Canada’s banking chiefs gathered recently in Toronto for the 17th Annual Scotiabank Financials Summit. There, they shared their take on topics ranging from mortgage growth to regulation to advancements in mortgage technology. Some of it will put you to sleep, but there are lines below that are a must-read.
We’ve plucked out some of the most relevant mortgage tidbits and sorted them by category. Key quotes are in blue and our comments are in italics.
On advancements in technology:
Brian Porter, President and Chief Executive Officer of Scotiabank
“In terms of technology–look, we are dead serious about this, we have recruited some very good people from outside the bank… So we are partnering with a lot of people in the FinTech space, we are doing a lot of things up in Tangerine and Tangerine is a full service bank now and we are making, I think, very good strides there.”
“…We do not want to be caught in a mode where we are reactive all the time. We want to be proactive…The mortgage application process [for example] – you only have to visit the branch once, not two or three times like you used to. So it is just focusing on the customer, being thoughtful about it, and focusing on the pain points.”
Bill Downe, Chief Executive Officer of the BMO Financial Group
“…We spent enough time thinking foundationally about how we were going to invest…New product introduction is much faster and much less expensive as a consequence of the foundational changes that we made.”
“So as an example, e-Signature was only just legalized in Canada in the last 90 days and we rolled [it] out almost immediately…Within less than three months [we created] the ability to open an account on a mobile device in less than seven minutes. That was enabled by two things. It was enabled by a change in legislation that recognizes we are going to a more digital world. But it was enabled more by the work that we did in 2011, ’12, ’13, and ’14 on the underlying foundation.”
David McKay, President and Chief Executive Officer of RBC
“…as far as Fintech goes I think there is a lot of investment. But what makes some of the Fintech traction difficult is that–[and] this is true of the Canadian industry–you have got a customer that is embedded in a multi-product relationship, particularly if you have got the core checking account as I have said off the top, which is so important. And that multi-product relationship is reinforced particularly in our franchise by reciprocity…you get free banking if you have a multi-product relationship…you get discounts on your mortgage…you get higher GIC rates…you get reward points on your credit card. So we are constantly…reinforcing that the more business you bring us the more you get in return and therefore decoupling a product into a Fintech competitor is expensive. And there is not a price point that you can hit that replaces the relationship value of having four or five products, which is why the cross-sell ratio is so important. We are the number one cross-sell bank in the country. So when I think about Fintech and what they have to do to be successful, they have to take apart a deeply embedded, multi-product, highly reciprocal relationship that is going to cost the customer money to do that.” . (The question mortgage brokers would ask is, will this “cost” to the customer be more than the savings that the customer enjoys by purchasing a la carte financial products outside their bank? By way of example, a 15 bps rate savings on a $250,000 mortgage and/or a $2,500 mortgage penalty savings—versus a Big 6 mortgage—quickly makes up for free banking.)
Louis Vachon, President and Chief Executive officer of the National Bank
“…in about 75% of the cases you can either deal in branch or with a mobile mortgage development manager, mobile sales force. If you have all your documents, we will scan your documents, get an approval within the same day and you don’t need to go ever again to see [a bank rep] to get approval. You get one meeting, one approval and straight-through processing. No one to our knowledge does that in the industry right now.”
“The last piece we’re looking to do now is to do that online. Now, you have to physically bring your documents so we can scan your documents. The next step will be to do it online and have the full straight-through processing. So in terms of cost and efficiency… we’re doing a lot of work now where digitization and automation is being deployed. So we still have room. We still see areas, low-lying fruits that we feel we can get to those costs. That’s why we’re still comfortable, very much comfortable with the $95-million run rate target for that three years that we’ve given in terms of cost reduction.”
On the housing market
David McKay, President and Chief Executive Officer of RBC
In response to a comment about RBC seemingly having taken its foot off the gas in residential real estate in Canada: “I would say it is not true because we have gained market share in residential mortgages…But we are starting from the highest base by a long shot. We are two times the size of many of our competitors. So we are still gaining market share in mortgages but not in Vancouver. So with this conscious choice we have made, which came out in the Analyst Call and our Quarterly Earnings Call, we certainly feel much more comfortable about Toronto given the diversity of the economy, the number of new immigrants coming in, the household formations, the manufacturers. I think it is a more stable market to invest in right now. So you are seeing some of our market share gains in Ontario, which is a very strong economy in Toronto but not in the western part of the marketplace, so I think that has been conscious.”
“…we have gained share on mortgages but it is not (in the) west and we are not over–we are under-indexed in Vancouver as you heard me say. We are about on average index in–it looks like in Alberta at 16% of our portfolio… I think banks are in that 14/15/16% range so we are roughly somewhere there. So I think that is the volume story and we can do a little bit better, but you have got to be careful right now.”
Victor Dodig, President and Chief Executive Officer at CIBC
“I think over the next period you will see more normalization as the first line effect kind of runs off. And as…various governments put in policies of their own to temper the growth of mortgages. I mean fundamentally a lot of policies can be introduced. I think the fundamental issue that is going on in the world today is money is mispriced–that is the biggest issue. And at some point I am hoping that there is some coordinated intervention around the world that will get interest rates back to a normalized level to get the world back in the fairway again. I mean that is a problem right now–savers are being punished, asset values are increasing largely because money is mispriced.” . (Interesting comment. The price of money is set every second of every day by the free market, the $100-trillion global bond market, the most efficient price discovery mechanism the world has ever known. But somehow, money is mispriced? No. Interest rates reflect the cold realities of a disinflationary environment that resembles nothing in modern history.) .
“So if you look at CIBC’s growth profile we have been growing mortgages, but if you look at the quality of those mortgages, regardless of whether they are insured or uninsured, [they are] high quality based on the Beacon Score, based on what clients are doing with us in addition to those mortgages…So I think we have been on a path of really, really balanced growth and as much as everybody wants to point out the mortgage issue—yes, house prices have gone up. Yes, they have gone up too much but is the root cause because we have been lending at the level we have or is the root cause more the level of interest rates in our country? And it is not just our country, it is around the world…”
Asked if CIBC has adjusted its origination criteria in certain parts of the country: “No. Listen, we are very thorough in how we do things. We have been very thorough after the financial crisis as a low-risk bank…as I said it is a slightly different course. You do not abandon your lower risk principles. They are embedded in how we do business.”
On mortgage portfolio growth
Victor Dodig, President and Chief Executive Officer at CIBC
“Banking is all about managing risks, but it is also the size of the risk that you take. If you look at the mortgage growth, which is often pointed out as ‘Wow, how come they are growing mortgages faster than everyone else?’ Maybe it is because we are competing in a better way than everyone else, maybe it is because we have invested in our business. And I say maybe but truly we have. If you look at our mobile advisor force we have the second-largest mobile advisor force in the country. If you look at it three or four years ago it was nowhere near that size.” . (Other banks are watching CIBC’s above-average growth rate, post-broker. The haunting question in our industry is, will another bank follow in its footsteps?) .
Paret Masroni, Group President and Chief Executive Officer of TD Bank Financial Group
In response to a comment about TD’s Q3 mortgage growth coming in well below its peers: “I think you know [that] growth numbers…sometimes [don’t]…tell the whole story. For TD we have sizable market share and you know, when year-over-year growth may seem a little different than from some of our competitors, I think it’s also important to notice what base you’re counting the growth from. And we feel happy with how we are growing our book…We’ve had a consistent underwriting stance for many years, especially the last four or five years now. But…the diligence around our underwriting has probably become more strict then we might have had, you know, a few years ago.”
“…so would we be more diligent in the type of appraisals we would demand or accept, would be more focused on income verification for example, would we track our exceptions to policy when we approve certain types of mortgages, and are we more diligent about it? So all those might have some implication on our rate of growth, but that’s been consistent over a few years and I wouldn’t want that to come across as TD…consciously pulling back to a great extent. I think you’d expect from TD to do the prudent thing and that’s what we’ve been doing when some of these [home] prices have gone up the way they have, and it’s not just in the last one year, it’s been over a few years.”
“… we haven’t stepped back from the market…. And that applies to all the markets that we are in.”
Louis Vachon, President and Chief Executive Officer of National Bank
In response to a comment about National Bank’s mortgage growth being strong in B.C. and Ontario, but dropping off in Quebec: “I think still in terms of retail lending, I think we compare well in terms of volume growth of our peers…I want to reassure everybody, we’re not disengaging ourselves from Quebec but I think what’s happening is we are making some choices in terms of channels. We’re still active in the third-party mortgage broker [market] but being a little bit more selective there, so there’s been some decisions made on the channels. And frankly… mortgage lending growth has been a lot higher in Ontario and B.C. versus Quebec so we’re just reacting to macro trends. In the Vancouver market the growth has been mostly in insured mortgages and we’re growing from an extremely slow, small base. So you know I’m not particularly concerned. I think we can sustain a bit of growth in B.C., I think we’ll be fine and still very much within our risk controls and risk parameters.”
In response to a question about third-party mortgages and how, if at all, the bank has adjusted its origination criteria: “Our view is more long-term strategic in a sense that we feel that in the relative near future that online origination of mortgages will be a fourth distribution segment. So right now there is in-branch, mobile sales force, third-party mortgage brokers and then a fourth distribution channel which is direct online, either through an aggregator or through a direct basis…The only piece that we’re missing is online origination of mortgages and we feel that we can be an early adopter in that particular space. And we feel that, over time, it’s going to be as attractive if not more attractive for us as a new origination channel than the traditional third-party broker’s market.” . (Remember this last sentence from Louis Vachon. National Bank is to be applauded for sizing up and attacking the online space. But at the same time, a chill should have just passed through the bones of every broker reading it.)