There were new mortgage rules announced last week from Canada’s Minister for Finance and they got warm reception from large Canadian bank CIBC. The new rules aim to bring stability the ever rising housing market in Canada where, except for the Prairies, the only place prices seem to go is up. The new changes will affect foreign cash coming into the market and also it will affect the stress test on the mortgage a buyer must sustain before being allowed to take out a mortgage. A stress tests applies a higher rate to the mortgage than one the person is actually receiving. They must actually “quality for a rate” that requires a payment two to three percent higher than the current one before being granted a mortgage. Rates only have once place to go, up. The stress test is widely seen as a good move. Banks will also be required to hold more of the mortgage risk themselves if it defaults. This is a big change and another necessary one as it means banks have more skin in the game in the mortgages they give. This means they will be much more prudent in those loans and this will mean less loans. Banks that have been making a lot of revenue from mortgages lately will find this change challenging but my guess is they have chosen this path to cool the market over other options.
The Samsung story has really heated up more this week. The Galaxy Note 7 has bee setting itself on fire for a number of weeks in the hands of consumers. It has been banned from carry on luggage on planes and it now being recalled. One and a half million phones, originals purchased as well as those replaced by new phones, will be returned to Samsung for a refund. The fire hazard is so high Samsung is sending customers fire proof envelops to send the phones in. Samsung is a company navigating rough seas on this one but many actually give the company top marks so far for how they are handling the scandal. Other than not having phones that ignite, they are doing all they can. Many market watchers though are waiting to see if one small things happens…. did they know about the risk of combustion and sell the phones anyway? If that doesn't happen, Samsung will likely be able to win customers back. If it does happen, Samsung might just slowly combust itself.
A leadership change out of scandal plagued US Bank Wells Fargo was announced this week. CEO John Stumpf resigned and will also not be chairman of the board, nor receive severance or stock. It's a large financial loss to him personally, but it's also very curious timing. In most cases the leader of a company in chaos stays longer to absorb all the mud slinging and negative accusations before stepping down to allow the company to regain a new footing with a fresh face. Wells Fargo has allegedly been creating fake bank accounts for customers to raise sales. The bank was fined $185 million so far. If Stumpf is not hanging around, I expect something big to happen next and that will cause the new CEO, former COO Tim Sloan, to make a speedy exit also.