Canadian bank executives love citing one fact when short sellers bet that a housing market crash will crush the country's largest lenders. Their mortgage books are largely insured, they argue, so the Big Six aren't likely to endure much pain in a downturn.
It's done wonders to ward off hedge funds, but this line of defence could come back to haunt the banks, now that the federal government is studying whether mortgage lenders should share some housing risk. As it stands, Ottawa backstops roughly 60 per cent of the $1.3-trillion mortgage market, and that puts taxpayers on the line if it blows up – to the benefit of bank stocks.
Some lenders, you can imagine, don't like this idea very much. Because homeowners pay for insurance out of their own pockets, and because insurers cover any losses from defaults, the banks aren't required to hold capital as a safety cushion against the insured portions of their mortgage books.
Risk-sharing would force the banks to stash away some funds to safeguard against more mortgages in bad times. Doing so right now would require them to divert money in what is widely viewed as a tougher market to make money. Digital upstarts are out to eat banks' lunches, forcing them to invest more in technology, and the Canadian economy is barely growing, dimming profit outlooks. Each of the six biggest banks makes at least half of their total profit from plain vanilla banking at home. Story
Unregulated Canadian mortgage lenders see market share surge: memo
Ottawa is monitoring the growth of unregulated mortgages in Canada as non-bank lenders see their market share surge amid frothy housing conditions in Toronto and Vancouver.
According to a redacted government briefing note to Finance Minister Bill Morneau and released under the Access to Information Act, unregulated mortgage lenders – such as firms that do not take deposits – now control about 15 per cent of mortgage originations in Canada following rapid growth in recent years.
The document attributed the growth to low-cost business models, the rising popularity of brokers and access to securitization from Canada Mortgage and Housing Corp. (CMHC), the Crown agency that backstops most insured mortgages. As well, new regulations have raised the qualification thresholds for insured mortgages from banks, encouraging some consumers to look elsewhere for financing to buy a home. Story
Soros cuts Barrick stake by 94 per cent, cashes in on gold rise
Billionaire George Soros slashed his investment in Barrick Gold Corp., profiting from the gold miner's recent meteoric rise.
Soros Fund Management LLC cut its holdings in the world's biggest gold producer by 94 per cent, just months after acquiring the large stake, according to a U.S. filing released this week.
The fund held 1.07 million shares of the Toronto-based miner at the end of the second quarter, compared with 19.4 million shares at the end of the first quarter, according to the filing.
The rising price of gold has underpinned Barrick's stock, which has nearly tripled in value to $21.40 (U.S.) this year. Story
Canadian retailer Aritzia on brink of an IPO
Canadian retailer Aritzia, which specializes in women's fashion, is on the cusp of going public.
The Vancouver-based retailer has already lined up investment banks for its IPO, and is likely to file the paperwork this week, according to people familiar with the matter.
The IPO is being prepared amid hot equity markets, as investors clamour for non-commodity stocks in an era with incredibly low interest rates. However, it is unclear how supportive investors will be of new issues. Story
Canadian investors push for relaxed rules after being frozen out of U.S. bond markets
Recent securities regulations are making it more arduous – and, at times, impossible – for large Canadian institutions to buy and sell some bonds, prompting calls for reform.
A group of 48 asset managers that together hold $850-billion in bonds are warning that two rules are stifling access to debt markets, in particular the bonds of Canadian companies issued in U.S. dollars. Also affected are new offerings of foreign securities that are being sold to wealthy buyers outside public markets.
As Canada's regulatory regime has evolved and, in some cases, become more onerous, many American investment dealers have reduced their trading operations in Canada. That hurts Canadian institutional investors that are trying to build diversified portfolios for ordinary Canadian clients. Story
DAILY DEALS
Alimentation Couche-Tard Inc. is poised to boost its standing as a major convenience-store consolidator and top global player if it goes ahead with its acquisition of CST Brands Inc. Story
Activist investor ValueAct Capital Management LP disclosed Monday that it had taken a $1.1-billion stake in Morgan Stanley signaling a potential rallying cry for bank investors after years of poor returns. Story
Praxair Inc. is in discussions to merge with Germany's Linde AG in a deal that would create the world's largest industrial-gas supplier. Story
IN CASE YOU MISSED IT
Andrew Willis on how Morgan Stanley Canada brought a veteran dealmaker back to Bay Street. Story
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