Canadian Banks

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Shakespeare
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Canadian Banks

Post by Shakespeare » 11 Oct 2011 15:19

Consider this before dumping Canadian banks
Skeptics will argue that past performance can’t guarantee future returns, and Veritas absolutely agrees. The report’s co-authors, Ohad Lederer and Yuting Liu, are the first to acknowledge that the next 20 years are likely to be rougher than the last 20 years.

However, Mr. Lederer makes a good counter point. Even if the banks churn out results half this good, meaning that if you buy at the current CAPEs and they produce average real returns of 7.5 per cent over the next 20 years, that’s still very lucrative. In fact, that’s what the biggest pension funds aim for.
Note: I hold positions in each of the Big 5.
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Re: Canadian Banks

Post by NormR » 11 Oct 2011 15:47

Do I get to go all doom and gloom for a little fun here? 8)

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Re: Canadian Banks

Post by Taggart » 11 Oct 2011 16:20

NormR wrote:Do I get to go all doom and gloom for a little fun here? 8)
That must be the signal where Norm is buying Laurentian Bank again....... According to Reuters it's the only one selling for less than tangible book value. :beer:

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Re: Canadian Banks

Post by pitz » 22 Oct 2011 00:50

Biggest risk to buying Canadian banks, IMHO, is that some other sector may very well eclipse them in multiples in the next few years.

For instance, most of the Canadian banks are priced to return, IMHO, around 13-15%/annum going forward, returns to shareholders. Yet you have the gold mining stocks that could easily double or triple from current levels, and perhaps even go up further.

Of course, 13-15%annum isn't too shabby of a return, but isn't the 6-8X that you'd see out of gold stocks if the price of gold goes up to $5,000/ounce as many expect will happen (ie: 4X current margin + P/E multiple expansion of the sector into the 30X range from 10-15X as people anticipate further upside in gold = 8X returns) .

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Re: Canadian Banks

Post by Londoncalling » 13 Nov 2011 12:14

I apologize if this is already posted out there somewhere but I was wondering which of the big 5 would be the best to get into right now. I have been doing some comparisons and am leaning towards BMO, BNS or RY. They are all roughly in the same range in regards to 52 week highs and lows. I assume the big 5 move in unison. However, BMO and BNS 's EPS is nearly double. Based on business models I prefer BNS however BMO has a much more attractive yield. I would be interested in what others have to offer on the big 5 and other bank financials.

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Re: Canadian Banks

Post by OptsyEagle » 13 Nov 2011 12:31

However, Mr. Lederer makes a good counter point. Even if the banks churn out results half this good, meaning that if you buy at the current CAPEs and they produce average real returns of 7.5 per cent over the next 20 years, that’s still very lucrative. In fact, that’s what the biggest pension funds aim for.
Of course, 13-15%annum isn't too shabby of a return, but isn't the 6-8X that you'd see out of gold stocks if the price of gold goes up to $5,000/ounce as many expect will happen (ie: 4X current margin + P/E multiple expansion of the sector into the 30X range from 10-15X as people anticipate further upside in gold = 8X returns) .
These are not arguments. These are simply math equations pulled out of the air from nothing concrete. Be careful about building investment strategies around this type of information.

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Re: Canadian Banks

Post by pitz » 13 Nov 2011 13:45

OptsyEagle wrote: These are not arguments. These are simply math equations pulled out of the air from nothing concrete. Be careful about building investment strategies around this type of information.
Actually there is a concrete basis for what I wrote, given the assumptions made. Gold stock margins would expand by a factor of roughly 4X if gold went from its current levels, to $5000/ounce, given a current margin of around $1000/ounce at most miners.

Banks currently are at ~10X earnings, which, if you add a nominal growth rate of the Canadian economy at 4-5%, would see returns in the 13-15%/annum range.

The argument I made was that, while sitting in the banks isn't that bad of an idea -- other sectors are primed to produce far greater returns.

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Re: Canadian Banks

Post by ockham » 13 Nov 2011 14:38

Londoncalling wrote:I apologize if this is already posted out there somewhere but I was wondering which of the big 5 would be the best to get into right now. I have been doing some comparisons and am leaning towards BMO, BNS or RY. They are all roughly in the same range in regards to 52 week highs and lows. I assume the big 5 move in unison. However, BMO and BNS 's EPS is nearly double. Based on business models I prefer BNS however BMO has a much more attractive yield. I would be interested in what others have to offer on the big 5 and other bank financials.
Okay, I'll bite. What I have to offer, although you may not be interested, is that the question "which of the big 5 would be the best to get into right now" is not a good question, WADR.

Canada's big 5 are likely the most analyzed and closely followed 5 stocks on the TSX. Why do you think that you, or anyone on this board, has analysis to offer that will go deeper, further and is more prescient than that to which these stocks are already subjected? And even if there is someone here who possesses these oracular gifts, how would you recognize that someone?

Better, instead, to adopt the appropriate index solution, and move on to more productive pursuits.

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Re: Canadian Banks

Post by Londoncalling » 13 Nov 2011 15:28

ockham wrote: Okay, I'll bite. What I have to offer, although you may not be interested, is that the question "which of the big 5 would be the best to get into right now" is not a good question, WADR.

Canada's big 5 are likely the most analyzed and closely followed 5 stocks on the TSX. Why do you think that you, or anyone on this board, has analysis to offer that will go deeper, further and is more prescient than that to which these stocks are already subjected? And even if there is someone here who possesses these oracular gifts, how would you recognize that someone?

Better, instead, to adopt the appropriate index solution, and move on to more productive pursuits.
Thanks for posting and what you say is true. :oops:

However, I plan to own all of the big 5 to create my own index as I choose not to pay an MER (no matter how small) for an investment that I can do on my own(4.95 a trade x 5 will definitely be cheaper over the long term). Seeing as I plan to hold these positions for a long, long time I guess it may not matter which order I purchase them in especially since their movements for the most part are in sink.

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Re: Canadian Banks

Post by Londoncalling » 13 Nov 2011 15:31

On a related note I did find this interesting.

http://www.theglobeandmail.com/globe-in ... le1818194/

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Re: Canadian Banks

Post by ockham » 13 Nov 2011 17:13

If you are working in a $5.00/trade environment, then you can build your very own ersatz index portfolio very cheaply, to have and to hold. And by doing so you will have unshackled yourself from an entire investment philosophy. The philosophy that says that what investing is all about is ferreting out those securities which will outperform in the near to medium term, or, ferreting out the analysts who can ferret out those securities which will outperform in the near to medium term.

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Re: Canadian Banks

Post by OptsyEagle » 14 Nov 2011 09:21

pitz wrote:
OptsyEagle wrote: These are not arguments. These are simply math equations pulled out of the air from nothing concrete. Be careful about building investment strategies around this type of information.
Actually there is a concrete basis for what I wrote, given the assumptions made. Gold stock margins would expand by a factor of roughly 4X if gold went from its current levels, to $5000/ounce, given a current margin of around $1000/ounce at most miners.

Banks currently are at ~10X earnings, which, if you add a nominal growth rate of the Canadian economy at 4-5%, would see returns in the 13-15%/annum range.

The argument I made was that, while sitting in the banks isn't that bad of an idea -- other sectors are primed to produce far greater returns.
The only problem. It is all based on assumptions. Good luck with that.

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Re: Canadian Banks

Post by Taggart » 14 Nov 2011 09:40

Londoncalling wrote:I apologize if this is already posted out there somewhere but I was wondering which of the big 5 would be the best to get into right now. I have been doing some comparisons and am leaning towards BMO, BNS or RY. They are all roughly in the same range in regards to 52 week highs and lows. I assume the big 5 move in unison. However, BMO and BNS 's EPS is nearly double. Based on business models I prefer BNS however BMO has a much more attractive yield. I would be interested in what others have to offer on the big 5 and other bank financials.
Just charted little, under-appreciated Laurentian Bank (LB) and believe or not, it actually performed better than any of the big 5 over the last five years. Sometimes it pays to be under the radar.

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Re: Canadian Banks

Post by skepticus » 29 Jun 2012 06:51

I wonder if any Canadian banks will be caught by investigators looking into the rigging of interest rates. According to reports, Barclay's isn't the only banks playing dirty tricks.
Barclays will not be the last bank collared for the rate-rigging scam. Investigations involve regulators on three continents, who are looking into the behaviour of more than 20 banks involved in rate-setting processes. This cannot have been an isolated act of wrongdoing. It looks more like a systemic problem afflicting a broad swath of the industry.
That's from an editorial in the Financial Times. It's a worthwhile read. (Notice it accuses Barclay's of running a scam.)

http://www.ft.com/intl/cms/s/0/6dc5b9a2 ... z1z8Dvhfc0

Barclay's CEO refuses to resign. And why should he? After all, he is a bank CEO, right? We 90 percenters just don't get it, do we? :roll:

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Re: Canadian Banks

Post by Taggart » 29 Jun 2012 09:20

skepticus wrote:I wonder if any Canadian banks will be caught by investigators looking into the rigging of interest rates. According to reports, Barclay's isn't the only banks playing dirty tricks.
Barclays will not be the last bank collared for the rate-rigging scam. Investigations involve regulators on three continents, who are looking into the behaviour of more than 20 banks involved in rate-setting processes. This cannot have been an isolated act of wrongdoing. It looks more like a systemic problem afflicting a broad swath of the industry.
That's from an editorial in the Financial Times. It's a worthwhile read. (Notice it accuses Barclay's of running a scam.)

http://www.ft.com/intl/cms/s/0/6dc5b9a2 ... z1z8Dvhfc0

Barclay's CEO refuses to resign. And why should he? After all, he is a bank CEO, right? We 90 percenters just don't get it, do we? :roll:
Sure we get it. Here we go again.

Image

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Re: Canadian Banks

Post by zinfit » 03 Jul 2012 21:48

I figure the best Canadian is TD. They have done a very good job of acquiring USA banks. They have a strong foothold in the NE USA with BankNorth. Their investment arm has a solid brand on both sides of the border. I have always been impressed with their retail banking. An experienced person in the CU system says that TD is the gold standard for performance standards at the retail level. BMO might be the bank which could surprise. They have very strong banks in Wisconsin and Illinois. I think they have really picked up their sox's in retail banking. I like their CEO.

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Re: Canadian Banks

Post by kcowan » 06 Jul 2012 12:31

“Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from those rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous and frequently fatal to the banking company which attempts it.”
-Adam Smith

As this was written some 300 years ago, I expect that few current bank CEOs have read it.
For the fun of it...Keith

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Re: Canadian Banks

Post by skepticus » 07 Jul 2012 21:17

kcowan wrote:
“Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from those rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous and frequently fatal to the banking company which attempts it.”
-Adam Smith

As this was written some 300 years ago, I expect that few current bank CEOs have read it.
Or, if they have, they're saying, "This time it's different". :wink:

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Re: Canadian Banks

Post by Shakespeare » 29 Aug 2012 10:44

globeadvisor.com: Bountiful returns from the Big Five
The banks are listed in ascending order of [20 year] total return, from worst to best. But as you'll see, even the "laggards" of the group put up some solid numbers.

Bank of Montreal (BMO)

Annual price return: 8.14 per cent

Including dividends: 12.58 per cent

$10,000 would be worth: $107,100

Canadian Imperial Bank of Commerce (CM)

Annual price return: 8.51 per cent

Including dividends: 12.85 per cent

$10,000 would be worth: $112,380

Toronto-Dominion Bank (TD)

Annual price return: 11.05 per cent

Including dividends: 14.78 per cent

$10,000 would be worth: $157,926

Royal Bank of Canada (RY)

Annual price return: 10.96 per cent

Including dividends: 14.84 per cent

$10,000 would be worth: $159,381

Bank of Nova Scotia (BNS)

Annual price return: 11.52 per cent

Including dividends: 15.49 per cent

$10,000 would be worth: $178,619

How did the banks stack up versus the index? Glad you asked.

All of them handily beat the S&P/TSX composite, which had an annualized price return of 6.29 per cent over the same period.

We were unable to obtain an S&P/TSX total return figure from Bloomberg that went back as far as 1992, but if you add a dividend yield of 3 per cent - roughly what the index is yielding now - you get a total return of 9.29 per cent for the S&P/TSX. That's well below the total return of the banks.
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Re: Canadian Banks

Post by newguy » 29 Aug 2012 11:13

20 years ago is the exact time inflation started averaging 2%/yr

Image

Can someone predict the next 20 yrs pls.

newguy

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Re: Canadian Banks

Post by scomac » 29 Aug 2012 11:19

It would have been nice if Heinzl would have mentioned that there was no guarantee that banks would out-perform the index going forward. That maybe the most critical disclaimer versus those mentioned in the article regarding performance.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
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Re: Canadian Banks

Post by NormR » 29 Aug 2012 11:41

scomac wrote:It would have been nice if Heinzl would have mentioned that there was no guarantee that banks would out-perform the index going forward. That maybe the most critical disclaimer versus those mentioned in the article regarding performance.
Does the reverse also hold? Should index funds make a similar disclaimer? :twisted:

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Re: Canadian Banks

Post by Shakespeare » 29 Aug 2012 11:50

scomac wrote:That maybe the most critical disclaimer
Personally, I prefer Heinzl's disclosure:
Heinzl wrote:Disclosure: The writer owns shares of Bank of Montreal, Canadian Imperial Bank of Commerce, Toronto-Dominion Bank, Royal Bank and Bank of Nova Scotia.
(But then, so do I. :wink: )
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Re: Canadian Banks

Post by scomac » 29 Aug 2012 11:59

NormR wrote:
scomac wrote:It would have been nice if Heinzl would have mentioned that there was no guarantee that banks would out-perform the index going forward. That maybe the most critical disclaimer versus those mentioned in the article regarding performance.
Does the reverse also hold? Should index funds make a similar disclaimer? :twisted:
Why would they? They're not claiming to be anything other than an aggregation of the market based on market capitalization. :wink:
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830

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Re: Canadian Banks

Post by Taggart » 29 Aug 2012 12:02

If there's one thing I learned previous to and after the effects of the financial hurricane that swept through the banking system in both Europe and the U.S. during 2008-2009 crisis, was not to get too cocky when things are going well. I was around 50% in the Canadian financial sector during that time period. Since then, I've pared the target allocation to that sector down to a less risky14%.

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