Paul Holden: Okay. And since that was a quick one, maybe I can sneak one more in. When does the discount come off?
Tayfun Tuzun: Well, look, I mean, as I said, we will find out soon what OSFI’s intention is. We have this first quarter we need to get through the impact and make all these changes, and we will assess that during the quarter, and we’ll come back to you and give you our perspectives.
Paul Holden: Okay. Thank you.
Operator: Thank you. Our following question is from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca: Tayfun, I think in your opening comments, you referred to $1.9 billion of integration costs. Could you just — is that a forward-looking number or has that already been incurred?
Tayfun Tuzun: No, that is very largely behind us. So we have a little bit left, but a significant portion of that is already behind us.
Mario Mendonca: Okay. And then real quickly, on the variable mortgages, the 62%, could you talk about what that number was last quarter, the 60% negative amortizing, what it was last quarter and why that number is so high? Your peers seem to be covering around 50%, even less than 50%.
Piyush Agrawal: Yes. So I think our number, we’ve got paid down about by $3 billion, so it’s a little bit higher. As long as rates remain where they are, if they come down, they will continue to come down over time.
Mario Mendonca: Why so high?
Ernie Johannson: Yeah, it’s Ernie. Let me explain that, why so high. If you’ll remember our acquisition growth occurred in a market where variable rate mortgages were of consumer preference. And so you’ll see us having a higher proportion as a result of our growth rate took place in those years where that product was taken over a fixed rate product. So it’s essentially a consumer preference during our time of acquisition.
Mario Mendonca: Okay. And then probably, look, I’m not sure if this is because I’m tired and the earning season’s gone on too long, but I kind of hear this message that BMO could very well need more capital if the domestic stability buffer is raised. Am I reading too much into your comments?
Tayfun Tuzun: No — yes. No. We don’t need more capital.
Mario Mendonca: Okay. Just felt that way, listening to some of your comments. Thanks again.
Operator: Thank you. Our following question is from Mike Rizvanovic from KBW Research. Please go ahead.
Mike Rizvanovic: Hi, good morning. Just wanted to go back to the mortgage renewals and what I’m wondering about is when I look at the expectation for the Bank of Canada overnight rate, it looks like four cuts in 2024, four cuts in 2025 and that would bring us down to a 3% overnight rate. And I’m assuming, and correct me if I’m wrong, but you’d be looking at a normal upward-sloping yield curve. And if that is your expectation, then it doesn’t seem like the five-year fixed rate would be much different than the 6% it is at today, because right now the five-year Bank of Canada bond rate is at about 3.65%. And then you’ve got to add that spread on top of that. So it doesn’t seem like the expectations on the rate side are really conducive of providing relief on this mortgage renewal issue.
And then in that vein, when I look at some of the originations done back in 2021, early 2022, like the payment differential, just simple math will tell you that it’s somewhere around 70% to 80% for some of your borrowers. And this is not just for BMO, but industry-wide. So any thoughts on that, any color you can provide would be super helpful.
Ernie Johannson: Yeah, it’s Ernie. I’ll just remark on your last comment. Our modeling would not suggest that. And we look at what the rate is that they took when they applied, to the rate that they will be renewing at, and don’t see it going into that zone. So that’s one point. The second point I would say is, our expectation is that even if the rates stay the same, that we’ll be looking at customers facing upward up to about a 40% increase in terms of at the max or 45% at the max in that zone when they renew. So a little different from where your assumptions are, but again, I’ll come back to the fact that these customers were underwritten with a very strong performance, and we monitor them today for their increase in cash flow and what they have remaining in their capacity to pay. So feel very confident that these customers are able to absorb the increased shock should there not be a rate decrease.
Mike Rizvanovic: Okay, so I’m not sure if there’s maybe an embedded expectation of amortization extensions there and the hardship rule, but the 40% would be higher if I just look at the — just the straight math of originating at sub 2% renewing at 6% or even in the mid-5s would be in some cases more than 40%. So maybe we can take it offline, but I’d love to get more details on that.
Piyush Agrawal: Yeah, we can do that.
Mike Rizvanovic: Thank you.
Operator: Thank you. This is all the time we have for questions. I would not like to turn the meeting back over to Darryl White.
Darryl White: Thank you, operator, and thank you all for your questions this morning. Before we conclude, I would like to take a moment to recognize Dan Barclay, who’s in the room with us. After a 30-year career, Dan will be retiring next month. Dan’s long track record of client service, ethical leadership, innovation, and strategic counsel have been key to the progress we’re making across the bank for our clients. Dan, on behalf of all of us, congratulations on a remarkable career. Alan Tannenbaum is succeeding Dan and has hit the ground running. His appointment represents a very strong handoff from a high-performing business into a high-performing business. We are at the bank proactively positioned for future growth and confident in the power of our integrated North American franchise with consistent and differentiated performance that will help our clients make real financial progress.
Thanks, everyone. I want to wish everyone a happy holiday season, and we look forward to speaking to you again in the new year.
Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
