Look North Of The Border If You Want To Own Banks

Includes: BMO, BNS, CM, RY, TD
by: Mitchell Harris

I have been following USA banks for some time now and have gotten physically nauseous from the roller coaster ride. Some of those have been NY Community Bancorp (NYB), Valley National Bank (NYSE:VLY), Fifth Third Bank (NASDAQ:FITB), and the like. I try and look at their balance sheets and find SOMETHING positive to make me a buyer outside of their prices being considered "cheap" due to a recent whitewashing. I have given up, located my passport and am heading North to Canada, where not only are the moose happy, but so are the investors of the top 5 Canadian banks: Toronto Dominion (NYSE:TD), Royal Bank of Canada (NYSE:RY), Bank of Montreal (NYSE:BMO), Bank of Nova Scotia (NYSE:BNS) and Canadian Imperial Bank (NYSE:CM). They have hoards of cash and have been buying US deposits at fire sale prices. I will quote Bloomberg here, "Canada's banking system has been ranked the world's soundest for 3 straight years by the Geneva based, World Economic Forum." Let's discuss these one at a time.

Toronto Dominion boasts a 3.6% dividend and trades at around 11.5x earnings. It has been opening up branches all over the USA and gathering assets at a feverish pace. Institutions own 66% of the stock and it's trading at $76, well below its 52 week high of $90. TD recently shelled out $7.5b to be the #2 largest credit card issuer in Canada, good value in a depressed marketplace. Let's not forget it also picked up Chysler Financial from Cerberus for $6.3b to enter the US auto lending market.

Royal Bank of Canada boasts a 4.6% dividend and trades at around 11.4x earnings. It's Canada's largest bank in terms of assets. In October 2010, it bought UK fixed income money manager, Bluebay, for $1.5b. Trading at $49.80 off of its 52 week high of $64, I think the stock is oversold here.

Bank of Montreal boasts a 4.7% dividend and similar to its peers, trades around 12x earnings. Also a player in the firesale game, it swept up Marshall & Ilsley for a tidy $4.1b, as well as entered the Asian asset management business by buying Lloyd George in Hong Kong. Currently trading at $60 off of its high at $67. This stock has held tight in those tough summer months.

Bank of Novia Scotia (Scotiabank) boasts a dividend of 4%, and of course trades at 11x earnings. Last week it spent $1b for Colombia's Banco Colpatria, which is on top of the $720mm it spent for a 20% stake in Bank of Guangzhou. Scotiabank does business in 50 countries and has the widest international spectrum of the Canadian banks. Currently trading at $53 off its high of just under $63.

Canadian Imperial boasts a yield of 4.8%, with a similar 12x earnings multiple. Its buying spree has been torrid as well, spending $1b for Citigroup's (NYSE:C) Mastercard portfolio business in Canada, as well as the remaining 50% of CIT's Business Credit Canada it didn't already own. This past July it shelled out $850mm for American Century Investments that JP Morgan (NYSE:JPM) owned, as it too wanted to expand the asset management sector of its business. Currently trading at around $76 off of its 52 week high of $89.

All these purchases are strategic ways that these booming banks can spend their cash. It's refreshing that they have cash, but sadly for the US banking system, it's like shopping at the dollar store for our Canadian neighbors.

Canadian banks are a cornerstone in any conservative investment portfolio and they are bulking up right here in the US of A.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.