"Canadian Banks are the Only Sector to Outperform Berkshire Last 25 Years"

[Uccmal]

What is the difference between this and communism? Can't sue, no free market? Sure, USA is not capitalist either but it seems to be more toward that end of the spectrum than Canada.

 

 

In Canada, if you are the victim of a tort, you can definitely sue.  In general, you should only expect to receive an award equivalent to your demonstrated economic losses, plus your litigation costs.  Unlike the United States, punitive damages are very unusual in Canada.

 

So is that a good thing or a bad thing that punitive damages are rare?  In the US, there have been some pretty high profile cases of class action suits with damages that are eyeboggling, particularly the $4.9 billion award against General Motors to the families of six people who were killed by exploding fuel tanks.  Awards with large punitive damages certainly result in companies being more careful, but it does encourage people to treat relatively minor incidents as "lottery tickets" resulting in a bit more of a litigious society.  So is that good, bad, or some of each?

 

 

SJ

 

God only knows.  I am not going to step out too far here.  Not being a lawyer and all.  In Canada, if you sue someone and lose you can be on the hook for nearly all of their defense costs.  This serves as a major impediment to starting a lawsuit. 

 

In the US the defendant has to pay their own defense costs thus reducing the risk to the plaintiff.  A major structural difference.  The defendant in the US can countersue but chances are the original plaintiff doesn't have any money - why else would they be suing. 

[Shane]

I'm unfamiliar with these banks, but the comments on this thread have piqued my interest.

 

Looking at ROE, it seems that over the past 20 or so years Royal Bank of Canada has topped all of the others (TD, BNS, BMO).  The second place would go to BNS.  Can anyone who follows these banks comment on why that is the case?

[rb]

I'm unfamiliar with these banks, but the comments on this thread have piqued my interest.

 

Looking at ROE, it seems that over the past 20 or so years Royal Bank of Canada has topped all of the others (TD, BNS, BMO).  The second place would go to BNS.  Can anyone who follows these banks comment on why that is the case?

To give you a bit of equivalence. TD is like WFC (in more ways than one it seems). It started a transformation with a new CEO in 2003. It's been retail focused and customer friendly. Very good risk management. Expanded a lot in the US mainly east coast.

 

RBC is kinda like JPM. It has a large retail business in Canada but they like to be the big boy and do flashy deals. So for the past decade or so they've focused a lot on investment banking and wealth management. They wanna become a big global investment bank.

 

BNS is pretty conservative in it's Canadian operation. It's also pretty international. In that it has a large Latin American and Caribbean operation. I sold my BNS stock a few years back because in my opinion their risk management in Lat-Am has deteriorated. Also has less investment  banking than RBC or TD and they own the former ING direct discount bank in Canada.

[SharperDingaan]

In the Cdn system, when there is miss-selling; it's typically dealt with behind closed doors.

Facts to find out how extensive it is across the industry, identify the standouts, determine root causes, and come up with an approach. You are then informed as to what the minimum is that you're going to do to correct it, & you're expected to do better than this. How, is up to the bank.

 

So .. when employees feel that things are so bad, that they have to essentially 'whistle blow to the media'; it is akin to the red light going off over the goalie net. And this from Canadian employees, in a conservative bank?; it is highly likely that it is not disgruntled employees.

 

We know that prior to the 2006 banking crises, many banking employees around the world were raising flags that things were seriously 'off'. The warnings were ignored, because it wasn't convenient; & we got a decade of continuous bail-out instead. In Canada, those warnings get taken up behind closed doors.

 

Its a strong system, & it works very well; but it's everyone's responsibility.

 

SD

 

       

[Uccmal]

I'm unfamiliar with these banks, but the comments on this thread have piqued my interest.

 

Looking at ROE, it seems that over the past 20 or so years Royal Bank of Canada has topped all of the others (TD, BNS, BMO).  The second place would go to BNS.  Can anyone who follows these banks comment on why that is the case?

To give you a bit of equivalence. TD is like WFC (in more ways than one it seems). It started a transformation with a new CEO in 2003. It's been retail focused and customer friendly. Very good risk management. Expanded a lot in the US mainly east coast.

 

RBC is kinda like JPM. It has a large retail business in Canada but they like to be the big boy and do flashy deals. So for the past decade or so they've focused a lot on investment banking and wealth management. They wanna become a big global investment bank.

 

BNS is pretty conservative in it's Canadian operation. It's also pretty international. In that it has a large Latin American and Caribbean operation. I sold my BNS stock a few years back because in my opinion their risk management in Lat-Am has deteriorated. Also has less investment  banking than RBC or TD and they own the former ING direct discount bank in Canada.

 

TD Waterhouse should ring a bell for any investor in NA. 

 

RBC is like JPM and they are huge.  A little overpriced at the moment.  I have been selling my shares down a bit.  I did as well on RBC as I might have on BAC without the baggage. 

 

As to scale the collective big 5: RBC, CIBC, TD, BNS, and BMO fall somewhere between a half to a third the size of JPM, WFC, or BAC.  They are bigger than nearly all regional US banks. 

 

They are protected by Cdn. legislation, but are also expected to provide for Canadians.  They are huge employers, and have some of the best private sector jobs in Canada, with good pensions, reasonable pay, and good job security.  Generally they promote young people within.  It is sort of a tacit agreement between our government and the banks.  You provide for Canadian's, dont be too obnoxious, and we will protect you with legislation. 

 

Part of the reason they have been so well run during the period in question is that they had their day of reckoning in the eighties and nineties.  We had back to back bad recessions in the early 80s, and the late 80s into the mid 90s.The banks had to belt tighten big time.  Then came the US mortgage crisis which served up a warning to them.  I cant speak to their risk management right now.  Its likely gotten sloppy like JPM, or WFC were sloppy in 2007.  But not like Countrywide or Washington Mutual.

 

In a severe downturn globally they will get hit the same as anyone else.  A mortgage crisis in Canada is unlikely.  House prices in Toronto are nuts but that doesnt necessarily put the big banks in any serious jeopardy.  The riskier mortgages are held by other non- bank entities.  Chances are, if/when there is a major downturn in CDn. house prices they will each take some writedowns, dust themselves off, tighten up their lending a bit and carry on. 

 

None of this implies that I would buy their stock right now though.  But them, I am not buying anything.  I figure sometime in the next couple of years I will get any one of them at two thirds, or even one half of todays price. 

[wisdom]

http://www.cbc.ca/beta/news/business/banks-upselling-go-public-1.4023575

 

Another source of outperformance. Due to this culture, banks have helped commit fraud by getting around rules. It will be interesting when the tide goes out.

 

People who understood the process, banks and brokers, have helped Canadians pile on record debt. Bankers, regulators, borrowers and government have looked the other way.

[StubbleJumper]

http://www.cbc.ca/beta/news/business/banks-upselling-go-public-1.4023575

 

Another source of outperformance. Due to this culture, banks have helped commit fraud by getting around rules. It will be interesting when the tide goes out.

 

People who understood the process, banks and brokers, have helped Canadians pile on record debt. Bankers, regulators, borrowers and government have looked the other way.

 

 

The article is pretty silly.  I've rarely seen a business that functioned in any way other than constant upselling, and trying to persuade clients to buy things that they don't need.  The last time I bought a car, they tried to sell me a more expensive model, and they pushed the undercoating and extended warranty (don't even get me started on the service department).  The last time I went out for supper they tried to convince me to order another pint, and to buy dessert.  That's life as a consumer.  The CBC does people a disservice by leaving the impression that banks are behaving any differently then they've done in the past -- if you were stupid enough to accept the posted interest rate, you've always gotten hosed (but that's true of Bell and Rogers too).

 

Tempest in a teacup.

[Uccmal]

http://www.cbc.ca/beta/news/business/banks-upselling-go-public-1.4023575

 

Another source of outperformance. Due to this culture, banks have helped commit fraud by getting around rules. It will be interesting when the tide goes out.

 

People who understood the process, banks and brokers, have helped Canadians pile on record debt. Bankers, regulators, borrowers and government have looked the other way.

 

 

The article is pretty silly.  I've rarely seen a business that functioned in any way other than constant upselling, and trying to persuade clients to buy things that they don't need.  The last time I bought a car, they tried to sell me a more expensive model, and they pushed the undercoating and extended warranty (don't even get me started on the service department).  The last time I went out for supper they tried to convince me to order another pint, and to buy dessert.  That's life as a consumer.  The CBC does people a disservice by leaving the impression that banks are behaving any differently then they've done in the past -- if you were stupid enough to accept the posted interest rate, you've always gotten hosed (but that's true of Bell and Rogers too).

 

Tempest in a teacup.

 

Good points SJ.  I dont drink alcohol, and the look of disappointment on servers faces when I order a pop, or I am fine with the water, is interesting.  There goes my 20% tip on that glass of wine....

And dealership service departments and quick lube places are the worst of the worst. 

 

I was waiting in a Midas muffler for a couple of hours and watched the salesperson sell several serpentine belts.  Now, I dont know about anyone else, but I have driven several cars into the ground and never had to replace a serpentine belt.  The manual says you need to check your brake fluid, tranny fluid, etc.... Not change it.  And an engine flush?  Isn't the whole point of changing your oil because the oil flushes the engine? 

 

I hate Bell so much I bought the stock. 

[bizaro86]

All of the Canadian banks do stuff like this. A couple of recent personal experiences.

 

I was at a CIBC, where a little old lady was at the teller next to me. She was taking out approximately a weeks worth of grocery money. The teller said "sign here for your pre-approved unsecured line of credit and I'll get your cash"

 

I had a mortgage at Scotia that the banker flat out said they wouldn't approve unless I signed up for their credit card. I'm sure if I had complained it would have been my misunderstanding.

 

These are just the examples I've witnessed so far this month...

 

Also, to whoever said Scotia has the most conservative domestic underwriting, that is not true for rental properties. Scotia has by far the most generous terms for individual rental property investors. TD is probably the strictest in that market.

[rb]

Of course all businesses upsell. But it gets to a point where it starts to be ridiculous bordering on felonious. Car service is one area that's been there for a long time. With banks today it's somewhere around that point. It's also a bit different with banks because depending on what you're selling you may need a license and many times prevents you from selling product that is inappropriate for the client - the line of credit with your grocery money example above I think kinda fits here.

 

Al, in regards to Bell they used to hassle me a lot as well. Until the point when I told them that if I get another sales call I switch to Rogers. That seems to have gotten the point across really quick. Oh and if you're in Ontario and you ever wanna see a Bell rep crap their pants just mention Teksavvy.

[wisdom]

How do you explain bankers teaching people how to beat the system to get a few more mortgages so that they can keep meeting their goals. Is that what banks are supposed to do?

 

As I have said in the other thread, do some scuttle butt and you will understand why Canadian banks have done so well - potentially at short term cost to Canadians. It will be interesting as all of this plays out over the next few years.

 

Will Canadian banks do well in the long run. Absolutely! Have they messed up over the last few years. Absolutely -  by enabling widespread fraud due to the culture created. Not very different from the American banks.

[wisdom]

If there is full disclosure and things get exposed I believe well respected FIs and their employees will be shown to have looked the other way and even done the same.

 

http://business.financialpost.com/news/fp-street/several-home-capital-directors-officers-served-with-osc-enforcement-notices

 

Or we can keep kidding ourselves that Canadian banks have the secret sauce that allows people to keep borrowing more for each dollar earned.

 

 

[rb]

How do you explain bankers teaching people how to beat the system to get a few more mortgages so that they can keep meeting their goals. Is that what banks are supposed to do?

I'm not a lawyer but I would call that something along the lines of conspiracy to commit fraud. I'm sure when the investigations happen they will call it helping the customer achieve his dream of owning a home.

[cwericb]

bizaro86 you might be interested in this from the CIBC website:

 

“The Bank Act requires banks to inform customers in plain language that coercive tied selling is illegal. To comply with the law, CIBC has created this booklet to help you understand coercive tied selling. ...

 

Coercive tied selling is illegal and is prohibited under Section 459.1 of the Bank Act. More specifically, it is against the law for a bank to "impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining another product or service from the bank". You cannot be unduly pressured to buy a product or service that you don't want from a bank or one of its affiliates, to obtain another bank product or service.”

 

https://www.cibc.com/en/legal/tied-selling.html

 

PS: All Canadian banks are required to publish the above statement.

[CorpRaider]

Yeah, seems like you guys have all the signs.  Maybe they are quasi-state entities such that you can end up with a nice Japan type slow leak over a decade versus a "pop".

[LesPaul]

 

bizaro86 you might be interested in this from the CIBC website:

 

“The Bank Act requires banks to inform customers in plain language that coercive tied selling is illegal. To comply with the law, CIBC has created this booklet to help you understand coercive tied selling. ...

 

Coercive tied selling is illegal and is prohibited under Section 459.1 of the Bank Act. More specifically, it is against the law for a bank to "impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining another product or service from the bank". You cannot be unduly pressured to buy a product or service that you don't want from a bank or one of its affiliates, to obtain another bank product or service.”

 

https://www.cibc.com/en/legal/tied-selling.html

 

Interesting to read about coercive tied selling so plainly. Take a look at this first time home buyer mortgage offer from BMO - they'll give you $1000 but they deposit it into your BMO chequing account. Want the cash but don't have a BMO chequing account...? Well, I guess you'll just happen to sign up for one now!

 

https://www.bmo.com/main/personal/mortgages/special-offers/first-home-offer

 

I've never worked in the industry so my guess is that this doesn't technically apply as coercive tied selling, but I mean come on, for all intents and purposes, it really is tied selling!

[cwericb]

"BMO - they'll give you $1000 but they deposit it into your BMO chequing account. Want the cash but don't have a BMO chequing account...? Well, I guess you'll just happen to sign up for one now!"

 

That doesn't really bother me too much. CIBC did something like that a few years ago offering Aeroplan points. I took advantage of the offer and then closed closed the account. If more people would do that and the banks would soon stop offering giveaways to get business and compete with rates.

[Shane]

I'm unfamiliar with these banks, but the comments on this thread have piqued my interest.

 

Looking at ROE, it seems that over the past 20 or so years Royal Bank of Canada has topped all of the others (TD, BNS, BMO).  The second place would go to BNS.  Can anyone who follows these banks comment on why that is the case?

To give you a bit of equivalence. TD is like WFC (in more ways than one it seems). It started a transformation with a new CEO in 2003. It's been retail focused and customer friendly. Very good risk management. Expanded a lot in the US mainly east coast.

 

RBC is kinda like JPM. It has a large retail business in Canada but they like to be the big boy and do flashy deals. So for the past decade or so they've focused a lot on investment banking and wealth management. They wanna become a big global investment bank.

 

BNS is pretty conservative in it's Canadian operation. It's also pretty international. In that it has a large Latin American and Caribbean operation. I sold my BNS stock a few years back because in my opinion their risk management in Lat-Am has deteriorated. Also has less investment  banking than RBC or TD and they own the former ING direct discount bank in Canada.

 

TD Waterhouse should ring a bell for any investor in NA. 

 

RBC is like JPM and they are huge.  A little overpriced at the moment.  I have been selling my shares down a bit.  I did as well on RBC as I might have on BAC without the baggage. 

 

As to scale the collective big 5: RBC, CIBC, TD, BNS, and BMO fall somewhere between a half to a third the size of JPM, WFC, or BAC.  They are bigger than nearly all regional US banks. 

 

They are protected by Cdn. legislation, but are also expected to provide for Canadians.  They are huge employers, and have some of the best private sector jobs in Canada, with good pensions, reasonable pay, and good job security.  Generally they promote young people within.  It is sort of a tacit agreement between our government and the banks.  You provide for Canadian's, dont be too obnoxious, and we will protect you with legislation. 

 

Part of the reason they have been so well run during the period in question is that they had their day of reckoning in the eighties and nineties.  We had back to back bad recessions in the early 80s, and the late 80s into the mid 90s.The banks had to belt tighten big time.  Then came the US mortgage crisis which served up a warning to them.  I cant speak to their risk management right now.  Its likely gotten sloppy like JPM, or WFC were sloppy in 2007.  But not like Countrywide or Washington Mutual.

 

In a severe downturn globally they will get hit the same as anyone else.  A mortgage crisis in Canada is unlikely.  House prices in Toronto are nuts but that doesnt necessarily put the big banks in any serious jeopardy.  The riskier mortgages are held by other non- bank entities.  Chances are, if/when there is a major downturn in CDn. house prices they will each take some writedowns, dust themselves off, tighten up their lending a bit and carry on. 

 

None of this implies that I would buy their stock right now though.  But them, I am not buying anything.  I figure sometime in the next couple of years I will get any one of them at two thirds, or even one half of todays price.

 

Thanks rb & Uccmal - your comments are very helpful.  Will be digging in deeper.

[warrior]

i have been working at one of the "big" Canadian bank for over 18 yrs ( i worked  in US banking industry as well)

so ,just to clarify that for bank  to have a profit for  opening bank  accounts , increasing limits /opening overdraft protection ,  issuing  line of credits or credit cards , these products must be used.  deposits /transactions on bank accounts,  utilized credit limit on LC or transaction fees on credit cards. if credit not used it is liability on the balance sheet, if accounts have no deposit base or transactions, banks earn "O" .

 

one of the idea of" cross selling" is to gain market share in terms of clients base. the more products client has with bank , the better is  relationship .

goals/targets  always were present and will be present in the industry,  retail banking job is about selling, gaining clientele and keeping them happy and this job is not easy one.

 

 

 

 

[alpha]

Patrick Horan was on BNN this morning commenting on the Berkshire deal with HCG and mentioned it could be bad for Canadian banks. He said it could be the first sign of a fierce competitor entering the Canadian market through an area the big 5 have abandoned.

 

http://www.bnn.ca/video/warren-buffett-s-home-capital-bet-bad-for-canadian-banks-money-manager~1152310

[rukawa]

http://www.cbc.ca/beta/news/business/banks-upselling-go-public-1.4023575

 

Another source of outperformance. Due to this culture, banks have helped commit fraud by getting around rules. It will be interesting when the tide goes out.

 

People who understood the process, banks and brokers, have helped Canadians pile on record debt. Bankers, regulators, borrowers and government have looked the other way.

 

And there is absolutely no responsibility from Canadians for any of this? The people who keep telling me I should be buying a house aren't the banks...its other Canadians. I don't really see why banks should be blamed for any of this. The government and the regulators are another story.

 

I think Canadians actually get a good deal on banking. Sure the banks make high profits but at least we don't have banking crisis like the States does that require huge government bailouts. Even Europe has problems. The Canadian banking system is the only one in the world that actually works.

[LesPaul]

http://www.cbc.ca/beta/news/business/banks-upselling-go-public-1.4023575

 

Another source of outperformance. Due to this culture, banks have helped commit fraud by getting around rules. It will be interesting when the tide goes out.

 

People who understood the process, banks and brokers, have helped Canadians pile on record debt. Bankers, regulators, borrowers and government have looked the other way.

 

And there is absolutely no responsibility from Canadians for any of this? The people who keep telling me I should be buying a house aren't the banks...its other Canadians. I don't really see why banks should be blamed for any of this. The government and the regulators are another story.

 

I think Canadians actually get a good deal on banking. Sure the banks make high profits but at least we don't have banking crisis like the States does that require huge government bailouts. Even Europe has problems. The Canadian banking system is the only one in the world that actually works.

 

+1

 

We love our banks and dreams of home ownership. I'm in my late 20s and feel the itch too, to be honest.

[RichardGibbons]

The Canadian banking system is the only one in the world that actually works.

 

To me, this is a very odd thing to say when we're in the middle of a massive housing bubble, when--in a world where houses are considered affordable at three times income and grossly unaffordable at five--houses in Vancouver are going for eleven or twelve.

[Liberty]

The Canadian banking system is the only one in the world that actually works.

 

To me, this is a very odd thing to say when we're in the middle of a massive housing bubble, when--in a world where houses are considered affordable at three times income and grossly unaffordable at five--houses in Vancouver are going for eleven or twelve.

 

Canadians pay high fees because of the oligopoly. That's how the banks make money. We're always way behind the US in getting lower cost options and nice incentives on things like credit cards...

[rukawa]

To me, this is a very odd thing to say when we're in the middle of a massive housing bubble, when--in a world where houses are considered affordable at three times income and grossly unaffordable at five--houses in Vancouver are going for eleven or twelve.

 

Its a very odd thing to say if you assume our banking system is responsible for housing markets. I don't. Right now there are housing bubbles occurring all over the world and the common denominator is not Canadian banks.

 

Canadians pay high fees because of the oligopoly. That's how the banks make money. We're always way behind the US in getting lower cost options and nice incentives on things like credit cards...

 

We are behind the US on nearly everything...generally every consumer market in Canada is less competitive, has less options and higher costs than the States.

 

You choose your poison. You can have competitive banking and repeated bank crises with huge bailouts. Or you have an oligopoly with nice fat profits, limited risk taking and no bank crises. Personally I think Canadians are getting a great bargain. You could of course try and have both no bank crises and competition but that is another story.