Laurentian Bank of Canada Q4 2017 Earnings Call Transcript

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

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : So I just want to clarify something. The top -- this Page 38 of the MD&A here, the top half, like, you've got 2 issues here. One is you sold some mortgages to a third-party and it turns out there was documentation issues and client misrepresentations and those are -- those aren't paperwork issues. And then the second issue, I guess, is what went into these securitization conduits? That might be more of a paperwork issue. I guess -- I'll go after both areas, I guess. The top one, what are client misrepresentations? Can you clarify what that means? And you said the normal course audit, what happens? Normal course implies, I don't know, once a year, twice a year, I have no idea. So what changed in the past 6 months or a year to kind of uncover these things?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : (inaudible) terminology here, but it's a different type of paperwork issue. The other one sounds like you just mistakenly shifted some... 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. DECEMBER 05, 2017 / 8:30PM, LB.TO - Q4 2017 Laurentian Bank of Canada Earnings Call

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : So the second one, the process issue, $5.2 billion of mortgages there. And it says no internal audit of such loans has been conducted, meaning that's [maybe $6] million of ineligible mortgages or ineligible for insurance, you don't need to audit it? Or is that something that is still coming, perhaps?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. And then I guess, you're repurchasing $180 million of mortgages. And that would be from the, I guess, the paperwork, the misrepresentation part of the issues here. What if there were...

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. And then what happens if it goes -- like, is it primarily broker deposits? What are you going to -- what funding are you going to -- you haven't purchased them yet, I take it. And what funding? Are you going to be stepping up, your broker channel activity? If you look through your branch channel, deposits are still shrinking.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. And are you reviewing -- because we've got $5.2 billion and $1.2 billion, there's $700 million of mortgages, it's well below half of your total mortgage book, is there more? Or are you undertaking a broader review than just these 2 buckets, I guess? And I'll throw in my last, while I'm at it. 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. DECEMBER 05, 2017 / 8:30PM, LB.TO - Q4 2017 Laurentian Bank of Canada Earnings Call

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : And then last one, I swear. Was there an -- you talked about no concentration of mortgage issues with a single broker, no issues with employees. Is this -- have you noticed a trend between Alt-A and conventional mortgages? Like, where are you seeing these issues?

Question: Lemar Persaud - TD Securities Equity Research - Analyst : Just continuing on the mortgage issue. Frantois, is it fair to say that in pushing out your residential mortgage growth target from $9 billion by 2019 to $10 billion by 2020, you're not expecting to hit the brakes on mortgage originations as a result of this issue? Is that a fair comment?

Question: Lemar Persaud - TD Securities Equity Research - Analyst : Okay. And then my next question is, did the review of the branch underwritten mortgage that you guys are still undergoing result in a lift to NIE in Q1 '18? It sounds like you're going to be substantially complete by the time you guys report Q1 '18 results. Is that correct? And is there going to be any lift in NIE that we could see?

Question: Lemar Persaud - TD Securities Equity Research - Analyst : Yes.

Question: Lemar Persaud - TD Securities Equity Research - Analyst : Yes.

Question: Lemar Persaud - TD Securities Equity Research - Analyst : No, like expenses. Will there be any rise in expenses...

Question: Lemar Persaud - TD Securities Equity Research - Analyst : Okay. My next question then is, Frantois, when you're talking about higher margins for 2018, are you talking about higher margins relative to 2017 as a whole or higher margins relative to Q4 '17?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Just a few clarifying questions. Hopefully, when the securitization conduits reopens, will there be any pricing repercussions? Will you have to pay a higher premium?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Okay. And when you move to the AIRB, Frantois, I mean, there's going to be an op risk RWA component. You don't expect this mortgage issue to have any regulatory capital implications with respect to op risk RWAs?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : And you would expect to get the full benefit still? In other words, part of the explanation or part of the rationale here is we're going to close the gap from an ROE perspective because we'll have less capital intensity, and you think that formula still holds?

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : Okay. And then just lastly on the Northpoint. Given the hurricanes and the extreme weather that had impacted some of their key markets, is the -- let's call it the equipment replacement cycle, is that going to be something that is going to be a net positive to the Northpoint business?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Just had a quick follow-up. My last question was hurried, I guess. I just wanted to confirm what you meant by conventional mortgages. So the issues that you've uncovered in the documentation side, that wasn't alternative or in the Alt-A book, it was in the prime book?