RE:RE:RE:RE:This Quarters Results.Commercial lending will always be more risky than mortgage or retail lending. If 100% of the portfolio was mortgages, at least 60% would be insured, meaning the Bank suffers zero loss on delfault. On the remaining 40%, to be uninsured the borrower had to put down at least 25%. Until house prices drop more than 25% from what the mortgaged house was bought at, not necessarily the most recent highs, the bank is still fully secured. Even if house prices drop 40%, only about 3% of mortgages go into foreclosure per year during large downturns, so still very limited loss exposure. Most commercial loans have very little realizable security on them. When they go under, the Bank typically gets 10 to 20 cents on the dollar for the security.
Now, all that said, I don't think CWB is in any dnager of going broke. They are badly run, but that is in comaprison to some of the best run Banks in the World like TD and RBC. If CWB gets down to 21 or 22 buccks, I will pick some up for a short term hold and re-sell but this is not a long term hold opportunity given the much better choices.
zforzebra wrote:
DE, Just looking at stock perfomance. CWB is clearly worse than its peers. For a turnaround play, I'm looking at the relative ability for the company to survive a downturn ahead. I think it should be okay in that regard. Do you think there is serious chance it can go under?
The fact that is it trades only in the TSE, whereas the banks trade in the NYSE as well, is a good thing as it is more possible for it to be priced incorrectly.
I read reports about how it's so awful that CWB has relatively low exposure to the mortgage loans. I thought wow, that's awesome. Mortgage loans are very dicey at moment as apparently 50% of mortgage are variable rate (if the article I read was telling the truth). Commercial and industrial loans are deemed to be more risky. Perhaps generally, yes, but in this environment, it's a questionable premise.