# Manitoba floods and effect on credit unions



## james4beach (Nov 15, 2012)

The flooding in Manitoba is surprisingly bad this year... a real disaster in the rural areas outside of Winnipeg, and worse than the 2011 flood.

This has several financial effects
- loss of crops and therefore huge loss of income
- destruction of houses, puts a stop to rising property values
- other associated economic losses

Do you think this can have a material effect on the Manitoba credit unions?

How about on Manitoba bonds?


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## birdman (Feb 12, 2013)

No


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## james4beach (Nov 15, 2012)

My own thought on this is that the property bubble in Winnipeg (unaffected by floods) is enough to sustain the credit union system.

I think the property values inside Winnipeg dominate most CU exposures


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## praire_guy (Sep 8, 2011)

No bubble in winnipeg, we just played catch up. Property values went no where for a long time. 

I concede though that people are paying top dollar and then some for really really old dumpy houses with zero upgrades.


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## tygrus (Mar 13, 2012)

praire_guy said:


> No bubble in winnipeg, we just played catch up. Property values went no where for a long time.


Seriously, this is your justification? Its a TOTAL bubble and its in about 90% of the cities in the entire country. Housing is tied directly to interest rates and income, nothing else. So do you see a lot of high tech high paying jobs coming into Winnipeg and do you think interest rates can go any lower? 

Here is Regina, the only hiring is in two industries, construction trades and service sector (which means mostly fast food workers). There isn't a 100 engineers being transferred here or some silicon valley research center starting up.

Easily a 30% decline in the cards and not likely to return to these levels ever.

Credit unions are notoriously risk adverse, so I doubt they will suffer regarding any mortgage lending. But worry about the rural economy after this. Many will go out of business.


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## praire_guy (Sep 8, 2011)

Real estate will track inflation long term. Winnipeg prices were flat for about 20 years as our incomes went up. 
Sure, low interest rates are a factor but I don't think winnipeg is in bubble territory. 

Winnipeg doesn't have a lot of new jobs coming in, but we have a lot of immigrants buying houses.


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## tygrus (Mar 13, 2012)

Prairie guy, no offense but those two things are likely untrue. Housing tracks income, always has. And companies are spending any excess cash they have on automation and efficiency gains, not more employees and higher wages. 

And as far as new immigrants, yes there are a few around, but most of the new comers here are TFW and they live 20 to a rented house and send most of their earnings overseas.

I bet the ratio of TFW to Immigrants is 100:1 out there.


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## praire_guy (Sep 8, 2011)

I said housing tracks inflation meaning income. 

Houses were flat for 20 years. Average out the past 30 years in winnipeg and we are not in a bubble. 

Yes a lot of immigrants live 2-3 families to a house. 

We've been in a bubble for years according to some, and especially Garth turner. 

My opinion is that we are not, at least in winnipeg.


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## praire_guy (Sep 8, 2011)

Besides, we are drifting from the topic. 

Credit unions are simply banks nowa days. 

No risk


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## Butters (Apr 20, 2012)

I own a house in Manitoba and currently rent in Edmonton...

Winnipeg is not in as much as a bubble as the rest of the country... Edmonton prices could drop 50% whereas Manitoba would drop 15%

CU will make money, floods won't matter!


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## donald (Apr 18, 2011)

I live in winnipeg and i can tell you we have a Dynamic labour market!Very diverse(compared to our population prob the best in canada)
We rank 7th in canada(43 billion economy)
agri-food/transportation/resources/chemicals/machinery/furniture/building products/metal and plastic fabrication/apparel/health care/enviro services ect

Far far from just trades and fast food lol
here are some major corp/employers in winnipeg
aptn networks
artis 
boeing
cargill
monsanto
new flyer
standard aero
buhler industries
ceridian
great west life
northwest company
crown corps(like all cities)
Mts
richardson family interests
asper family interests 
true north corp(thomson family)
cnr
ge
brandt tractor
nygaurd
boyd autobody 
wellington west
cabelas.....the list goes on and on
No it is not toronto but it is a hidden gem!(we bread some of canada best business people,go ask anyone on bay street.
You can buy a 1200 sq ft home in a nice neighborhood that is upgraded for under 300k still.i do not believe we are at all in a bubble.
M.O


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## donald (Apr 18, 2011)

tygrus you being from regina we also have the canadian grain exchange and the canadian wheat board....we are a centeral hub to all of canada-geographical.


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## james4beach (Nov 15, 2012)

I've got a great idea. For all of these farmers who just got their crops wiped out... they should come to Winnipeg and become real estate agents!


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## llagebs (Feb 24, 2014)

praire_guy said:


> No bubble in winnipeg, we just played catch up. Property values went no where for a long time.


That's irrelevant. A bubble is defined simply as an asset class trading above its fundamental value. For real estate, that means you've got a bubble when the cost of ownership is more than the cost of renting.

I don't live in Winnipeg or follow its real estate market, so I can't say for sure, but given that it's driven by the same government-sponsored low rates and nonexistent lending standards as the rest of the country, there's a good chance it's a bubble. If you want to be honest with yourself and find out, you'll look into what it costs to buy or rent the same properties.


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## HaroldCrump (Jun 10, 2009)

llagebs said:


> A bubble is defined simply as an asset class trading above its fundamental value.


No, that is simply overpricing, not a bubble.
Every overpriced asset/security is not a bubble.

Here is a *more specific definition and characteristics *of a bubble from Robert Schiller.

He defined a bubble as:

_- Sharp increases in the price of an asset like real estate or dot-com shares
- Great public excitement about said increases
- An accompanying media frenzy
- Stories of people earning a lot of money, causing envy among people who aren’t
- Growing interest in the asset class among the general public
- "New era" theories to justify unprecedented price increases
- A decline in lending standards
_



> For real estate, that means you've got a bubble when the cost of ownership is more than the cost of renting.


I don't agree - the cost of ownership should always be higher than the cost of renting.
If the cost of renting were always equal to the cost of ownership, no one will ever buy any asset and only rent.
But that is not possible since _someone_ must own the asset to begin with.

The cost of ownership (of any asset) _should_ be higher in a rational market because the return on the asset/equity is higher than the imputed return from renting.
If that isn't so, then there is no reward for risk and no one will ever want to own anything.


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## birdman (Feb 12, 2013)

I don't understand why some suggest doom and gloom for credit unions in Manitoba. Firstly, for residential mortgages I would expect the maximum loan to value ratio to be 75%, probably 65% for rural, and 50% or perhaps less for large farm loans. Furthermore, only a fraction of the loans on the books of the institution would be at the maximum loan to value ratios. Considering this alone, property values would have to fall significantly to create a problem. Additionally, in many provinces (not sure about Manitoba) its not that simple to simply walk away from your home and mortgage without making an assignment in bankruptcy as the lenders normally receive a judgement for the amount of any shortfall. The lending institutions also have diversification in their loan portfolio including personal loans, commercial operating loans, mortgages over commercial properties, perhaps credit cards, lines of credit, etc. They also have reserves and annual financial statements are audited. They are also overseen by the provincial governing body and have legislative restrictions on what they do. Sure, the occasional and I expect smaller credit union may have failed or had some difficulty due to perhaps mismanagement or perhaps a geograhical incident but they are quickly absorbed by the system.
I'm not sure about the floods but I would expect that most farms have smaller (if any) loans against them as they probably remain in the family. Not sure if the farms would normally have some sort of crop or flood insurance but regardless, when analyzing cash flow for lending purposes I would expect the farm revenue would be considered over a number of years. However, farms have good years and bad years and sometimes prices are high and sometimes low but farmers are used to it and expect it and normally have the ability to ride it out. It would seem if there was no income from the crops there would be lesser expenses (fuel, hired help, equipment. etc)
What the credit unions don't have is a lot of counter-party exposure, derivative exposure, large asset backed commercial paper dealings, exposure to foreign governments/countries, etc. and on and on it goes. 
Before retiring I had a lifetime of experience in a senior capacity working for a major chartered bank and then a credit union and my recommendation is to rest easy and if you are nervous just follow the credit unions financial results. The majority, if not all posts, seem to suggest this as well. I have confidence in the system and for that matter, have deposits with one of the Manitoba CU's.


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## NorthernRaven (Aug 4, 2010)

They would have mortgages that started at 80-100% of value, but those would be insured by CMHC; and as "frase" points out, the entire mortgage book would be lower than the starting points reflecting people being in different stages of paying off mortgages. CMHC would likely take the biggest hit if property prices tank and there are a bunch of foreclosures in some hypothetical housing crash. One thing that might be more likely, though, is that even if a credit union gets its money back on foreclosures, new mortgage business will have dried up, and they will be sitting on a big pile of low-earning cash, which would reduce their earnings. Or, if something caused a big run on the online deposits, they might be forced to sell off some of their mortgage book or otherwise contract the balance sheet to make up for the loss of funding.

People seem to throw around "bubble", "crash", "subprime" and other worries without thinking through exactly who would be affected. In the US, you had large numbers of wacky subprime mortgages that effectively only worked until the intro rates reset, or were otherwise untenable in the longer term, and these all blew up when prices crashed. The big hits were taken by holders of all the toxic assets created from those mortgages, or those who had insured the mortgages, or those who had piles still on the books un-securitized when the music stopped, or had unstable sources of funding. For instance, Countrywide was doing massive short-term borrowing to fund their mortgage business, not deposits. Even if you think some combination of housing correction, job losses and higher interest rates is going to occur to cause a big foreclosure wave, it would seem that the worst of the hit would be taken first by other parties like CMHC, not the credit unions, and you'd really have to work to knock enough value off their books to threaten the repayment of savings, even if the CU itself were forced to sell off and wind down.


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## james4beach (Nov 15, 2012)

I have lots of money in Manitoba credit unions

I was just curious if people thought the floods would have any effect


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## lonewolf (Jun 12, 2012)

james4beach said:


> I have lots of money in Manitoba credit unions


 +1

I love credit unions no conflict of interest. Manitoba credit unions have a history of offering the best rates from a province that I think is less likely to go through as big of boom/bust cycles as the other provinces.

A friend of mine told me the lady from the bank told her the reason why the rates of the Manitoba credit unions GIC rates were higher then the banks was because of the large amount of money from the Mennonites. it was against the Mennonites religion to accept interest on their money they held in the credit unions so the other members got a higher rate. I do not buy it, I think it was a good excuse for the banks GICs rates being low. This was after I told her to switch her money from the bank to a Manitoba credit union so she would get a higher rate & not have her money used to make the banks billions of profits.


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## lonewolf (Jun 12, 2012)

All the credit unions in the country should form an exchange where the members pay a fee to become a member of the exchange for trading stocks & bonds. By having everyone being a member of the exchange & having it operate as a CO op instead of paying a commission fee to trade in the dark pools of the banks & brokerage houses, Perhaps it would reduce the chances of orders being front run, The profits from membership fees could go back to the exchange members. If the laws wont let them form an exchange perhaps they could form there own pool along with the best price from the current exchanges for executing orders.


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## NorthernRaven (Aug 4, 2010)

I think "lonewolf" means "Mennonite", not Mormon - I don't think the latter have a large role in Manitoba financial history! As for the Mennonites, I'm not aware of any widespread prohibition of interest (although feel free to correct this), and suspect this is one of those urban myths. What would be true is that Manitoba/Saskatchewan/Alberta would have had large rural/farm/immigrant populations (Mennonites prominent in various areas) that historically came together in credit unions when their needs were not met by established (mainly eastern) banks, which is one reason you see high CU membership on the prairies. 

As best as I can tell after looking into it, the Manitoba high rates are somewhat unique to that province - they've pushed down operating costs and other factors to enable it over the last 10-15 years.


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## lonewolf (Jun 12, 2012)

Thanks Northern Raven you are correct. I will change Mormon to Mennonite


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## praire_guy (Sep 8, 2011)

The Mennonite no interest thing is an urban myth. 
Mennonites are some of the savviest, shrewdest business people out there that will do just out anything to make a buck.


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## birdman (Feb 12, 2013)

If I recall correctly, Credential Securities is owned by some Credit Unions.


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## lonewolf (Jun 12, 2012)

Frase your right

Thanks for info, I m about to open up a trading account with them for TFSA, Perhaps I m totally blind, to my eyes I just see so much money out there waiting to be made in the mother bear that has just started or will be with us shortly.


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