Canadian Banks

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SQRT
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Re: Canadian Banks

Post by SQRT »

The banks require CMHC insurance for high ratio mortgages so by definition they would be less likely to lend these riskier mortgages at the same rates as less risky mortgages. This was the objective of setting up CMHC in the first place, ie to allow more people to buy houses by spreading the risk. CMHC sets the underwriting standards to suit themselves and audit compliance with them. Obviously these audits don't always catch any issues.
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Re: Canadian Banks

Post by adrian2 »

Londoncalling wrote: 20 May 2017 20:37
adrian2 wrote: 15 May 2017 23:04 From a current commercial: CIBC was the first to introduce an ATM in Canada.
According to this link the commercial is stating a mistruth.

http://esask.uregina.ca/entry/automated ... hines.html
Maybe it's my recollection of the commercial, it could have been stating that "CIBC was the first bank to introduce an ATM in Canada."
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Re: Canadian Banks

Post by kcowan »

adrian2 wrote: 21 May 2017 09:40
Londoncalling wrote: 20 May 2017 20:37
adrian2 wrote: 15 May 2017 23:04 From a current commercial: CIBC was the first to introduce an ATM in Canada.
According to this link the commercial is stating a mistruth.

http://esask.uregina.ca/entry/automated ... hines.html
Maybe it's my recollection of the commercial, it could have been stating that "CIBC was the first bank to introduce an ATM in Canada."
First ATM IN Canada at CIBC in 1969. I think a distinction was made between cash dispensers and online machines. I remember using an offline ABM in Edmonton in 1975 at BMO.
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Re: Canadian Banks

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SQRT wrote: 21 May 2017 09:12 The banks require CMHC insurance for high ratio mortgages so by definition they would be less likely to lend these riskier mortgages at the same rates as less risky mortgages. This was the objective of setting up CMHC in the first place, ie to allow more people to buy houses by spreading the risk. CMHC sets the underwriting standards to suit themselves and audit compliance with them. Obviously these audits don't always catch any issues.
I don't want to take the thread in a different direction. I simply don't believe CMHC should exist. If lenders and borrowers need/ want mortgage insurance they should buy it from a for profit insurance company who would price the risk accordingly and yes fewer people would able buy houses. Clearly too many have already.
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Re: Canadian Banks

Post by Thegipper »

randomwalker wrote: 21 May 2017 10:13
SQRT wrote: 21 May 2017 09:12 The banks require CMHC insurance for high ratio mortgages so by definition they would be less likely to lend these riskier mortgages at the same rates as less risky mortgages. This was the objective of setting up CMHC in the first place, ie to allow more people to buy houses by spreading the risk. CMHC sets the underwriting standards to suit themselves and audit compliance with them. Obviously these audits don't always catch any issues.
I don't want to take the thread in a different direction. I simply don't believe CMHC should exist. If lenders and borrowers need/ want mortgage insurance they should buy it from a for profit insurance company who would price the risk accordingly and yes fewer people would able buy houses. Clearly too many have already.
It sure eliminates a lot of risk for the mortgage lender.
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Re: Canadian Banks

Post by Londoncalling »

kcowan wrote: 21 May 2017 09:58
adrian2 wrote: 21 May 2017 09:40
Londoncalling wrote: 20 May 2017 20:37

According to this link the commercial is stating a mistruth.

http://esask.uregina.ca/entry/automated ... hines.html
Maybe it's my recollection of the commercial, it could have been stating that "CIBC was the first bank to introduce an ATM in Canada."
First ATM IN Canada at CIBC in 1969. I think a distinction was made between cash dispensers and online machines. I remember using an offline ABM in Edmonton in 1975 at BMO.
Just goes to show you financial institutions love to play semantics. :) Nonetheless I found the above statement by Adrian made quite a bit of sense. Keith's follow up post was also an interesting read. As always I learn something new everyday.
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Re: Canadian Banks

Post by randomwalker »

Not really one for business television but I did find this interview refreshing in that it's nice to see someone go "off script" so to speak and offer something other than a consensus opinion. Even the host seems taken aback at times. :)

Market underestimating amount of leverage any bank has: Dynamic Funds David Fingold, vice president and portfolio manager at Dynamic Funds, joins BNN to discuss why he's bearish on the Canadian banks and why it's a dangerous sector to be in if you believe the dividend will be safe.

http://www.bnn.ca/video/market-underest ... ds~1132728
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Re: Canadian Banks

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randomwalker wrote: 25 May 2017 21:32 Not really one for business television but I did find this interview refreshing in that it's nice to see someone go "off script" so to speak and offer something other than a consensus opinion. Even the host seems taken aback at times. :)

Market underestimating amount of leverage any bank has: Dynamic Funds David Fingold, vice president and portfolio manager at Dynamic Funds, joins BNN to discuss why he's bearish on the Canadian banks and why it's a dangerous sector to be in if you believe the dividend will be safe.

http://www.bnn.ca/video/market-underest ... ds~1132728
One of the banks (CM or TD) was rumoured to be technically insolvent after the Dome Pete collapse, but kept its dividend and was allowed by OSFI to work through the insolvent period.

Their cash flow is immense.
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Re: Canadian Banks

Post by Thegipper »

Shakespeare wrote: 25 May 2017 21:43
randomwalker wrote: 25 May 2017 21:32 Not really one for business television but I did find this interview refreshing in that it's nice to see someone go "off script" so to speak and offer something other than a consensus opinion. Even the host seems taken aback at times. :)

Market underestimating amount of leverage any bank has: Dynamic Funds David Fingold, vice president and portfolio manager at Dynamic Funds, joins BNN to discuss why he's bearish on the Canadian banks and why it's a dangerous sector to be in if you believe the dividend will be safe.

http://www.bnn.ca/video/market-underest ... ds~1132728
One of the banks (CM or TD) was rumoured to be technically insolvent after the Dome Pete collapse, but kept its dividend and was allowed by OSFI to work through the insolvent period.

Their cash flow is immense.
It was a major problem. A NY Times article said the total debt of Dome was more then GM and Chrysler combined. All five banks shared the debt but CM had the largest chunk followed by BMO. It's just one item in the history of CM making a lot of high risk loans which failed.
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Re: Canadian Banks

Post by SQRT »

3 out of 4 banks reporting so far, exceeded expectations. TD best up to this point. TD USA performed particularly well with a record ROE of 10%. If/when the TD USA ROE hits 12% this will be universally viewed as a transformational success. Getting closer.
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Re: Canadian Banks

Post by SQRT »

randomwalker wrote: 25 May 2017 21:32 Not really one for business television but I did find this interview refreshing in that it's nice to see someone go "off script" so to speak and offer something other than a consensus opinion. Even the host seems taken aback at times. :)

Market underestimating amount of leverage any bank has: Dynamic Funds David Fingold, vice president and portfolio manager at Dynamic Funds, joins BNN to discuss why he's bearish on the Canadian banks and why it's a dangerous sector to be in if you believe the dividend will be safe.

http://www.bnn.ca/video/market-underest ... ds~1132728
I have seen a fair degree of skepticism from portfolio managers re the banks. They have been spectacularly wrong for quite a while. I think they naturally are skeptical because they are caught between a passive strategy providing lots of diversification and a "stock picker" strategy that can almost always be beat by overweighting the banks.
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Re: Canadian Banks

Post by Thegipper »

SQRT wrote: 26 May 2017 08:56
randomwalker wrote: 25 May 2017 21:32 Not really one for business television but I did find this interview refreshing in that it's nice to see someone go "off script" so to speak and offer something other than a consensus opinion. Even the host seems taken aback at times. :)

Market underestimating amount of leverage any bank has: Dynamic Funds David Fingold, vice president and portfolio manager at Dynamic Funds, joins BNN to discuss why he's bearish on the Canadian banks and why it's a dangerous sector to be in if you believe the dividend will be safe.

http://www.bnn.ca/video/market-underest ... ds~1132728
I have seen a fair degree of skepticism from portfolio managers re the banks. They have been spectacularly wrong for quite a while. I think they naturally are skeptical because they are caught between a passive strategy providing lots of diversification and a "stock picker" strategy that can almost always be beat by overweighting the banks.
Since Jan 1 2009 I have averaged a little above 20% and I have done that with little or no exposure to banks or resource stocks. Owning Canadian banks would have been a good investment I just didn't have much exposure. I do have some RY and TD and my basic rational is their respective positions in the USA.
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Re: Canadian Banks

Post by SQRT »

Thegipper wrote: 26 May 2017 09:05
SQRT wrote: 26 May 2017 08:56
randomwalker wrote: 25 May 2017 21:32 Not really one for business television but I did find this interview refreshing in that it's nice to see someone go "off script" so to speak and offer something other than a consensus opinion. Even the host seems taken aback at times. :)

Market underestimating amount of leverage any bank has: Dynamic Funds David Fingold, vice president and portfolio manager at Dynamic Funds, joins BNN to discuss why he's bearish on the Canadian banks and why it's a dangerous sector to be in if you believe the dividend will be safe.

http://www.bnn.ca/video/market-underest ... ds~1132728
I have seen a fair degree of skepticism from portfolio managers re the banks. They have been spectacularly wrong for quite a while. I think they naturally are skeptical because they are caught between a passive strategy providing lots of diversification and a "stock picker" strategy that can almost always be beat by overweighting the banks.
Since Jan 1 2009 I have averaged a little above 20% and I have done that with little or no exposure to banks or resource stocks. Owning Canadian banks would have been a good investment I just didn't have much exposure. I do have some RY and TD and my basic rational is their respective positions in the USA.
Right. I couldn't get into Longrundata, but I suspect over this period having more exposure to the banks would have increased you returns.
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Re: Canadian Banks

Post by twa2w »

The Canadian banks have done very well historically and many discussions on this and other forums talk about holding bank stocks as if that was the Holy grail.
Will they continue to do so or are the reasons for their continued success no longer applicable.
All things being equal, a companies revenue and earnings should grow at the rate of inflation plus the growth in population. The Canadian banks have far exceeded that over the last 50 to 60 years.
So lets dig deeper.
1) Banks were allowed in the late 1950s to enter NHA insured mortgage market. Ah, new business. Banks pursued this market and now have majority of mortgages in Canada.

2) Banks entered the consumer lending business in the 1960s. More new business - eventually wiping out most consumer lending companies like beneficial, avco, etc.

3) Banks entered the credit card business with Visa and Mastercard.

4) Banks took over trust companies, entering the trust business and eliminating an area of competition in mortgages, cards and consumer lending.

5) Banks began offering mutual funds, entering a new business and using their massive branch network to eventually dominate.

6) Banks took over brokerage companies allowing them to enter into a new business area and further expand business

7) Banks entered the insurance business with creditor insurance, then travel insurance, then began their own insurance companies offering life, auto and home insurance. Oh la la more profits.

8) Banks began looking offshore for further growth, buying banks and other wealth mgnt businesses in the USA, Caribean, South America etc.

9) The banks used their economies of scale to computerize and keep staffing and other costs low. The widespread and smaller Canadian population made it difficult for foreign entrants to compete against an established branch network.

10) All the while, banks were protected by laws that stifled competition from foreign banks while their wide ranging branch net work and economies of scale enabled them to steam roll domestic competition.

Don't get me wrong, the banks had good management, made good decisions and generally reacted quickly to the market place but a big factor was protective laws, a supportive government and effective lobbying.
Can the banks compete as effectively going forward and continue to grow at the same rate?
Growth? Not much room for more growth domestically. Growth will have to come from foreign expansion. Can the rate be sustained.
Costs? Can the banks trim costs? Sure but only so far. Staffing, more efficient procefures etc
Restraints? The Internet - peer to peer lending, robo investing and etfs. Free trade restructuring. A more inward looking USA with a more protective attitude? Alternate payment systems?
Thoughts anyone? Can the banks repeat their same level of growth over the next 20 to 40 years?
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Re: Canadian Banks

Post by Shakespeare »

Can the banks repeat their same level of growth over the next 20 to 40 years?
I don't expect them to, but 4% yield + 2% growth + 2% inflation = 8% (6% real). Which ain't bad.
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Re: Canadian Banks

Post by SQRT »

Shakespeare wrote: 26 May 2017 16:14
Can the banks repeat their same level of growth over the next 20 to 40 years?
I don't expect them to, but 4% yield + 2% growth + 2% inflation = 8% (6% real). Which ain't bad.
Yes, agree. If thy can continue to earn 40%+ in their domestic banking business which may only grow by 5-7% and redeploy this excess capital by investing outside Canada or into new businesses or even repurchasing their shares, they can do even better. They may not be the holy grail(whatever that may be) but they have been pretty good investments and I wouldn't bet against them, at least in the medium term.
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Re: Canadian Banks

Post by kcowan »

Are they all not poised for growth is retail banking in the Americas? I know some are laggards. It seems that there are good growth prospects where they are allowed to compete. They seems to be well-positioned for the discount trading arena which is surely growth oriented? And they seem to be competitive in online.

How about whole life insurance and real estate? What about the DC pension business? I know the gummint is stopping them but that is an artificial constraint.

Are you recommending that we buy Bell?
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Re: Canadian Banks

Post by Thegipper »

Banks will have their dog days. I expect the real estate bubble will be a problem. Record high levels of consumer indebtedness and that is another bubble problem. And the economy has a pile of issues. That's why I prefer TD because of it's US footprint. It's a sector I am avoiding for a whole host of reasons.
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Re: Canadian Banks

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Thegipper wrote: 26 May 2017 16:58 Banks will have their dog days. I expect the real estate bubble will be a problem. Record high levels of consumer indebtedness and that is another bubble problem. And the economy has a pile of issues. That's why I prefer TD because of it's US footprint. It's a sector I am avoiding for a whole host of reasons.
Of course they will have dog days. When I first started investing in the early 90's I had to go through a terrible period of declining/stagnant bank share prices. The recession of the early 90's kept their stock prices depressed until the fall of 1996. Then they tripled over the next 3 years. Banks are obviously very sensitive to economic cycles but they have recently demonstrated less sensitivity to credit risk. Much more of their income is in the form of fees rather than interest spreads. They should be better protected against a real estate bust then last time. I view their dividends as extremely safe. I also like TD (natch) and RY.

Td's ROE in their US business hit 10% this quarter. This is remarkable in the sense that the E includes the purchase price premiums they had to pay to acquire this business. Established large banks in the US often have ROE's in the 12% range. If TD can get close to that after paying full market price to establish their business from scratch, it will be a huge success. Probably the most successful incursion into the US by any Canadian company. Canadian banks are world class. Bet against them at your peril.
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Re: Canadian Banks

Post by biggreydog »

SQRT wrote: 27 May 2017 09:14
Thegipper wrote: 26 May 2017 16:58 Banks will have their dog days. I expect the real estate bubble will be a problem. Record high levels of consumer indebtedness and that is another bubble problem. And the economy has a pile of issues. That's why I prefer TD because of it's US footprint. It's a sector I am avoiding for a whole host of reasons.
Of course they will have dog days. When I first started investing in the early 90's I had to go through a terrible period of declining/stagnant bank share prices. The recession of the early 90's kept their stock prices depressed until the fall of 1996. Then they tripled over the next 3 years. Banks are obviously very sensitive to economic cycles but they have recently demonstrated less sensitivity to credit risk. Much more of their income is in the form of fees rather than interest spreads. They should be better protected against a real estate bust then last time. I view their dividends as extremely safe. I also like TD (natch) and RY.

Td's ROE in their US business hit 10% this quarter. This is remarkable in the sense that the E includes the purchase price premiums they had to pay to acquire this business. Established large banks in the US often have ROE's in the 12% range. If TD can get close to that after paying full market price to establish their business from scratch, it will be a huge success. Probably the most successful incursion into the US by any Canadian company. Canadian banks are world class. Bet against them at your peril.
Very strongly agree with this thesis, well put. In the midst of our large, diversified dividend-driven portfolio, we have very large $ figures in play directly based on this thesis. It is a long-term patient approach to wealth creation and income generation for us. We'll adapt the approach as needed, when needed.
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Re: Canadian Banks

Post by randomwalker »

The kind of news that gets released on a Friday afternoon in June,

Canada Proposes New Bail-in Regulations for Country's Banks
by Doug Alexander, Bloomberg News, June 16, 2017,

"The government introduced in its April 2016 budget a plan to implement a bail-in regime for Canada’s "systemically important banks,” which would allow authorities to convert securities of a failing lender into common shares to recapitalize the bank and let it remain open and operating."

https://www.bloomberg.com/news/articles ... ry-s-banks

The following quote from the above article is incorrect, see below,

"Regulators worldwide have been working on similar regulations to prevent a rerun of the 2008 financial crisis, which saw the U.S., U.K. and other developed nations recapitalize failing lenders with taxpayer money to keep them from dragging down the rest of the economy -- and then face popular push-back from taxpayers. While none of the banks in Canada’s top-rated system needed bailing out..."


The REAL Canadian bank bailout
CMHC numbers reveal what was likely a move to offload risk from the banks to taxpayers
Ben Rabidoux, Maclean's Magazine, May 24, 2012
http://www.macleans.ca/economy/business ... k-bailout/


Banks got $114B from governments during recession
Support for banks 'more substantial than Canadians were led to believe': CCPA report
CBC News, Apr 30, 2012
http://www.cbc.ca/news/business/banks-g ... -1.1145997
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Re: Canadian Banks

Post by AltaRed »

Not sure why this keeps coming up. We've had NVCC compliant prefs for at least a few years now. Guess the legislation never did get put into place??
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Re: Canadian Banks

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AltaRed wrote: 17 Jun 2017 11:32 Not sure why this keeps coming up. We've had NVCC compliant prefs for at least a few years now. Guess the legislation never did get put into place??
My understanding is nothing proposed in the way of legislation has been passed into law. Judging by how sound most think the Canadian banks are I don't think they know or understand that the banks previously were bailed out nor do they question why the government is introducing "bail in" legislation.

The question of course is when a bank fails will the government actually stand back and leave it to the shareholders and debt holders. If the Home Capital situation is anything to go on I think not.
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Re: Canadian Banks

Post by ghariton »

randomwalker wrote: 17 Jun 2017 11:11 The REAL Canadian bank bailout
I must admit I found the two articles you linked to, less than clear, and neither was the CCPA study. But as best I can reconstruct things, what CMHC did was to increase the amount of mortgage insurance it sold to the banks.

That did indeed constitute a transfer of risk from the banks to CMHC: that is what insurance is all about. The real issue, it seems to me, is how much the banks paid for that insurance. If the amount they were charged was sufficiently high, then there was no bailout. If the amount was too low, then there was a bailout; but the bailout was the amount by which the insurance premium was too low. It was not the amount at risk, i.e. the face value of the insurance policies.

As usual, I find CCPA to be very misleading.

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Re: Canadian Banks

Post by AltaRed »

Randomwalker, I agree the Feds won't stand back. But before they put in any taxpayer money, they want pref holders and bond holders to "forfeit" their capital to the cause....which IS the right thing to do. I have no issue with NVCC compliant prefs, etc. The taxpayer should only be the bank of last resort after everyone else is wiped out.

Added: Per George, I got about halfway through the CCPA link before I threw up. It wins a platinum star on misrepresentation....as it almost always does.
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