How Canada's banks would fare in a housing downturn
Canadian investors need not worry about the country’s major banks in the event of a housing correction and should take any pullback as an opportunity to load up on the lenders’ shares, according to Cardinal Capital Management Analyst Robert Lam.
“The losses will not be as substantial as people think, yet the sentiment may sour and you should be greedy when others are fearful in that case,” he said in an interview on BNN.
He points to past economic events, like the oil crash, as a good example of Canadian financial sector resilience, saying the big bank stocks fell about 30-40 per cent from peak to trough, but came roaring back to reach new highs.
Lam says a housing downturn might be a growth and sentiment issue for the sector, but wouldn’t be a fundamental problem.
“Even in the event of a substantial correction, this is not like the U.S. in the 2008-09 time frame,” he said. “Underwriting standards have tightened, rather than loosened; and, for the most part, history dictates losses haven’t been that great in stressed times.”
“They’ve shown that we can trust them and that they do have good risk analytics and they have been able to manage through these problems in the past.”