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Monday, March 9, 2009

Eventually, Canadian Banks Will Come Out On Top

"Canada's three largest banks posted healthy profits last fiscal quarter while many of their U.S. counterparts struggled to survive. The key has been their limited exposure to toxic assets and conservative mortgage lending. The banks could yet weather the recession with a chance of staying profitable." -WSJ, O Canada: Banks Look Healthier

Brush up on your Canadian banks, because when the bottom finally is in they will come roaring south with a vengeance to fill the void left by the eventual death of Citigroup (C) and so many (17 so far for 2009) other US banks... and they will make FISTFULS of money.

TD Bank (TD), arguably the most adventurous of the Canadian banks has already commenced acquiring SOLID us banks and financial firms.

This is not an immediate endorsement of Canadian banks. To be sure they will feel pain. However, unlike their US and European counterparts, they will not only survive but prosper.

"Canada’s banks are a different beast. While the U.S. banking system is made up of thousands of banks serving certain communities, states, or regions, Canada’s banking system is made up five large chartered banks with branches in every province. In decreasing order of size by market capitalization, these are the Royal Bank (RY), TD Bank (TD), Bank of Nova Scotia (BNS), CIBC (CM), and Bank of Montreal." -Seeking Alpha, Why Canada's Big 5 Bakns Won't Go Bankrupt

The Canadian banks trade both on the TSX and the NYSE. The easiest vehicle to trade of course is the iShares CDN Financial Sector Index Fund (XFN). The index includes the five chartered banks and of course a large number of insurance and 'near bank' financial firms. There are a total of 26 holdings in the index.

The question then is when do you get long for the LONG TERM?

1) Wait for a clear break of the down trend before building a position for the long term. Patience. This bottoming process will take YEARS.

2) There will be many trend breaks on the backs of vicious short covering rallies. WAIT for the pullpack. WAIT for a higher lower. Only then can you trust that the trend has turned and BEGIN to ease into a position.

3) The consolidation along the bottom will be a long one. It will consist of a large, volatile trading range and it will last YEARS.

4) The bottom will be accompanied by several major catalysts. While it is difficult to define exactly what these will look like, you will know them when they occur. Of that, you can be certain. For example, the eventual nationalization of Citigroup (C) would be just one such catalyst. The complete destruction and dismantling of AIG would be another.

So watch and wait. Patience.


Anonymous said...

Agreed. I hope the Cdn banks also deploy patience and prudence as to their Stateside acquisitions.
I have yet to hear that one of the big five have cut their dividend: this too counts for some of us.

Anonymous said...

It's also becoming clear how the Republicans were far from being "conservative": their policies were/are dangerously radical innovations, across the entire board, from foreign policies to financial (de)regulation: they sure did change a lot of laws rules regs and customs, for "conservatives", eh?
The deceptive bastards....just like the Soviet elites, IMO.

corporatebully said...

RBC Bank President Gordon Nixon - Salary $11.73 Million


I'm a commercial fisherman fighting the Royal Bank of Canada (RBC Bank) over a $100,000 loan mistake. I lost my home, fishing vessel and equipment. Help me fight this corporate bully by closing your RBC Bank account.

There was no monthly interest payment date or amount of interest payable per month on my loan agreement. Date of first installment payment (Principal + interest) is approximately 1 year from the signing of my contract.
Demand loan agreements signed by other fishermen around the same time disclosed monthly interest payment dates and interest amounts payable per month.The lending policy for fishermen did change at RBC from one payment (principal + interest) per year for fishing loans to principal paid yearly with interest paid monthly. This lending practice was in place when I approached RBC.
Only problem is the loans officer was a replacement who wasn't familiar with these type of loans. She never informed me verbally or in writing about this new criteria.

Phone or e-mail:
RBC President, Gordon Nixon, Toronto (416)974-6415
RBC Vice President, Sales, Anne Lockie, Toronto (416)974-6821
RBC President, Atlantic Provinces, Greg Grice (902)421-8112 mail
RBC Manager, Cape Breton/Eastern Nova Scotia, Jerry Rankin (902)567-8600
RBC Vice President, Atlantic Provinces, Brian Conway (902)491-4302 mail
RBC Vice President, Halifax Region, Tammy Holland (902)421-8112 mail
RBC Senior Manager, Media & Public Relations, Beja Rodeck (416)974-5506 mail
RBC Ombudsman, Wendy Knight, Toronto, Ontario 1-800-769-2542 mail
Ombudsman for Banking Services & Investments, JoAnne Olafson, Toronto, 1-888-451-4519 mail

"Fighting the Royal Bank of Canada (RBC Bank) one customer at a time"

ynot said...

The Canadian banks are on the verge of a massive real estate disaster in Canada, and it is only the hope of the projected US rebound sometime this year that is helping them survive. If RE in Canada turns (and the possiblity is there indeed), Canada and its dollar will be dragged further down.

If you invest in Canadian banks and are an American, consider the dual risk of the collapse of Canadian bank stocks and the real risks in the Canadian dollar; remember if $CDN sinks, it will kill any modest Canadian bank investment gains.

That said, *if* the US can mount a convincing turnaround, and you believe oil is forming a sustained bottom here (which will bolster $CDN), there is a chance that this highly speculative strategy could pay off. However, remember, Canadian bank conservatism that has tempered losses (and the stock losses are huge right now, hello!), will tend to temper their recovery. Don't expect the profitability of TD to turn into the heyday at Lehman.

Disclosure: I am long on Canadian Banks, but underwater too.

Anonymous said...

A warning on Cdn banks from Bloomberg:
To the extant that they are dependent on high-interest charge cards for their profits, they are as vulnerable as anybody else to the condition of Mr. Average Joe Debtor's pocketbook.

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