TD (TD:TSX|NYSE) is being Fined & Canadian Mortgage Changes!

[Music] so yeah I've been you know doing a recurring segment on the podcast uh since May of 2023 so about a year ago uh which was spurred when I discovered that Canadian Banks were beginning to extend mortgage amortization periods on outstanding mortgages uh to essentially help ease the pain of some Canadians facing higher interest rates and ongoing inflationary pressures um but over the second half of 2023 Banks were beginning to get this uh under control um so again you know just to preface it for my segment uh I'm going to quickly look at TDS Q2 2024 results uh their recent anti-money laundering investigation by the Department of Justice how it could potentially impede their growth in the US uh and then I'll highlight their mortgages by remaining amortization which will then flow into looking at some recent news in the Canadian mortgage space so first off here just looking at the financials Q2 24 uh Revenue grew or this is for TD uh Revenue grew 10% year-over-year and this was driven by momentum in its markets driven businesses and higher volumes and margins in Canadian personal and Commercial Banking uh adjusted EPS was up 6.8% to $24 uh for Q2 and declined 2.4% year-to date to $44 Cent and Provisions for credit losses were about 1.07 billion an increase of 58% which was in line with TD's guidance uh and if you remember last time I did the segment in late 2023 uh Provisions for for credit losses were actually much higher than expected by analysts uh which was a common theme among uh the banks so for fiscal 2024 management believes uh it will be challenging for the bank to meet its medium-term adjusted EPS growth target range of 7 to 10% and return on Equity Target of 16 plus% now the bank also has a 2027 Target of adding 150 additional branches in the US however uh given the US Department of Justice in investigation on how Chinese drug traffickers allegedly used the bank to launder 653 million us and bribed TD employees to do so this growth in US branches and US assets could potentially be hampered now TD noted that it set a side about 450 million us to be paid to one of the regulators and is bracing for other fines uh with some analysts indicating that fines could be upward of 1 billion now TD's management said in their conference call that while growing their branches is important for longer term growth in the US in the short term they are focused on the uh on their digital and mobile strategies uh and on May 3rd uh the bank announced that the overhaul of its anti-money laundering prog program is underway uh with the bank investing over 500 million in program remediation and platform enhancements and as well uh I brought this up at the end of 2023 uh but TD initiated a restructuring program which is expected to generate approximately uh 400 million Canadian in pre-tax in Savings in fiscal 2024 and an annual run rate Savings of approximately 725 million Canadian uh pre-tax and management noted uh that they are on track to achieve these savings now looking at the mortgages by remaining amortization uh we are seeing the number of mortgages with an amortization period of greater than 30 years come down to about 17.9% uh of all Canadian mortgages um that's basically oh you can't see it on the screen was going to just show you where it is I'll get Brett to highlight it for you so you can see exactly what I'm looking at um so and this is down from about 21% from October of 2023 um but again just as a reminder there were zero mortgages which had an amortization of greater than 30 years in October of 2021 uh so while it is improving if we compare it to you know two and a half years ago when rates were significantly lower it continues to be at elevated levels now while uh outstanding mortgages with an amortization of greater than 30 years are declining on the bank's books uh the liberal federal government announced that uh it would now allow firsttime home buyers to take out an insured mortgage advertised over 30 years up from the traditional 25 years uh and the move will take place on August 1st of 2024 and will allow Canadians to essentially lower their overall monthly mortgage costs on the loan however of course over the long run it means that borrowers will have to pay more in interest so here is a quick example to show how much more interest one would be paying on a $400,000 mortgage if they extended their amortization period to 30 years uh rather than the conventional 25e mortgage so for my example I'm using the Assumption of a 5% interest rate and for the 25-year mortgage a borrower's monthly payment would be about $191 more uh than the 30-year mortgage but over the life of the mortgage a borrower would be paying about $71,000 more in interest so while the Liberals may be making it easier for Canadians to purchase a home uh it is in fact costing Canadians about 24% more in interest over the long run on my specific example here now we have talked about this before given the elevated interest rates uh but just to S finish up my segment and open it up to the guys here uh the Canadian Watchdog osie uh released last week that 76% of outstanding resident res Residential Mortgages as of February will be coming up for Renewal uh by the end of 2026 with about 15% of those mortgages having variable rates so the longer rates stay elevated here the longer those households will be dealing uh with the looming Financial strain I know we've been talking about it before uh a lot of people have been talking about about it when is this pain going to be coming uh there may be more pain potentially coming here um but yeah so I guess that is essentially it and I will open it up to the guys if they have any comments on TD or just mortgages in general well it's interesting the 76% of mortgages due in 2026 because I mean I I I have read that um there are a high percentage due in 2026 I didn't get that exact percentage so that's that's interesting to know and it makes sense because if you think most people do a five-year term you know that brings you back to 2021 right yeah um when when rates were much lower um so yeah exactly I mean I have two friends that I mean I'm sure I've said this on the podcast before but two friends that I mean it was like either 2020 or 2021 when they bought their homes you know so uh they're in the same you know pool there uh part of that would be uh people were opting over the last couple years now for shorter term mortgages with the expectation interest rates are going to go down is true and just you know the fiveyear rates they do have those embedded in it the expectation that it will go down that's why you'll see a five year rate right now will actually be lower than a threeyear rate or a two or a one year and that means that Banks and the entire bond market fixed income Market expect rates to go down so you're not exactly playing the market if you are thinking that because I have seen that occasionally online but good point overall or you're making you're making the assumption that the rates are going to come down more than what yeah exactly that's really what you're betting on not that they're just going to come down it's more than the expectations and that's but a lot of people are saying oh it's it's just they're going to come down I should say they're taking a more simplified view than what's actually going on the banks have outsmarted you unfortunately and they probably still will for that it's like it's like going to Vegas and trying to outsmart the casino they've been at this for a while like it's uh that's an uphill battle so if you think you're smarter than the casino or the bank then there's a problem I did it my last time in Vegas so I mean just kidding that wasn't even your money I think so I'm just being a boo something was smart there yeah all right [Music]