Blessed by the Potato

In today’s post at TRB David Fleming casually mentioned visiting National Trust as a kid. I had an account there too when I was younger, so it brought back some memories. I decided to dig up some historical statements for National Trust (which was taken over by Scotia in 1997).

The late 80’s were a wild time for Toronto real estate. National Trust, despite the name, was heavily concentrated in Ontario: about 75% of its business was there, with about 25% in Toronto alone. From ’87 to ’88, mortgage growth for NT was 13%, then 18% the year after, and another 9.8% into 1990 (as things were peaking in TO). Return on equity was 13.8%, 12.9%, and 13.4%. The provision for loan losses was peanuts in ’87, and they actually wrote some loans back up (a negative provision) in ’88. In ’89 the provision for loan losses was 3.4 basis points (0.034%) of the mortgage portfolio.

By 1992 the mortgage portfolio was shrinking, with provisions for loan losses at 85 basis points. Return on equity was down to 5.5%, and they had laid off 12% of their employees (by the time Scotia took them over, 25% of those who worked there in the 1989 peak were out of work).

I’ve made my bear case on real estate so many times I don’t want to go too crazy here. But this week I was once again hearing the meme that Canadian banks are invincible, that real estate will never correct and even if it does it won’t hurt them. National Trust came out more-or-less unscathed from the 1989 Toronto crash, and the dividend was never cut (though it also never increased from 1990 on). However, if you were a buyer in the late ’80s I’m not sure you’d be happy with the performance through the next half decade.