Morneau Doesn’t Buy Argument for Shorting Canadian Bank Stocks

(Bloomberg) -- Some investors see plenty of reasons to bet against Canada’s big banks. Don’t count Bill Morneau among them.

Canada’s finance minister, who’s visiting Washington for a series of meetings with policy makers, was asked about recent news reports that some investors are short-selling the country’s biggest lenders. After a brief caveat that he wasn’t trying to give advice, Morneau laid out a defense of the sector.

Morneau Doesn’t Buy Argument for Shorting Canadian Bank Stocks

The banks are well-capitalized and not overexposed to credit risk, he said. The broader economy is doing well and the government continues to work on what he called a core risk of household indebtedness. All that adds up to a good view of the lenders.

“The underlying thesis, I don’t buy into,” Morneau told reporters Thursday in Washington, after an event at Georgetown University, adding he continues to be “optimistic about our banking sector.”

Some short-sellers have been targeting Canada’s indefatigable banks, which soldiered on through the financial crisis a decade ago and are up about 9 percent so far this year -- even as household debt hovers near record levels and signs emerge of softness in Canada’s economy.

Housing Markets

Policy makers have taken a series of steps to cool the housing market in particular to try and avert any bubble, targeting Vancouver and Toronto in particular. Morneau cited that as a pillar of the outlook for the banking sector.

“We see that loan losses, credit risk, is being managed very effectively. We have a sense that the core risk that we’ve wanted to deal with, which is high household debt -- that we’re dealing with through the housing system in a way that’s managing that situation,” he said. “So my view is that the broader economy is doing well, that our banking system is doing well. We’ll continue to work on high household indebtedness, Canadians will need to work on that.”

Morneau delivered his fourth budget last month, ahead of a federal election this fall. He and Prime Minister Justin Trudeau’s Liberal Party are trailing the rival Conservative Party in most polls.

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