Royal Bank (Symbol-RY)

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chiaroscuro
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Re: Royal Bank (Symbol-RY)

Post by chiaroscuro »

Banks are money machines. We live in tough times. If things get better I can't help but see Canadian banks being very profitable. Risk and profit go hand in hand.
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kcowan
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Re: Royal Bank (Symbol-RY)

Post by kcowan »

chiaroscuro wrote:Banks are money machines. We live in tough times. If things get better I can't help but see Canadian banks being very profitable. Risk and profit go hand in hand.
If things get better I can't help but see all businesses being very profitable.
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chiaroscuro
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Re: Royal Bank (Symbol-RY)

Post by chiaroscuro »

kcowan wrote:
chiaroscuro wrote:Banks are money machines. We live in tough times. If things get better I can't help but see Canadian banks being very profitable. Risk and profit go hand in hand.
If things get better I can't help but see all businesses being very profitable.
True enough...most businesses would do better. Lets narrow it down than...Canadian banks pay a 3.5 dividend or higher right now, typically increase dividends, do well in a rising inflation environment, are a good investment for diversification, and are essential to society.
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kcowan
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Re: Royal Bank (Symbol-RY)

Post by kcowan »

chiaroscuro wrote:
kcowan wrote:If things get better I can't help but see all businesses being very profitable.
True enough...most businesses would do better. Lets narrow it down than...Canadian banks pay a 3.5 dividend or higher right now, typically increase dividends, do well in a rising inflation environment, are a good investment for diversification, and are essential to society.
OK so your idea of better is rising inflation. My idea of better is a growing GDP and I don't like the outlooks right now.
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adrian2
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Re: Royal Bank (Symbol-RY)

Post by adrian2 »

patriot1 wrote:RY got down to $22.79 in Jan 2009. That's what I call a "low".
You made me curious, so I've searched Yahoo finance:

Jan 2009 low = $25.52
Jan 2009 high = $32.50

Here is the graph.

... close, but no cigar! :)
Maybe your source is in US$?
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Re: Royal Bank (Symbol-RY)

Post by tasamy »

OK, $22 was in 2009. I will not wait until another financial crisis :lol:

Why TD is going up and RY is down? OK, may be because of Q4 earnings blah blah blah
Copied from wsj : ""Royal Bank of Canada's (RY) fourth-quarter profit fell 9%, missing expectations for the fifth straight quarter on the back of lower trading revenue, a stronger Canadian dollar and higher expenses. "

Do you think TD is better than RY? If you will chose between TD and RY ... Which is better? I think 'buy low" recommends RY?
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Re: Royal Bank (Symbol-RY)

Post by bpither »

blah blah blah
You can say that again. Analysts and economists pontificate because that is their job. But as some wag once remarked they make astrologers look good.

Having said that - and AFTER reading all that I could - I did conclude my "research" by sitting in each local "Big Five" branch just to get a feel of their way of doing business. TD gave me a warm and fuzzy feeling so I bought more of that than any other. True story.

Turned out giving the best ROE of the lot :rofl:
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patriot1
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Re: Royal Bank (Symbol-RY)

Post by patriot1 »

chiaroscuro wrote: True enough...most businesses would do better. Lets narrow it down than...Canadian banks pay a 3.5 dividend or higher right now, typically increase dividends, do well in a rising inflation environment, are a good investment for diversification, and are essential to society.
Banks do better in a falling inflation environment, because on average they lend longer than they borrow. Rising inflation hurts them because the real value of their assets falls more than that of their liabilities. Of course the stock market in general has done much, much better during falling inflation than under rising inflation.

Image
adrian wrote: You made me curious, so I've searched Yahoo finance:
Yes it looks like I was looking at the USD graph, also on Yahoo. Misleading as I had gone to yahoo.ca, hit "finance" and entered RY. One would expect the TSX as a default but you have to enter RY.TO to get that.
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Re: Royal Bank (Symbol-RY)

Post by adrian2 »

tasamy wrote:Do you think TD is better than RY? If you will chose between TD and RY ... Which is better? I think 'buy low" recommends RY?
My largest (and oldest) holding in Canadian banks is CM, next one is TD -- I hold no RY. I like TD's US exposure and I think the "buy low" part applies to the large US banks (C and BAC are the ones I have).
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Re: Royal Bank (Symbol-RY)

Post by pitz »

patriot1 wrote:Banks do better in a falling inflation environment, because on average they lend longer than they borrow. Rising inflation hurts them because the real value of their assets falls more than that of their liabilities. Of course the stock market in general has done much, much better during falling inflation than under rising inflation.
Canadian banks are unique in that, they don't carry much in terms of long-term assets. If you look at a Canadian bank's balance sheet, you see that it is mostly maturities of 5 years or less, ie: 5-year mortgages. If you look at a US bank's balance sheet, its typically chock full of 30-year fixed mortgages, and ARMs that are fixed to external indicies (ie: LIBOR), and not to a bank-set rate (ie: Prime).

Canadian banks can reprice prime on the fly, if they ever run into systemic cash flow difficulties, whereas, those US banks couldn't, hence, they faced bank runs that they could not satisfy.
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chiaroscuro
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Re: Royal Bank (Symbol-RY)

Post by chiaroscuro »

pitz wrote:
patriot1 wrote:Banks do better in a falling inflation environment, because on average they lend longer than they borrow. Rising inflation hurts them because the real value of their assets falls more than that of their liabilities. Of course the stock market in general has done much, much better during falling inflation than under rising inflation.
I couldn't find much on the internet but my broker stated that rising inflation is good for banks. Could it be that more business gets done at such a time so they make more profits?

Image

This is old data and only a correlation but the profits do seem to rise with inflation at that time.
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Re: Royal Bank (Symbol-RY)

Post by monypit »

New to this forum, but found it very informative.

Banks should do better in an inflationary economy, as the interest rate will be raising; thus more profit from the banks' businesses.

Thats a comment I recall hearing from (back then) RobTV, and it did make sense to me and stuck.
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Re: Royal Bank (Symbol-RY)

Post by tasamy »

up 4% in one week!
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Re: Royal Bank (Symbol-RY)

Post by pitz »

monypit wrote:New to this forum, but found it very informative.
Banks should do better in an inflationary economy, as the interest rate will be raising; thus more profit from the banks' businesses.
I certainly believe this to be the case; the CMHC basically has the banks' backs covered insofar as the mortgage loans, and inflation definitely improves the performance of the Canadian economy because of the relatively high concentration of resource companies.

Canadian banks, while they may not perform quite as well as the mining stocks, and may very well fall from prominence in the TSX index (ie: fall to a 25% or 20% weighting from the current 30-35% weighting), will likely continue to do well.

Big risk, as usual, is political, and as the CMHC implodes, there will be enormous pressure politically to 'reign in' the CMHC and the subsidies it provides to the banks, especially when Canadians, broadly as a group, are suffering.
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Re: Royal Bank (Symbol-RY)

Post by pitz »

Great earnings today. Currently the dividend payout is $0.50/quarter, which represented roughly 50% of earnings previously. If earnings are now $1.24/quarter, could we be looking at a dividend increase of approximately 24% to come in the next few weeks/months?

Certainly would give a nice boost to XIU, that's for sure.
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Re: Royal Bank (Symbol-RY)

Post by StuBee »

I am very content today. I have an important position in RY and FINALLY some good news :D . IF RY can maintain this earnings quality, an increase is very likely to be announced within the next 3 to 6 months. There stated payout ratio is 40% to 50%. with 1.24$ of earnings this quarter, the current payout ratio is 40%.
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Re: Royal Bank (Symbol-RY)

Post by Shakespeare »

Royal Bank of Canada Said to Seek Buyers for U.S. Bank
Royal Bank of Canada (RY), the country’s largest lender, is seeking buyers for its U.S. consumer banking operation a decade after entering the market, said three people with knowledge of the talks.

Royal Bank is getting advice from JPMorgan Chase & Co. (JPM) on the potential sale of the RBC Bank unit, said the people, who spoke on condition of anonymity because the talks are private.
How many times have we seen this? Canadian company, with great fanfare, announces entry into US market - stock rises on glowing reports - US division struggles - stock stalls or drops - US division sold. Lather, rinse, repeat. :roll:
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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adrian2
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Re: Royal Bank (Symbol-RY)

Post by adrian2 »

Shakespeare wrote:How many times have we seen this? Canadian company, with great fanfare, announces entry into US market - stock rises on glowing reports - US division struggles - stock stalls or drops - US division sold. Lather, rinse, repeat. :roll:
Not necessarily in this case, but quite often the Canadian company stock also rises when the US division is sold. :roll:
Imagefiniki, the Canadian financial wiki
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Re: Royal Bank (Symbol-RY)

Post by Taggart »

Shakespeare wrote:Royal Bank of Canada Said to Seek Buyers for U.S. Bank
Royal Bank of Canada (RY), the country’s largest lender, is seeking buyers for its U.S. consumer banking operation a decade after entering the market, said three people with knowledge of the talks.

Royal Bank is getting advice from JPMorgan Chase & Co. (JPM) on the potential sale of the RBC Bank unit, said the people, who spoke on condition of anonymity because the talks are private.
How many times have we seen this? Canadian company, with great fanfare, announces entry into US market - stock rises on glowing reports - US division struggles - stock stalls or drops - US division sold. Lather, rinse, repeat. :roll:
It was buying into a U.S. financial division that was a major factor in leaving Royal Trust investors with worthless equity shares. Royal Bank got to pick up the cream of the crop, while the investors got stuck with the leftover junk that went into some sort of holding company.
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Re: Royal Bank (Symbol-RY)

Post by zinfit »

Do banks do better in a high inflationary economy? In the late 70's and early 80's loan rates were as high as 22% . Borrowing was at 18%. This was 5 year money. Today banks can borrow money for 5 years at 3% and loan it out at 5.5%. From a banks standpoint which is more profitable? clearly the latter. Almost a 100% profit margin as opposed to a 20% profit margin. The loan losses are much more severe in category 1.
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Re: Royal Bank (Symbol-RY)

Post by Shine »

If true, this suggests to me that RBC sees flat line or worse for US finacials, apart from RBC's managment of their US exposure.

Perhaps BNS with exposure in larger growth emerging markets would be a better investment.

However how would RBC deploy the cash from the sale of its' US assets?
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Re: Royal Bank (Symbol-RY)

Post by pitz »

zinfit wrote:Do banks do better in a high inflationary economy? In the late 70's and early 80's loan rates were as high as 22% . Borrowing was at 18%. This was 5 year money. Today banks can borrow money for 5 years at 3% and loan it out at 5.5%. From a banks standpoint which is more profitable? clearly the latter. Almost a 100% profit margin as opposed to a 20% profit margin. The loan losses are much more severe in category 1.
In the high inflation environment, the big problem is duration mismatch. The beauty of the Canadian banks is that a) they carry very little duration mismatch in their portfolios, b) the vast majority of their debts are senior and/or are insured, and c) they have the ability to, on a large chunk of their consumer/residential loans, arbitrarily change the interest rate in response to any liquidity concerns.

Of course the loaning at 5.5% and borrowing at 3% scenario is far more profitable, with a larger volume. Because the monetary base under such a scenario is inflated as well, overall volume is much greater. The risk, however, to someone buying (Canadian) banks today is that we are going to enter the high inflation/high interest rate scenario, which isn't all that favourable. Although it does enhance the 'base' ROI of the portfolio, they pick up quite a bit less spread.

Personally my belief that is that the largest risk to Canadian banks is political. CMHC could potentially be on the hook for almost a trillion dollars if/when the housing market collapses. Maybe more. I personally just can't see the taxpaying public tolerating, over the long term, such a massive transfer of wealth from the taxpayers to the banks, especially when 70% of the population is suffering massive losses in personal net worth; indeed, most Canadian households' net worth is in housing, and stocks are held by relatively few.
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Re: Royal Bank (Symbol-RY)

Post by Shakespeare »

RBC strikes deal to shed U.S. retail arm
PNC will be paying $3.62-billion (U.S.), which includes $165-million for credit card assets related to the bank, these people said.
1.44B shares; ~$2.51 US/share.
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Re: Royal Bank (Symbol-RY)

Post by mpav »

Good move. US banking is just too competitive...let them focus on the capital markets/wealth management side.

Will be interested to see if they take equity in PNC, they are a good well run bank, and would be wise to still have some skin in the US...just let Americans run the show.
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Re: Royal Bank (Symbol-RY)

Post by twa2w »

US banking is just too competitive...let them focus on the capital markets/wealth management side.
I think the cap markets/wealthmgnt side in the US is more competitive right now than branch banking is. But branch banking is a lot tougher to make money in.
I think RBC made a mistake in selling the US branch network. They were looking too hard at what they paid for it and the return they were getting on that price. They should have looked at the current value and said what is the upside from here. I think long term - 15 to 20 years the US branches would have paid off big time if they had changed the management and got the same leverage between the wealthmanagement arm and the branches that they do in canada. Alas Gord is only here for another year or so at most, so he has to look good before he bows out.
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J
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