Canada's big banks have been headed in the right direction for
decades on end.
In early November, I published this
on the very successful One Stock Portfolio. The portfolio, or
stock, returned some 2,274% from 1996 to present. That's above a
20% annual return. Many, many "investors" have participated in this
one-stock approach, and have certainly enjoyed turning $10,000 into
$227k in just 17 years.
The Portfolio is Royal Bank of Canada (eh), and while it was an
article that started with the example of many Royal Bank employees
who simply held on to their company stock and options - it was more
of a story on Canadian banks. And of course, the Canadian banking
sector is dominated by the big five of The Royal Bank of Canada (
), Scotiabank (
), Toronto-Dominion Bank (
), Canadian Imperial Bank of Commerce (
), BMO Financial Group (
Canadian banks are in a very unique position. That was
demonstrated recently through the financial crisis when the Canuck
banks came out of the recession stronger than any banking group on
the planet. And again, you can read the "why" and how in the
article link above.
And while many think that the Canadian banks are headed for a
fall due to a Canadian housing bubble similar to that suffered in
the U.S., I say poppycock. And you can read the poppycock rationale
in this article
So it's time to check in on the One-Stock Portfolio and Canadian
banks as we move into 2013 - as the banks did enjoy another
prosperous earnings season in December. And in fact, Royal was
batting lead-off this year.
The Royal Bank of Canada
Fourth-quarter profit at Canada's largest bank rose 22 per cent
to C$1.9 billion. Those figures compared to a year-earlier profit
of C$1.6 billion. For the year, the bank notched record profit of
C$7.5 billion, up 17 per cent from 2011.
BMO Financial Group
For the fourth quarter, BMO reported a net profit of $1,082
million up from $768 million. BMO's revenue in the fourth quarter
from all business segments totaled $4.18 billion, up from $3.82
billion in the fourth quarter of 2011. For the year, BMO had net
income of $4.189 billion, up $1.075 billion or 35% from 2011.
Scotiabank had $1.5 billion of net income for the fourth
quarter, a 31 per cent increase over the same time last year that
took Scotiabank to a record annual profit. For the 2012 financial
year, Scotiabank made $6.46 billion, an increase of 21 per cent,
the highest annual income it has recorded.
Canadian Imperial Bank of Commerce
CIBC earned $852 million in the fourth quarter, an increase of
nearly $100 million from the same time last year. The fourth
quarter brought the total net income for the year to $3.3 billion,
before adjustments - up $400 million from last year. Revenue for
the full year totaled $12.55 billion, up from $12.44 billion.
The Toronto-Dominion Bank
Toronto-Dominion Bank was essentially flat in Q4. TD reported it
had $1.6 billion of net income in the fourth quarter. For its full
financial year, TD earned $6.47 billion on $23.12 billion in
revenue. That compared with a profit of $6.05 billion on $21.66
billion in revenue in the prior year.
Some very solid numbers all around, and during trying or at
least tepid economic circumstances. Canada's big banks dominate
within an oligopoly environment. They have pricing power. They
operate in a v ery sensible and stable regulatory environment. And
they have tons of cash on hand to handle a housing downturn, should
that arise. And even though they've held up and gone on a nice run,
the PE ratios of the big banks are still very sensible.
Canada's banks are also in a sweet spot as they can benefit from
a recovery in the U.S. (Canadaand the U.S. enjoy the largest
trading arrangement on the planet). And Canada being rich in oil
and potash and other resources can continue to profit from the
robust growth in developing nations. As Canada goes, so goes
Canada's big banks.
Not only that, U.S. investors who scoop up a few Canadian banks
will add what may turn out to be much needed currency exposure.
While the U.S. still has no plan to eliminate its deficit in the
next decade or more, Canada sits atop the list for favorable
debt-to-GDP ratios among G7 nations. The deficit to GDP is under
3%, and the current government plans to eliminate the deficit
within 3-4 years. We'll find out if that is wishful thinking. But
at least they're using the word "eliminate."
The U.S. dollar may continue to fall against the Canadian
Loonie. U.S. investors would have picked up a very sizeable
currency premium had they been invested in Canadian banks over the
last decade, even a 25% premium over the last 3 years alone.
For a solid investment story that hasn't changed, plus portfolio
and currency diversification, U.S. investors just might want to
look North at Canada and its big banks. But how long it will take
for Royal to make the next 2,274% is anyone's guess.
I'd be more than happy if I had to wait 20 years.
I am long [[RY]], [[BNS]], [[CM]], [[TD]], [[BMO]]. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
Please note that Dale Roberts aka cranky, the crankywriter, the
scaredy cat investor is not a licensed investment advisor, and the
above opinions should only be factored in to an investor's overall
opinion forming process. Consult a licensed investment advisor
before making any investment decisions. Pretty please.
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