True North_

Canadian Banks Should Follow Dividend Cut Trend

The current recession/depression is challenging to predict. The banks will be loathe to cut their dividends, particularly when their base operations are still profitable. Certainly, none of them will want to be first. Even BMO, which has the highest yield (and whose dividend is now well outside management's expressed range), can maintain the payment level for the "predictable" future. As we have seen, however, future predictions are (to say the least) challenging to make. If the domestic (i.e., Canadian) business weakens significantly and the economic malaise extends longer than hoped (and it is all based on hope right now...), then they may not have a choice. Interesting times, to say the least.

The suggestion that cutting the dividend could lead to insolvency (Columbo, above), doesn't make much sense to me. It would make it trickier to raise common equity capital, but they've already tapped the markets in the last 6 months(and with pref share issuances). BMO cutting its dividend to (say) $0.30 - $0.40/quarter could shore up its capital quite handily, if needed. Watch second & third quarter results: if they deteriorate materially and the glimmer of recovery on the horizon remains distant, then you would do well to assume the dividend is significantly at risk.

Canadian Banking System: An Oasis of Financial Calm

All financial companies are currently stressed; some more so than others. Canadian banks are doing well in a relative sense, but caution is warranted given that the global economic storm clouds ahead are hardly clearing. Most Canadian analysts have suggested that this will the the Banks' best quarter of the year and their results will deteriorate from here. Their Tier 1 capital ratios are generally pretty good (most have added to their capital bases over the fall/winter), and only BMO & CIBC have really material exposure to the toxic structured products markets. There is likely long term value, though as always the entry point can be a challenge. There are some tidy dividends and IF the earnings predictions are sound for 2009/10, they appear maintainable.

Two comments above: BMO has not cut its dividend; and the reference to the acquisition of Commerce Bank by TD was not (as suggested by Graham Burge: "Mr. Skousen pardon me if i am wrong but i disagree with your claim that the Toronto Dominion Bank owns the Imperial bank of commerce") a suggestion that they had acquired CIBC, but referred, of course, to their acquisition of US-based Commerce Bancorp announced in October 2007 and consumated in early 2008.

The Global War Against Shorts: Canada Bans Short-Selling

John's concern is valid - shorts play a important market role and confidence that the rules will not be dramatically altered without notice is critical to the proper operation of the markets in the long term. Redwood_12's point needs also to be considered, though, as naked shorts are a form of market abuse. They are tantamount to an investor "issuing" additional shares of a company, which is inappropriate. A pity the SEC hasn't moved on these more aggressively in the past, given their potential for abuse.

That being said, the OSC did not have much choice. If you read the order, the only stocks which are covered are those that are inter-listed between the US and Canada. If short selling of an inter-listed stock was banned in the US, then it also had to be banned in Canada. The OSC's aim, quite appropriately, is to prevent what they are calling "regulatory arbitrage" - a concern that seems real given the current circumstances.

Don't we live in interesting times?