Ernie Johannson: Yeah. I was curious. Your question is the percentage of customers who are renewing because that’s really high, as in 90% of our book, they renew with us. So if that’s part of your question. And so really the statement is that we’re seeing customers renew right now. They’re facing an increase. They’re able to handle that increase quite nicely. A couple of factors, as you know quite well, they were stressed at a higher interest rate when they were originated. We’ve seen an ability for consumers to adjust and be able to afford the increased payment, which is what you’re also seeing on this slide, which is the regular payments went up 21% for consumers who are renewing this year between the fixed and variable mortgages and they are handling it.
Darko Mihelic: Yeah. Thank you very much. I think my real question was that last bullet point. If you’re suggesting that there is a 22% increase in the payment for the variable rate mortgage, what rate are they renewing at? There must be an assumption built in there, right, or?
Ernie Johannson: Right. The one thing — that last bullet point are exactly customers today in ’23, they’re renewing at today’s rate, exactly right.
Darko Mihelic: And if they did that in 2024, you are suggesting we will see a similar sort of impact. Okay, fair enough. Thanks.
Ernie Johannson: Correct.
Darko Mihelic: Okay. And then the second question along this same sort of line of questioning is if the average is 22%, what do the tails look like? So there must have been some customers with a significantly higher increase and clearly, there would have been some with a very small increase. Is there any sort of distribution you can provide?
Ernie Johannson: Yeah. We do see people having to face a 30% increase this year. That will get higher as we move into ’26 because we’re assuming — if you assume no rate decrease. There would be customers who would potentially be facing 35% or 40% at that tail end again. But again, going back and you think about where they were stressed at and their current income as you look at their cash flow in a variety of ways, we feel pretty confident that there is an appetite or an ability to be able to consume that increase or to handle that increase.
Piyush Agrawal: And then, Darko, the same customers from our outreach programs, have come back and are actually already prepaying voluntarily down quite a bit. So there are some who know, it’s a higher number. They’re waiting for the rate decrease to happen, but we’ve got very positive outreach and customer reaction around the voluntary prepayments back to lower the [indiscernible].
Darko Mihelic: Okay. This is all very helpful. And I really appreciate the disclosure I guess the last lingering question that we’re all having around this is, yes, I can see the increase on average for the customers in 2023. Did they renew at a shorter term. And how much time before you suspect there will be some cracks for people that are paying these higher payments?
Ernie Johannson: I think what we’re seeing right now is renewing and renewing obviously, into fixed rate product and also into shorter duration because of the anticipation of rate decreases, which is very prudent on the part of Canadians who are renewing. I just want to clarify as well, as you think about that 40% increase, those are going to be smaller numbers at that tail end of it when you think about the increase that consumers are going to be facing on price — on the payment.
Darko Mihelic: Okay. And underwriting today, just to finish off this discussion, you’re still growing your mortgage presumably you’re doing originations. What does it look like today versus four or five years ago? Are you looking at better GDS, TDS ratios? Is there anything you can point to that suggest that people that you’re underwriting today at a higher rate than you would have four or five years ago are in fact — are they putting down more down payment at the LTV lower? What can you tell us about the originations that you’re putting on today?
Ernie Johannson: I’ll — it’s Ernie. I’ll respond in a couple of ways. So what we’re seeing, obviously, is at a stress rate on top of the high rate that exists today, ensures that your customer has more robust cash flow and ability to pay. Our underwriting remains as prudent as it has been in the past in the sense that we look at loan to value, we look at affordability, we look at their stressed rates that they can afford with an increase in payment. So I would say our underwriting remains consistent. I think the market and interest rates have improved the quality of the customers simply because you have to be stressed at a higher interest rate.
Darko Mihelic: And are you happy with the spreads you’re getting on mortgages these days?
Ernie Johannson: Yeah. Let me take two seconds on that. We — our approach to mortgages and all our retail market share growth that we’ve experienced over the past few years is a function of our strategy around holistic conversations with customers and holistic relationships and growing new customers with those full relationships. So when I look at this business, I look at that how many customers do we have with primary relationships which is leading right now in the industry and also how much we’re consolidating our relationships with existing customers. So it’s not a mortgage strategy per se. It’s a retail relationship strategy we’re driving.
Christine Viau: I think we’re going to try to fit in a couple more questions. If I could just ask the next people in the queue to limit it to one question. We’ll try to take a few more here.
Darko Mihelic: Yeah. Thanks, Christine.
Christine Viau: Thank you.
Operator: Thank you. Our following question is from Paul Holden from CIBC. Please go ahead.
Paul Holden: Thank you. So limiting it to one question. The one I want to ask is on Bank of the West, and I want to make this clear. I think I know what the answer is, but you’ve increased cost synergies 20%, but EPS accretion is expected to be the same. Is that a function purely of the change in the macro environment or has there been any change in customer retention?
Tayfun Tuzun: There is actually no change in customer retention. We are actually very happy with both the client retention as well as employee retention. So this is really due more to the environmental factors that we have seen over the past year.
