Canadian Banks

[scomac]

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.

Oddly enough, this has been my concern for a while now and is largely the reason I decided to sell my stake in BNS in the spring; it was simply trading at too high a mulitple compared to others in the group.

[WynnQuon]

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.

YEEAGH! Apologies, you guys are right. I was looking at the Standard & Poors report on BMO which does show a decline in dividends but that was because the report was on the NYSE-listed stock IN US DOLLARS. So the dividend decline was likely due to currency fluctuations.

*puts on dunce cap*

[Bylo Selhi]

So the dividend decline was likely due to currency fluctuations.

I wonder how many US-based investors have made the same "mistake" about Canadian banks in general, thus exacerbating the downward pressure on their share prices?

[sweedy]

If so, now (and probably the next few months) will be a good time to buy Canadian dividend stocks, especially those with a lot of US investors.

[WynnQuon]

But then again if you are a US investor you really are taking a hit when the C$ falls.

It should make sense that BMO on the NYSE should be falling more than its Cdn counterpart right now....?

[sweedy]

But then again if you are a US investor you really are taking a hit when the C$ falls.

It should make sense that BMO on the NYSE should be falling more than its Cdn counterpart right now....?

That's exactly what happened.

[kcowan]

Scotia profits down 31% in Mexico

This represents a 6% decline on a quarterly basis and 31% from a year ago, noted Dundee Securities analyst John Aiken.

[Taggart]

National Post

Canadian banks outlook best of a bad lot

Posted: November 06, 2008, 1:19 PM by David Pett

[Small Investor Activist]

I don't see how the Cdn Banks can avoid cutting their common div. without gov backing, they should have don't it months ago to conserve cash, but couldn't I guess because of all the split and other structured crap sold to investors tied to the dividends who might revolt. I think of all those times shills in the media touted bank stocks to retirees: "They have a long history of paying dividends" they said.

[bubbalouie]

I don't see how the Cdn Banks can avoid cutting their common div.

Perhaps dividend cuts will finally bring the valuations of banks down to book value where they belong.

[Small Investor Activist]

Bank stocks are behaving like they did in the past two downturns as far back as O&Y when I recall BNS for example went from 40 to 10 and the other bank stocks followed, they were a whisker away from having to cut their dividends back then. It's the same story again and again, remember they had utility debt tied to Enron, but this time it could be worse. I'll buy when the debris is clear, if they choose to continue to not be transparent then I'll stick with GICs. They want money give me collateral or certain assurances to help rebuild.

[adrian2]

I'll buy when the debris is clear

Allow me to be doubtful.

[bubbalouie]

Interesting times. BMO is currently trading under book value (I closed out a short position today). I went double short on RY today (book value $21.47). I've hedged my bet with a full position of MFC.

[Norbert Schlenker]

Does book value mean anything these days, especially for financial institutions?

[bubbalouie]

Does book value mean anything these days, especially for financial institutions?

The bigger picture is that balance sheets mean everything. Book value found on a balance sheet is just a small part of this bigger picture.

[Taggart]

Banks: Does the market smell dividend cuts?

David Parkinson, today at 10:57 AM EST

The dividend yields the Canadian banks are kicking off are either a sign of the bargain of the century, or an omen of impending doom for the dividends.

[scampbell]

From Scotia Morning Market Comments this morning:

"I think the one area that really stood out for me yesterday was the Canadian banks. Yesterday's losses ranged from 11% to 13% and losses over the past 5 trading days range from 21% to 23%. I personally believe the market got carried away with the Canadian banks yesterday and I'm not just saying that because the bid/asks this morning are pointing to a higher open. It's almost as if the market is behaving like they didn't see these types of writedowns coming which I find hard to believe since we've just been through a terrible few months of equity and bond performance. To not expect any writedowns on bond and equity portfolios is unrealistic to me. Yes, there may be some surprises that crop up from these bank writedowns as the banks clean the slate and write off as much as they can for 2009, but the magnitude of the writedowns relative to total assets and relative to the writedowns we've seen in the U.S. and globally are certainly manageable thus far.

Are the dividends safe. Yes, I believe they are. What's important to remember is that when considering dividends it's important to think about cash flow and not earnings as there can easily be a number of non cash writedowns that impact EPS but not cash flow. As an example, since the bankruptcy of Lehman the one bank that has been tossed around as a possible dividend cut candidate, if we had to choose one, is Bank of Montreal. BMO pays out $2.40 annually in dividends, while Consensus earnings for 2009 are $4.50 and cash flow per share is expected to be $6.19. These forecasts may still come down, but they're still high enough to show that the bank has enough to pay out its dividend. Yes, the payout ratios are definitely going to go up and yes, the likelihood of dividend increases is falling, but for now we still believe the dividends are safe."

[brad911]

Sounded a little like me today during a conversation at breakfast with a few investing professionals

Its simply a matter of putting things into perspective. Nothing is 100% rosy at this moment, but you have to use some common sense in order to make sense of what's realistically going on out there.

[kcowan]

Nothing is 100% rosy at this moment, but you have to use some common sense in order to make sense of what's realistically going on out there.

Huh!

[brad911]

Huh!

I just meant that every piece of bad news, regardless of rational perspective, is catching the attention of the market at this moment and sending share prices down. Putting the TD write-downs into perspective tells an investor that this should have been anticipated when you consider the bond or equity exposure any bank has. Taking a writedown now (because you can) would seem to be a prudent choice if you wanted to get things out of the way for any number of reasons.

I expected one-time losses from BNS, TD & RY (likely some for the others too) and nothing really shocked me. Investors are acting surprised that CDN banks would have losses in this environment. What we're not seeing is full year EPS washed out by bad debt such as US or European counterparts.

[investor99]

I generally agree with Brad and was very shocked to see the drops in TD and RY this week. TD derives something like 90% of their earnings from Canadian retail banking. Could it possibley be drying up that quickly? I think some of the selling is because investors are not thinking about earnings or earnings growth potential they are worried about cash and speculating that the banks will have to issue new common shares to raise capital.

[bubbalouie]

I think some of the selling is because investors are not thinking about earnings or earnings growth potential they are worried about cash and speculating that the banks will have to issue new common shares to raise capital

.

I think you're missing the main reason and that is the amount of derivatives these entities have on their balance sheets.

[broke]

I generally agree with Brad and was very shocked to see the drops in TD and RY this week. TD derives something like 90% of their earnings from Canadian retail banking. Could it possibley be drying up that quickly? I think some of the selling is because investors are not thinking about earnings or earnings growth potential they are worried about cash and speculating that the banks will have to issue new common shares to raise capital.

Let's not forget that for the last little while, anybody and everybody in front of a camera was smugly saying that Canada has the soundest banking system in the world. That Canada was immune to these sub prime shenanigans, that Canada was not the Us, UK, Australia or every other country in the known galaxy. That Canada and its banks, governments and all their over payed executives were so much smarter than those others that stupidly, greedily and blindly rode the bubble to close to the sun.

Despite the macro players unwinding of hedges and meeting margin calls, right or wrong, retail has come to the Mulder conclusion "Trust no one."................ even in Canada.

[bubbalouie]

Let's not forget that for the last little while, anybody and everybody in front of a camera was smugly saying that Canada has the soundest banking system in the world.

I agree with you. Since 2007's ABCP fiasco, we've been told how different we are from the world, to our detriment. As far as I can see, our society is built on credit just like everywhere else. It seems that Canadians (especially young ones) like their flat-screen t.v's and expensive houses too.

[kcowan]

Since 2007's ABCP fiasco, we've been told how different we are from the world, to our detriment. As far as I can see, our society is built on credit just like everywhere else. It seems that Canadians (especially young ones) like their flat-screen t.v's and expensive houses too.

And how safe are their jobs in retail, manufacturing, banking???