The fiscal year for the Big Five Canadian banks ends in October. With the end of the year, and a delay of a few weeks, companies release their annual reports which give investors a clear picture of the overall operations with breakdown in revenue and earnings. This is vital information for long term investors and provides visibility into the operations.
Management may say one thing or another, but the numbers always speak for themselves -- and confirms whether management is executing the path that is paved by the ideas generated in order to look for stability and growth. This article will take a look at the state of affairs of the Big Five Canadian banks and their geographical diversification.
Before we start, here's a recap of the Big Five banks - Royal Bank of Canada (NYSE:RY), Toronto-Dominion Bank (NYSE:TD), Bank of Nova Scotia (NYSE:BNS), Bank of Montreal (NYSE:BMO), and Canadian Imperial Bank of Commerce (NYSE:CM).
(Source: Created by author. Data from Google Finance)
The five banks take the lion's share of the Canadian financial markets and also have sizeable operations in U.S. and overseas markets. The data for each of the banks presented below has been extracted for each company's respective annual reports for the year.
Royal Bank of Canada
Royal Bank of Canada is the largest of the Canadian banks. The numbers for the year 2015 remain pretty much the same as 2014 with nearly 63% of its revenue coming from Canada, 18% from the U.S. and 17% from Other countries. Note that Royal Bank completed the acquisition of City National in Nov 2015 which is not reflected in the 2015 annual report. This should add some more assets to the U.S. operations going forward.
(Source: Created by author. Data from RY's annual reports for the respective year)
Toronto-Dominion Bank is the second largest of the Canadian banks. Since the financial crisis, the bank has indicated that they want to increase their exposure to the U.S. market -- and the revenue mix clearly shows the trend confirming that the management is following through with its promise. The U.S. exposure has now increased to 32% of the overall revenue, a significant jump from 2014.
(Source: Created by author. Data from TD's annual reports for the respective year)
Bank of Nova Scotia
Bank of Nova Scotia, third largest of the Big Five, also likes to advertise the fact that it is the most international of the Canadian banks. True to its words, the exposure to international market, especially Latin America remains high. Over the past couple of years, the bank has started trimming operations in South America and expanded more in countries such as Mexico. It is also interesting to note that the U.S. exposure is growing at BNS.
(Source: Created by author. Data from BNS's annual reports for the respective year)
Bank of Montreal
Bank of Montreal, the oldest of the Canadian banks, is the fourth largest. The company has a significant exposure to the U.S. market that does not garner as much attention from investors as it should. The Capital Markets segment has played a huge part in the bank's finances and the U.S. division carries a significant weight. In addition, the international operations have grown significantly -- almost doubling, from the 2014 revenue breakdown.
(Source: Created by author. Data from BMO's annual reports for the respective year)
Canadian Imperial Bank of Commerce
Canadian Imperial Bank of Commerce is the smallest of the Big Five and has most of its operations focused on the Canadian marketplace. The U.S. and international operations have remained stable and the bank has not made any indication for major changes to the revenue/operation mix.
(Source: Created by author. Data from CM's annual reports for the respective year)
In summary, the geographical diversification summary for 2015 is presented below. As can be seen - majority of revenue for these companies still come from Canada, while the U.S. an international mix varies. TD and BMO have the highest U.S. exposure, while CM has the lowest U.S. exposure of the Big Five.
(Source: Created by author. Data from respective annual reports)
Note that these numbers provide a mile-high view of operations of the Canadian banks. How each company operates and profits from their respective division has to be considered before investing in any of the company's mentioned. However, investors can use some trends that can support each company's finances over the short/medium term. I highlight one such measure pertaining to currency trends in this article.
Full Disclosure: Long BNS, TD. My full list of holdings is available here.
Disclosure: I am/we are long BNS, TD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.