Time for Canadian Banks to Split Their Shares?

Includes: BMO, BNS, CM, RY, TD
by: Mark McQueen

I’m not staying up late at night, worried about the topic, but the time is probably right to ask Canada’s bank CEOs if they are ready to split their shares.

Looking back, it has been a tradition of the Big 6 banks to keep their shares accessible to retail investors. For some reason, this has traditionally meant keeping the share prices between $20 and $60. With so many of the Big 6 now at or above the high end of this range, the question must be asked: is it time for a stock split?

TD Bank (NYSE:TD) last split its shares in November 2000, when the bank had a $22 billion market cap; $1B ahead of the Royal Bank (NYSE:RY) on investor excitement about the potential for internet trading at Waterhouse. (Today, RBC’s market cap is $14B above that of TD’s $56B).

Bank of Montreal (NYSE:BMO) followed suit in March 2001 with its own 2-for-1 stock split. Scotibank (NYSE:BNS) split twice in the past 12 years: in 1998 (when shares hit $66.25) and again in 2004.

RBC split twice last decade: in 2000 and again in 2006 when the stock was around $50. CIBC (NYSE:CM) has held out the longest, with its last split in 1997.

The good news is that, on balance, stock splits appear to signify good things for the shares (and underlying business) in question, as they’ve almost universally risen in the months post-split. Not that’s there’s any science to that factoid, but its interesting nonetheless. TD, BMO, CIBC, National Bank and Royal Bank all appear to be in “split range”. Even BNS.

If the recession is truly over, maybe we’ll hear some news at the upcoming annual general meetings.

(Disclosure - we own BMO, BNS and TD in our household)

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