Canadian Banks

[pitz]

Fed trolls Canada to rescue U.S. banks

They are approaching "banks with major assets in the U.S. like [Toronto-Dominion Bank] and Royal [Bank of Canada], because when they have a bailout situation they want everyone who is a potential buyer to look at it," the source said.

..

"We could end up in a funny situation two years from now saying this was a once in a generational opportunity for Canadian banks."

[Taggart]

Reuters

Canada rated world's soundest bank system: survey

Thu Oct 9, 2008

By Rob Taylor

CANBERRA (Reuters) - Canada has the world's soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets.

[kcowan]

Fed trolls Canada to rescue U.S. banks

They are approaching "banks with major assets in the U.S. like [Toronto-Dominion Bank] and Royal [Bank of Canada], because when they have a bailout situation they want everyone who is a potential buyer to look at it," the source said.
...
"We could end up in a funny situation two years from now saying this was a once in a generational opportunity for Canadian banks."

Yea Paulson would love to get an equity stake in our winners. How about BMO?

[scomac]

Yea Paulson would love to get an equity stake in our winners. How about BMO?

I have some shares that I would be happy to sell him at the appropriate price.

[kcowan]

Because the market can no longer be trusted for valuations, how about 10% off peak, or $59 for BMO? We can probable give him as much ownership as he wants at that price.

[scomac]

Because the market can no longer be trusted for valuations, how about 10% off peak, or $59 for BMO? We can probable give him as much ownership as he wants at that price.

There would be a line-up at his door!

[Donut]

[i][i][i][i]CANBERRA (Reuters) - Canada has the world's soundest banking system, closely followed by Sweden, Luxembourg and Australia, a survey by the World Economic Forum has found as financial crisis and bank failures shake world markets[/i][/i][/i].[/i]


You wouldn't know it by today's market. Financials got pounded and I notice that the 4 year bonds I hold, issued by banks and by GE Capital, have dropped in value. GE is still rated AAA but their 4 year bond is priced at $0.92.

How much worse can this thing get?

[bubbalouie]

I haven't bought a bank stock since February 2000 when I bought BMO at book value. Unfortunately I held it for only a couple of months and sold it at a profit way too early. I haven't bought a bank stock since because I never understood the balance sheets of these companies.

I'm now looking at RY and am surprised it is trading this high in this global credit crisis. If it ever trades at its b/v of $21.47, I'll get in. But at these prices, the Canadian banks don't look cheap. Cheap is where it should be right now.

[lystgl]

The sun is shinning every thing is just fine now?

Was there ever really a storm in Canada? Or just a bunch of ill-informed commentators in the media commenting on a storm in a far-away land called America?

This Canadian 'banking crisis' is just as fake as SARS, the Y2k bug, or any other scam the media has prepretrated on the Canadian public just to make stocks cheap for the insiders.

Tell me why these guys won't lend to each other?
Make it believable would you?

[retireat50]

Big move in some of the CDN banks on the NYSE today with the CA markets closed. BNS up 12% as I write this.

[Shakespeare]

Ottawa pledges to backstop banks

[T]he Conservatives have privately told the country's biggest banks they are ready to step in and guarantee new borrowing because of fears financial institutions will be frozen out of international credit markets for "months," according to people familiar with the discussions.

The extraordinary pledge was made behind closed doors after Canada's banks disclosed they were being starved of desperately-needed financing and could not continue to fund normal operations without government help, despite signs of a rebound in stock markets....

t means Ottawa is prepared to publicly guarantee repayment of any new money banks borrow from each other and from foreign banks, to make sure Canada's financial institutions do not fall behind their peers.

Stephen Harper, the Conservative leader, is reluctant to officially declare this policy, but is likely to do so if Washington moves first because of the detrimental impact a U.S.-only guarantee could have on Canada's financial institutions.

[Donut]

People are bailing out of mutual funds in droves and every mutual fund seems to hold 30% or more in Canadian banks. The result is that the fund managers have to sell into whatever the market is in order to raise the cash to meet the redemptions. With that kind of sell presure the bank stocks don't have a prayer.

[petfiora]

What are the odds that banks may cut dividends ?
You would think that at to-days price they are a steal.
BMO app. 6% ?
How about some opinions?

[investor99]

ah yes.. the eternal question...

I guess it really depends on exposure to toxic debt, Lehman, AIG, WaMu, etc. Many of these banks can probably afford to actually take losses in any single quarter and still maintain the dividend (as per SunLife), especially those with lower pay out ratios. I see their Canadian exposure as a positive as their revenue's from Canada should be relatively stable.

Pay Out Ratios
TD = 38%
RY = 42%
BNS = 43%
BMO = 63%
CM = ?

Without significant write-downs, I don't see any way that these banks will cut their dividends. Looks as if BMO may come the closest though. We'll see better details when earnings come out in November. I would be curious what other's thoughts are.

[brad911]

I would be curious what other's thoughts are.

Well this credit crisis has shown a lot of firsts, so further surprises shouldn't be ruled out. That said...I think the bank dividends are safe and they offer decent value at these levels based on any metric

[Subby]

I would be inclined to wait until we have the earnings releases from them to confirm that the dividends are sustainable. I can't help but think that there would be significant fall out should even 1 of the big banks decide to make a dividend cut. At the same, I'd certainly rather hold off until November before placing additional buys for these companies.

[WynnQuon]

Cdn banks have been pretty good about raising and maintaining their dividends over the past few years. So much so that many investors have forgotten that even these stalwarts have occasionally cut their dividends in the past. IIRC, both BMO and CIBC cut their dividends back in the late 90s.

The riskiest banks are the ones with the highest payout ratios as listed by investor99 above. But on top of that there are the invisible anomalous risks: toxic assets, CDS exposures. And finally there is economic risk - the depth and pervasiveness of the oncoming recession, the eventual flood of defaulting mortgages in B.C. and possibly Alberta. The Canadian consumer is carrying a heavy debt burden, so if we have a 2 year recession, banks are going to feel the pain in higher defaults.

Personally any yield < 9% doesn't compensate me adequately for these risks. But then again, I'm a conservative investor.

[Shakespeare]

IIRC, both BMO and CIBC cut their dividends back in the late 90s.

No. NA did in about 1992.

[scomac]

IIRC, both BMO and CIBC cut their dividends back in the late 90s.

No. NA did in about 1992.

Yup. I think that WynnQuon is only off by about 100 years on BMO's last dividend cut.

I also don't believe that the next quarters' earnings announcements will do much to quell investor fear about pending dividend cuts as I'm not looking for much that is positive. They (the banks) will likely choose to aggressively write-down losses in the next quarter or two. Get rid of all the crap at once will be the mantra I suspect. It's going to take a certain amount of faith -- Faith which will be is short supply, but well rewarded IMO.

[Wallace]

.. there are the invisible anomalous risks: toxic assets, CDS exposures.

I would hope that all the banks would have confessed to toxic assets by now if they had them. Any bank that disclosed them at this late stage would suffer a sudden, huge, and deserved, punishment from investors.

I sold RY about 8 weeks ago as part of capital gains harvesting and bought it back again last week at 42 and change. It's gone up about $6 since then. I still have BNS which I have owned for much longer and did not sell. This too has gone up in the last week.

OTOH I still haven't bought back the oil stocks. I'm not at all sure about the ability of CNQ, PCA etc to rise with less than $70 oil.

As Margaret Thatcher said when knocked from her perch as leader of the UK with fifty knives sticking in her back, "It's a funny old world"

[Dividend Growth Investor]

As a holder of TD i believe that it's dividend is adequately covered.

[couponstrip]

I would hope that all the banks would have confessed to toxic assets by now if they had them. Any bank that disclosed them at this late stage would suffer a sudden, huge, and deserved, punishment from investors.

Yes, mortgage-related assets, but how many banks have written down assets related to Lehman's failure or other assets that have rapidly depreciated since the previous earnings announcement?

[Goofyboy]

Besides the normal case of banks not making enough money or needing the cash to cover losses, the banks may cut if they are forced to take a bailout (like the US) and as part of the deal limit dividends (like the UK).

I don't think it will happen, but its one scenario that is one step above "impossible".

(But I agree that this is the worse time for everyone for a bank to suggest that they would to imply of a hint of any potential signs of weaknesses.)

[sydney2]

Does anyone know why BNS is down more today than the rest of the banks?

[Shakespeare]

Does anyone know why BNS is down more today than the rest of the banks?

I get a laugh out of this sort of thing:

Diversified bank? Uh-oh

Ian de Verteuil, an analyst at BMO Nesbitt Burns, downgraded the stock [BNS] to “market perform” from “outperform” and also slashed his 12-month price target on the stock to $45.50 from $52.50....

Mr. de Verteuil recommends Canadian Imperial Bank of Commerce and Bank of Montreal, given that their problems are already well-understood and the stocks already trade at low valuations.