Equitable Group Inc Q1 2020 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : I just wanted to get some, I guess, color even at a high level. On the expense growth, you talked about ratcheting that back a little bit. I'm just trying to understand how to think about the parts of your expense base that are being ratcheted back. So for example, how much -- or how are you thinking about your marketing advertising expense separately, the strategic investments that you're making to support growth. Are you kind of still going full bore on that? Or are there certain parts you might defer? And then lastly, what I'll call your other base expenses, so don't include those strategic expenses, don't include marketing and advertising.

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : And maybe if I can just add on to your comment there around the AIRB and, I guess, halting it or kind of slowing that there. Is that driven perhaps a little bit more of just OSFI focusing on other stuff? Because I was just thinking is what that risk-reward would be to continue going down that route if it does improve your capital ratios, especially if we're in an environment of where there may be at least perceived concerns around your capital levels and perceived -- sorry, perceived levels of whether or not there might need to be a capital raise?

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Okay. On the payment deferrals, just expanding on that, you kind of mentioned that it aligns with the overall book. But can you provide a little bit more specificity around? Like is that based on the geographic breakdown, where, for example, Ontario, Alberta, obviously, you've got some exposure yourselves for it, but it would mimic your geographic exposure. But also, 2, is there any color you can provide on kind of the sectors of employment where you are seeing the deferrals and also maybe kind of like technical employment, in other words, self-employed.

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : So if I understand the response rate, I'm just tossing a dynamic here, but let's say you have restaurant workers that are 5% of the portfolio, are you seeing that 5% of the deferrals or thereabouts would be coming -- the deferrals would be coming from that sector? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 14, 2020 / 2:00PM, EQB.TO - Q1 2020 Equitable Group Inc Earnings Call

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Okay. And if I can just ask one last question. Just if you can talk about the visibility you would have on your residential mortgage book from borrowers that may have taken out additional debt, whether or not it's a second or even a third mortgage or a HELOC, that would be included kind of in their overall household debts, kind of, secured to the property?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : First question is on the Bennington portfolio from the disclosures that the losses that we're taking in this quarter primarily related to pre-COVID impacts. Can you give us a bit more color as to what was occurring, maybe which industries those provisions apply to pre-COVID?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. And so in terms of the post-COVID then, I think I heard that you -- that there's 30% of that portfolio is on a reduced payment, I guess not necessarily deferred, but reduced payment platform. And just to confirm, like there's -- that's not -- the industry breakdown within the Bennington portfolio, you would have similar commentaries around the broader portfolio that, for example, retail restaurants, hospitality isn't contributing an exceedingly high amount to that number? Or is it different in this portfolio?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Right. And Tim, just going back to your comment about pricing for this risk. I think the original guidance on the acquisition was loss rates in the 1.5% to 2% range. Now with allowances approaching 5% on the overall portfolio, I'm just wondering how that type of variance plays into how you're pricing the portfolio previously and today and what kind of returns you would be generating, given this level of allowances?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Yes, fair enough. And last one on Bennington then. Given that a lot of this was related to pre-COVID, should we expect maybe not 13% provision rates, but something significantly above what we were used to seeing as COVID impacts flow through in the next quarter? Or do you feel like you've taken enough of provision as you have in the -- with the rest of the Equitable portfolio that we shouldn't see that?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. Great. Shifting to the net interest margin then. Can you give us a little bit of color around how lower GIC rates this year are feeding into deposit costs, maybe that's being offset by the EQ Bank deposit rates? But maybe just discuss a little bit of the push and pull on what you're seeing from deposit funding? And also where you're seeing the securitization funding costs trend given some of the dislocations there? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 14, 2020 / 2:00PM, EQB.TO - Q1 2020 Equitable Group Inc Earnings Call

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. Great. And in terms of -- and I apologize if this was covered in the initial remarks, but some commentary around how application volumes are trending in the 6 weeks here, April and May, post Q1.

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Yes.

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Are you able to put a percentage on that slowdown? Would it be something in line with what we're seeing from a housing resale activity standpoint across Canada?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. And last one for me, just on the portfolio insurance transaction. Is that primarily or is it entirely prime mortgages? Or are you including some of the Alt-A book in that portfolio insurance transaction? And looking forward, do you anticipate executing more of these types of transactions? Or is this a onetime thing to pump capital? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. MAY 14, 2020 / 2:00PM, EQB.TO - Q1 2020 Equitable Group Inc Earnings Call

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Just wanted to follow-up on your response around activity Q2 to date. So were you saying that on the prime side, prime and mature side of the business, that's going well, and you're seeing transactions there. But on the Alt-A side of the business, you're not seeing as much. I'm just trying to triangulate around just any sort of broader comments that you have around just housing and mortgage activity or are you talking more about specific parts of your book?