Bank of Nova Scotia snares ING for $3.1-billion


The Globe and Mail

Bank of Nova Scotia agreed to buy ING Bank of
Canada for <QL>$3.1-billion in a deal that marries one of the country’s
largest financial institutions with an aggressive upstart that built its name
on being different than the big banks.

The deal, the largest sale of Canadian
banking assets in more than a decade, will see Scotiabank acquire the Canadian
operations of Dutch bank ING Groep and operate them as a standalone business.

It is the largest deal by dollar amount
Scotiabank has done in its 180-year history and adds <QL>$30-billion of
deposits to its operations.

With a total of $175-billion of Canadian
deposits when the deal closes by the end of this year, Scotiabank will be the
country’s third-biggest bank by deposits. It is already Canada’s third-biggest
bank by assets.

The deal will require Scotiabank to sell
roughly $1.51-billion worth of shares in a bought deal to help fund the
acquisition. The bank is selling 29-million new shares at $52 each.

ING’s assets come with considerable cash on
the books, which Scotiabank will absorb. This excess capital means Scotiabank’s
net investment will amount to $1.9-billion.

A primary concern for Scotiabank, however,
will be retaining ING’s customers, including many who opened an account with
the upstart bank because it offered an alternative to the major banks.

ING Direct Canada launched in 1997, eschewing
branches and offering no-fee Internet banking accounts with higher interest
rates than the Big Six, branding itself with the slogan “Save your money.” Over
the years, ING built up a base of 1.8-million customers.

Aiming to retain those customers, the bank
said it will preserve the business model and not cross sell Scotiabank products
to ING customers.

“We recognize that success and are committed
to keeping this unique platform,” said Rick Waugh, president and chief
executive officer of Scotiabank, in a statement.

The ING Direct brand will remain for 18
months before Scotiabank renames the operations.

ING, the country’s eighth-largest bank, came
up for sale when Netherlands-based parent company ING Groep NV announced it
needed to raise capital to endure the European debt crisis. It’s not a
distressed entity – in fact its assets amount to $40-billion – but it needed to
be sold to repay aid from the Dutch government, and to help ING Groep meet new
capital requirements.

Bank of Nova Scotia has always been strong in
international banking, with operations in more than 50 countries. But the
perceived weakness of the bank in recent years has been in increasing its
Canadian deposits, which this transaction addresses.

The assets are believed to have drawn the
interest of several of Canada’s Big Six banks in the early stages of the sale
process, since such assets rarely go on the block in Canada.

“Bottom line, the ability to add $30-billion
of core deposits in a single transaction is clearly quite rare in the Canadian
banking arena,” Macquarie analyst Sumit Malhotra said in a recent research note
when ING went on the block.

Royal Bank of Canada holds the most Canadian
deposits at $227-billion as of the end of the second quarter, followed by
Toronto-Dominion Bank at $209-billion.

CIBC is now fourth at $147-billion, followed
by BMO at $105-billion at fifth, and National at $38-billion and sixth.

ING Direct CEO Peter Aceto said in an
interview that Scotiabank’s strategy to operate the bank separately gave him
comfort in the deal. “All the reasons why our customers came to us in the first
place are going to be maintained and continue,” Mr. Aceto said.“It’s because of
that view that gives me a lot of optimism about customer retention.”

One of the plans is to introduce a credit
card, an offering ING set its sights on prior to the news of a sale. Scotiabank
will work to bring a card to market in the near future.



CMHC is NOT expecting house values to decrease going into 2013…

Good news for home owners…for buyers, you may want to stop hesitating and start buying.

CMHC predicted a more moderate slowdown in sales. What it is not predicting, however, is a fall-off in prices.

On average home prices are between $351,000 and $378,400 in 2012. Home
prices next year will be around $358,000 to $395,800, according to
CMHC’s calculations.

Save up for a down payment? The young adult’s struggle.

Special to The
Globe and Mail

If you asked 100 recent home buyers if they were satisfied with the size of their down payment, as many as 60 of them would say no. That’s what TD Canada Trust found in a recent survey of first time home buyers.

This finding is hardly surprising: A bigger down payment means less interest paid, easier
refinancing, lower mortgage insurance fees, and a bigger equity buffer if home
prices slide.

The challenge, in a world of record-high debt ratios, skimpy investment returns and towering home prices, is saving a sizable deposit. Frustrated by the long, slow process,
some new buyers would rather throw in the savings towel and get the keys to
their new home faster. In fact, 55 per cent of first-timers surveyed by TD said
they would buy sooner if they had a chance to do it all over again.

The problem is it takes time to save up a down payment.

The minimum price of admission to home ownership is currently set at 5 per cent. (This
ignores 100 per cent financing – also known as cash-back down payment mortgages
– because they’re usually ill-advised and they may not be around for long.)

People who responded to the TD poll estimated that it takes an average of “two years or
less” to save a 5 per cent down payment and “one to four years” to save a 10 to
20 per cent down payment.

If that strikes you as optimistic, you’re not alone.

For today’s highly leveraged consumer, saving a down payment isn’t as easy as it was in the early 1980s when personal savings rates exceeded 20 per cent.

The national average purchase price for a first-time buyer has soared to roughly $295,000,
according to a May estimate from mortgage insurer Genworth Financial Canada.
That means the average first-time buyer would need to save more than $16,000 to
cover the minimum 5 per cent down payment and closing costs.

For a 10 per cent down payment and closing costs, he or she would have to save at least

How long does it take young people to scrape together that kind of money?

Doug Porter, deputy chief economist at BMO Capital Markets, says the rate of savings has
been trending near 4 per cent and the median family income is just shy of
$70,000. “The median family would, by this measure, be saving about $2,800
annually,” he adds.

The annual cash savings of first-time buyers – who are on average 34 years old, according to CMHC – would be somewhat less than the median family. And understandably,
socking away a good chunk would be even harder for a single person.

“I would suspect that on a median basis, just to get in the housing market (with 5 per cent
down), would take about four to five years of saving. Cobbling together a down
payment is a big challenge for first-time buyers,” Mr. Porter says.

“Frankly, I think that’s one of the reasons why the government hasn’t raised the minimum
down payment. It’s almost a nuclear option.”

None of this is meant to discourage saving for a down payment. Saving longer gives you a bigger cushion if home prices tumble and you need to sell.
The last thing anyone wants is to owe more than their home is worth.

It also gets you a better entry price if the market sells off before you buy. According to surveys of housing forecasters, a price correction in the next few years is the most
likely scenario.

In terms of mortgage costs, buying with 10 per cent equity, versus the 5 per cent minimum, can save the typical entry-level buyer up to $80 a month in payments, plus
almost $2,400 in default insurance premiums. These savings, however, can easily
be overshadowed if home values march higher. Buying today also lets you lock in
abnormally low fixed mortgage rates for up to a decade.

But as a first-time buyer, you’ve got other things to consider, including:

• Your rental costs. (Are they higher or lower than your potential ownership costs?)

• Alternative uses for your down payment money. (Can you get a better return by investing
down payment funds elsewhere?)

• The size of your emergency fund. (Home ownership comes with a laundry list of unexpected expenses.)

• Your economic stability and future earning power.

There are several ways to piece together a bigger down payment. You can:

• Cut your spending. “If you are saving for a house you might be a little more aggressive
than the average saver,” Mr. Porter says.

• Tap into the bank of mom and dad. Gifts from parents get a lot of young people started as
home owners.

• Borrow from your RRSP under the Home Buyers’ Plan (HBP).

• Apply tax refunds and bonuses.

• Receive an early inheritance.

• Get rid of one car in a two-car household.

• Postpone a vacation for 18 months or more.

• Use municipal first-time home buyer grants when applicable (like this
in Winnipeg, this one in Surrey, BC, or this one in Saskatoon).

People need to pay some sort of shelter cost, either in the form of a mortgage or rent, says
TD Canada Trust’s director of mortgage advice, Farhaneh Haque. “As long as
people have gone through the exercise of understanding what money they have
coming in, asking is my job stable, will my income increase or decrease,
looking at their financial strength…and building in a cushion for potential
interest rate increases,” then a decision to buy a home sooner often makes

TD’s advice for first-timers is to aim for 20 per cent down. But simple math shows that a 20 per cent down payment could take some people over a decade to accumulate.

The reality is, waiting that long is not in the game plan for most young people.

CMHC forecasts slowdown in housing market


TORONTO, OTTAWA — The Globe and Mail

Published Tuesday, Aug. 14 2012, 9:04 AM EDT

Canada Mortgage and Housing Corp. revised its forecasts on Tuesday, saying Canadians should watch for the housing market to “moderate” as both home sales and new construction start to slow.

But while many industry watchers agree that a softening is on the way, they are divided about how supple the housing market will get, and how serious the consequences might be.

Finance Minister Jim Flaherty, for one, believes the market’s coming slowdown is a good thing. He said in an interview Tuesday that sources in the financial industry, as well as developers, have told him that “the situation was evolving where expectations by purchasers were excessive with respect to single family dwellings, and ultimately unaffordable when mortgage rates go up.”

CMHC’s third-quarter national market review predicts that after “sustained activity levels,” growth will become measured. The Ottawa-based Crown corporation expects this cooling trend to extend through this year and into next.

“I’d rather see some softening in the markets, particularly in Toronto and Vancouver, than have a rapid decline,” Mr. Flaherty said.

Craig Alexander, chief economist at Toronto-Dominion Bank, agrees that Canada is heading toward a modest correction but said: “I think the debate is over what the definition of ‘modest’ is.” He noted that while his own calculations might indicate a slightly more significant downturn than those of CMHC.

“We need to keep in mind that a 10- to 15-per-cent drop in sales and prices over the next three years sounds quite dramatic, but when you think about the real estate market … there have been years where we’ve had have 10-per-cent sales growth and 10-per-cent price gains,” Mr. Alexander said in an interview.

This is not an economic threat, he added, but “a natural outcome of the strength we’ve had in real estate in Canada for more than a decade.”

But Ben Rabidoux, an analyst with M Hanson Advisors, sketches a more troubling image. “I don’t think the economists at CMHC are appreciating just how significant the effects of rising house prices have been on the Canadian economy and the labour market,” he said.

He said there are several distressing trends that could cause significant problems. First, there is the high portion of the labour market employed in residential construction, and the significant contribution of construction and renovations to gross domestic product.

As well, he argues that when people feel their house is of a high value, they feel wealthier, save less for retirement and tap their home equity more often. When they change their behaviour, it can cause a serious drag on the labour market and the economy.

“I’m not saying it’s impossible we’ll see a soft landing,” Mr. Rabidoux said. “But rising house prices and high demand for new homes have an impact on the job market, and it’s difficult to see how we can move back to long-term trends without it meaning, frankly, a recession.”

The rising unemployment seen in Canada’s July jobs report was a reflection of weak consumer spending, he said.

Mr. Alexander does not agree that the national real estate market is crumbling. Hot markets such as Vancouver and the Greater Toronto Area might have to come down a few degrees (Vancouver’s July sales were down significantly), but it would take a shock such as a dramatic rise in interest rates, or unemployment, to cause a significant downturn, he said.

“The Federal Reserve in the U.S. has told us they’re not planning on changing interest rates until the end of 2014. And if the Fed is on hold, the Bank of Canada can’t raise interest rates too much,” Mr. Alexander said. “Unless the global economy goes back into a recession, there doesn’t appear to be a catalyst on the horizon to cause a severe increase in unemployment.”



Don’t Fear Small Mortgage Lenders…

Special to The Globe and Mail

Published Friday, Aug. 03 2012, 7:00 PM EDT

Last updated Tuesday, Aug. 07 2012, 6:43 AM EDT


Mortgage lenders come in all sizes,
ranging from RBC – the biggest in the country – to tiny wholesale lenders and
credit unions.

When it comes to entrusting a company with
your biggest debt, odds are, name recognition matters to you. Consciously or
subconsciously, people gravitate to well-known lenders partly because there’s a
feeling of safety in “big.”

Even when a smaller lender has tantalizing
rates and the best terms, homeowners sometimes tend to avoid it if they don’t
know the name. An oft-cited reason for that is fear that the lender will go out
of business. And that is certainly not unprecedented.

If we’re talking about “prime” lenders –
i.e., those catering to more creditworthy customers – the list of extinct
lenders includes companies like Abode Mortgage, Citizens Bank, Dundee Bank,
Maple Trust and ResMor Trust. Mind you, most of these lenders were purchased by

Just recently, we buried another lender.
FirstLine, once one of the biggest mortgage companies in the country, closed
its doors Tuesday after 25 years in business.

People worry about lenders closing down
for one main reason: they’re scared the lender will force them to repay their
mortgage early. In reality, however, that rarely happens with prime lenders.

The bigger risk has been with subprime
lenders. In fact, some subprime borrowers have even lost their homes in cases
where they couldn’t refinance elsewhere after their lender shut down.

But if you’re a qualified borrower with
provable income, do you really need to be worried if your lender goes out of

“Not at all,” says Boris Bozic, president
and chief executive officer at Merix Financial.

“I always find it fascinating that people
are concerned about smaller lenders,” he adds. “We’re not deposit takers. We’re
giving money, not taking money. The risk is all ours.”

Many second- and third-tier lenders get
their funding from large financial institutions and that funding is fairly
stable, Mr. Bozic says.

“Even if a company were to run into
financial difficulties, the vast majority of the time there are backup
servicers in place.” This sort of contingency planning is almost always
required by the parties funding a lender’s mortgages.

If a lender were to close, Mr. Bozic says
another financial institution would simply take over the mortgage.

When a lender sells your mortgage to
another party, you just keep making the same payments like nothing happened –
albeit to a different company, in some cases. The new lender is generally
required to honour the terms of your old mortgage contract, Mr. Bozic says.

The one thing that will change is the
renewal offer you receive at maturity. Generally, the new owner of your
mortgage will be the one making your renewal offer. That could be good or bad
depending on how competitive the new lender is. But smart consumers always shop
their lender’s renewal offer anyway, so this isn’t a major issue.

Overall, the probability of a lender
disappearing is low. On its own, it’s not enough reason to avoid a less
prominent company.

That’s especially true when the lender has
the best deal in the market – which is the case with many smaller lenders
today. If you can find a 0.10 percentage point lower rate, you’ll save roughly
$1,200 over 60 months on a standard $250,000 mortgage.

If you’re interested in getting the best
rate possible, you need to be open to saving money with a smaller mortgage
company. Just be sure to get independent advice so you can sidestep the ones
with onerous contract restrictions. Examples of those include fully closed
terms, costly penalty calculations, porting restrictions, refinance limitations,
and so on. Some lenders have rather unpleasant fine print, but that’s true for
micro and mega lenders alike.

There are certainly reasons to choose a
major bank or large credit union for your mortgage, including branch accessibility,
integrating your mortgage with your banking or credit line, and access to other
financial products. But it’s rarely necessary to shun lesser-known lenders for
fear they’ll close and leave you stranded.