TD may stilll be the best of the 6 to invest in, at the current lower price, and I suspect they will indeed rapidly correct the laundering oversight deficiencies that the DoJ found. But the whole sector I think is exposed to some substantial threats.


Thanks for the thoughtful reply. Part of the thesis is that they will "catch up" with their peers and that will create an opportunity. You correctly indicated that if the entire group is shrinking it still won't make a good investment, but I am more optimistic on the CA Banking sector.

I have a hard time seeing how the ability of banks to extend repayment terms for its clients would do anything to protect them from substantial default rates if housing were to enter a significant correction. Canadians' mortgage rates typically renew every 5 years of less, and many mortgage holders with 5-y fixed rates are only now seeing the effect of significantly higher rates that were still less than 2% 3 years ago but which are more like 5% now

Extending the repayment terms allows a lot of flexibility that reduces the foreclosure risk; and really with very little downside to the mortgage holder. In addition, new policies are being introduced to extend amortizations 30 years, and allow for tax favorable saving of down payments which should create new customers for them.

The downside risk is that the housing market has been propped up by immigration, which is getting cut dramatically - but I think there is sufficient demand in the market to absorb things. Forecasting house prices is very difficult, but the banks have proven they can make nice money in really any market.

tecmo
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