I got scared when the gov't bought up mortgages from banks that "didn't need any help".kcowan wrote:And how safe are their jobs in retail, manufacturing, banking???bubbalouie wrote: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.
Canadian Banks
- bubbalouie
- Veteran Contributor
- Posts: 1431
- Joined: 04 Dec 2005 23:07
- Location: City of Chumps
Yes, quite right. For my part, I got scared when the banks wouldn't pass on the prime rate reductions to consumers. That was also a red flag imo.lystgl wrote:I got scared when the gov't bought up mortgages from banks that "didn't need any help".
"They misunderestimated me." --George W. Bush, November 6, 2000
Shakes, dont want to put you on the spot...but do you still believe this to be true?Shakespeare wrote:The Big 5 are still amongst the best companies in Canada to invest in for the long term, although they aren't particularly cheap right now. You can either hold them or trade them (or some combination of both). For trading, a reasonable guide in recent years has been to buy when the yield is above 4% and sell when it is below 3%. At present, I am holding, neither adding to positions nor reducing them - although I am tempted to slightly reduce my RY position to add cash to my condo fund; RY is currently my largest stock holding and is 3.6% of my portfolio.
I see the yields on these Canadian Banks now and WOW!!!! I feel like biting. After what we have been through are you still just as confident. I for one am picking up some some high yields and want to know if you have changed your position.
For the record, I have changed my opnion on many things through this downturn...am wondering what you think.
Thx.
Its true..and its continued to be said. But I dont know that I believe it. Remeber NINJA loans in the US (No Income, No Job, Applications). Wellbubbalouie wrote:broke wrote: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.
we have them and continue to honour them in Canada...that cant be good!
Lending on home equity up to 65% of value on REPORTED income with not verification need for those who claim self-employment. Thats one market that I continue to be fearful of. I dread seeing it make the front page one day.
- Shakespeare
- Veteran Contributor
- Posts: 23396
- Joined: 15 Feb 2005 23:25
- Location: Calgary, AB
- bubbalouie
- Veteran Contributor
- Posts: 1431
- Joined: 04 Dec 2005 23:07
- Location: City of Chumps
Just curious Shakes, does the $38 billion of derivatives on TD's shareholder equity of $31 billion concern you at all or is it clear sailing?shakes wrote:The TD reaction was IMO totally overdone - this is a fine company
Is it because of the dividend?shakes wrote:I'm still holding my Canadian banks.
Sorry, I'm not trying to be a jerk. I'm just interested in hearing your reasons.
"They misunderestimated me." --George W. Bush, November 6, 2000
++ Shakes, I think so too...Shakespeare wrote:I'm still holding my Canadian banks. The TD reaction was IMO totally overdone - this is a fine company that is still very profitable.
HOWEVER, I think equity lending policies under ALL 5 BANKS are absolutely CRAZY! ....and if they continue lending on equity versus income Canada will be in trouble...
You could call me crazy but I can easily point you to a thread where I called deflation and depression era simularities well over a year ago and driven away.
Im not saying I am smarter then anyone by any means...I think many could benefit by reading www.generationaldynamics.com (i have no interest in this website).... but it has some super interesting theories!
Shakes, what generation are you from? Id love to hear more! Your a smart guy, I can tell that!
Bubba......your question about derivatives to be booked is THE elephant in the room on this entire forum. We are all talking about stocks, what to buy, what to sell, etc, but we really don't know how this is going to play out, nor what it means. Until that issue is dealt with, no one really has a clue. If your figure for TD is correct, then how will this be dealt with, what are some possible scenarios for TD going forward? You raise a very serious issue.
- Shakespeare
- Veteran Contributor
- Posts: 23396
- Joined: 15 Feb 2005 23:25
- Location: Calgary, AB
- bubbalouie
- Veteran Contributor
- Posts: 1431
- Joined: 04 Dec 2005 23:07
- Location: City of Chumps
I don't have the answers either about how this will play out and I'm not even sure that the derivative issue has to be dealt with. But for me it's a huge issue. All I know is that with all these risky instruments on the balance sheet, there's no reason to own these stocks. Nobody has a gun to anyone's head saying you have to buy bank stocks.2yen wrote:We are all talking about stocks, what to buy, what to sell, etc, but we really don't know how this is going to play out, nor what it means. Until that issue is dealt with, no one really has a clue.
Complacency has brainwashed people into thinking these are good investments imo. We've gone on many years now with banks stocks doing very well. Not many people understand the derivative portion on these balance sheets, even some CEOs don't understand them (I can't remember which CEO on BNN said this in the last month--he said he relies on his chief risk officer).
If they don't understand them, what's the chance that you or I will?
"They misunderestimated me." --George W. Bush, November 6, 2000
So in terms of liquidity, yield, low volatility (until now) and profitability, which canadian company would you prefer be the basis of a complacent canadian's portfolio?bubbalouie wrote:I don't have the answers either about how this will play out and I'm not even sure that the derivative issue has to be dealt with. But for me it's a huge issue. All I know is that with all these risky instruments on the balance sheet, there's no reason to own these stocks. Nobody has a gun to anyone's head saying you have to buy bank stocks.2yen wrote:We are all talking about stocks, what to buy, what to sell, etc, but we really don't know how this is going to play out, nor what it means. Until that issue is dealt with, no one really has a clue.
Complacency has brainwashed people into thinking these are good investments imo. We've gone on many years now with banks stocks doing very well. Not many people understand the derivative portion on these balance sheets, even some CEOs don't understand them (I can't remember which CEO on BNN said this in the last month--he said he relies on his chief risk officer).
If they don't understand them, what's the chance that you or I will?
These companies operate in the same way as companies with physical assets. Oil companies have to pay for rigs and other immense equipment costs, sometimes beyond their means, but these companies have to delve into those costs to reap the rewards of their assets - and profit. In the same way, banks must invest heavily in risky instruments to profit. Right now many companies are facing financing issues with regards to over-extending themselves during the recent expansion of our economy and banks are no different.
Dont you think derivatives are an important risk for a bank to undertake to increase profitibilty? Granted, it has been a rough road with all of the brainwashed people causing quite a stir in their bread and butter, but moving forward, banks will become involved with these instuments again. As they should.
They are not taking our money for safe keeping. How else do you propose these companies make a profit AND pay you interest? Derivatives, mortgages - these are the risks that these companies have to take to post a profit.
And for the most part, they do it well. We are fortunate in Canada that these banks have been prudent enough to warrant investor confidence even in these tumultuos times (see above). I have no problem investing the the companies that are the cornerstone of the canadian economy.
Just wish I had the money...
But what you lack in confidence regarding the market can be made up for in confidence regarding yourself as an investor.
Just curious bubba - are you anticipating the full portfolio of derivatives as worthless? While they've received a lot of bad press, derivatives do serve a purpose and can be hedged on very high quality assets. In a worst-case scenerio equity could be wiped completely out by losses in that portfolio, but that gives almost zero credit to management for adequately hedging risks, no?bubbalouie wrote:Just curious Shakes, does the $38 billion of derivatives on TD's shareholder equity of $31 billion concern you at all or is it clear sailing?
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals
- bubbalouie
- Veteran Contributor
- Posts: 1431
- Joined: 04 Dec 2005 23:07
- Location: City of Chumps
Apparently I've touched a nerve with some of my comments. I realize that Canadian banks have been the cornerstone of Canadian society historically and that without the Cdn banks, Canada wouldn't be where it is today.
On a positive note, I think this financial crisis has the potential to transform these banks into boring, little-growth enterprises that could continue to pay high yield as long as they have the cash flow. When all of this is done, CM will never be the same. Neither will RY or BNS, or TD (which probably has the lowest level of derivatives on its book).The problem is that investors will continue to get the yield but until banks start to grow again (which is very unlikely in the next few years), there will not be much stock appreciation.
Unless the banks merge (which is very unlikely considering how irresponsible they've been), this will be a terrible sector to invest in, given the dim growth prospects in the future.
I'm a little surprised at your question because it is possible to build an entire portfolio without the banks; I've done it for years. Assuming the average investor needs only 20-30 stocks in his portfolio, I think it's quite easy in Canada to find non-bank stocks with most of the metrics you require and balance sheets one understands. There's dozens of these companies out there.wallpaper wrote:So in terms of liquidity, yield, low volatility (until now) and profitability, which canadian company would you prefer be the basis of a complacent canadian's portfolio?
Possibly, as long as they're transparent, which they currently are not. On the other hand, is it wrong for banks to be stodgy boring investments with high yield and little growth? Isn't that what many investors want? The only reason banks are into derivatives was to grow. That's the only reason why you saw bank stocks appreciate in price.Dont you think derivatives are an important risk for a bank to undertake to increase profitibilty?
On a positive note, I think this financial crisis has the potential to transform these banks into boring, little-growth enterprises that could continue to pay high yield as long as they have the cash flow. When all of this is done, CM will never be the same. Neither will RY or BNS, or TD (which probably has the lowest level of derivatives on its book).The problem is that investors will continue to get the yield but until banks start to grow again (which is very unlikely in the next few years), there will not be much stock appreciation.
Unless the banks merge (which is very unlikely considering how irresponsible they've been), this will be a terrible sector to invest in, given the dim growth prospects in the future.
I think that is the ultimate question. 7 years ago, the trend was to write off all the ridiculous goodwill on companies balance sheets, now the derivatives are being written off. I'm sure, they will still be worth a lot but I'm only assuming, which is a lousy way to invest.brad911 wrote:are you anticipating the full portfolio of derivatives as worthless?
"They misunderestimated me." --George W. Bush, November 6, 2000
No nerve bubba! I dont mean to jump on your post, but it was just an opportunity for me to express how I feel about part of this financial crisis.
I really respect your opinion on this, and other topics on this forum. I am a very avid reader of your posts because you always seem to have a knowledgeable opinion on all topics.
I agree with you that it may be a bad idea to blindly invest in these stocks at the moment, because youre right. In the next few years, they will be recovering from this crisis, whether it be on their own books or as an effect of the canadian economy as a whole. So technically, we should see very little growth in the value of the stock since these bad investments will be permanently etched into the worth of these companies.
However, I also believe that these stocks have suffered somewhat irrational losses, and will recover in the near term with somewhat irrational gains. From this point on, any good news will be great news, and as we work our way out of this mess (whenever that happens), we could see some of the downside recover substantially. Mostly due to the brainwashed heading back to the shiny banks .
I appreciate your opinion on this subject, because for the most part, I believe it to be an accurate assessment of these companies. But for the long term, I do see them as coming out of this stronger than they were before. Long term...
I really respect your opinion on this, and other topics on this forum. I am a very avid reader of your posts because you always seem to have a knowledgeable opinion on all topics.
I agree with you that it may be a bad idea to blindly invest in these stocks at the moment, because youre right. In the next few years, they will be recovering from this crisis, whether it be on their own books or as an effect of the canadian economy as a whole. So technically, we should see very little growth in the value of the stock since these bad investments will be permanently etched into the worth of these companies.
However, I also believe that these stocks have suffered somewhat irrational losses, and will recover in the near term with somewhat irrational gains. From this point on, any good news will be great news, and as we work our way out of this mess (whenever that happens), we could see some of the downside recover substantially. Mostly due to the brainwashed heading back to the shiny banks .
I appreciate your opinion on this subject, because for the most part, I believe it to be an accurate assessment of these companies. But for the long term, I do see them as coming out of this stronger than they were before. Long term...
But what you lack in confidence regarding the market can be made up for in confidence regarding yourself as an investor.
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:wallpaper wrote:So in terms of liquidity, yield, low volatility (until now) and profitability, which canadian company would you prefer be the basis of a complacent canadian's portfolio?bubbalouie wrote:I don't have the answers either about how this will play out and I'm not even sure that the derivative issue has to be dealt with. But for me it's a huge issue. All I know is that with all these risky instruments on the balance sheet, there's no reason to own these stocks. Nobody has a gun to anyone's head saying you have to buy bank stocks.2yen wrote:We are all talking about stocks, what to buy, what to sell, etc, but we really don't know how this is going to play out, nor what it means. Until that issue is dealt with, no one really has a clue.
Complacency has brainwashed people into thinking these are good investments imo. We've gone on many years now with banks stocks doing very well. Not many people understand the derivative portion on these balance sheets, even some CEOs don't understand them (I can't remember which CEO on BNN said this in the last month--he said he relies on his chief risk officer).
If they don't understand them, what's the chance that you or I will?
These companies operate in the same way as companies with physical assets. Oil companies have to pay for rigs and other immense equipment costs, sometimes beyond their means, but these companies have to delve into those costs to reap the rewards of their assets - and profit. In the same way, banks must invest heavily in risky instruments to profit. Right now many companies are facing financing issues with regards to over-extending themselves during the recent expansion of our economy and banks are no different...
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?
For the fun of it...Keith
Does anyone remember the Dome Petroliun fiasco? Prior to that, banks were all levered at 25:1. Banks had to keep lending to Dome so Dome could pay the bank interest. To do otherwise would have required the banks to make provisions for losses that would have wiped out the total worth of the banks.
New BIS rules required the banks to stay within a 12:1 leverage. That meant they had to get a greater return on their investments to retain the same ROC. Or, they had to find new ways to produce revenue without using their capital. And that they did.
I used to shudder at the bank's use of "banker's acceptance". They put a lender together with a borrower and guaranteed the loan, charging a fee of, perhaps, 30 basis points. It looked to me like a hell of a risk for a small return but the key was, it was income without affecting the bank's balance sheet or leverage position. Well, it worked so well that the banks invented all sorts of other fiddles that kept their balance sheets within the rules but exposed them to huge risk to the point that no one could evaluate the worth of any of the banks.
Remember how Hunkin exposed CM to Enron? When McCaugey took over at CM he paid out nearly $3 billion to settle Enron and then he removed half the capital that Investment Banking had been given, thinking that would slow them down from doing shady deals like Enron. It didn't work. They simply found ways to create twice the risk with half the capital.
Does anyone know how to evaluate a Canadian Bank? I doubt it.
As to dividends, I think the dividend at BMO, CM and NA are at great risk. BMO and NA are currently paying 78% of earnings as dividends and CM is (who knows what) all yielding something like 7% to 8.5%. That's not sustainable and a 50% reduction in dividend for those 3 would probablly be in order.
New BIS rules required the banks to stay within a 12:1 leverage. That meant they had to get a greater return on their investments to retain the same ROC. Or, they had to find new ways to produce revenue without using their capital. And that they did.
I used to shudder at the bank's use of "banker's acceptance". They put a lender together with a borrower and guaranteed the loan, charging a fee of, perhaps, 30 basis points. It looked to me like a hell of a risk for a small return but the key was, it was income without affecting the bank's balance sheet or leverage position. Well, it worked so well that the banks invented all sorts of other fiddles that kept their balance sheets within the rules but exposed them to huge risk to the point that no one could evaluate the worth of any of the banks.
Remember how Hunkin exposed CM to Enron? When McCaugey took over at CM he paid out nearly $3 billion to settle Enron and then he removed half the capital that Investment Banking had been given, thinking that would slow them down from doing shady deals like Enron. It didn't work. They simply found ways to create twice the risk with half the capital.
Does anyone know how to evaluate a Canadian Bank? I doubt it.
As to dividends, I think the dividend at BMO, CM and NA are at great risk. BMO and NA are currently paying 78% of earnings as dividends and CM is (who knows what) all yielding something like 7% to 8.5%. That's not sustainable and a 50% reduction in dividend for those 3 would probablly be in order.
- bubbalouie
- Veteran Contributor
- Posts: 1431
- Joined: 04 Dec 2005 23:07
- Location: City of Chumps
Thanks wp. The potential that these derivative losses will be reversed has always been a possibility in my mind too. The banks probably believe this too since they won't do the dirty work of writing off everything that needs to be taken down.wallpaper wrote:However, I also believe that these stocks have suffered somewhat irrational losses, and will recover in the near term with somewhat irrational gains.
I hope you realize how irresponsible you are to make these kinds of comments, something that mainstream media hasn't even touched on.kcowan wrote: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, ...
Excellent thinking kc.
No I don't. Thank you so much for the enlightenment donut. Very interesting.donut wrote:Does anyone remember the Dome Petroliun fiasco?
BTW I couldn't remember which CEO it was on BNN being interviewed by Howard Green who admitted he didn't know everything on the balance sheet and that he relied on his chief risk officer. I seem to remember now it was McCaughey. I doubt he's alone. If I'm mistaken, please let me know.
"They misunderestimated me." --George W. Bush, November 6, 2000
- Shakespeare
- Veteran Contributor
- Posts: 23396
- Joined: 15 Feb 2005 23:25
- Location: Calgary, AB
Yes. One of the banks (CM?) may have been technically insolvent but was allowed to write down losses over an extended period so that the cash flow would maintain solvency.Does anyone remember the Dome Petroliun fiasco?
The retail lending business is highly profitable (although not as much as successful commercial banking) and can carry large losses on other operations as long as the write downs are spread out.
Earnings are currently depressed. If the banks focus on retail banking a ~50% payout ratio is quite sustainable.That's not sustainable
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
looks like royal is also using the same accounting techniques....great
http://www.reportonbusiness.com/servlet ... iness/homeLike its rival Toronto-Dominion Bank, RBC will make use of new accounting rules to prevent some mark-to-market losses from showing up on its bottom line.
Banks exposure to Teck in Fording takeover
Banks exposure to Teck in Fording takeover
http://www.globefund.com/servlet/story/ ... 3/GFStory/In a sign of just how seriously the Street is taking the Teck situation, bank analyst Ian de Verteuil at BMO Nesbitt Burns published a report yesterday that detailed each bank's exposure to the mining company. Royal Bank of Canada, CIBC and Bank of Montreal made the largest loans to finance the Fording purchase, with each advancing $959-million. Bank of Nova Scotia and Toronto-Dominion Bank anted up $401-million, while National Bank contributed $75-million.
For the fun of it...Keith
2 yen:2 yen wrote:Well, Taggart, it's clearly time to sell TD.
I haven't been buying anything in the financial sector for quite a while. I have wayyy too much in that sector already. I haven't been selling any of the financials either.
Last edited by Taggart on 24 Nov 2008 17:55, edited 1 time in total.
-
- Contributor
- Posts: 552
- Joined: 14 Jan 2007 15:20
Does anyone get the sense of collusion amongst the big 5 in the past few days? The warnings from the most stable banks, TD and RY come just prior to BMO's official earnings announcement tomorrow. Could it be that BMO's executive called the other banks' executives last week to let them know that they have a bomb to drop? At that time (last week), market forecasters and even a few bulls on this forum were predicting increased profits and even the possibility of dividend hikes. A surprise on the downside in combination with all the other market fear could be very damaging to the big 5. I am certainly no market forecaster, but is it possible these warnings are meant to mitigate a damaging tailspin for the big 5 by a BMO surprise loss and dividend cut?
Here is to hoping that this is not the case.
Here is to hoping that this is not the case.
The big five CEOs are friends on a first name basis and truly believe in "all for one and one for all"! This is one of the key benefits of an oligopoly.couponstrip wrote:is it possible these warnings are meant to mitigate a damaging tailspin for the big 5 by a BMO surprise loss and dividend cut?
Here is to hoping that this is not the case.
However, this does not prove that you are not paranoid!
(BTW the ChBs of CIBC and TD were peer managers of a company I worked for. I know them well. It is indeed a small club. I call them Bill and John.)
For the fun of it...Keith