Amid dividend cuts, income investors can still find safety

John Heinzl was kind enough to quote me in his recent piece Amid dividend cuts, income investors can still find safety:

James Hymas, president of Hymas Investment Management, said the risk of banks cutting dividends is “so small that it cannot be quantified.”

“The saving grace in all of this is that after the credit crunch the regulators really went to town, insisting on higher capital levels,” Mr. Hymas said in an interview. “So the banks have an enormous shock absorber … in terms of their capital and their size and their protection from competition.”

2 Responses to “Amid dividend cuts, income investors can still find safety”

  1. skeptical says:

    Here’s the absolute worst case imagined by the Bank of Canada guys to ensure the CET1 doesn’t drop below 8%:

    GDP Decline 8.2%
    Recession duration: 7 quarters
    Unemployment rate increase: 6.4%
    Peak unemployment 12.6%
    House price correction: 40.9%

    https://www.bankofcanada.ca/2019/05/staff-analytical-note-2019-16/

    It’s almost as if they did not test it hard enough…

    I think GDP decline will probably overshoot, at least temporarily. If things don’t recover in a jiffy, we’ll see GDP decline of 6 to 8% easy.

    Duration of recession- I think things should recover before then. Hard to predict.
    Unemployment rate increase: Already blown past that. Way past that.

    Peak Unemployment: Already way past that, numbers should reflect that soon.

    House Price correction: 40.9%. I don’t think this number will materialize. Even AB which has been battered badly over the last 5 years has seen price go down by no more than 15% or so on average. But individual properties can definitely fall by that much. Perhaps, that’s why they have the CMHC waste bin for those mortgages.

    We’ll find out if the adverse scenario was bad enough.

  2. peet says:

    Quite frankly, I don’t find a 2019 BOC exercise that has nothing to do with the present crisis, helpful, nor speculation [ because that’s all it is] on how it will all turn out. Here is what the 2019 BOC exercise dealt with:

    This exercise considers a three-year adverse scenario … The scenario begins with an escalation of global trade tensions, which leads to a decline in international trade and global productivity and a period of persistently above-target inflation. To stabilize inflationary expectations, some major central banks tighten monetary policy at a faster-than-expected pace. This is accompanied by an unexpected and disorderly repricing of risks. Global financial conditions tighten significantly, setting off downturns in the housing market and credit cycle. Consequently, global economic activity weakens markedly, and the deflationary pressures induced by the recession prompt accommodative monetary policy in later years … An important factor in the magnitude of these losses is the sharp rise in long-term interest rates

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