This week, the major Canadian banks -- Bank of Nova Scotia (BNS), Toronto-Dominion Bank (TD), Bank of Montreal (BMO), and Royal Bank of Canada (RY) -- report their earnings for the fiscal fourth. As property values have increased dramatically across the Great White North, so have worries that the country’s booming housing market may be in a bubble. Accrete takes a closer look into previous earning calls sentiment data and what to watch out for; specifically Credit Quality & Loan Growth.
The Canadian Mortgage and Housing Corporation says it sees vulnerability in the housing market due to over-building, over-valuation, and rapid price acceleration. The high cost of real estate, coupled with the OECD’s large household debt burden, mean that Canadian consumers are especially vulnerable to economic shocks.
Investors will be frantically assessing shifts in general sentiment from the banks on these earning calls. Accrete.AI believes this is only part of the puzzle and that analysts should extract insights beyond ‘a bag of words’ or simply positive/negative keyword counting. Parsing language on a topical basis, and accounting for topical distribution and bias in language about industry specific topics is the first step to a deep understanding of earning calls. Thereafter, further analysis is required in weighting sentiment on topics by the importance placed on these topics based on the interplay between analyst questions and management responses over time.
Accrete.AI’s users can compare sentiment and track importance across quarters which can be difficult for humans to discern in real-time without bias - extract insights instantly.
Bank earnings should give investors a strong indication of whether Canada’s housing market remains strong, or if Canadian households are under stress. This will be reflected in the Credit Quality topic, referring to management’s commentary on the soundness of the bank’s loan portfolio. Jitters in the housing market would be reflected in management’s concern about credit risk, coupled with an increase in loan delinquencies. Additionally, the topic of Loan Growth could be affected as a derivative of credit quality declines, given fewer lending opportunities in a cooler housing environment.
For example, if we look back to the previous earnings from Royal Bank of Canada ($RY), we can see management was relatively positive on the topics of Loan Growth over the past three quarters. Comparing exact snippets of language across calls can help investors make clear comparisons. The Topic Deltas proprietary learning system understands how to bucket information by topic and importance to extract insights buried in the nuances of language.
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