News, Views and Trends!
Much has been written about last week’s Posted rate hikes by TD and RBC. Don’t panic! This is just their posted rate – it’s not the actual rate they give to clients.
I do, however, think we’ll see a minimal rate hike in the coming weeks due to five-year Government of Canada bond yields increasing slightly. Fixed rates are priced closely to bond yields.
Continue reading “TD & RBC raised the POSTED rate… but not their REAL rates”
It’s that time of the year again.. The Banks have to report their annual profits.. And no surprise, the BIG SIX BANKS are at it again..
RBC reported a $10billion annual profit for 2015. This is the first time a Canadian company reported an annual $10billion profit. Yet, at the same time, they are crying the blues and warning of troubled times ahead. (uh, that’s the same speech they’ve made for the past 10 years.. here’s a 2013 headline). GIVE ME A BREAK!!! Canadians aren’t buying it anymore..
Check out the obscene profits pulled in by the rest of the BIG SIX BANKS..
The more I think about it, the more fired up I get! OSFI (Office of the Superintendent of Financial Institutions) has come out and said Bank profit margins are shrinking and the BIG Banks may start to loosen their credit lending policies in order to write more business and therefore earn more profit.
This statement just doesn’t make any sense…. let’s think about this for a minute… Take a look at Financial Post’s Biggest Companies ranked by profit in 2010.…let’s see where the Banks rank:
– #2 is RBC $5.2 billion
-#3 is TD Bank $4.6 billion
– #4 Bank of Nova Scotia $4.2 billion
– #9 Bank of Montreal $2.9 billion
– #12 CIBC $2.4 billion
Five of the top twelve most profitable companies are Banks!!! This doesn’t look like the Banks are hurting that badly, does it? We should also not forget that the govt has made several changes to mortgage lending rules…It’s already harder to qualify for a mortgage and line of credit… So what gives, OSFI??
Look, OSFI has spoken and we must not ignore this….I don’t like what they are saying and the logic they are trying to give us doesn’t make sense….But we can’t bury our head in the sand either… The Banks have too much power… We should prepare ourselves for changes… Make plans and adjust accordingly… Don’t wait for the Banks to act.
It’s clear to me that we could see some changes in lending policies…My guess is this will translate to some increased rates on your secured lines of credit, a possible review of your account, even a reduction in your limit… That’ right, the banks can even call your line of credit and ask you to repay it in full…!! They might ask you to lock into a fixed rate mortgage or get into an amortized repayment schedule instead of just paying interest only.
But it doesn’t end there… commercial accounts will also be under the magnifying glass, in my opinion. Commercial loans and mortgages get reviewed annually by the Banks…This is why it’s very important to choose your commercial lender carefully… Not all Banks are alike… there are some institutions that offer commercial loans that are not callable…
Bottom line is to be aware, stay informed and act accordingly…. If you are not sure where you fit in with these possible changes, give me a call.. I’m happy to help.
Nothing new about this story…. Since April 11-2011, the 5 year bond yields went from 2.87%, down to 2.10% on June 24th, and have gone up slightly to 2.34% on July 1st…. Remember, fixed rates are closely tied to the govt of Canada bond yields…So that means the Banks would have lowered their fixed rates accordingly and then raise them slightly, right?
Well, not really… On April 11th, the Big Six Banks posted rates were 5.69%.. they went down slightly to 5.39% recently but are back up to 5.54%… What’s wrong with math…? Why didn’t the Banks reduce their rates accordingly? It’s called MAXIMIZING your PROFIT… The banks want to earn a little more at the borrowers expense.
I find it kinda funny but also frustrating when I see articles reporting that Bank profit margins on mortgages is shrinking… The spread between the 5 year bond yield and the posted 5 year fixed rate is around 3.20%… and historically, it’s been around 2.50% and sometimes even as low as 2.00%…. Where’s the fierce competition, I wonder?
Banks are a business that want to maximize their profits… Let’s not forget this.
Are the BIG SIX Bank CEO’s that good?
It’s that time of the year again… when Bank CEO salaries have to be reported… TD’s CEO Ed Clark earned $11.3million on profits of $4.6billion in 2010, RBC’s CEO Gord Nixon pocketed $11million. Congratulations….! Staggering numbers considering that we are just coming out of (hopefully) the worst recession ever… click here for more on Bank salaries.
So what’s the problem?
There has been so much publicity about how strong our Canadian Banking system has been through this recession…. And yes, it’s true.. we have held it together very well. But was it that our Bankers were that smart or just that far behind the times??
It has been said that Canada is always 5 years behind the U.S. Ever heard that saying? Well, it’s true for many things, including Banking and Financial Services… In 2006, we saw the introduction of 30, 35 and then 40 year amortization mortgages. We also saw $0 money down mortgages….. Interest only mortgages!! 107% loan to value financing!!!
These products were beginning to gain some popularity in Canada.. but then in October 2008, the U.S. mortgage crisis hit… and all the new products were pulled from the shelf. Imagine if these products were introduced to Canada 5 years earlier…. Imagine how many of us would have been affected…. Don’t be fooled into believing that it was our Banking system that saved us…
Look, the plain truth is that we got lucky… we were a bit slow to embrace these products… and that’s really our infamous Canadian conservatism coming out… It’s got nothing to do with our Bankers being that much smarter… It’s got everything to do with you, the general public, the average Canadian, not taking to change quickly…. This is the real reason we didn’t suffer a worse fate.
How much did mortgage penalties contribute to Bank Profits?
Here’s a bit of math to play with…. Statistics tell us that on average, Canadians move or refinance their mortgage every three years…. The stats also tell us that approximately 75% of all mortgages are in a fixed rate term… I would venture to guess that probably 95% of those are in a 5 year fixed rate…. Okay, so now let’s look what the average penalty would cost you to break your mortgage…
And today, I have another example that I will share with you… it’s about a young couple that needed some help…. (I get these almost daily, by the way)….
A $250k mortgage with a 5.15% rate with 28 months til maturity… The penalty quote to break the mortgage was $11k... I gave some advice and helped to get it down to $8k... That penalty still works out to over 7 months interest. Can you say ka-ching!! The Banks have made an absolute fortune on the backs of unsuspecting Canadians….
The Govt and the Banks should tighten credit card rules
Last November, the Banks pressured the Federal Govt to tighten mortgage lending, to make it harder to take a Variable Rate Mortgage… to make it harder to refinance your debts into a mortgage…. The results are bad for Canadians.. we now have to take a 5 year fixed rate mortgage in many cases… we now have to keep our higher interest credit card debt, loans, and other debt…. Canadians are being forced to keep these higher interest debts while Banks increase their profit margins… Here’s a great article about Household Debt..
By the way, there are no rules for giving out a credit card…
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