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Financial Sector Update for 12/14/2015: RY.TO, BMO.TO, NA.TO, CM.TO, BNS.TO, TD.TO

OSFI is tightening mortgage rules as they have continually done since 2008, writes Credit Suisse. Mortgage credit growth has decelerated significantly since 2008 and could drop to zero, which would be the only time other than 1982 in the past 45 years. "Our guess is we drop to 0% to 2% growth this cycle."

Still, Credit Suisse suspects that the collapse in WTI will have more of an impact on the housing market than OSFI tightening. However, OSFI counter-cyclical measures are prudent and in the brokerage's view will assist in achieving a soft landing.

OSFI and the Dept. of Finance announced increases to minimum down payments from 5% to 7.5%, plans to introduce higher capital requirements on mortgages no later than 2017 and adjustments to CMHC fees. "Our best guess at this point is it would impact CET1 by 50 basis points over the next 3-5 years with higher costs likely to be passed on to consumers."

Banks most heavily weighted to residential mortgages (% loans): CM 58%, RY 48%, BNS 45%, TD 42%, NA 35%, BMO 32%.

Bank valuation in Credit Suisse's view is discounting a collapse in the Canadian economy. Maintain positive outlook on group on valuation and resiliency. OP RY, BMO and NA.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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