

“The granting of letters patent will be dependent upon the normal Bank Act application review process and the discretion of the Minister of Finance,” it added.

True North opened its first store in 2006 and it has 11 locations in Alberta, British Columbia, Ontario, Quebec and Nova Scotia. According to its LinkedIn page, True North has between 51 and 200 employees.

In an email, the head of the company said it anticipates opening the new bank in either 2019 or 2020. The specific launch date will depend on the lender receiving the required regulatory approvals.

“We are looking to create a Bank which will be a wholly owned subsidiary of TNM that can support the launching of a few unique products,” said Dan Eisner, True North’s founder and chief executive. “The Bank will not be publicly traded and will support our mission to provide really low mortgage rates to good-credit Canadians.”

True North’s website says it “works closely with both large public banks and small private trust companies” to help its customers find financing. “In short, we match you with the best lender for your needs,” it adds.

The privately held company has also been an “approved lender” under Canada’s National Housing Act since 2016, which allows True North to underwrite Canada Mortgage and Housing Corp.-insured loans for residential properties of one to four units. The company’s Think Financial brand offers mortgages exclusively through True North.

Eisner said True North would remain the approved lender even after the bank is launched, as their current plan does not include the bank funding insured mortgages.

According to the Office of the Superintendent of Financial Institutions (OSFI), Canada’s federal banking regulator, applicants trying to create a federally regulated financial institution must apply to the government for the legal instrument that allows them to do so, the letters patent.

OSFI judges the application — assessing an applicant’s business plan and financial resources, among other things — and makes recommendations to the finance minister.

The finance minister will then decide whether or not to issue the letters patent, after which the would-be bank must still obtain an order to commence and carry on business that would have to be issued by the superintendent. Before that order is given, OSFI says it must be “satisfied” that the financial institution has all the necessary systems, structures and controls in place.

• Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne

Big banks tighten grip on mortgage market after rule changes stifle competition

TORONTO — Canada’s biggest banks are tightening their grip over the country’s $1.5 trillion (US$1.1 trillion) mortgage market as new rules designed to cut out risky lending make it harder for borrowers to switch lenders, with some analysts betting on more gains for the country’s biggest two banks.

The rules, which stress-test borrowers’ ability to make repayments at 200 basis points above their contracted rates, had been expected to hurt profitability at the banks’ domestic businesses by resulting in them turning away more customers.

However, the country’s biggest five banks, which account for about two-thirds of the Canadian mortgage market, are reporting higher rates of renewals by existing customers concerned they will not qualify for a mortgage with another bank.

The rules, known as B-20 and introduced in January, do not apply when borrowers are renewing mortgages with their current lender, creating an uneven playing field.

“B-20 has created higher renewal rates for the big banks, driving volumes and goosing their growth rates,” said Eight Capital analyst Steve Theriault. “It’s had the unintended consequence of reducing competition.”

Royal Bank of Canada (RBC), the country’s biggest lender, said last month that mortgage renewal rates ranged between 90 and 92 per cent in the second half of its fiscal year compared with 87 to 88 per cent before the new regulations were implemented.

RBC said that is due in part to the B-20 regulations and also to improvements it has made to make it easier for customers to renew.


DBRS analyst Robert Colangelo said RBC and Toronto Dominion Bank could exceed their targets for mortgage sales growth of 3 to 5 per cent and 4 to 6 per cent, respectively, next year, given the high retention rates.

“We may see a bit of an uptick in mortgage growth above the guidance that the banks have provided,” he said. “Borrowers have tended to stay with their institutions and not go looking for a bank that might be offering a flashy rate.”

Ron Butler, owner of Toronto-based brokerage Butler Mortgage, said the changes leave borrowers with less choice.

“Even if they are up-to-date with their repayments, borrowers may find they don’t qualify with other lenders so they’re stuck with their bank at whatever rate it offers,” he said.

Senior Canadian bankers such as RBC Chief Executive Dave McKay and TD’s CEO, Bharat Masrani, voiced their support for the new rules prior to their introduction, saying rising prices were a threat to Canada’s economy.

TD increased its residential mortgage book, including home equity loans, by 6.5 per cent during its latest fiscal year to Oct. 31, while RBC expanded its book by 4 per cent. The overall market grew by just 1 per cent during that time.

In contrast, Canadian Imperial Bank of Commerce’s mortgage book, including home equity loans, was flat during the year. The bank has reined in lending after a period of aggressive growth, during which it expanded its team of mortgage advisers and outperformed the market.

While analysts say RBC and TD are expected to benefit from higher-than-normal retention rates in 2019, not everyone is sure borrowers will benefit.

“The banks are becoming more sophisticated in targeting borrowers who would fail the stress test and they can charge them higher rates at renewal knowing they can’t move elsewhere,” Butler said.

© Thomson Reuters 2018

Mortgage risks fading as Bank of Canada sees dramatic drop in highly indebted borrowers

OTTAWA — The Bank of Canada is releasing data Wednesday that provides a closer look at just how much stricter mortgage rules and higher interest rates have helped slow the growth of new highly indebted households.

The central bank is on a clear rate-hiking path and the pace of future increases hinges significantly on the ability of households — particularly those with high levels of debt — to adapt to higher borrowing costs.

The bank’s analysis says tougher mortgage qualification tests have reduced the share of new high-leverage, insured loans — those of more than 4.5 times a borrower’s annual income — to six per cent in the second quarter of 2018 from 20 per cent in late 2016.

The report also says another rule change this year aimed at uninsured mortgages dropped the share of these new loans to 14 per cent in the second quarter of 2018, compared with 20 per cent a year earlier.

Senior deputy governor Carolyn Wilkins says the new mortgage rules are improving the quality and reducing the quantity of new mortgages.

Wilkins says household debt remains very high and has created a vulnerability in the financial system — but she argues the better quality of loans will put the economy on a more-solid footing to withstand future adverse economic developments.

House price growth at its slowest for five years, Halifax says

Sellers are realising first offer they receive could well be their only one, analyst says

Annual house price growth has fallen to its lowest rate in more than five years, according to Halifax.

Across the UK, house prices increased by 1.5% annually in October, following a 2.5% annual increase in September, Halifax said.

Related: Confidence in housing market ‘collapsing’, NAB survey says

Continue reading…

RBC raises prime rate to 3.95 per cent following Bank of Canada interest rate hike

TORONTO — The Royal Bank of Canada is raising its prime rate by a quarter of a percentage point in the wake of the Bank of Canada’s decision to raise its key interest rate target.

RBC says its prime rate will climb to 3.95 per cent from 3.70 per cent, effective Thursday.

The increase will raise the cost of loans with interest rates linked to RBC’s prime rate such as variable-rate mortgages and home equity lines of credit.

The Bank of Canada raised its key interest rate target by a quarter of a percentage point to 1.75 per cent.

It was the fifth time since the summer of 2017 that the central bank has raised the trend-setting rate.

CIBC’s mortgage slowdown predictions come true as 3-year streak of outpacing rivals ends

Canadian Imperial Bank of Commerce’s prediction of a mortgage slowdown has come true.

Mortgage balances rose 2.5 per cent to $208.5 billion (US$160 billion) in the fiscal third quarter from a year earlier, the Toronto-based bank said Thursday in announcing earnings that beat analysts’ estimates.

That’s the slowest in more than four years and about one-fifth the pace of a year ago. The deceleration ends CIBC’s three-year streak of outpacing Canada’s other large lenders on mortgage growth. Royal Bank of Canada said this week that mortgage balances were 5.9 per cent higher than a year earlier.

CIBC executives said in May that domestic loan growth would “moderate” in the second half of the year, with Canadian banking head Christina Kramer estimating that it would fall to “low-single-digits” by year-end. Her forecast was less than Canada’s other big lenders, which have maintained “mid-single-digit” growth expectations for the year.

CIBC has the greatest relative exposure to Canada’s housing market, with a higher percentage of earnings coming from domestic personal and commercial banking than its bigger rivals. CIBC’s growth has cooled since it stopped expanding its team of mobile-mortgage advisers that fuelled a surge in home-loan balances, with year-over-year growth peaking last year at around 12 per cent. Government measures to slow Canada’s heated housing market, including tougher mortgage-qualification rules imposed in January, have also affected demand.

Profit Climbs

Net income for the quarter rose 25 per cent to $1.37 billion, or $3.01 a share, from $1.1 billion, or $2.60, a year earlier, CIBC said in a statement. Adjusted profit, which excludes some items, was $3.08 a share, compared with the $2.93 average estimate of 14 analysts surveyed by Bloomberg. The bank increased its quarterly dividend 2.3 per cent to $1.36 a share.

On Wednesday, Royal Bank posted third-quarter profit that beat analysts’ estimates on gains in wealth management, capital markets and personal-and-commercial banking. Bank of Nova Scotia and Bank of Montreal are scheduled to report results on Aug. 28, followed by National Bank of Canada on Aug. 29 and Toronto-Dominion Bank on Aug. 30.

Here’s a summary of CIBC’s results:

Revenue rose 11 per cent to $4.55 billion from a year earlier, while non-interest expenses increased 4.9 per cent to $2.57 billion.

The bank set aside $241 million for soured loans, up 15 per cent from a year earlier due mainly to higher losses in its CIBC FirstCaribbean bank.

Earnings from Canadian personal and small business banking climbed 14 per cent to $639 million.

Canadian commercial banking and wealth management profit rose 20 per cent to $350 million.

U.S. commercial banking and wealth, including contributions from its PrivateBank takeover, were $162 million, compared with $41 million a year ago.

Capital markets earnings increased 5.2 per cent to $265 million.