The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst
: I just want to talk about the margin. A few things here coming to mind. One, I get the idea that you want to make the balance sheet more liquid
during volatile times. But from Q2 to Q3, it's not like the world has really gotten dramatically worse, it was volatile in Q2, volatile in Q3. Just wondering
what changed the perspective there? And also, to what extent did you maybe get caught off guard by some rapidly increasing cost in the broker
channel, where the deposit growth was the highest at the bank. I mean I get that you got to be nimble and all that, but not like the world got
dramatically worse this quarter. It's about the same as- i.e. bad as it was in Q2.
Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst
: So loan growth came in faster than anticipated, I guess, so you decided to step on the gas a bit in the deposit channel. But for Q4, you might do
less of that because you've got the excess liquidity already on the balance sheet. Can you talk about...
Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst
: Like what -- do you have any comments on the increase in funding cost of the broker channel? Or is that not a factor at all?
Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst
: Just wanted to make sure I heard a few things correctly. I think part of the reason why you mentioned commercial loan growth came in a little bit
hotter than you had expected was, I guess, faster normalization in utilization rates. Is that the right way of thinking about it? Yes, it is. ore. So just
as a matter of curiosity, how much of it would you say was kind of existing clients drawing down more versus just building the portfolio with new
clients.
Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst
: Okay. But I suppose the normalization was a bit of a surprise to you. Is that the right way to think about it? Do you didn't expect it to normalize as
quickly as it did?
Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst
: I mean, Eric, every indication is that maybe the economic outlook is going to further slowdown. Do you worry that the normalization may mean a
low this cycle on the utilization rates?
Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst
: I just have 2 -- I just have 2 quick questions. One follow-up to that. I mean, Liam, if your borrowers end up having to sit on inventory because of
lack of demand, what ripple effect does that have on your -- what implications does it have on your reserve building requirements?
Liam Mason;Chief Risk Officer
Well, first of all, so thank you for the question. We do have a disciplined reserving process against those inventories. I would know we've got sort
of 5 layers of protection on that portfolio. We have the collateral itself, which is at wholesale prices. You've got the backing of the dealership. Many
of the dealers have personal guarantees on the dealer. Your OEMs, your manufacturers have repurchased arrangements. And then we have a
curtailment process where if you're not seeing the turnover. But right now, the liquidation rates are normalizing, as Eric said, we're not seeing a lot
from an aged inventory standpoint. This is a very operational business. We're on the ground, doing inspections, looking at the inventory -- but we
really don't see any cost for concern given the layers of protection and given our reserving, comfortable with that portfolio at this juncture. It's
more of a return to normal than a slowdown or a recessionary impact.
Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst
: Okay. And on -- I mean, I think to an earlier question, you suggested that the circumstances, let's just say meant being a bit more prudent on reserves
-- sorry, liquidity -- higher liquidity levels was prudent, why don't you think you will have to retain a higher liquidity, let's say, for the next couple
of quarters because the macro uncertainty is certainly not lessening is intensity.
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