# EQB Inc / EQ Bank (EQB.TO)



## Juggernaut92 (Aug 9, 2020)

Hello All,

I was looking through the forum for a thread for EQB that just covers the security but could not find one. 

I am quite interested in going long on EQB.TO and adding to my portfolio at a time like now as their price is depressed because of upcoming recession fears and interest rate hikes.

Here are some positives I know about the bank from online research and also from their annual report:
-Great HISA and GIC products
-online only and have a better operating efficiency than the big canadian banks
-low dividend payout and have lots of room for growth
-One of the best growth rates/stock appreciation of all canadian big banks
-growing revenue and net income yearly
-Strong balance sheet and good CET1 ratio

Some negatives I see:
-They are a alternative mortgage lender and if not many people are getting mortgages because of high interest rates then their business will suffer. Mortgage lending is not all they do but it is a big chunk of it
-they are local to Canada. If the Canadian economy goes into a recession then they will most likely feel it as well as they are not getting income from any other countries

How do others feel about EQB?

Also, if someone thinks one of the above points is incorrect then please point it out as I am interested in learning more about the company.


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## AltaRed (Jun 8, 2009)

I don't know what to think. I looked somewhat at EQB as an investment a few times over the past year or so. I tend to agree it has good metrics as you have pointed out and those metrics could get even better when it finally swallows the Concentra Bank/Concentra Trust acquisition. It will be bigger than Laurentian Bank in terms of assets.

I don't worry too much about them conducting business soley in Canada and IIRC, they had fewer credit losses than the big banks during the 2020 pandemic crisis. The major question right now is whether mortgage underwriting will stall due to interest rate increases, but the Concentra acquisition will also diversify their businesses away from primarily mortgage underwriting.

I think I'd take a flyer on this one IF I didn't already have 4 banks in my portfolio..... OTOH, maybe this is time for me to divest of BNS and hold EQB as my 4th bank. It will be more economic sensitive given its market price slide this past year.


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## Juggernaut92 (Aug 9, 2020)

I see. That is a good point of view in terms of EQB diversifying once they have the acquisition complete and the lack of their credit loss.

It funny you mentioned the last point. I have took a up a position with BNS over the past 2 years. However, now I see it as good company with good dividends but it looks like it is the laggard in terms of the big banks and as others have pointed out their stock price is lower now than it was 5 years ago. I am not sure if the management cares about raising more profits to raise share price. EQB on the other hand does seem like a growth play to me.


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## AltaRed (Jun 8, 2009)

The key players in its space are HCG (which is much smaller once EQB completes Concentra acq), LB (perennial dog) and CWB (in terms of size but different lending market - commercial). All of them are way down from 52 week highs. My view is EQB has the better growth story and at least makes noises about being up front as a disrupter in fintech (though talk is cheap by an aggressive CEO).


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## m3s (Apr 3, 2010)

Fintech around the world are acquiring small banks just to get a bank license or regulatory head start in x country

It already happened in Canada this year when FTX bought Bitvo likely just for its banking registrations

Canada has very little competition for banking but in Europe and Asia these acquisitions are happening a lot


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## james4beach (Nov 15, 2012)

Personally I would not want to hold an alternative/ mortgage-focused bank during what could be a sharp credit contraction in Canada, and housing slowdown.

All it would take are stressed out borrowers, that result in higher credit losses, and these banks could have huge losses in equity value. I think it's way too early to get confident about credit losses, because high interest rates are a new thing and the effect has not circulated through the economy yet.

It probably will take 6 to 12 months for the impacts of the recent rate hikes to really show up in reports.


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## AltaRed (Jun 8, 2009)

That is why stock prices for these small(ish) caps are where they are at. My point really was the Concentra acquisition will diversify EQB considerably. The bank entity is really the platform that primarily supports credit unions and the trust entity is relatively immune to economic cycles. I will continue to keep an eye on this one for awhile.


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## james4beach (Nov 15, 2012)

AltaRed said:


> That is why stock prices for these small(ish) caps are where they are at. My point really was the Concentra acquisition will diversify EQB considerably. The bank entity is really the platform that primarily supports credit unions and the trust entity is relatively immune to economic cycles. I will continue to keep an eye on this one for awhile.


Those are good points.

Also, the risk I mention might already be priced in. Perhaps the investor is getting an appropriate risk premium for all that credit risk.


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## Juggernaut92 (Aug 9, 2020)

@m3s : I believe Wealthsimple would be considered a fintech company but not so much EQ bank i would think? But that is a smart strategy. EQ Bank is already a schedule 1 bank from what I read on the annual reports. Yes i believe the big banks in canada are all expanding more into US as the growth in canada has slowed a bit. 

@james4beach : Noted. I read a book recently that mentioned the same point you did regarding the interest rate taking time to work its way though the system. I believe we will probably see more of the effects of interest rate next year and late this year.


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## m3s (Apr 3, 2010)

Juggernaut92 said:


> @m3s : I believe Wealthsimple would be considered a fintech company but not so much EQ bank i would think? But that is a smart strategy. EQ Bank is already a schedule 1 bank from what I read on the annual reports. Yes i believe the big banks in canada are all expanding more into US as the growth in canada has slowed a bit.


No I mean foreign FinTech may want to buy small banks in countries such as Canada only for their banking ties to Canadian regulation

This is happening a lot in Europe - FinTech buys obscure little bank in x country to gain regulatory bank access to all of EU etc. They don't care what the obscure bank does they just want to regulatory foot in the door to the country.

It doesn't happen so much in Canada because well.. we have like 5 banks and nobody in Canada uses FinTech yet


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## Eclectic21 (Jun 25, 2021)

Five banks in Canada?

For schedule 1 banks, there are 35 of them (including two Federally regulated credit unions). 
For schedule 2 bank, there are 24 of them.

I suspect that FinTech buying a schedule 1 bank would mean it would be shifted into being a schedule 2 bank, with whatever restrictions the change adds.


I suspect the bigger factor is how small the Canadian market is and possibly what the restrictions are. It's definitely small potatoes compared to buying a small EU bank to get access to the entire EU.


Cheers


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## m3s (Apr 3, 2010)

Eclectic21 said:


> I suspect the bigger factor is how small the Canadian market is and possibly what the restrictions are. It's definitely small potatoes compared to buying a small EU bank to get access to the entire EU.


So EQ Bank is a schedule 1 bank because it is domestic

I guess that's why we get no competition like how our telecoms are the most expensive in the world

There's been a lot of banks acquired in other countries just for the regulatory footprint


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