Canadian Banks Are on the Roll Again.

[SirJosephPorter]

In the developed world, Canadian banks are almost unique. Highly efficient, well managed, very stable, solid, conservative in outlook, they are the envy of the world. Their strength became particularly apparent in the recent Bush inspired meltdown. While many American banks imploded (81 of them failed), Canadian banks kept chugging along, making profits, if somewhat down from before.

Well, the party is starting all over again; Canadians banks are making higher and higher profits once again. The five big banks have reported their quarterly earnings and Canadians banks (combined) earned 500 million dollars more compared to 12 months ago, 4.4 billion $ as opposed to 3.9 billion $ a year ago.

"I don't know that their reputation needed any more help than it's already gotten over the past two years, given how the Canadian banks have performed relative to banking systems around the world," said Craig Fehr, bank analyst at Edward Jones in St. Louis.

With the exception of Canadian Imperial Bank of Commerce (TSX:CM), all the major banks roundly beat analyst expectations for the quarter ended July 31.

With CIBC, profits were higher than 12 months ago, but earnings fell slightly short of the analysts’ expectations.

All of the banks have been working hard since the credit crisis began to divest their exposure to riskier assets such as the structured products that helped cause the financial crisis.

BMO's adjusted earnings per share beat analyst expectations by 11 per cent, while TD topped expectations by 20 per cent, Royal beat expectations by 33 per cent and Scotiabank exceeded predictions by four per cent. CIBC was the only major bank to disappoint investors, missing expectations by two per cent.

Bank shares have recovered nicely in the past few months. However, some of them are still paying handsome dividends.

BMO – 5.5%, CIBC – 5.25%. I remember buying BMO and CIBC last year when they were paying around 10% dividend.

Canadian banks have lived up to their reputation of solid, reliable, blue chip long term investments.

CANOE Money: Sectors - Big banks earn $500M more than a year earlier

 

[ironsides]

Just following the American lead SJP, our biggest banks have been making a profit for a few months now. Makes one wonder about the stimulus they got from the taxpayers, They have now raised credit card rates to get more money from those who can least afford it. Never think your banks are any less greedy than ours. "Canadian banks have lived up to their reputation of solid, reliable, blue chip long term investments." You forgot Greed.

 

[SirJosephPorter]

Ironsides, efficient, well managed banks are necessary for a well run economy, as you people found out to your cost in the recent meltdown. One of the reasons Canada was affected a lot less than USA in the meltdown (almost a unique occurrence, usually when USA catches cold, Canada catches pneumonia) was that Canadian banks were solvent, stayed afloat and made profits. Canadian banks did not need any bailout during the meltdown, nobody in Canada was even talking of a bailout.

As for greed, banks are not in the business of charity, they are there to make money, just like any other business. So sure they are greedy, which business isn’t? As to credit card rates, the solution is simple, don’t run up a balance, pay your bills on time.

 

[ironsides]

These people did not get enough in stimulus money (Avg. $600 per person) to pay off their credit like the banks did. I am referring to those who lived using credit all the time, making minimum payments. Yes it was wrong but they did it and now are stuck and losing their homes etc. just like those who claim medical bills are driving them out. They have to remember that the public bailed them out. Unfortunately it is to late for the solution you mentioned. Now I'm sounding like the liberal and your the mean banker,

 

[SirJosephPorter]

Now I'm sounding like the liberal and your the mean banker,

Indeed ironsides. When it comes to health care, I am a liberal, I think that every citizen is entitled to health care, at a price if possible, free if not. But in most other things I pretty much support personal responsibility.

If people were living on borrowed money whose fault is that? Sure they were emulating their Republican leaders, all the Republican presidents since Reagan have been living lavishly on borrowed money. So you could say that they were following their leader, but that is not an excuse. Ultimately everybody is responsible for their own finances. If somebody has racked up huge debt it is his fault and nobody else’s (unless it is as a result of unexpected medical expenses).

Banks are in business to make money and I for one wouldn’t blame them if they raise credit card rates. We never run a balance on our credit cards anyway, so it doesn’t affect me. But if as a result of raising credit card rates banks (at least Canadian banks) make profit, I am all for it, since I am heavily invested in banks.

 

[lone wolf]

So ... as long as Joey prospers, who cares who does without? That is rabid rightspeak....

 

[Toro]

The biggest reason why the Canadian banks remained solvent is because regulations are more strict in Canada. The Canadian banks were not able to lever up their balance sheets like the US and European banks. They may not have anyways, at least to the point of destruction, but Canadian banking regulations were simply more stringent than in America.

However, I'd be a little cautious about taking too many victory laps. Canada was an enormous beneficiary of the global liquidity bubble of the past decade, and the full effects of the popping of that bubble never hit Canada. It will likely imbue the population with an inflated sense of confidence that is likely to whack the country when the next bubble pops in 2012 or 2013. And it will be a doozey as the governments are re-creating the same conditions for another enormous dislocation down the road.

In the mean-time, enjoy coining money. Just don't be the last guy at the table when it ends, as it invariably will.

 

[SirJosephPorter]

Toro, Canadian banks are based upon the old fashioned model, in that they earn most of their money from the service charges to the customers, interest on loans they make to clients etc. That is why they managed to stay on their feet during the recent meltdown.

Banks are part of Canadian society, so if we get a super meltdown, the one even worse than what we already had (as you claim) then of course banks will be affected. Banks do not exist in vacuum, they cannot make profit no matter what.

However, they are well managed, efficient companies and as such are a solid, reliable pillar of Canadian economy.

 

[TenPenny]

Toro, Canadian banks are based upon the old fashioned model, in that they earn most of their money from the service charges to the customers, interest on loans they make to clients etc. That is why they managed to stay on their feet during the recent meltdown.

Banks are part of Canadian society, so if we get a super meltdown, the one even worse than what we already had (as you claim) then of course banks will be affected. Banks do not exist in vacuum, they cannot make profit no matter what.

However, they are well managed, efficient companies and as such are a solid, reliable pillar of Canadian economy.

Piffle. First rate, but piffle.

The only reasons Canadian banks do so well are: there are only a few of them, and they are 'hampered' in their desire to act like US banks by some Canadian laws, which, of course, they keep trying to change.

 

[SirJosephPorter]

The only reasons Canadian banks do so well are: there are only a few of them

What has that got to do with anything, TenPenny? Because there are only a few of them, they must be financially sound? What kind of crazy logic is that? There are only four banks in England, but by no means are they financially sound, they all needed huge bailouts by the British government.

and they are 'hampered' in their desire to act like US banks by some Canadian laws,

Regulation helps, of course. But regulation would not have kept Canadian banks out of sub prime mortgages, that was the decision of the banks. All of them did dabble a bit into sub prime mortgages (which shows that they were not forbidden to engage in sub prime loans), but only a bit. That was the decision of banks alone, nothing to do with regulations.

Canadian banks stayed out of sub prime mortgages because they are conservative in outlook. Canadian banks deserve full credit for staying away from sub prime fiasco (British, Irish banks were fully engaged in sub prime loans).

 

[TenPenny]

All of them did dabble a bit into sub prime mortgages (which shows that they were not forbidden to engage in sub prime loans), but only a bit.

You don't keep up on things, do you?

 

[Toro]

Toro, Canadian banks are based upon the old fashioned model, in that they earn most of their money from the service charges to the customers, interest on loans they make to clients etc. That is why they managed to stay on their feet during the recent meltdown.

The FDIC has identified 400 problem banks. In the end, they will probably identify many more.

Most of those banks are old-fashioned banks which did nothing else except take in deposits and make loans.

As Keynes said, a banker is most likely to fail conventionally.

BTW, there are 8,000 banks in the US. There are more banks domiciled in my county than tier 1 chartered banks in all of Canada. So it is no surprise there are failures.

Regulation helps, of course. But regulation would not have kept Canadian banks out of sub prime mortgages, that was the decision of the banks.

Most banks that wrote subprime mortgages in the US have not nor will they fail. The ones that failed either wrote too many subprime mortgages or did not have enough equity. Subprime mortgages were, in fact, a small part of the mortgage market, and make up a minority of total defaults.

 

[SirJosephPorter]

You don't keep up on things, do you?

Sure I keep up on things, why shouldn't I?

 

[SirJosephPorter]

Most of those banks are old-fashioned banks which did nothing else except take in deposits and make loans.

As Keynes said, a banker is most likely to fail conventionally.

That may be Toro, but most of the big financial institutions which were in trouble (Lehman Brothers, AIG, City bank etc.) were so because of sub prime mortgages. Lehman brothers went belly up and many of the big banks would have gone the same way, had the government not bailed them out. The prime source of their trouble was the bad loans they made, most of the bad loans were sub prime loans.

Canadian banks mostly stayed away from sub prime mortgages, that was the secret of their success.

Smaller banks can fail for a variety of reasons, but the bigger banks were in trouble because of sub prime lending.

BTW, there are 8,000 banks in the US. There are more banks domiciled in my county than tier 1 chartered banks in all of Canada.

That is true; there are many small banks in USA. When I lived in Salt Lake City, I had an account in Bank of Salt Lake; I assume it was confined to Salt Lake City. It doesn’t exist any more, just before I left, it merged with Commercial Security Bank.

So it is no surprise there are failures.

There were many more failures during the sub prime meltdown than there are in usual times.

 

[Toro]

Canadians are generally more risk averse than Americans, so it is no surprise our banks are as well.

 

[TenPenny]

Sure I keep up on things, why shouldn't I?

You don't seem to know just how much exposure Canadian banks have to subprime mortgages, so I was just wondering.

 

[CDNBear]

There is absolutely nothing funnier then watching a customer service rep, argue finance with a certified accountant.

Priceless.

 

[mit]

Our banks also have the luxury of being able to remove the risk of mortgage defaults through government sponsored CHMC - They also have the EDC to insure risks on exports - (government insuarance) - There is the BDC that loans money to riskier start up business through the banks - again insured by the government.

You probably would have to be pretty stupid not to be profitable as a bank in Canada.

 

[CDNBear]

Our banks also have the luxury of being able to remove the risk of mortgage defaults through government sponsored CHMC - They also have the EDC to insure risks on exports - (government insuarance) - There is the BDC that loans money to riskier start up business through the banks - again insured by the government.

You probably would have to be pretty stupid not to be profitable as a bank in Canada.

You said a mouthful there mit.

It also makes a huge difference, when our laws dictate how much, beyond a banks holdings it can lend. This is further strengthened by the fact that this is not a fixed amount, across the board number, but is based on how the bank performs.

 

[SirJosephPorter]

You don't seem to know just how much exposure Canadian banks have to subprime mortgages, so I was just wondering.

Sure I do, they had minimal exposure to sub prime loans. There was no sub prime lending in Canada. Indeed, there was very little sub prime lending outside USA, it seems to be uniquely an American product.

However, American financial institutions bundled up the sub prime loans and sold it internationally as AAA securities. Canadian banks had the wisdom not to buy the sub prime loans, British, Irish etc. banks bought them heavily. That is why British and Irish (or Icelandic) banks were in trouble.

But Canadian banks had minimal exposure to sub prime lending. As I recall, CIBC had the most, TD bank the least. But none of them were involved in any significant way. They did suffer some losses due to sub prime mortgages, but not sufficient to affect their bottom line seriously.