Canadian Banks

[Uccmal]

Maybe so Cardboard.  I dont think lifecos are going out of business.  However, I think they have further to fall before I become interested again.  I need a black box premium for these companies.  They are far harder to get a grasp on than any bank due to the extremely long tail liabilities.

[Viking]

Nice summary of Canadian Banks: http://seekingalpha.com/article/312544-sound-canadian-banks-offer-opportunity

 

They all have reported Q4 results in the past week. RY looks to be the short term winner. In the weeks before reporting RY stock had sold off aggressively due to concerns about Euro exposure and capital markets. After reporting RY stock has moved up about 15%.

 

The short term losers appear to BNS (concerns over capital levels) and BMO (weak results).

 

Bottom line hard to argue Canadian banks are expensive at current prices.

[sswan11]

Warning: This Daily Show clip forwarded in a Whitney Tilson email!  :)

 

http://www.thedailyshow.com/watch/mon-june-24-2013/money-boo-boo---the-canadian-banking-system

[SharperDingaan]

Keep in mind that as soon as the Sun Life dividend is cut, the common will fall like a brick ;)

[John Hjorth]

Bump! - Reviving this topic - from 2011!, back then started by @Viking,

 

To me, there seems to be a lot of interesting stuff to discuss and talk about.

[longlake95]

Canadian bank are pretty expensive these days. Lots of headwinds. At 15X+ multiples and 1.8X+ P/B, they aren't screaming buys in my book. I don't think they are properly discounting some of the issues in the housing market. There are a lot of people that have seen their equity shrink by 25% in the past 3-4 years on their homes... not sure how much demand there is for credit cards, HELOC's, etc...

[John Hjorth]

Thank you for responding and replying, @longlake95,

 

The Canadian housing market hereby duly noted, as a concern, with all what that brings with it.

 

Discussed for ages here on CofB&F.

 

Everybody have to make up their own mind and form an opinion on it, based on whatever data and information. Your point is in no way trivial, at least for me personally. Thank you.

Edited March 12 by John Hjorth

[longlake95]

The Canadian banks will be a buy at some point. I’ll tell you when….LOL..

Bare in mind the last Canadian bank I owned was TD after the GFC….

We could be waiting a while.

 

Somebody here on COBF I think backed up the truck on BNS a few years ago…. That was smart. I missed that…

 

[jfan]

Could always consider eq bank or goeasy.

 

[John Hjorth]

9 hours ago, longlake95 said:

The Canadian banks will be a buy at some point. I’ll tell you when….LOL..

Bare in mind the last Canadian bank I owned was TD after the GFC….

We could be waiting a while.

 

Somebody here on COBF I think backed up the truck on BNS a few years ago…. That was smart. I missed that…

 

@longlake95,

 

Please remember to give me a 'go' during the weekend here, I vill need it, because I'm going to start buying likely monday or tuesday. 

[Jaygo]

I would love to know how much the Banks make from credit cards. Is that an item that is singled out? 

 

I too am in the camp of the CAD banks have moved up to the point where the juice may not be worth the squeeze / risk and am slowly trying to reallocate my ETF exposure with fewer banks but that's tough around here.

[longlake95]

I don’t think the banks breakout CC income. I still find it wild that banks can still charge AAA customers 19% for revolving  credit on a CC. 

[John Hjorth]

Thank you for the input, @Jaygo & @longlake95,

 

Duly noted. I'm all ears.

 

That does not stop me from acting next week. It's not exactly about pocket money or change here for me, bigger than tracker positions.

 

But I need to get going here in this space, after years of lingering. Better start get going to learn something and starting small, than staying on the sideline. I have learned during the early years to start small [dents and scars], and staying openminded, also ready to abort anytime.

 

The trigger here now for me was concerns about the US economy going forward, but this is off-topic here.

[roundball100]

41 minutes ago, longlake95 said:

I don’t think the banks breakout CC income. I still find it wild that banks can still charge AAA customers 19% for revolving  credit on a CC. 

When I hear about 19% fees on credit cards, I can't help think of Charlie Munger's quote where he equates being numerically illiterate with proceeding through life like the one-legged man in an ass-kicking contest.

 

[John Hjorth]

28 minutes ago, roundball100 said:

When I hear about 19% fees on credit cards, I can't help think of Charlie Munger's quote where he equates being numerically illiterate with proceeding through life like the one-legged man in an ass-kicking contest.

 

@roundball100,

 

lol! That's why we own banks, right?

 

- - - o 0 o - - -

 

Off topic : Is a ball a ball if it isen't round?  - I think I'll spend the weekend thinking about this question. [ j/k]

Edited March 13 by John Hjorth

[roundball100]

1 hour ago, John Hjorth said:

 

@roundball100,

 

lol! That's why we own banks, right?

 

- - - o 0 o - - -

 

Off topic : Is a ball a ball if it isen't round?  - I think I'll spend the weekend thinking about this question. [ j/k]

@Johh H: roundball is a somewhat out-of-style synonym for basketball.  And of course, an (American) football is not round.

BTW, on the Canadian big 6 banks:  almost every one of them individually seems to go deeply on sale periodically (for temporary, bank-specific reasons), and one strategy is to patiently look for that.  Regarding the lot as a whole, Ive heard various rules of thumb, including: buy them when the dividend is over x%, sell them when it falls below y%. When the whole lot is out of favour, they typically average well over 5% dividend.  Some investors jump in at x = 4 (currently, I think only BNS passes that threshold).  Of course, the values of x and y also vary with overall (domestic) interest rates. 

[John Hjorth]

3 minutes ago, roundball100 said:

@Johh H: roundball is a somewhat out-of-style synonym for basketball.  And of course, an (American) football is not round.

BTW, on the Canadian big 6 banks:  almost every one of them individually seems to go deeply on sale periodically (for temporary, bank-specific reasons), and one strategy is to patiently look for that.  Regarding the lot as a whole, Ive heard various rules of thumb, including: buy them when the dividend is over x%, sell them when it falls below y%. When the whole lot is out of favour, they typically average well over 5% dividend.  Some investors jump in at x = 4 (currently, I think only BNS passes that threshold).  Of course, the values of x and y also vary with overall (domestic) interest rates. 

 

@roundball100,

 

Thank you  for the cultural fill-in [I'm a Northern European] and an in all other aspects  awesome post.

 

- - - o 0 o - - -

 

Perhaps I should elaborate a bit here on what I like to see at the Canadian banks. Basically all of it will be bought in tax deferred accounts in individual names of my gang. Being a Danish citizen implies, according to the bilateral double taxation treaty [<- that's how it's called, but it's actually a treaty to avoid double taxation countrywise] between Denmark and Canada, the right to tax dividends belongs to the country of dividend origin [i.e. here, Canada], by 15 per cent. In Danish tax deferred accounts, dividends, realized and unrealized gain and losses, are subject to the socalled PAL-tax of 15.3 per cent, with credit for dividend taxes paid abroad, with carry-forward indefinitely of negative PAL-tax for a given year.

[Cityzoo]

Interesting article a few days ago in the Globe and Mail, copied below.

 

I wonder if most people here (with less Canadian bias) agree that one (or several) of the Canadian banks should constitute a core position in a portfolio? 

 

I want to build on a March 6 article on bank valuations by David Berman. Canadian bank stocks have done exceptionally well over the last year and a half. Their businesses have been strong, but the biggest factor has been expanding valuations. As David pointed out, RBC is trading at 14.1 times earnings, well above the long-term average of 11.9. 

To most investors, both these numbers seem low, especially compared to companies in other industries that don’t appear to be nearly as good. Indeed, if someone described the attributes of a Canadian bank to me in a blind test, I’d likely say the company should trade at either side of 20 times earnings. What’s not to like? 

The Canadian banks have unassailable franchises. They provide a necessary service, have sticky customers and can raise prices with impunity. They’ve become high-octane marketing machines and operate in a government-supported oligopoly characterized more by co-opetition than competition. And for income-oriented investors, they provide healthy and growing dividends. So why do these powerhouses trade at such low multiples? 

 

Risk and leverage

First and foremost, banks are highly levered. The amount of money they lend out is many multiples of their common equity. Small errors, while unlikely, can turn into huge loses. 

Unlikely, but it can happen, as Hugh Brown, one of Canada’s best bank analysts, pointed out in a 2011 exit interview. “In 1982, Third World debt collapsed. The Big Five Canadian banks had 2.5 times their equity invested in Third World loans, and those loans plunged to 50 cents on the dollar. On a mark-to-market basis, the banks were insolvent.” 

Back then, banks weren’t required to market down distressed loans and were able to work their way out of the hole in the years that followed. 

Citigroup, the global financial services giant, wasn’t so lucky. Shareholders were severely diluted during the 2008 financial crisis and two decades later, the stock trades 80-per-cent below its 2007 high. 

Banks report their results in great detail but there’s little transparency around the most important risk, loan losses. 

 

Structural mismatch

Customer deposits are a wonderful source of funding, but banks must manage a liquidity mismatch. The money coming in from individuals and companies (bank accounts; GICs) is plentiful and cheap (low or no interest cost) but can be withdrawn at any time. On the other hand, investments made with the deposits (loans and mortgages) aren’t so easily liquidated. 

Because of the leverage and mismatch, banks must maintain depositor and investor confidence in their lending practices and financial management. A crisis of confidence like the one Silicon Valley Bank suffered three years ago can have a dramatic effect.

 

Economic and market sensitivity

Banks’ fortunes are closely linked to the strength of the Canadian economy. If borrowers are losing their jobs and can’t make their payments, and the collateral is not easily sold, as is the case with real estate today, banks will feel it. 

The good news is they’re more diversified today than they were decades ago, but wealth management and capital markets have their own sensitivity to the stock market.

 

The next wave of growth

Canadian banks have done an amazing job of expanding into new business areas, including brokerage, wealth management and insurance, and increasing their share of Canadian wallets. The question is: Where will the growth come from?

On the asset side of customer balance sheets, banks already have a huge share of savings and investments. On the liability side, they’ve been so successful that borrowers are running out of room to add more debt. 

The Canadian banks could find themselves in the same box as the multinational consumer product companies that have run into a growth wall. After squeezing every bit of revenue and profit out of their customers, leading companies like Nestlé, Unilever, Procter and Gamble, Pepsi and Coca-Cola have little room to raise prices and are struggling to grow. 

Foreign expansion is a potential growth area although the historical record is mixed. There have been plenty of missteps (and write-offs), and the successes are far less profitable than the home market. 

 

A core holding 

Canadian banks are great businesses and should be core holdings in your portfolio. Like any investment, paying a reasonable price is important so you want to add when you can’t believe how cheap they are (and yields are high) and hold off when analysts are rationalizing why they should trade at a market multiple. Remember, there are structural reasons why banks trade at low valuations.

Tom Bradley is a portfolio manager with Purpose Investments, co-founder of Steadyhand Investment Management, a member of the Investment Hall of Fame and a champion of timeless investment principles.

Edited March 15 by Cityzoo

[John Hjorth]

That's an awesome post, @Cityzoo!,

 

Thank you for sharing it. 

[John Hjorth]

Copied from the 'What are you buying today?' topic yesterday over to here :

 

 

What a ridiculous errror commited by me yesterday! BMO is actually the tird largest bank by market cap in Canada! I was simply sloppy, moving forward too fast with this yesterday, not checking everything correctly before acting on my calculations. It was a couple of years ago I looked at BMOs financials, and only a couple of weeks ago I loked up BMO 10 year key metrics.

 

I used a list of all Canadian stocks sorted by market cap, and picked from there, at my investment bank, and BMO was not on the list.

 

Largest companies by market cap : Largest Canadian companies by market cap [in CAD]

 

If I search for BMO using the seach function at Nordnet Bank, I don't get the Toronto listing either, only the New York listing and a lot of preferreds :

 

So I called private banking clients relations manager Mikkel about it today: Reply : 'John, Log in using your public ID [here called Mit ID], open new tab in Google chrome, and type 'BMO Toronto Nordnet', press enter, and there you go!'  [ ] [<- WT*?!] HaHa! :

 

 

So I had to recalculate the basket after that [  ], I'm likely the first person ever to compose such a basket at 115.81 percent without the use of margin :

 

 

 

I will buy BMO.TO, when I'm in the mood to buy more.

Edited March 18 by John Hjorth

[cwericb]

26 minutes ago, John Hjorth said:

Copied from the 'What are you buying today?' topic yesterday over to here :

 

 

What a ridiculous errror commited by me yesterday! BMO is actually the tird largest bank by market cap in Canada! I was simply sloppy, moving forward too fast with this yesterday, not checking everything correctly before acting on my calculations. It was a couple of years ago I looked at BMOs financials, and only a couple of weeks ago I loked up BMO 10 year key metrics.

 

I used a list of all Canadian stocks sorted by market cap, and picked from there, at my investment bank, and BMO was not on the list.

 

Largest companies by market cap : Largest Canadian companies by market cap [in CAD]

 

If I search for BMO using the seach function at Nordnet Bank, I don't get the Toronto listing either, only the New York listing and a lot of preferreds :

 

So I called private banking clients relations manager Mikkel about it today: Reply : 'John, Log in using your public ID [here called Mit ID], open new tab in Google chrome, and type 'BMO Toronto Nordnet', press enter, and there you go!'  [ ] [<- WT*?!] HaHa! :

 

 

So I had to recalculate the basket after that [  ], I'm likely the first person ever to compose such a basket at 115.81 percent without the use of margin :

 

 

 

I will buy BMO.TO, when I'm in the mood to buy more.

 

John, I have held Royal Bank (RY) for many years as my second largest holding and it has worked out very nicely. Also, don't overlook the dividends runs around 3% or higher and I don't believe it has ever been reduced. 

 

 

[John Hjorth]

25 minutes ago, cwericb said:

John, I have held Royal Bank (RY) for many years as my second largest holding and it has worked out very nicely. Also, don't overlook the dividends runs around 3% or higher and I don't believe it has ever been reduced. 

 

Thank you for sharing, Eric [ @cwericb ],

 

Nice to know. This banking oligopoly has been created over time by mergers in the past, right? Why is it, that RY is in front with horse lengths among them?

 

@ourkid8  also posted about RY earlier today in the 'What are you buying today?' topic : 

 

Edited March 18 by John Hjorth

[cwericb]

2 hours ago, John Hjorth said:

 

Thank you for sharing, Eric [ @cwericb ],

 

Nice to know. This banking oligopoly has been created over time by mergers in the past, right? Why is it, that RY is in front with horse lengths among them?

 

@ourkid8  also posted about RY earlier today in the 'What are you buying today?' topic : 

 

 

RBC is the largest Canadian bank, and ranks in the top 10-15 banks globally and holds about $1.7 trillion (CAD) in assets. Fairly conservative and stable.  

 

[John Hjorth]

23 hours ago, cwericb said:

RBC is the largest Canadian bank, and ranks in the top 10-15 banks globally and holds about $1.7 trillion (CAD) in assets. Fairly conservative and stable. 

 

Thank you, Eric,

 

- - - o 0 o - - -

 

I just checked out the Investment Ideas Forum, by performing searches, to identify which of the large Canadian banks we here on CofB&F have separate topics on, and I came to the conclusion : Two out of six [some may perhaps say 'five'] - this is to me quite weird! :

 

RY - Royal Bank of Canada, topic started by @Xerxes at 17^th April 2025,

NA - National Bank of Canada, topic started by @billybobjovialdechicoutimi at 3^rd September 2025.

 

- - - o 0 o - - -

 

Again, so weird to me!

 

Edited March 19 by John Hjorth