Home Cap­i­tal doesn’t pose sys­temic risk: banks

CIBC, RBC ex­ec­u­tives say they’ll mon­i­tor mort­gages in light of high prices

The Hamilton Spectator - - BUSINESS - ALEXAN­DRA POSADZKI

TORONTO — The CEOs of two of Canada’s big­gest banks say liq­uid­ity trou­bles at mort­gage lender Home Cap­i­tal are not in­dica­tive of a broader prob­lem, but they are mon­i­tor­ing their mort­gage port­fo­lios in light of con­cerns about high house prices.

Home Cap­i­tal doesn’t pose a sys­temic risk be­cause it com­prises only one per cent of the mort­gage mar­ket, Royal Bank of Canada’s chief ex­ec­u­tive David McKay told an­a­lysts Thurs­day.

If Home Cap­i­tal con­tin­ues to ex­pe­ri­ence fund­ing prob­lems, those loans will sim­ply be re­fi­nanced by other lenders, McKay said.

“It is an anom­aly in the sense that there re­ally wasn’t a credit rea­son to drive the liq­uid­ity chal­lenges that Home Cap­i­tal faced, but more a lack of con­fi­dence based on some dis­clo­sure,” McKay said dur­ing a con­fer­ence call Thurs­day af­ter the bank re­ported $2.81 bil­lion of net in­come dur­ing the sec­ond quar­ter.

The health of Canada’s mort­gage mar­ket has been a sub­ject of dis­cus­sion in re­cent weeks af­ter savers started pulling their de­posits out of Home Cap­i­tal, leav­ing the lender in a cash crunch.

The with­drawals started af­ter Ontario’s se­cu­ri­ties watch­dog al­leged the com­pany had mis­led in­vestors in how it han­dled a scan­dal in­volv­ing fal­si­fied loan ap­pli­ca­tions. Home Cap­i­tal has said the al­le­ga­tions are with­out merit and that it will de­fend it­self.

Vic­tor Dodig, chief ex­ec­u­tive at CIBC, said it’s un­der­stand­able that the mar­ket has been as­sess­ing the po­ten­tial im­pli­ca­tions of Home Cap­i­tal’s liq­uid­ity prob­lems on the Cana­dian fi­nan­cial sys­tem.

But Dodig also said the prob­lems faced by the Toronto-based al­ter­na­tive lender are not in­dica­tive of the Cana­dian hous­ing mar­ket or the per­for­mance of the broader Cana­dian econ­omy.

“It is im­por­tant to note that CIBC does not orig­i­nate sub­prime or even near-prime mort­gage loans,” Dodig said dur­ing CIBC’s sec­ond-quar­ter call with an­a­lysts.

“As a large, di­ver­si­fied and pre­dom­i­nantly core de­posit funded fi­nan­cial in­sti­tu­tion, we also don’t face the same fund­ing chal­lenges as some of the al­ter­na­tive lend­ing busi­ness mod­els. That said, we con­tinue to closely mon­i­tor the hous­ing mar­ket.”

CIBC re­ported $1.05 bil­lion of net in­come dur­ing the three-month pe­riod ended April 30 — up 11 per cent from a year ago.

Ex­ec­u­tives at both RBC and CIBC said they are keep­ing a close eye on their port­fo­lios of mort­gage loans in light of high house prices in the Toronto and Van­cou­ver re­gions, as well as record-high house­hold debt lev­els.

“While we rec­og­nize some of the con­cerns in the mar­ket, we re­main con­fi­dent in the Cana­dian econ­omy, the strength of our mort­gage book and our pru­dent credit ad­ju­di­ca­tion process,” McKay said.

McKay also said he is en­cour­aged by re­cent data com­ing out of Toronto, which sug­gests the sup­ply and de­mand dy­namic that has been driv­ing prices through the roof has be­gun to ease.

TD Bank also re­ported its sec­ond-quar­ter re­sults on Thurs­day. The Toronto-based bank said it had $2.5 bil­lion of net in­come dur­ing the sec­ond quar­ter, up 22 per cent from the same pe­riod last year.

TD also an­nounced it has con­cluded a re­view of its sales prac­tices fol­low­ing al­le­ga­tions con­tained in a CBC news re­port that said some of the bank’s em­ploy­ees al­legedly broke the law in or­der to meet ag­gres­sive sales tar­gets.

The bank said it con­tin­ues to be­lieve it does not have a wide­spread prob­lem with em­ploy­ees be­hav­ing un­eth­i­cally in or­der to achieve sales goals. “As we have in­di­cated, we will act on the op­por­tu­ni­ties we found to im­prove our busi­ness,” TD chief ex­ec­u­tive Bharat Mas­rani said in a state­ment.


The bus­tle of Toronto’s fi­nan­cial district. The CEOs of Royal Bank and CIBC say trou­bles at Home Cap­i­tal aren’t in­dica­tive of wider prob­lems in the home lend­ing sec­tor.

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