The REALLY Big Short: The $13.7 Billion Dollar Bet Against Canadian Banks Over Housing and Insider Sales

Canada Housing Crash Short Causing Short Interest To Rise

It’s no secret that smart money has been piling into bets against the Canadian housing market, but now it’s reaching an epic scale. A little digging revealed that more than $13.7 billion in short bets are being placed against Canada’s big 5 banks – that’s right, our big 5. While it could just be a number of poorly guided investors (billionaires be cray-cray), we noticed that banking insiders are now starting to make interesting moves that might pour gas on this fire.

Mortgage Exposure At Canada’s Banks

Household debt is reaching ridiculously high levels, with the bulk of it coming from mortgages. Currently the average Canadian has a 166% debt to income ratio – which means they are spending roughly $1.66 for every dollar they earn. You can probably see why this is a problem, and analysts are increasingly becoming worried that a quick move in unemployment, or interest rates could force these consumers to default on their mortgages.

Canada’s $13.7 Billion Short By Bank

A little while back we did a breakdown that indicated some banks were trimming exposure through a decrease in their mortgage businesses, and some were increasing the percentage of insured loans. The Bank of Nova Scotia (aka Scotiabank) seems to be the most cautious, having reduced their mortgage portfolio by a whopping 37.77% to $117 billion over the past year ending in second quarter of 2016. Additionally, they increased the percentage of mortgages that were insured by 23.2%. The strangely aggressive move seems to contradict what’s being widely reported about how our large banks feel about the housing market.

Inside Stock Sales At Banks

The banks aren’t the only ones looking to reduce exposure, it appears insiders are reducing exposure in their own banks. A common way for analysts to gauge the internal sentiment at a company, is to monitor the number of shares being sold by insiders. Afterall, if you worked at a company you knew was going to kick a**, you would probably want to demonstrate your confidence by buying into your company. If you knew there was an upcoming risk, or you’ve hit peak, you would probably try to remove as much of your money as possible to avoid losses. Analysts commonly monitor insiders to see if the net flow is positive (more shares are being purchased than sold in total), or negative (more shares are being sold than purchased).

A whopping $89 million more in shares were sold than purchased collectively by insiders at Canada’s banks, according Canada’s System for Electronic Disclosure by Insiders (SEDI) over the past year. Probably worth noting that this is in contrast to big US banks, where executives at JP Morgan and Bank of America have purchased US$12,213,381 and US$1,296,900 more shares than they sold.

BMO led the pack of five, with their executives selling $27,877,194 more shares than they purchased – this includes $500k worth of shares being sold by their CEO, and a whopping $9,242,320 being sold by their CFO Thomas Flynn in just the past year. I know what you’re thinking, the Chief Financial Officer has no idea how a bank is doing, so don’t place too much thought into it.

Fun Fact, BMO COO Frank Techar’s home is for sale too.

Scotiabank is by far the most interesting however, since the bank’s CEO Brian Porter has been the most vocal about housing prices. In addition to the bank making aggressive moves to reduce housing related risk, bank executives have sold $14 million more shares than they have purchased in the past year. Porter, who has said he’s “a little concerned about housing prices in the Greater Vancouver area and Toronto”, seems to be putting his money where his mouth is. He put up his mansion for sale just six months after purchasing it, and has let go of $11.9 million worth of shares. Making CFO Sean McGunckin’s $500k worth of sales seem tame in contrast.

The $89 Million Insider Net Outflow

We’re sure it’s all just big coincidence. Afterall, Canada’s Big 5 are stable pillars of which the Canadian economy revolves around – renowned for their security. Although, that’s what they said about Lehman, and there was no hint that they were in trouble. Well…there was that trade on June 13, 2007, where a sale of $22,636,375 worth of Lehman shares were sold by then CEO, Richard Fuld Jr – around 77 days before they announced their mortgage issues. But this is Canada, that could never happen, right?

Edit: Since we had a number of emails inquiring if $13.5 billion is a big number, I’ll just qualify that by saying it’s roughly 4% short interest. A bank like JP Morgan that has approximately the same market cap of the Big 5 combined has 0.5%. Take what you will from that.

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Written with contributions by Stephen Punwasi. 

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  • Reply
    Glynis Van Steen 3 months ago

    It is really shameful and sad when you see executives trying to cash in by sinking the very ship they are supposed to be protecting and endorsing. That is why I detest this legalized gambling known as public trading.

    • Reply
      Jenny 3 months ago

      The real problem is the public disclosure system. I just tried to look up the insider trades mentioned in this article, and as far as I can tell it’s proprietary data. Not unlike our real estate numbers. I’m not sure what good public disclosure is if no one gets to see it.

      • Reply
        Avatar Bazaar 3 months ago

        It is public information that can be found at or even The filling is not what the problem is. Any well advised investor should know how to look this information up.

  • Reply
    Gregan 3 months ago

    $13.7 billion sounds like a big scary amount, but how big is it really in this case? Helping quantify how big this number actually is would help paint the picture. How big was this number last year and the year before that? What’s the current trend? Telling us this number in isolation really doesn’t provide an accurate story.

    The same goes for the insider net outflow numbers… and your pie chart of net outflow is meaningless as each company is a different size so comparing each of them directly 1:1 doesn’t provide any value/meaning.

    • Reply
      Alice 3 months ago

      They did qualify insider net outflows when they said JPM had more buying than selling.

      They could have qualified the $13.7 billion better. From the looks of it, JPM has $1.8 billion worth of shares sold short, so all but one of Canada’s banks has more dollar value being shorted. This is despite the fact that JPM has a market cap almost twice that of any Canadian bank.

      I think the only “inaccurate story” being provided is by Canada’s banks.

    • Reply
      Tiffany Greene 3 months ago

      $13.7 billion sounds like a big scary amount, but how big is it really in this case?

      I guess that’s subjective, but Steve Eisman’s “big short” was from a firm with AUM of $1 billion dollars. If you think Steve Eisman’s fund was considered small, we’d love to be invited to your next boat party.

      How big was this number last year and the year before that?

      Reverse capitulation doesn’t help illustrate the issue, it tells investors when they are most likely to make money. This level combined with insider selling is the issue we’re highlighting.

      Fun fact, historic short interest balances are considered proprietary information in Canada for some reason. Not unlike Canada’s real estate data.

      your pie chart of net outflow is meaningless

      We thought it would be helpful to see where the $89 million in net outflow was coming from. We could have published the list of names and addresses of everyone, the details of their equity balances, etc. But it doesn’t help communicate that certain banks have a higher outflow of capital from insiders than others – a doughnut chart does.

    • Reply
      Graham 3 months ago

      Totally agree Gregan.

      Tiffany, the money that is being pulled out, are you sure these aren’t just part of their salary? Isn’t it a common practice to pay the C-suites with a very low salary but huge stock bonuses?

      • Reply
        Emma 3 months ago

        By itself, selling is not a big issue. The author is pointing out a number of things occurring at once, that’s what’s concerning. Unfortunately for Canada, she may have been too subtle. Let me sum up what she’s saying:

        Scotiabank’s CEO is selling his house six months after moving in, warning people about a crash, cashing out of his own bank, and his bank reduced mortgage holdings by over 30%. He’s not hiding it, he’s telling people and everyone is dismissing him.

      • Reply
        Dave 3 months ago

        C-Suites or “c-levels” are paid equity as a bonus performance incentive. They typically sell when a) they think they can receive maximum value, b) they’re leaving the company and have no incentive, or c) they need to buy something really big.

        I’m guessing they contrasted JPM because Jamie Dimon (CEO) is so confident in the direction his bank is going, he’s willing to put his own money on that.

        “very low salary”

        I get that you’re a real estate agent, but $4 million dollars in cash isn’t considered low to you is it? I get that you can barely buy a 2 bedroom bungalow in Vancouver, but…

  • Reply
    Vivian 3 months ago

    I like that the majority of comments are like, “psh…$13.5 billion and a bank CEO acting like he’s two steps away from living in a hole with a shotgun and canned foods is completely normal”.

    Speaks volumes about how delusional the majority of Canadians are.

  • Reply
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    peter33 3 months ago

    That chart shows the inexperience of the shorters. TD is the strongest bank with very large foreign-US operations. CIBC is the weakest bank most likely to fail in a crash. The short interest should be almost completely reversed. Whoever is shorting either doesn’t have sufficient quantity or not very wise.

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    The real story of realtor is a brokerage dealer who can show your property to other’s who are willing to buy or rental things.

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    Jenny 3 months ago
    So, when our children’s lives are ruined by this because they bought into an illicit Ponzi scheme that had absolutely nothing to do with fundamentals will the legislators be able to say they didn’t know? Our governments have completely and utterly failed us!

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