Podcast Transcript: Q1 Canadian Banks

This podcast was recorded on March 92023.

Mar. 13, 2023

Dan Stanley: Welcome to the 10th episode of our deep dive series on Canadian bank earnings. Today we’re covering the first quarter 2023 bank earnings announcements and we will return each quarter on this channel to update you on the latest financial results. 

My name is Daniel Stanley. I’m an ETF specialist at BMO Exchange Traded Funds. And I’m joined today by my friends and colleagues, Chris Heaks, Portfolio Manager for all of BMO’s equity and multi-asset ETFs and Sohrab Movahedi, managing director, financials research at BMO Capital Markets. 

Today, we’re going to cover the recent bank earnings announcements and what they mean for investors and the Canadian economy, as well as looking at different ETF strategies that give you exposure to the Canadian banks. So, without further ado, Chris and Sohrab, thank you for taking the time to join me this morning. And Sohrab, I want to start with you this morning. Because last quarter, when we had this conversation, you noted that the markets were being somewhat impatient with banks that reported poor earnings versus expectations. And that theme certainly seems to continue this quarter with a couple of the bank stock prices falling in that 3 to 5% range after their earnings announcements. Can you talk to us about how the banks did this quarter versus expectations and talk to us a little bit about that market reaction as well.

Sohrab Movahedi: Okay, Dan, good to be back. Thanks for having me back. So look the results this quarter. What would I say? I would say that there were of the six large banks, five beat. And I think they were probably, you know, the quality of the beat would have factored into how the stock prices did. Maybe I’ll come back to that in a second and one missed. And the soul miss, I think got penalized for it. And notably, you know, you’ve heard us talk about banks in Canada having a diversified kind of business mix. And that revenue diversification comes through both lending margins, you know, the margin they make through taking deposits, paying something on that and then doing the maturity transformation of short data deposits into longer term dated loans and collecting a spread on that. But they obviously also have wealth businesses, and they have capital markets businesses and you know, a source of a bright spot, a driver of the beats, if you will, this quarter, not the sole, but an important driver of the beach this quarter would have been their trading operations. 

Specifically, if you look at a bank like CIBC, if you look at bank like royal, I mean, these are banks. I won’t comment on BMO, just because we don’t cover BMO, but those would be two banks that would have had record trading revenue quarters, which would have helped with the results. So that’s the good news. We had some beats and I guess depending on where the positioning on the specific names would have been. If a name had been unloved and unattended and they beat I think it probably caught off some people off guard and the stocks favorably reacted. I’d say the outperformer in that regard probably was CIBC this quarter. The beat relative to consensus was double digits 13% earnings beat and the other side of the spectrum. You know, I think Scotiabank undergoing a bit of a management change. Still trying to figure out what the what its genetic potential is i’ll say, you know, continuing to guide numbers down, I think probably the guidance was not well needed to so they missed estimates by around 8%. And I think the stock reaction spoke to it. 

So look, when we stand back and you think about it, one of the key, I guess, takeaways from the quarter for us was that the cycle seems to be lengthened, you know, when we were having some of these calls, over the past number of maybe quarters, we would have talked about hard landing, that translated into soft landing, and we seem to be an extended flight, although that seems to be changing day by day. But the point of that is, from a credit quality or higher loan loss provision, I think, we’ve certainly kick the can down the road by at least another quarter and I think bank investors tend to not get excited about results that are not repeatable. And you know, record trading is probably not repeatable. And while credit costs are normalizing, that rate of normalization is probably a little bit slower than then we were looking for and delayed anyway. And so in that regard, I think you have to exercise a bit of patience to get kind of rewarded. We think there is a downside protection here. But but generally not something that would have gotten folks on the sideline, excited to get involved.

Dan Stanley: That’s great. Thank you. Sohrab, yeah, that was an interesting quarter to see that bright spot in trading revenue. I feel like we have not talked about the capital markets and the trading revenue as a bright spot in quite some quarters. And clearly, that was linked to the, you know, the volatility in the markets over the last quarter. Chris, I want to turn things over to you. And you know, we when we talked to Sohrab, we talked about specific banks like CIBC having 13% beat, or Scotia missing by 8%. But when we talk about ETFs, we can talk about the banks as a group. And when you talk about the banks as a group there, there seems to be this pattern developing in ZEB, which is the BMO equal weight bank ETF over the last six months, and it seems to be trading sort of between that $36-37 range on the high end, and then it seems to dip down to the $30-33 range on the low end. And, in fact, as of this morning, it was trading around right at the high end at $35.76. So back at the higher end of that range. Chris, what’s your takeaway on this trading movement with ZEB?

Chris Heakes: Yeah, thanks, Dan. You know, I think from a trading perspective, you know, you look where we were last year, we were just starting, the interest rate hiking cycle, ZEB back last year was probably around $40. But obviously, as that interest rate, increases and inflation concerns, brought the whole market down, including banks over the course of last year, and I think where we’ve been in the last six months is, towards the tail end of the rate hiking cycle, and obviously, the markets looking for normalization. But to Sohrab’s point, perhaps normalization in terms of the markets, hopes, let’s say, or expectations, been a little slower to normalize. So, when I look at the trading pattern, and I think it’s the banks very much, like the market in general, it’s a little bit of a holding pattern, and trying to just look for an end to this kind of higher interest rate, or peak inflation, if you will. And we’re getting some positive signs, you know, I’d say in Canada, it looks like the normalization is, is ahead of pace relative to the US, you know, the last kind of CPI prints in in Canada were a little bit under where they were expected. So not only did they come down, but they came down even a little more than expectations. 

You just saw the Bank of Canada pause on interest rate hikes. There’s not much more priced into the market right now, perhaps another 25 basis points. But you know, very much looking like an end to the cycle. And I think that, I think that’s, that’s going to be positive news for the banks to eventually break out of that range to the upside. You look in the US it’s a little it’s a little stickier, you know, inflation has been a little more persistent. That data has been I wouldn’t say bad but not as good as in Canada. You know, that being said there’s there’s some very important data prints happening you know, right now now, we’ll see how that continues to develop, you know, I do think we’re kind of towards the end, but there’s still going to be some volatility, to probably manage just as we do this last kind of call it two innings or 10-15% of the interest rate hiking cycle. So that’s, I think, what we’re seeing in the US, I think that’s essentially what’s kind of contributing to this range kind of bound behavior, of course, we’re going to be keeping a close eye for, you know, a potential economic slowdown or hard landing. But, you know, overall, you know, labor markets are still quite healthy. And so, you know, the potential of a moderate recession or moderate softer landing, I think it’s still there. 

But, cycle back to, you know, putting it all together, I think the way to look at it as long term opportunity. And, you know, we know, the long term opportunity with Canadian banks has historically been, excellent, outperformed the Canadian equity broad market, you’re looking at four and a half percent yield, right now. So, you know, do you put every last penny to work right now? Well, you could debate, maybe you stage into it over the next few months. But I think, buying now, with a long term hold pattern, it’s going to work out positively for investors. And we, again, we might break that range to the downside, but it will be temporary, the banks, have that track record in the market in general, that will eventually break out to the upside as as everything normalizes just could take a little bit of time. So that’s the way I’d look for it. And, you know, encourage investors, as always take that long term approach.

Dan Stanley: Yeah, thanks, Chris. For that reminder, that’s a really important point, because, you know, we talk about the price range of ZEB. But we have spoken on every single one of these podcasts at the end of the day about the importance of that the dividend yield of the Canadian banks as an income producer, at providing that dividend to Canadian investors. And to your point, four and a half percent yield, get paid to wait, it’s quite an attractive yield. In that respect. I want to come back to Sohrab. You know, Chris, you made an interesting point about we’re keeping our eye out for a hard landing Sohrab coming back to you, you know, when we last spoke, you didn’t mention that you had reduced 2023 earnings expectations for the banks. And I think it was by about 5%, correct me if I’m wrong, and based on the assumption of a short and shallow recession. And if I look at some of those red flags or things to look out for in the banks, you know, none of the banks raise dividends, this quarter, provisions for loan losses seem to be higher across the board, you know, the three month tenure curve remains inverted. Talk to us a little bit about loan growth, capital ratios. Was there anything that surprised you this quarter? And does your assumption of that short, shallow recession still hold?

Sohrab Movahedi: Okay, I’ll start off by saying the fact that they did not raise dividends was not a surprise. They obviously are on most are on a semi annual cycle and the couple are on an annual cycle. So next quarter would really be the quarter we would be looking for dividend hikes. And just as a reminder, you know, the target dividend payout ratio is in that 40-50% range. And it wouldn’t be surprising to us if they bump up against the upper end of that range. In other words, dividend growth may still be in that typical call it mid single digits, even if they may not have the same level of earnings growth. But the good news is they got off to a good start this year. As I mentioned, thanks to the trading, when you kind of sit back and you think about long growth and credit costs in the macro backdrop, we won’t make, you know, calls around the economy contradictory to what our economics department does. So I think the economics department probably over the last couple of days is is just going back and double checking and rethinking I suppose or reconfirming their view on the the GDP growth outlook and the unemployment growth outlook, and those would be the primary drivers of our forecasts. But I will say and you mentioned it that we also pay a lot of attention to that three-year ten-month curve, which remains inverted. And so that’s that’s old news now, but I think what we would like to see is when that stops and starts kind of reverting back to a little bit more normalization historically. 

So I’m not trying to say this as a hard and sure, but historically, that would have been a good leading indicator of how far out we are from peak loan lights, loan losses or credit, provisioning for the banks, for that cycle. So, notice, I’m not suggesting you will give us a sense of how big that hump will be. But I think, once we start seeing that kind of the bottom of that the worst of it are behind us, and maybe, you know, still inverted curve, but less and less of an inverted curve, then, you know, you could probably say, alright, so maybe we’re around 12-18 months out from that, that peak of the credit cycle. The credit cycle, and credit provisioning, given the composition of the loan books of these Canadian banks being so skewed to varying degrees, towards Canadian residential mortgages, I think will be, the quality of it will be highly dependent on the level of employment, because at the end of the day, our experiences, Canadian borrowers will continue to service their debt for as long as they have the ability to do so. And usually, that ability outside of you know, death or divorce, or some of those types of life life altering type events, comes back to whether or not they’re employed. The size of the mortgage loans on their bank’s balance sheets is obviously huge, $1.67 trillion. So law of large numbers kind of kick in. What do I mean by that, when you think about growth, just growing on $1.7 trillion, by itself is going to necessitate some slowdown relative to last year. 

So last year, for example, you had very strong double digit type growth, maybe the last couple of years, you’ve had very robust, long growth driven by the mortgage lending activities of the banks, you know, by virtue of the fact that you have higher rates, higher borrowing costs, coupled with a regulatory regime that has made, you know, that has increased the capital requirements, not just on mortgages, just on balance for the banks through the domestic stability buffer by about 50 basis points last December, I would think of those as traffic calming measures, insofar as you know, if the banks have to get the margins on the loans, obviously, for their shareholders, but that the demand or the availability of loans will be driven by the demand for those loans. And the demand is slowing down, I think, to some extent here, as well. 

So the good news, bad news there is that you have slower long growth. But you will also therefore have higher internal capital generation. Generally speaking, all else equal. In other words, if you’re not growing your balance sheet, the existing balance sheet continues to throw off the cash and more of that cash, because of slower growth is just going to get kind of retained. And so that provides, I would say, a bit of a helpful kind of support to the capital ratios. And so all of the banks, for example, are talking about at least the ones that don’t have special situations like acquisitions, and so on pending, are talking about working their way towards a 12% common equity tier one ratio by the end of this fiscal year. You know, that’s a nice healthy capital level. Normally, I mean, the regulatory minimum is at 11, that regulatory minimum does have a counter cyclical buffer already factored in. So a little bit of belt and suspenders, if you will, implicit in that12%. 

Just lastly, we’ve touched I’ve been I’ve talked about it and you brought it up again, when you think about credit costs, obviously, it’s a big drag, if you will, on earnings, but I just want to put things in context. So we have six banks, collectively, this past quarter, so the first quarter that ended they would have collectively reported about 15 and a half billion dollars of net income to their common shareholders. 15.5 billion that number, a year ago, this quarter would have been $15.8 billion. Okay, so $15.8 billion of earnings down around 2% to $15.5 billion dollars of earnings. But the credit costs were maybe 400 million across the group last year. They were up by 2 billion this quarter. So 2.5 billion, so you had $2 billion of increased credit costs. Yet, that’s a drag, if you will, on earnings on a pre-tax basis, yet, your earnings were only down 2%. So a testament to revenue generation capabilities elsewhere, that $2.5 billion, just for context, works out to around 26 basis points of their overall loan books. And obviously, their strategies always change from bank to bank. But if you take it through the cycle view of average loan losses for the group, let’s say it’s through ebbs and flows of the of a credit cycle, maybe you’d be looking for something in the neighborhood of around 30-35, maybe even basis points. So we’re up $2,000,000,000, 26 basis points from $400,000,000, 4 basis points, let’s say last year, but we are, it would not be surprising to us for this 26 basis points to continue to drift higher, as you know, if the average is supposed to be in the 30-35 basis point range, so to speak, based on the mix of the business that they have. 

So lots of moving parts. But the bottom line here is the yield curve will give us a sense of what the peak credit may look like for this cycle. If you believe historical context, that could be in the 30-35 basis points range. So we’re still around 5-10 basis points away from that. And the yield curve can tell us when we’re around 12 to 18 months out from that we think we’re getting close to that the valuation multiple obviously, of the banks, reflects it to some extent, well, we just don’t know if you could get the rerouting until you have comfort that, you know, you have visibility into that. But we’re not worried about balance sheet or capital adequacy of the system. So it’s a question of patience, and time, before you kind of get going, I think, on this system that usually generates that 10-12% total return between dividends, earnings, and at this point in the cycle, some degree of rewriting as well.

Dan Stanley: That’s great. Sohrab I really love the context that you bring to the table when you sort of put these numbers because when they come out in quarterly earnings, they seem like big numbers. And sometimes they can see negative, but when you put them in context, for example, those credit costs, you know, the fact that they were 400 million last year, now 2 billion and net income has just dropped, you know that that very small 2%. That that is a very, very important context that I think we have to have when we’re having these discussions. Chris, I want to come back to you and I want to talk go back to talk about the ZEB itself as an ETF the structure of ZEB. It is of course, an equal weight bank ETF, which means as advertised, it is equally weighted. But I feel like we’ve had these many of these podcasts. And we’ve never really actually talked about specifically, what that means. Tell us a little bit about what equal weighting means how the process works, and, importantly, how that can be sort of thought of as a built in buy low sell high strategy.

Chris Heakes: Yeah, thanks, Dan. And it’s amazing, something simple as equal weight. But there’s actually lots to talk about. I mean, the whole philosophy of equal weighting is to just round out exposure and so when we talk about Canadian banks, just getting exposure to think about it, like the average bank, you know, a lot of indexes are built off market capitalization. And if you do that approach, then you know, it’s fine, but it but you’re overweight, those bigger banks, and then in some cases, depending on the sector, you end up really overweight, the big companies, and then the smaller companies don’t get much kind of exposure or input to the exposure, you know, overall. So that’s the principle of equal weighting is just balancing that exposure. It’s more about exposure to the group than the big companies, you know, in this case, Royal and TD, but so that’s, that’s the thought. 

So we have the six big banks in Canada, you know, in our equal weight strategy, you know, and then to get into the details, obviously, we don’t want to trade every day. So, we don’t want to rebalance every day. The way we implement the equal weight as we rebalance twice a year in March and September. And we actually have a rebalance coming up relatively soon. And what we do is we just kind of set everything back to equal weight at that time. And then what happens from there is obviously as the markets evolve in between periods, that weight will drift around a little bit. So you’ll have your outperformers will, you know their weights will increase slightly versus a pure equal weight and then your underperformers will decrease their weight will decrease in the portfolio slightly. And then so what happens obviously at the next rebalance is will again bring that back to equal weight. So what you end up doing in an equal weight strategy, like you said, it’s you’re going to sell the outperformers a little bit to bring them back out underweight and you’re going to buy the underperformers to bring them back to underweight. 

So it’s a little bit of a, you know, what we call a mean reversion strategy, right? Buy low, sell high. And, you know, that’s what it’s a kind of a nice feather in the cap of the strategy. I think for a couple reasons. One is, you know, there’s real benefit with I think, disciplined rebalance portfolios. Now, six bank portfolios are relatively straightforward, but there’s still benefit to having a disciplined rebalance framework in your portfolio. And we see that kind of across our ETF landscape in a lot of different places like low volatility, dividends, again, maybe a topic for another podcast off, of course, right. But you have that discipline. And then the other thing, like you said, is you got a bit of that buy low, sell high, built into the mechanics of the rebalance. And, you know, that actually tends to work out well, with respect to the Canadian banks. So your underperformers tend to not always, but tend to kind of be your out performers in the subsequent periods. You know, they tend to trade as a group and, you know, they, you know, they some, some get ahead of the pack, some fall behind the pack, but they tend to kind of track a similar trajectory. So by adding in that little bit of buy low sell high it, I think it actually does add a little bit of value to the fund. And of course, you know, it’s a one ticket solution for the investor. So, you know, this all happens without, you know, any action required on the investors part. It’s just a disciplined process, that’s going to happen twice a year to maintain that exposure. But yeah, definitely think that little buy low sell high aspect is, you know, a little feather in the cap of the overall strategy.

Dan Stanley: Yeah, thanks for that, Chris. I love, I mean, whether you call it mean reversion, buy low, sell high, look, investing people and their money, it is very psychological. And having that discipline in place embedded in the ETF is a fantastic advantage to owning ZEB. Sohrab, I want to come back to you. We haven’t mentioned TD and TD was in the news. We’ve talked about this in the past the issue about risks that goes along with inorganic acquisitions, and the announcement that TD doesn’t expect to get the regulatory approval to close its First Horizon acquisition before that May 27 deadline, sort of it seems to reinforce this message is can you talk a little bit about it? Is this sort of delay? Is it common? Can you even speculate as to why this might be happening? And I guess most importantly, is it a concern for TD’s US expansion plans?

Sohrab Movahedi: The quick answer is we just don’t have a whole lot of detail here. What we do know is that it’s peculiar that maybe two or three weeks after TD and First Horizon, the acquisition target here, had put out a joint press release, saying that they’ve both kind of mutually agreed to push out the termination date, if you will, to May 27, you would get a filing out of First Horizon that would suggest that TD doesn’t expect that May 27th timeline to be met. So something kind of transpired. 

Look, we are, I don’t want to say we’re spoiled. But you know, in Canada, we’re lucky we deal with really one regulator, when you go into the US, you know, you probably have a web of regulators you have to deal with in the case of TD, which, again, in Canada, we may take this for granted, because all of our big six banks are considered to be domestically systemically important. You know, in a global context, only Royal Bank and TD make it to the list of globally systemically important financial institutions. So in this regard, you know, you have a regulatory framework in the US trying to sort through an acquisition, which always takes a little bit longer, and I think involving a G-SIFI probably complicates matters. So the fact that it’s delayed is not uncommon, the fact that it’s delayed without details to us, was this something procedural? Is this something from a you know, is this a regulatory constraint? You know, that uncertainty in our view is a bit of a net negative. 

And so you know, whether or not it’s a concern for TDs US expansion plans, and then I think, will really depend on the reason that, that this delay has happened if the reason for the delay is that there is a regulatory restriction on a globally systemically important bank to continue to acquire depository or deposit taking institutions, then I would say, yes, it would be a negative from a TD perspective, because now you would have a bank that, arguably is capital rich, but with more limited vectors to deploy that capital inorganically. So maybe I’ll leave it there, obviously more to come on this as we learn additional details as they kind of transpire. But I do think this makes earnings targets for TD, at least for us fundamental analysts a little bit more of a moving target, which probably will weigh on the earnings multiple that investors are willing to put on it.

Dan Stanley: I appreciate that insight Sohrab. Thank you. Thank you for that. It, it’s certainly it seemed to be a surprise to investors, and it certainly was front page of the news when that news came out. Guys, I want to shift gears and we’ve talked about the issue of real estate very often. I know you guys aren’t real estate specialists. But I want to bring it back to the banks and in particular Sohrab you talked about the composition of a Canadian banks loan book being very, very heavily weighted toward mortgages. And so I want to end the discussion today on the news, that data that CIBC released showing that $52 billion worth of their mortgages, which is roughly about 20% of the bank’s $263 billion loan portfolio, that they’re in a position where the borrower’s monthly payments was not high enough to cover even the interest portion of the loans. And that the bank has started to allow these borrowers to increase the amortization period adding unpaid interest onto the original loan or principal. Can I ask you, let’s Chris, let’s start with you. And then we’ll go to Sohrab. Is this a surprise? What does it mean for the banks in general and real estate in Canada?

Chris Heakes: Yeah, thanks. I mean, I guess it’s surprising in that, you know, we haven’t seen this kind of dynamic in a long time, obviously, to have inflation where it is and interest rates where they, where they are, it’s been a while, you know, to me, this seems like a prudent way of dealing with a bit of a shock in the system is, you know, obviously working with borrowers to amend and adjust, agreements, so that they, continue to have, those agreements fulfilled eventually over time. So, I think this is just a case of, having to work with borrowers. Certainly, we know that, affordability is going to be an issue, with interest rates, where they are, in real estate prices adjusted a bit, but, qualifying at 5-6-7% mortgage rates, it doesn’t take an ETF portfolio manager, or a financial expert to understand that, that’s going to be costly for people. 

So, the way I look at it, as you know this sounds like a very reasonable thing to do. I think, as we get this normalization over the period of a couple of years, inflation is moving in the right direction, and, especially in Canada, you know, looks like it’s coming down to kind of more normalized levels over time, maybe it won’t come all the way down to a 1%. But, you know, if we get back to kind of two 3%, get those interest rates down accordingly, I think this is this is a normalization period. And this is, going to be, something that borrowers and banks alike are going to negotiate. But, you know, just as a silver lining that, has been mentioned a couple of times on the call is just having those diversified product mixes from a bank perspective. You know, just to take it back to bank investing, it’s nice that you can have, trading revenue really be a wind in the sails and other businesses as well to help mitigate maybe, perhaps there’s less mortgages getting underwritten these days type of thing. So, that’s a good thing for banks overall, that they have a diversified business, so that’d be my thought there.

Sohrab Movahedi: Dan, what I would say, is maybe a couple of things. So, you’re right, you quoted some statistics from CIBC, just to be crystal clear, that will not be unique to CIBC, they’re just, you know, they’ve taken the lead, I suppose, in giving good disclosure. It is a commoditized product, the mortgage product in Canada. So it would be difficult, I guess, not impossible, but it would be highly improbable that in a very well defined homogeneous commoditized product, you would have distinct credit quality differences from one bank to the other, at least amongst the Big Six, especially given the sandbox that the regulator permits them to underwrite in so I tend to agree more broadly, with Chris, that the alternative of not working with borrowers to keep them in the home and figuring out a new payment schedule, is probably far more painful for everyone, including the economy. So at the end of the day, I think the right answer is to try and keep borrowers who are able to ultimately service their debt, with that with a little bit of benefit of time. And that’s just my own personal view. 

And I think from a bank’s perspective, you know, bank investors probably worry about this from two fronts. Number one, what does this mean as far as credit quality and kind of go back to the earlier part of the conversation, or do I have a big time bomb as far as credit losses on my hand? And I think the other part of it is, if not, then, if we have borrowers, mortgage holders that are trying to service their debt responsibly, does that just mean there is less of their available cash flows every month to go elsewhere? You pick it. Do we have to drive the car one more year, to be go out for dinner? As many times you know, can we take a vacation? so all of that kind of stuff kind of factors in the way we look at it. And I think, time will tell, but we don’t expect this to be a credit event, or a credit shock, or a tail risk of shorts coming out the banks, from a credit quality perspective. But this will be potential drag on the economic activity, again, from that discretionary spending of the consumer. So that’s a potential net negative. 

And then I would suspect, as the banks, you know, in a Canadian made solution work with the regulators and the legislators to keep folks in their homes that have been kind of stretched over here, as amortization kind of increases, as you have some of these triggers on the mortgages, there’s no doubt that the risk associated with that loan goes up. And one way to address the risk associated with that loan would be to obviously provision incrementally more for it. But another way is to also increase the risk weight, and therefore the amount of capital that is held at the banks. So the banks are well capitalized. And it could very well be that they’re moving towards a 12% CET1 like I mentioned, capital ratio, regulatory capital ratio, like I mentioned earlier in the call, in anticipation of some negative migration in credit quality and risk weighting, so that they could absorb it. 

So Canadian housing, as you know, has been a very important topic. And it continues to be a very important topic, but we’re not trying to, roll our shoulders or brush it under the rug, so to speak, but you do have responsible participants in the ecosystem, trying to make sure that it is wrestled in as an overall eco-friendly, so to speak, fashion as possible. And I think that will mean that the banks will have a role to play. But I don’t think it will mean that the banks will have to wear the burden of it. And remember, most of these mortgages that we’re talking about, don’t come up for renewal probably until 2024. So, we have the benefit of time, I’ll call it that if rates actually start to come back down. They may get closer to the levels that some of these mortgages would have been qualify at because again, rates may have been at zero mortgage rates may have been low, but the regulator would have required the Canadian banks anyway, the Big Six to have qualified these are a bit of a stress they’re kind of level so there is some embedded buffer, if you will stress test in here. But that’s more of an academic exercise. As a practical matter, I think delaying, call it extending delay, is probably better than the alternative, which is foreclose and write off. So, I think we, we chin up for a bit of a slower growth outlook, but at the expense of not having to take large losses.

Dan Stanley: That’s great. Sohrab, Chris, thank you very much it. Yeah, I agree. I mean, the very unfinancial statement I would make as it sounds like the banks are at the end of the day, they’re rolling with the punches. There’s Sohrab as you mentioned, there’s responsible participants, we have the benefit of time, doing the alternative would certainly be worse. 

Guys, thank you very much. I just want to remind the audience that you can get exposure to Canadian banks via ZEB, which trades on the TSX that is the Canadian Equal Weight Bank ETF. You can also get exposure to some of our other bank ETFs. We didn’t talk about our US Bank ETFs ZUB, ZBK, which also trade on the TSX. 

If you have any questions, please visit our ETF Dashboard at bmoetfs.ca for research news and insights. Guys, that’s all for today, folks, I want to thank you for tuning in. Please join us for our next update on Canadian banks in three months time.