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Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials, with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.
Josh Sheluk:What's the headline today, Colin?
Colin White:Oh, the headline. So you wanna talk about TD. You set aside another $2,600,000,000 US to pay a fine for any money laundering laps in the states. It's interesting to note that, you know, when you get bad at money laundering, you don't have 1 or 2 people come to you. They all come to you.
Colin White:So that's the unfortunate position TD, I think, found themselves in. They became the go to place if you needed to launder money. But in related news, fees are going up.
Josh Sheluk:When you say they got bad at money laundering, what you actually mean is they're really good at money laundering or or at least they'll get their lines obscure. Exactly. Yes. Exactly.
Colin White:Bad at catching it. And this is the sand in my shorts because everybody talks about the Canadian banks and, you know, your shareholders and all the rest of it. But they keep wading down into the US and you keep having all of these epic headlines come out of there because again, they're not the operators they think they are and they take these chances. You know, TD in the in the US is the 10th largest bank, you know, so they're they got significant size down there. But now they have a huge regulatory headwind because the regulators are, you know, gonna stand in their way about making any more acquisitions or growing their business down there.
Colin White:And they're still not sure what the total fine is gonna be. Like, they're still setting aside money, hoping they're setting aside enough money for the fine. So is that gonna mean lower fees for Canadian, you know, clients of the Canadian banks? No. They need to take the profitability from up here to pay back all the money they lost down there.
Colin White:And that's just not fair. I'm sort of kind
Josh Sheluk:of curious. Some leaps there. I'm sorry. But I
Colin White:can tell you I am making I am making leaps. Yes. But I will stand by my leaps. You can't tell me that bad operations that cost money does not affect the shareholder and does not affect the client and the offering you can put forward to the client and the required rate of return that you're gonna need in order to meet all your targets. There's you're right.
Colin White:It's not a direct line, but the system, you squeeze the balloon, the other side of the balloon gets bigger.
Josh Sheluk:Yeah. One of the things that you mentioned and you and I have been talking about for a while is the Canadian banks have this continued foray into the US. And one of the the points that I made on our investment call yesterday was Canadian banks operate in a pretty unique environment and a competitive landscape here in Canada and that there are so few that are so dominant, and there are regulatory reasons why that's so. And that has helped, I think, we believe, to drive profit margins and what's called return on equity higher, for Canadian banks in Canada than really any other banks on the planet. So the question is, you kind of threw your hat in the ring on what your opinion is, but the question is, are the Canadian banks more profitable because they operate in Canada in a unique market environment, or is it because they are such better operators than every other bank on the planet?
Josh Sheluk:And I think it's well, go go go for it. Your opinion.
Colin White:Well, given the bad news that we keep getting about them shutting stuff down and getting fined in all other parts of the world. I don't see any evidence that there are global operators, on on some new scale. I mean, the difference in profit margins aren't like a couple percent. Like, it's almost double, you know, in in Canada compared to other parts of the world. And, you know, I think when they sit in the boardroom, they all sit around the table and say, yeah.
Colin White:We're awesome operators. We can do this anywhere else. Like, this this is a scalable operation. And they go to another place and they realize that, no. That's not true.
Colin White:And and again, at at the end of the day, and I will stand by this, it does not improve their ability to serve the Canadian public in the the responsibility they've been given in in the most cost effective way. It it it doesn't serve that purpose. You know? Again, maybe not a direct line, but I think if you follow the line long enough, it is you it that there has to be truth there.
Josh Sheluk:Yeah. So probably probably true. And I think for the record, they are and mostly have been Canadian banks mostly have been profitable in in foreign jurisdictions. Yep. May not maybe not as profitable as they have been in Canada, but they have been profitable.
Josh Sheluk:And and I think you can define success in different ways. I don't know I don't know if I'm defending the Canadian banks right now, but it sounds
Colin White:like it You you keep keep going. I'm enjoying this.
Josh Sheluk:Well, I just need I just needed to provide a little bit of balance to your coming through the, the door, all a storm pounding your chest.
Colin White:Well, okay. Well, let let let's step back. Let's go back to the podcast that we just recorded that everybody should go listen to on dividends. You know, if as a a shareholder in a Canadian bank and they've they've been profitable, if they cannot redeploy that capital at the same level of profitability, give it back to the shareholders and let them redeploy it somewhere else. Because right now what they're doing is taking money at a really high profit margin and pissing it up against the wall at a lower profit margin.
Colin White:Now yes, profitable for sure, but lower. Don't make that determination for the shareholders. Give it back to the shareholders and let them decide. Maybe they wanna invest in a US Bank. Because again, the fiduciary to the to the shareholders and what's gotten in the way is corporate compensation.
Colin White:I'll I'll put that out there too because any corporate CEO or any c suite person has gonna have a mandate for growth and that's how it's gonna drive their career and that's what's gonna drive their compensation. They're gonna sit in the room and convince themselves they're the most amazing operators ever. I mean, I I probably could write the agenda for the meeting, but it's it's not in the best interest of the shareholders in Canada, and it's not in the best interest of their clients in Canada.
Josh Sheluk:Yeah. I think I think that's fair. And, I think we do it's hard to say with perfect foresight exactly what they're going to be earning in terms of profitability and whether that's better than their shareholders can get elsewhere. So it's not as cut and dry black and white as as you're making it sound, but I do think there is probably some, mixed incentives there for maybe not being optimal for the the shareholder at the end of the day.
Colin White:Mixed incentives. You know, water finds every crack. Like, when you pour water on something, I mean, that's like greed. Greed finds every crack. And greed is greed is very water like.
Colin White:So but no. It's, yeah, it's just another stark reminder. And and, again, it part of it is Canadian banks all all defend the Canadian banks for a second. The Canadian banking system is one of the most stable and the most revered in the world. Like when the rest of the world is struggling, like we don't have bank failures in Canada like they have in the US.
Colin White:We do not have, you know, even during 2008, the Canadian banking system was seen as something that the rest of the world wished they had. Alright? So, yeah, I'll stand behind it. It's absolutely the envy of the world in that regard. But come on.
Colin White:You you can do better. You know, stop being lazy. Like, just do the right thing. You can you can still be big and awesome and and not be so dumb in in some respects.
Josh Sheluk:Yeah. Bigger picture, it's tough to read too much into the the TD results because it is, likely something that's temporary where they've thrown a lot of, kitchen sink. I I call it dirty laundry into 1 pile this time around.
Colin White:All of a sudden, in my previous life as an accountant, I was sitting at the desk when that happened. It was like, you know, the operating results get to a certain point. Literally, they said, okay. What else do we got? And everybody went looking.
Colin White:And like as a junior accountant, I'm going, really? This is how it works? I was shocked. I was appalled. I was dismayed.
Colin White:But yeah, it really is a thing because life is an expectations game. And the difference between disappointing your wife a little bit and disappointing your wife a lot, it's it's it's not that material. Once once once
Josh Sheluk:she's disappointed careful. Oh, no. Listen to this?
Colin White:Oh, absolutely. Yes. Once a disappointment well, I might as well disappoint her a lot because then I I could build back from that, and I I could be a hero sometime. So it's an expectations game, Josh.
Josh Sheluk:Yeah. Anything else market related that you're seeing that's catching your interest this week?
Colin White:Well, no. I mean, you had a good observation there about, you know, the panic and end of Earth. It seems to have been overdone.
Josh Sheluk:Yeah. Well, 2 weeks ago, we thought the world was ending. And today, I think we're making new highs or close to it with, with global stocks. So it's amazing how stuff changes on a dime and how people can, investors can panic pretty quickly and unpanick, if that's a word, just as quickly.
Colin White:Unpanic is great. Oh, listen. We had that, revision on the jobs numbers come out that was seems a little bit material. There was the, jobs numbers are overreported by 919,000 over, what was the 6 month period or an 8 month period?
Josh Sheluk:I think so I think it was, it was around 800,000 over the last 12 months is what I saw. But I think what whatever the the number is, it's it's something that I I noted yesterday. We've been seeing consistently where jobs in the US have been reported at, one number, and they get revised several weeks later when there is more data to a lower number. And that's been consistent for much of the past 2 years where they've been revised downward. So it's one of those things where at first blush, things seem okay.
Josh Sheluk:And then when you get more data, things are maybe less okay than people thought. So it it it also highlights one of the things that we talk about a lot that it's hard to rely on these numbers to make any decisions because for 1, they're lagging. So we're reporting what happened last month or 2 months ago or whatever. And 2, as we're seeing, they're constantly revised. So even when they're reported, we don't even know what the right number is anymore.
Colin White:Yeah. And then and, again, anecdotally, and I I haven't gone back and I just done the math on this, but it seems that it lags. When things are on their way down, they tend to be overstated and then get restated down. When they're on their way up, it seems to go the other way. And I think it just comes with the in trying to measure the number of jobs last week, oh, come on.
Colin White:Like are you in a plane flying across the country looking down and counting people walking to work? I mean, where where is your information coming from that quick? I mean, you know, obviously you're making some assumptions and making some leaps in there to to come up with the number, but it does move the market on a daily basis. It does move interest rate expectations on a daily basis. The restating of the 8 or 900000 jobs, I don't see that I saw a ripple in the market over that.
Colin White:So all of those reactions. Yeah. And that's a material percentage adjustment. I think the average went from 200 and some 1000 jobs to 170. So I mean it was a material number, like percentage wise of the actual numbers that were reported.
Colin White:Yep. There wasn't a blip. And going back to what the federal reserves are looking at, both the US and the Bank of Canada are looking at, you know, they they probably have, you know, more information sources than we're looking at, and may you know, let's give them credit for a second, Josh. I'm gonna stand up for the US Federal Reserve. They might have seen this and and weren't as surprised by this as maybe the rest of the street was or maybe not.
Josh Sheluk:Well, let me argue that the rest of the street wasn't as surprised either because the market didn't move at all. So if it was truly surprising, then the market would have moved a little bit more materially than it did. Like I said, this has been a trend for a couple years now. So Yeah. It might not have been a surprise to investors in aggregate, that they were revised down.
Colin White:Yep. Nope. Maybe that's true. But then again, we're just guessing. So and that's really all we do, isn't it, Josh?
Josh Sheluk:Educated guessing, Colin.
Colin White:Educated guessing sounds so much better. That sounds much more expensive. Yes.
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