Canadian Banks

[Mike Schimek]

TORONTO, Dec 08, 2008 /PRNewswire-FirstCall via COMTEX/ -- Royal Bank of Canada (RY on TSX and NYSE) today announced it has entered into an underwriting agreement with a syndicate of underwriters for the sale of 56,750,000 common shares at $35.25 per share for total gross proceeds of $2.0 billion. The offering is expected to close on December 22, 2008.

It appears this trend is the latest fad. Offer shares to everyone except your loyal shareholders at a 10% discount with a nifty risk free over allotment bonus option.

This type of stuff always irritates me.

[scomac]

When was the last time that we had such widespread issuance of common equity by the big six banks for the sole purpose of building regulatory capital levels?

[Taggart]

Credit Suisse analyst Jim Bantis ran the numbers Monday on what each Canadian bank needs to do to reach 10 per cent Tier 1 capital. His take is that every bank will eventually sell equity - CIBC, TD Bank and RBC have now done so since the credit crisis began. Mr. Bantis said: " We look for continued balance sheet deleveraging, zero dividend growth and further capital offerings in 2009."

[bubbalouie]

Mr. Bantis said: " We look for continued balance sheet deleveraging, zero dividend growth and further capital offerings in 2009."

I can foresee these banks needing still another equity injection next year when their capital ratios fall below 10% again. The dumbass management of these banks made dumbass acquisitions in a phony economy.

[banker]

I have no idea why I feel this way...but I am very BULLISH on the banks and am loading up! I expect a great return by Dec 2010. Roll them dice!

Disclaimer: I am not sure why I feel so confident but this is where I am putting new contributions. Let it be a learning experience if I am not rewarded. Those dividend yield's and P/E look like the best that I have ever seen!

[zaman]

Mr. Bantis said: " We look for continued balance sheet deleveraging, zero dividend growth and further capital offerings in 2009."

I can foresee these banks needing still another equity injection next year when their capital ratios fall below 10% again. The dumbass management of these banks made dumbass acquisitions in a phony economy.

As compared to their global peers who are needing their governments to shore up their balance sheets, ISTM that Canada's bank's have outperformed their peers (as far as balance sheet risk thus far).

[kcowan]

As compared to their global peers who are needing their governments to shore up their balance sheets, ISTM that Canada's bank's have outperformed their peers (as far as balance sheet risk thus far).

Isn't this analogous to deciding to buy Ford because it has done better than GM?

[patriot1]

Well the market is saying that Canadian banks are going concerns.

Preferreds don't get diluted by new offerings BTW.

The dumbass management of these banks made dumbass acquisitions in a phony economy.

The management aren't dumb, they have done exactly what their compensation schemes have incented them to do.

Ultimately it's the shareholders who have been dumb for allowing this to happen.

[scomac]

Well the market is saying that Canadian banks are going concerns.

Preferreds don't get diluted by new offerings BTW.

That is a wonderful feature, isn't it?

While there is no express guarantee, it is likely a reasonably good bet that some of the pricier recent preferred share issues will be redeemed at the first opportune moment.

Ultimately it's the shareholders who have been dumb for allowing this to happen.

Allowing it? Not only did [s]they[/s] we encourage it, [s]they[/s] we demanded it!

[FranksFinancials]

A bit disappointing in the financials today. Darn it I thought I had caught BNS at a low yesterday. I should know better . RY seems to have stood up the best, exact opposite of what I would have thought. BNS and WFG down about 5%. Oh well maybe tomorrow

[bubbalouie]

Question: You and 4 friends get together and purchase a car wash. Things start out really well and the business is able to pay out a portion of its profits to the 5 of you every year. It's a very comfortable investment and everyone feels secure.

Year after year, the car wash operates well. After a few years, some of the profits and a small amount of debt are used to take on a little real estate and a few stocks. Things continue to go well year after year but then one year there is a freak snowstorm. The weather turns cold and rainy and the company has a bad year; nobody is coming to use the car wash.

The 5 of you for a variety of reasons have come to rely on that dividend the car wash pays out every year, so the group of you decide that instead of forgoing the dividend that year, you would take on a new partner and each person would reduce their holdings to 1/6 of a share instead of 1/5. The cash injection the car wash would receive would improve the business and would ensure everyone gets paid their dividend.

Because nobody really knows what stocks and real estate holdings are on the car wash's balance sheet by this time, you end up having a little trouble finding a new partner. But in the end you do find one. However, this new partner doesn't want to pay what the group thinks he should pay; he makes an offer to pay for a stake that is based on what the business was worth in 2004. All of you agree to it and the deal is done.

IS THIS A WISE BUSINESS DECISION??

[kcowan]

Because nobody really knows what stocks and real estate holdings are on the car wash's balance sheet by this time, you end up having a little trouble finding a new partner.

All 6 people are fools. The business might not even be a carwash anymore.

[investor99]

instead of forgoing the dividend that year, you would take on a new partner and each person would reduce their holdings to 1/6 of a share instead of 1/5.

In the case of the banks (TD in particular), I don't think that avoiding forgoing the dividend was the reason for share dilution. It was well advertised as an attempt to win the market's confidence by boosting cap. ratios.

[kcowan]

In the case of the banks (TD in particular), I don't think that avoiding forgoing the dividend was the reason for share dilution. It was well advertised as an attempt to win the market's confidence by boosting cap. ratios.

Along with declaring their doubled exposure to ABCP...

[bubbalouie]

Posted: Sun Nov 23, 2008 10:26 am Post subject:

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This discussion has been centered on derivatives which are the most eggregious of bad assets. But there are many other places where our Top 5 banks have risk:
1) Business loans - how many are to builders. What about oil field companies investing in the growth stimulated by $140 oil? etc.
2) Consumer loans - beyond mortgages.
3) Credit card loans
4) Assets in wholly-owned subsidiaries in both the US and The Americas.
5) Loans to developing countries, ...

At various times in the past, our banks have all shared in extensive writeoffs in each of these classes of risk. The question is: how much risk is buried in all of these? Will those risks grow as the recession takes hold?
_________________

You were ahead of the curve kcowan. Bank of Canada now has the same concerns you brought up 3 weeks ago.

[Steve19]

I may have missed the boat on this thread (because I haven't fully read through it), but should one be cautious with the banks? or are we looking at great buys? As economists have said, our banks are the strongest in the world in our current global situation, but are they?

[patriot1]

Well the markets think so as the banks have had no trouble selling common and preferred shares recently.

If you think differently and you're right and the market's wrong you can make a lot of money, as always.

[FranksFinancials]

Starting to side with bubbalouie here. Kind of regretting my purchase of BNS and RY. Considering taking my loss now and putting the money to work somewhere else.

[carnet]

:? Starting to side with bubbalouie here. Kind of regretting my purchase of BNS and RY. Considering taking my loss now and putting the money to work somewhere else.

FranksNonFinancials, then?

[FranksFinancials]

[Taggart]

The "DOPE-DUD" Phase For Canadian Banks?

Larry MacDonald

December 17, 2008

Is it the Canadian banks’ turn to implode? It’s almost unimaginable to pose this question of the worlds’ soundest banking system, but could their stocks be on the verge of collapsing like the U.S. banks did?

[Shakespeare]

Carney's message aimed beyond banks

So let's parse the Governor's speech, delivered to a Bay Street crowd on Wednesday, more closely and ask: Who was the intended audience?....

"We examined an extreme scenario where nominal household income drops ... for six straight quarters ... while the average Tier 1 capital ratio of our banks would fall ... [it would still be] more than two times the minimum ratio allowed ... and well above OSFI's 7-per-cent threshold." Translation: It would take an economic Armageddon to take down the Canadian banks.

Perhaps Mr. Carney was just trying to boost the public's confidence. Here's another interpretation: His target wasn't really the bankers at all. It was institutional investors, some of which have been pushing the banks to be ultraconservative with their balance sheets, and OSFI head Julie Dickson, who has been accused (unfairly, say some) of urging the same. The message to both seemed to be: Lay off, already - the Bank of Canada's got a better grasp of the problem than you do.

[mpav]

There is some truth to that.

CAD banks are getting to 10% Tier One ratios, and compared to the rest of the world, we are head and shoulders above the rest....just looked at an aussie bank boasting about 8%.

In benign times, a bank wants as little tier one capital as required, as the return will be greater. I think investors are expecting the worse, and also expect that the banks shore up now rather than try when it is too late.

The big driver is now corporate credit, for the the banks that bubble hasnt really burst yet, but if it does they will be thankful....if it doesnt they will have to start throwing their money around like drunken sailors, otherwise that excess capital will drag down performance.