Seeking Alpha

Denis Ouellet, CFA's  Instablog

Denis Ouellet, CFA
Send Message
Denis Ouellet has been involved in the Financial sector since 1975. Now retired, he is a part-time blogger. Denis has been analyst and head of research for a brokerage company, equity manager for various investment organizations (pension, mutual and hedge funds), head of global equity... More
My company:
Fidanza Publishing
My blog:
  • NORTH AMERICAN BANKS RANKING (March 2012) 0 comments
    Mar 14, 2012 8:10 AM | about stocks: KRE, RY, CM, BNS, TD, USB, BMO, WFC, BBT, FITB, JPM, GS, KEY, STI, MS, C, BAC

    Prices are as of March 9, 2012.

    North American banks market caps surged 18.5% since the beginning of 2012 with U.S. banks gaining a spectacular 24% while Canadian banks gained only 6.9%.

    BAC's 45% stock price advance combined with a 4.5% increase in shares o/s to give the bank a 51% jump in market cap in 9 weeks!


    Meanwhile, collective book values of U.S. banks rose only 3.3%. BAC's book value per share declined 3.4% during the period. The 6 Canadian banks are trading at an average P/BV of 2.0x (1.8x last December) compared with 0.9x (0.8x) for the 11 U.S. banks. Four U.S. banks trade at less than 50% of their book value. Only BAC now trades below 0.5x BV.


    The Canadian banks are selling at 2.6x tangible BV (2.3x) while the U.S. banks are selling at 1.2x TBV (1.1x). In effect, the TBV of Canadian banks represents 77% of their BV compared with 72% for the U.S. banks.


    All 6 Canadian banks earn a ROE (2012e) of more than 15% with an average of 18.5%,up from (18.0% in December). The U.S. banks' average ROE is 9.7%, up from 8.9%.


    The price of growth:

    Canadian banks' P/BV is 2.2x that of the U.S. banks but their average ROE is 1.9x that of the U.S. banks. Canadian banks' valuation is thus not much out of line when ROE is considered. Alternatively, U.S. banks are not all that cheap when their profitability is considered.

    Note the two big outliers STI and CM.


    For Canadian banks, investors are paying 0.11 units of BV for each 1% of ROE. For the U.S. banks, that ratio is 0.09, a 14% discount (16% last December). In March 2010, the ratios were 0.11 and 0.14 respectively, the U.S. banks then trading at a 27%premium. In March 2010, U.S. banks' average estimated ROE was 4.9% for 2010 while Canadian banks' estimated average ROE was 17.1%. U.S. banks outlook for 2012 is for ROE averaging 9.7%, 52% that of Canadian banks.


    Disclosure: I am long RY, CM, TD, BMO.

    Themes: banks Stocks: KRE, RY, CM, BNS, TD, USB, BMO, WFC, BBT, FITB, JPM, GS, KEY, STI, MS, C, BAC
Back To Denis Ouellet, CFA's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


More »

Latest Comments

Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.