Scotiabank’s Waugh Says Shorting Canada Banks Is Expensive

Investors who are short selling Canadian banks are making an “expensive” gamble, said Bank of Nova Scotia Chief Executive Officer Richard Waugh.

“Good luck to them,” Waugh, 65, said today at the Bloomberg Canada Summit. “Never mind the history, never mind current results, we have this very pleasant thing of increasing our dividend quite regularly and if you’re short, you’re really short.”

Fund managers including Toronto-based Friedberg Mercantile Group Ltd. have said they’re betting against Canadian banks amid concern that the housing market may collapse. Emrys Partners LP founder Steve Eisman, who gained fame betting against U.S. subprime mortgages, said at the Sohn Investment Conference in New York on May 8 that he’s pessimistic about Canada’s housing market, saying rising prices weren’t accompanied by growth in personal incomes.

Investors had a short interest in 3.45 percent of the Canadian bank shares available to the public as of April 30, according to data compiled by Bloomberg. That’s the highest in at least 10 months and more than the 2.35 percent at the end of last year. Short sellers profit from price declines by selling borrowed securities and repurchasing them at cheaper levels.

Consumer Slowdown

Scotiabank, Canada’s third-largest lender by assets, has been countering a slowdown in consumer lending by adding products and businesses, including its C$3.1 billion ($3 billion) takeover in November of ING Groep NV’s Canadian operations. The deal added about 1.8 million customers using products such as high-interest savings accounts, checking accounts and mortgages.

“That is a game-changer for us, it’s deposits but it’s also a very unique delivery channel with a unique set of customers,” Waugh said. “That is going to be a growth vehicle.”

Scotiabank has more room to grow in Canada through market-share gains, expanding mutual-fund sales and its wealth-management business and pursuing acquisitions, Waugh said.

“There’s more to come in wealth management in Canada,” Waugh said. “We’re late in the game in insurance. There’s more we can do there. There’s parts of this country where we need to do better in market share.”

Rate Worries

Waugh also said he agrees with Canada’s banking regulator on its concerns about the impact of low interest rates on banking. Julie Dickson, who heads the Office of the Superintendent of Financial Institutions, said earlier in the conference that the current period of low interest rates threatens to increase risks for the country’s lenders.

“Low interest rates are an issue,” Waugh said. “I also equally worry about high interest rates and what they do.”

Scotiabank is closely monitoring its loan portfolios and risk amid a “soft landing” for Canada’s housing market, Waugh said.

“Most importantly, our customers are behaving exactly like they should and our portfolios are reflecting that, and it’s looking very well,” he said.

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