Video - Banking Sector: Caution!
In this webcast - Banking Sector: Caution! with our expert Jean-René Ouellet.
SUBJECT : Banking sector
EXPERTS : Jean-René Ouellet
Note: The information in brackets "[...]" describes the visual and audio content of the video other than the dialogue or the narration.
[Jinggle music begins. The title ‘’Market Trends’’ appears in a honeycomb cell, then replaced by the video’s title: Banking Sector: Caution! – November 2016. It all gives way to the Desjardins Securities logo. These images give way to Mr. Jean-René Ouellet in an office. Behind him, we can see computer screens with stock quotes].
Jean-René Ouellet (MBA, CFA, Portfolio Manager, Portfolio Advisory Group)
Over the last decade, Canadian banks generously rewarded investors. They were supported by strong economic growth, a confident consumer demanding more loans, more growth, and they were able to post top line growth, net income growth, and they were able to raise dividends many many times paid to shareholders. Now, they face a much tougher environment. Canadian economic growth is to be at best modest.
Regulators are currently contemplating many new rules for the banks. One of which is to make sure that they share some risks when they write new mortgages, even if those are insured at the CMHC. Doing so, the banks would either have the option to raise the cost of the mortgages or either reduce the availability of such mortgages.
Take it one way or the other, long growth will be obviously challenged. This is only one measure. But regulators are contemplating fifteen new measures. None of these measures is unmanageable for the banks but taken together they represent a significant challenge.
These measures would clearly put pressure on revenue growth, profitability or maybe both. As banks represent a significant portion of the TSX, they cannot be avoided altogether. However, investors will need to be highly selected within their exposure and may also want to diversify away within the asset managers or the Lifeco which face a more friendly environment.
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