One reason these banks, with the expectation of CIBC, posted weaker than expected earnings was due to money being funneled into loan loss provisions, Pyle said.The large amount of money that is being set aside in the event of loan defaults is a testament to the Canadian banking sector’s strong risk management strategy, one portfolio manager told BNN Bloomberg in an interview on Wednesday.
“If something goes wrong, they have the capital to deal with that stuff,” Paul Harris, partner and portfolio manager at Harris Douglas Asset Management, said. He added that this caution could pay off handsomely to investors in the future, should this capital not be used.Investors looking to buy banking stocks might want to hold off until the banks reach the bottom of their credit cycle, another expert advised.
“We’ve seen reserves go up, we think they’re going to continue to go up and we think that the time to pounce is going to be when the market is worried that it’s going to take that much more in reserves,” Mike Vinokur, portfolio manager at Aligned Capital Partners, said. He believes that we are currently in the middle of the credit cycle and foresees late summer as the time when credit loan loss provisions might peak.