Canadian Banks: Canada's Moment to Shine 24 comments
-
Font Size:
-
Print
- TweetThis
A reputable colleague of mine, when asked if he were going to buy some US bank stocks, told me the following: "The US banks I'd buy currently reflect outrageous valuations, based on earnings power and economic uncertainty."
He said he wants to buy Banks of America (BAC) when it gets back to the single digits, JP Morgan Chase (JPM) when the stock trades in the low-to-mid $20s and Suntrust Banks (STI) if and when the shares retreat to the low teens.
To my way of thinking that is how investors reduce risk. They look for quality, they face the realities such as current valuations and economic conditions, and they wait until the next good market shakeout to accumulate.
For my money, I think another way to reduce risk and even increase potential profits in bank stocks is to diversify among North America's best publicly-traded banks, and I'm speaking about the major Canadian Banks.
There are many good reasons why I say this, but nobody has summed it up better than The National Post (NationalPost.com) which recently ran an article written by Colby Cosh entitled "Canada's Moment". By virtue of The National Post's generosity I'd like to quote the heart-and-core of this terrific article. If you are ever considering investing in bank stocks which pay great dividends, print their story out and save it.
"As the U. S. economy approaches what everyone is hoping will be the "inflection point" at which the major indicators rebound, the international fetishization of Canada continues. Enjoy it while you can! -- apparently, like some crotchety pioneer grandmother, we have the kind of stoic, hard-ass virtue that only expresses itself fully in a crisis. Everywhere, economists are wondering how Canadian banks managed to avoid most of the crummy securitized debt that is crippling other major democracies' financial institutions. And they're noticing that our big lenders held up pretty well through the Great Depression, too. It is our moment; but do we know exactly what advice to give others?...
Down south, lenders are engaged in a constant chess game with the government. Here, the bank executives and the regulators have absorbed each other's values to such a great degree -- both taking the view that, to put it simply, the first goal of the Royal Bank (RY) is to make sure that there is still a Royal Bank 100 years from now -- that internal audit procedures are tougher than any regulator would dare demand, and arguably more effective than any regime created solely by a narrow, politically shifting rule set. Plain old-school snobbery plays a role too. Only by means of a very powerful ethos of noblesse oblige can you staff a modern banking system, as we have, without dangling big short-term rewards in front of top executives and doing away with substantive board oversight.
Unfortunately, it's not going to be easy for any foreign institution to import Canada's banking culture without having had Canada's history. But, hell, they could at least adopt some of the maxims. Toronto-Dominion's (TD) CEO told Marie-Josee Kravis that he pulled the TD out of the game of buying securitized-debt products years before the crisis, for one simple reason: Those instruments had become utterly inscrutable. "If I cannot hold them for my mother-in-law," he said, "I cannot hold them for my clients." Given the in "-in-law" part, that's not setting the conscientiousness bar very high -- but it is higher, at any rate, than where many foreign institutions put it over the last decade."
Other than Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CM) and Bank of Montreal (BMO), I'm not aware of sixth "national-scale retail bank" in Canada but that could be because it isn't publicly traded?
The fact that Canada had no banks fail during the Great Depression and that it is a fact that the Canadian banking system ranks as one of, if not the best in the world, should provide investors with a measured amount of comfort. Buying them during the next "bear market retreat" will enhance your dividend yield as well.
Disclosure: I don't currently own any of the bank stocks mentioned in this article.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 24 comments:
buy EWC
On May 15 09:52 AM GE Smith wrote:
> NA (seekingalpha.com/symbo...) - National Bank of Canada
> is the sixth.
On May 15 12:27 PM Bull Run wrote:
> Marc; American's may also want to do their deposits, CDN banks do
> US dollar accounts, in CDN banks, since the US banking system is
> basically insolvent. I used to deal with a west coast California
> bank, Security Pacific, but I noticed it No longer exsists. Great
> for depositer interest, when US Banks just disappear. The most secure
> Bank in N. America is not even a CDN Chartered Bank, The Alberta
> Treasury Branch, where 100% of all deposits are covered and backed
> by the Prov. of Alta. CDN
On May 15 12:47 PM jigglylizard wrote:
> Also Laurentien Bank (seekingalpha.com/symbo...) on the TSX
> is another Canadian bank but much smaller than the others. (It's
> not traded in the NYSE)
On May 15 01:19 PM fran wrote:
> why not go all the way-- banks,oil/natgas,prec metals, nat resources,
> RRs-- plus sound currency play
>
> buy EWC
I've made money trading them, but I'm not sure they belong in a buy and hold portfolio.
A point that has some bearing on as to the why - is size. We are one tenth the size of the States (30m compared to 300m) in population. Also the idea of 'do the right thing' is pervasive in our society. With our size word 'gets around' when someone crosses the line, resulting in that member being ostracized. A strong reinforcement for ethics in business. I feel this ingredient has been mislaid in the hallowed halls of your financial institutions, and needs to be addressed in the future for trust to be restored. Cheers.
taxed thru an agreement between these two great countries, which
is called the with-holding tax. When my US company dividends are paid to me as a non resident of the US, they with hold 15% of the
gross amount. The same is true for Canadian companies that pay dividends to US residents.
It is my understanding that once that with holding tax is paid,
A ) your total gross income is 15% lower
B ) that you have already been taxed once, and that amount is then taxed at a much smaller rate or not at all.
I'm not a tax lawyer
Speaking of the Canadian banks the Canadian gov insures
deposits up to 60000 to Can residents, which means they are very secure and the chance of failure is very low. Their are 5 major banks in Can, so the economy is dominated by them and competition is somewhat low. Canadian law has a rule that
no one can own more than 20% of any of the major banks.
TD, and RY are the best of the bunch, and have been beaten down abit due to their holding in the US market. Some of them have paid dividends for 150 years
I agree with your friend who wants to buy BAC when it returns to single digits, it is on it's way and hard to know when to catch with the velocity of this falling knife.
Also liked the quotation from Toronto-Dominion's (TD) CEO "If I cannot hold them for my mother-in-law," he said, "I cannot hold them for my clients."
With the in-law reference I believe he was setting the bar even higher and “NOT LOWER" since the scrutiny you get from the in-laws is generally greater than that received from one's own parents.
That said; I would like to thank you for submitting the article.
Healthy Investing!
research-ca.bmocapital...
On May 16 06:48 AM 406597 wrote:
> I am a US citizen and a shareholder of TD Bank. My recent dividend
> was taxed by Canada prior to my receiving it. Does this mean all
> dividends on Canadian stocks are double taxed. Can anyone clarify
> that situation for me?
On May 15 03:56 PM Donald Ingram wrote:
> Marc - Good article. Enjoyed your take on our banking system.
> A point that has some bearing on as to the why - is size. We are
> one tenth the size of the States (30m compared to 300m) in population.
> Also the idea of 'do the right thing' is pervasive in our society.
> With our size word 'gets around' when someone crosses the line, resulting
> in that member being ostracized. A strong reinforcement for ethics
> in business. I feel this ingredient has been mislaid in the hallowed
> halls of your financial institutions, and needs to be addressed in
> the future for trust to be restored. Cheers.
On May 16 10:30 PM 7magic7 wrote:
> Here's a link to research on Canadian Banks:
>
> research-ca.bmocapital...
On May 16 10:30 PM 7magic7 wrote:
> Here's a link to research on Canadian Banks:
>
> research-ca.bmocapital...