I read Canadian banks were downgraded because of exposure to Canadian Housing market. I could understand if they were exposed to US housing market. They dont have Government meddling in housing no 30 year loans,Govt backed interest rates or tax deductions. Anyone have any knowledge of this?
The largest exposure to a real estate "meltdown" would be the Royal Bank. Canada simply is unable to have a US-style real estate meltdown. Regulation in the past prevented the formation of that storm front.
As far as BNS goes, they've got about CAN$290B out in mortgage loans, which is about 65% of their total loan portfolio, 60% of which are insured through CMHC (Canadian Mortgage and Housing Corporation). The majority of these loans are at less than 60% loan valuations. That's still a lot of meat on the bone in the event of what I consider to be, at best, a mild correction should it occur.
TD and BMO have a better numbers when it comes to mortgage exposure, but not by leaps and bounds.
Unlike the US, though, default on your mortgage in Canada and the bank can go after your other assets to satisfy the loan requirements. In Canada, interest isn't tax deductible, nor are property taxes, so few buy over their means counting on tax deductions. You need 25% down to make first mortgage, otherwise you're paying for CMHC insurance as the individual borrower. Over and above a certain percentage of loan devalue and the borrower doesn't qualify at the bank and needs to seek private financing (mortgage brokers) for private capital.
There is no longer a 30 year am in Canada. That was done away with, which dampened the real estate market somewhat. Immigration is up and will continue to grow as Canada is viewed internationally as a stable and prosperous society with good international relations.
Mark Carney (Bank of Canada Head) has his hands tied, he can't raise interest rates any time soon as it'll raise the value of the Canadian dollar and dampen exports.
I think that the downgrade is no more than sour grapes, the premise being that the US banks have more upside (stock pricewise) than Canadian banks. I'll take stability over increase, lower risk in Canada.
The US still doesn't have a decent regulatory body governing its banks, so the Band-Aid is still just a Band-Aid.
Those are my thoughts, and I'm sticking to them. Do what you will.
Well said, I own shares of Canadian Banks, and I sleep well. I lost a #$%$ load on Citi, and at the time I purchased my shares it was considered to be a blue chip investment.. US Banks have a long ways too go to prove their credibility.. Buy Canadian! BNS, RBC, CM, BMO & NA, they are all good, and don't forget TD Bank.. very good.