Locke wrote:at that offering implies a yield of 9.33%. As juicy as that sounds, it's scary to me.
Though their dividend history is impressive, there's always a first for everything especially in this unprecendented market.
Something is up here. The cost of capital on this equity issue is way higher than the competition and based on their recently released numbers, not even really necessary...supposedly. I know that if I still owned it, I would be concerned. This seems desperate to me. Why would you raise equity at book value when you have very little in the way of goodwill and intangibles on the balance sheet?
National Post article wrote:The country's top financial watchdog "has advised Canadian banks" to expect new rules next year on the minimum level of capital they should hold to absorb unexpected blows, according to a person in the industry.
The interesting question may become, who is the last one to announce a sale and how much discount will be required to get it all sold?
Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
TDW gives this message when I put in a stink bid on BMO;
'Trading of this security has been halted on the exchange. Your order may not be executed if the halt remains in effect until the end of the trading session'
Is this something normal when there is a new issue? Or maybe an error?
I don't think so. $450M would have covered their regulatory needs to get them up to 10% Tier 1. They had that threshold more than covered with the preferred issue and the unsecured debenture. Something big is coming to require building the balance sheet to this extent at this cost.
"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
I question the same thing myself. Is there a market out there for continued absorption of these share offerings? TD and Scotia still have some selling to do before they hit the 'magic' 10% level.
Well the trend continues, there's no point in taking part of the share offering when the market pricing offers immediate delivery at a lower price point, my last quote is for $29.84.
I think Sunlife and BNS are next from what I'm hearing
I was surprised by BMO today, not only did the issue sell out fast, but the stock barely moved below the offer price, and close above it. RY is still not even back at its new issue price, hasn't been above it since the offering.
kcowan wrote:
The deeper question is do we think BMO should be expanding in the insurance business?
What's more interesting to me is the question of why BMO would purchase life insurance assets when from a regulatory perspective, banks aren't allowed to sell P&C. Is this foreshadowing a removal of the final cross-pillar barrier that would potentially allow the merger of money centered banks with life insurance companies? Manufacturers Imperial Bank of Life and Commerce?
"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
Is this foreshadowing a removal of the final cross-pillar barrier that would potentially allow the merger of money centered banks with life insurance companies?
I don't think Citigroup has been a model of success since the merger with Travelers.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Is this foreshadowing a removal of the final cross-pillar barrier that would potentially allow the merger of money centered banks with life insurance companies?
I don't think Citigroup has been a model of success since the merger with Travelers.
Agreed, but if banks are being restricted by newer more onerous regulatory capital requirements (either explicit or perceived), there needs to be a way for them to continue to grow. The deleveraging process is going to permanently reduce ROE on their existing capital base. Perhaps the cross-pillar merger is a more palatable way of addressing the competitiveness issue globally without opening the black box of bank mergers domestically. I really believe that this needs to be seriously investigated as it would appear that despite the plethora of plum financial assets available in the US at present, it seems as though Canadian institutions are being shut-out; perhaps intentionally.
"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
I'm not sure if this deal is material over the long term, their willingness to spend some cash makes me feel that the dividend is safe (or at least safer than I thought it may have been).
The losers in this market are the ones that are selling assets at low(er) prices to raise cash.
The better companies are the ones doing the buying.
It might be argued that the banks are also raising capital at reduced prices, but what the Canadian banks are up to and where they stand is miles above most US and UK banks. At least we haven't been nationalized.
kcowan wrote:
The deeper question is do we think BMO should be expanding in the insurance business?
What's more interesting to me is the question of why BMO would purchase life insurance assets when from a regulatory perspective, banks aren't allowed to sell P&C. Is this foreshadowing a removal of the final cross-pillar barrier that would potentially allow the merger of money centered banks with life insurance companies? Manufacturers Imperial Bank of Life and Commerce?
I have NO idea whether this is a good thing or a bad thing but let me say this..where are Canadian Banks looking for revenue over the next year? Insurance Insurance Insurance! The race has already started and the cross-pillar barrier's have SLOWLY been falling for a long time. What are the executives looking for ??? Insurance penetration!
banker wrote:where are Canadian Banks looking for revenue over the next year? Insurance Insurance Insurance!
i wonder why they would delve into insurance at this point in time; considering the biggest asset of insurance companies is bonds, this could be disastrous in a hyperinflation environment
"They misunderestimated me." --George W. Bush, November 6, 2000
banker wrote:where are Canadian Banks looking for revenue over the next year? Insurance Insurance Insurance!
i wonder why they would delve into insurance at this point in time; considering the biggest asset of insurance companies is bonds, this could be disastrous in a hyperinflation environment
Not necessarily. Hyperinflation also diminishes the value of their insurance liabilities.
sweedy wrote:Hyperinflation also diminishes the value of their insurance liabilities.
Possibly. Wouldn't they initially decrease in real value but when they get re-set they'll reflect the higher inflation rate? (That could be why buying US real estate with bank borrowings can be dangerous)
"They misunderestimated me." --George W. Bush, November 6, 2000
I jumped in and bought a 6 figure sum of bank stock in February only to see it drop by 10%. BMO was my last purchase at $26 ... so now I understand what market sentiment means from "sh.t" to "I should have bought more!!!"
"We have two classes of forecaster: Those who don’t know and those who don’t know they don’t know.” John Kenneth Galbraith