# Canadian bank stocks - BNS, TD, CIBC



## Beaver101 (Nov 14, 2011)

What is going with sudden surge of worrying news on Canadian bank stocks? 

Examples:

*Scotiabank profit drops 14% instead of increasing as analysts anticipated* http://www.thestar.com/business/2014/12/05/scotiabank_profit_drops_14_instead_of_increasing_as_analysts_anticipated.html


*Investors fret over TD, CIBC fourth-quarter earnings *
http://www.thestar.com/business/2014/12/04/investors_fret_over_td_cibc_fourthquarter_earnings.html 


Is it a sign of things of slowing in that sector and should investors be worried? The oil sector isn't doing too well these days but the banks sector is a strong pillar for our investments.


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## avrex (Nov 14, 2010)

Ya, it was a bad day yesterday. 
Perhaps people are thinking that the oil price drop will affect Canadian business, which will affect Canadian real estate, which will affect the banks.

Yesterday's price changes.

*TD -5.1%*
*CM -3.4%*
BNS -2.0%
RBC -1.2%
BMO -1.0%


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## HaroldCrump (Jun 10, 2009)

In the case of Scotiabank, Caribbean & Latin America is really dragging down their performance.
It was always Scotiabank's forte, but now it has become a fetter.


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## Crusher (Sep 15, 2013)

Beaver101 said:


> *Scotiabank profit drops 14% instead of increasing as analysts anticipated*


So why is BNS opening significantly higher than yesterday's close?
oops. didnt happen.


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## Beaver101 (Nov 14, 2011)

Crusher said:


> So why is BNS opening significantly higher than yesterday's close?


 ... buyers' momentum?


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## birdman (Feb 12, 2013)

Yeh, got hammered yesterday as I own them all. Hec, the Royal Bank only made 9 billion $!!!. Not to worry and they are well up for the year. Buying opportunity??


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## the-royal-mail (Dec 11, 2009)

^ Agreed. I've lost nearly $1200 this week, mostly due to slides on bank and CP stock. Not a very good feeling. While they are still way up from what I paid for them, it sucks when you lose a big part of a yearly gain. Doesn't seem to be any safe stocks at the moment in any case, so I'll continue to watch.


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## marina628 (Dec 14, 2010)

I bought some TD yesterday with the proceed of selling 50% of my CNQ holdings.I think it is also connected to oil prices.BTW My CNQ was up 38% for me but I felt It is a good time to take some profits off the table for this stock.


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## gardner (Feb 13, 2014)

I doubled down on CM this morning at $US 89.50 or so. $US is at a 2 year high, so I flogged some off on CM.
I am really overweight in financials though.


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## CPA Candidate (Dec 15, 2013)

The banks have done really well in the past 2 years but with valuations now out of pace with the actual growth, they are probably going sideways for awhile.

US financials are much more attractive. I suggest looking there.


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## My Own Advisor (Sep 24, 2012)

I don't understand the bad news...these banks are always making money. These guys having been paying dividends for over 100 years. I'll take my chances with them


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## Ethan (Aug 8, 2010)

CPA Candidate said:


> US financials are much more attractive. I suggest looking there.


I don't mean to pick on you, because I've heard this from several other sources as well. Why do you think the US financials are more attractive? On a PE basis, I think the Canadian banks look much better.

Largest 6 US banks


JPMorgan Chase - 11.61
Bank of America - 46.54
Citigroup - 19.67
Wells Fargo - 13.48
US Bancorp - 17.08
US Bancorp - 14.81

Largest 6 Canadian banks

Royal Bank - 13.81
TD Bank - 13.35
Bank of Nova Scotia - 11.3
Bank of Montreal - 12.46
CIBC - 12.97
National Bank - 11.43

Combine these low PE ratio's with the banks high dividend yields and history of dividend increases and I'm very comfortable holding the banks.


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## AltaRed (Jun 8, 2009)

Because banks like BoA and Citi are still recovering from their near death experiences, they are still writing off a bunch of stuff and paying off fines. Hence earnings are lower... for now. That will pass shortly. Note Wells Fargo which never had the same degree of issues is doing well (despite having swallowed Wachovia during the crisis). 

Money managers are looking at the US regional banks which have none of those issues, including as much exposure to capital markets which is what has dragged some Cdn banks down. They see more upside there than what they perceive the Cdn banks going sideways for awhile. Whether they can add Alpha by rotating out of Cdn banks into US regionals remains to be seen.

That said, I am not a stock churner. So will stick with my Cdn positions as well.


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## Ethan (Aug 8, 2010)

I know that the Q4 results were less than expected, but if we look at 2014 as a whole, the banks did very well. Many of the banks have seen their diluted EPS grow much faster than their share price. For instance, between December 5, 2013 and December 5, 2014, TD increased earnings 20.3% while their share price rose 14.9%. Over the same period, BNS grew their earnings 10.8% while their share price rose 4.5%. I think the recent selloff in those two names is overdone.


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## leeder (Jan 28, 2012)

Ethan said:


> I don't mean to pick on you, because I've heard this from several other sources as well. Why do you think the US financials are more attractive? On a PE basis, I think the Canadian banks look much better.
> 
> Largest 6 US banks
> 
> ...


I personally use P/B more than P/E to value the banks. On a P/B metric, US banks are cheaper. 

On a side note, I did add more BNS today. Way too beaten up!


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## Butters (Apr 20, 2012)

We still have a couple weeks of this madness. 
The Dow and S&P are barely moving and tsx gets hammered

Will be a good time to stock up with 2015 tfsa new 5.5k room


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## Pluto (Sep 12, 2013)

I think the Can banks are still overvalued. Earnings growth is not high enough for these levels. What's going to prop up their growth rate? I don't know, so I'm going to wait for a more golden opportunity. I like to wait until I'm more sure of some capital appreciation in the not too distant future, and I'm not sure of that now. However, I'm a worry wart when bull markets start to look old. Maybe I worry too much. If you think the bull market will continue unabated, go for it.


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## MrMatt (Dec 21, 2011)

Low rates for the foreseeable future makes the decent yield quite appealing.


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## Pluto (Sep 12, 2013)

I still think I'll wait a bit on the banks. I'd like to see the yields closer to 5%. In the meantime I bought HSE. yield there is 5%+ and it is a survivor - it will come through what ever problems oil presents.


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## leeder (Jan 28, 2012)

5% yield on a bank... So you think the housing market will crash soon? To get to the 5% yield, the stock price has to go down about 20% from current levels. Or the dividend catches up while the stock price remains flat long term...


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## geoffh (Nov 15, 2014)

PE can be a problematic ratio because it's backward looking. The banks selling off because the market is starting to worry about the validity of their earnings for the next twelve months. There is an interesting scenario forming in people's minds:

- Crashing energy prices hit Canadian oil, gas, mining, and exploration companies. 
- Companies start to reduce capital expenditures and cut costs, including jobs
- Communities dependent on these firms' spending start to experience decline housing prices (Calgary, Edmonton, Fort Mac, Regina, etc)
- The housing decline increases delinquency rates on debt, reduces mortgage demand, and leads to housing price declines
- These declines seriously impair banks' earnings, who in turn lay people off and communities like London, Toronto, and Montreal. Housing prices there start to slow and then decline in those cities. 
- Lather, rinse, repeat

I wouldn't be betting the farm on that sequence of events, but it's a definite possibility.


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## doctrine (Sep 30, 2011)

I don't think oil prices seriously hurts the banks even in the medium term. The majority of their revenue comes from Ontario and Quebec, which definitely has the potential to grow faster with low oil prices and a low Canadian dollar faster than Alberta could shrink, on an absolute basis. e.g. I don't see how low oil prices, even a major recession in Alberta in both the economy and housing prices, seriously affects housing in Toronto. Because the banks laid off some people? The banks are always laying people off - it's part of their never-ending commitment to improving returns.



leeder said:


> 5% yield on a bank... So you think the housing market will crash soon? To get to the 5% yield, the stock price has to go down about 20% from current levels. Or the dividend catches up while the stock price remains flat long term...


On the other hand, banks could still easily drop 20% in share price. CIBC, BMO, NA had 5% yields for much of 2012 and 2013 (and the others not far behind at 4.5%) - not that long ago!


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## james4beach (Nov 15, 2012)

A weakening Canadian economy will unquestionably affect the banks. When you break down the Canadian GDP, excluding government, finance/real estate is the largest sector, followed closely by resources (mining, oil and gas, etc.)

We're now seeing the resource sector crashing. Well, the finance and real estate sectors do not create wealth... _they manage_ (and parasitically feed off) wealth. Real estate and banking (which is under-pinned by RE) don't exist in isolation. If the resource crash continues long enough to affect incomes + bonuses + employment, then I am certain you will see the financial sector affected, and probably will kill off our perpetual real estate bubble.


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## My Own Advisor (Sep 24, 2012)

@james4beach,

"If the resource crash continues long enough to affect incomes + bonuses + employment, then I am certain you will see the financial sector affected, and probably will kill off our perpetual real estate bubble."

I agree with this. The RE sector is thriving when people have jobs spend their brains out. If people are losing jobs, spending on RE just isn't going to happen and you'll see home prices dive or correct. Even in Toronto and Vancouver


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## HaroldCrump (Jun 10, 2009)

doctrine said:


> The majority of their revenue comes from Ontario and Quebec, which definitely has the potential to grow faster with low oil prices and a low Canadian dollar faster than Alberta could shrink, on an absolute basis. e.g. I don't see how low oil prices, even a major recession in Alberta in both the economy and housing prices, seriously affects housing in Toronto.


You are missing the fact that both Ontario & Quebec are heavily dependent on federal equalization payments.
Both of these ex manufacturing stalwarts are respectively the #1 and #2 recipients of federal welfare (aka equalization).

The vast majority of the equalization payments are funded by the oil revenue from Saskatchewan, Alberta, NFLD, and the mining/resource revenue from B.C.

The fiscal condition of ON & QC is so bad that a slowdown in Alberta, SK, and BC will affect ON & QC almost as much as it will affect the resource provinces.


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## Pluto (Sep 12, 2013)

leeder said:


> 5% yield on a bank... To get to the 5% yield, the stock price has to go down about 20% from current levels. Or the dividend catches up while the stock price remains flat long term...


20% decline isn't that unusual. Then to get back to where it was, it is a 25% climb, and usually takes longer to get there than to drop 20%. So I want a decent dividend while I'm waiting for the recovery....But I'm getting ahead of things....we didn't get the decline yet...I can wait. (I don't think it is necessary to be fully invested in stocks. A lot of money can be made just by not losing gains.)


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## doctrine (Sep 30, 2011)

HaroldCrump said:


> You are missing the fact that both Ontario & Quebec are heavily dependent on federal equalization payments.
> Both of these ex manufacturing stalwarts are respectively the #1 and #2 recipients of federal welfare (aka equalization).
> 
> The vast majority of the equalization payments are funded by the oil revenue from Saskatchewan, Alberta, NFLD, and the mining/resource revenue from B.C..


Quebec and Ontario federalization payments are about $11B. That is a lot of money, but it is a grand total of 1.1% of their combined GDP. Even assuming that went to zero, the impact of a 87 cent dollar vs a dollar greater than parity, which is only likely to trend lower in a low oil environment, is easily equal if not greater than 1.1% per year.


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## fatcat (Nov 11, 2009)

this is a quote from yesterdays globe and mail q and a with an advisor (robert gill from lincluden, neither of whom i have heard of):



> However, don't underestimate the Canadian banks. Historically they have been able to adapt their business model to be successful. Banks have diversified successfully into many end markets, attracting revenues everywhere from credit cards to wealth management to capital markets.


this summarizes the value of canadian banks (along with the fact that they are an oligopoly and their impressive records of dividend growth and capital appreciation)

the big 5 banks are opportunists of the first order, they seem to be able to shift according to the demands of the economic status quo and find ways to make money


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## Synergy (Mar 18, 2013)

Hoping to add to my Canadian bank positions over the next few weeks.


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## HaroldCrump (Jun 10, 2009)

doctrine said:


> the impact of a 87 cent dollar vs a dollar greater than parity, which is only likely to trend lower in a low oil environment, is easily equal if not greater than 1.1% per year.


You are not realizing the future implications of a lower CAD$
The lower dollar will not boost any exports.
This is not 1996.

Also, equalization payment is one part of the contagion.
With crude oil at these levels, there are serious repercussions for Canada - both at the federal and provincial levels.

There have been two other similar oil crashes in recent times - the mid 1980s (also engineered by OPEC), and the 2008/9.
In both cases, the effects were disastrous.
The 1980s oil crash wiped out the local economy of Texas, Oklahoma, and Kansas.
The 2008/9 crash was quickly reversed by Q/E.

We don't know what will happen this time around if oil prices don't revert back at least to $75 within 6 months.


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## My Own Advisor (Sep 24, 2012)

You're right Harold. I think from one perspective, this time it's NOT different but we also don't know how long, how big, or how disastrous low oil prices could be. I guess in time, like everything else, we'll find out.


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## fatcat (Nov 11, 2009)

i have just sold my su, taking the tax loss and tommorow plan to buy more bank stocks and maybe add to my mfc

i was glad to see this from rosenberg in the g&m just now:



> “Everyone is staring at what has happened in energy and does not see that the greatest opportunity has opened up in Canadian financials where you do not have to guess what level the price of oil is going to bottom out at.”


banks are where the value is and i think there will be plenty of time to pick up energy sometime next year



> “Historically, the banks have typically traded at a 15-per-cent discount to the overall TSX and now trade at a discount of 30 per cent on both a trailing and forward P/E basis,” he said.


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## OnlyMyOpinion (Sep 1, 2013)

While we're not selling our banks, we're not adding to them right now either. The 'greatest opportunity isn't apparent to us with RY up 17% over 1Yr. We did buy some of your SU though, we didn't own any oils so have just started to dip our toes in.
View attachment 2857


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## PuckiTwo (Oct 26, 2011)

HaroldCrump said:


> Also, equalization payment is one part of the contagion.


From Marketwired: The Fraser Institute: Nova Scotia, New Brunswick Rely on Equalization while shunning Resource Development.
see English-language article found in: http://www.finanznachrichten.de/nac...n-while-shunning-resource-development-256.htm


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## HaroldCrump (Jun 10, 2009)

^ Up until 2 weeks ago, New Brunswick was not even ready to let the Energy East pipeline pass through their territory, let alone allow mining, fracking, etc.
Now they have agreed, after a visit from AB premier.

ON & QC are still adamantly against it...but they could be "persuaded" for an appropriate $$ amount of kickback.

The whole equalization structure is nothing other than a grand welfare scheme.
Provinces such as Ontario, Quebec, Manitoba, etc. _should not _be receiving equalization welfare.


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## Pluto (Sep 12, 2013)

re post #32,

I think you need to read the G&M article carefully. He said the banks p/e is low relative to the p/e of the general market, which is 18. 

But that does't refer to the banks own earnings and earnings growth rate. They are over valued in relation to that. 
And the general market is over valued too. So what the situation amounts to is, the banks are overvalued, but not as over valued as the general market. I don't get too much comfort in that. Maybe we are inching into a bear market and the banks are leading the way down. 
See, in the back ground I'm still thinking of CAPE, and total market cap to GNP. Sooner or later there is going to be an adjustment. When that happens I'll be a lot more eager to buy. 

To me this article makes sense:
http://www.marketwatch.com/story/the-surprising-bright-side-to-falling-oil-2014-12-10

So I'm encouraged to nibble in the oil patch and leave the Can Banks alone for now.


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## fatcat (Nov 11, 2009)

Pluto said:


> re post #32,
> 
> I think you need to read the G&M article carefully. He said the banks p/e is low relative to the p/e of the general market, which is 18.
> 
> ...


fair enough, i have wanted to add to my bmo for awhile now and it has come off nicely, even if i overpay, i am more comfortable with the predictability of banks even having a slow year, on the other hand oil may bounce off 40, we just don't know

the complete unpredictability of oil vs the relative predictability of banks closes the deal 

i am betting there will be plenty of energy stocks to buy in the next few months

iran is furious, the saudis appear to be serious and we may have a fire-sale on oil where countries do what they have to do to pay the bills, inventory depletion be damned

if indeed oil stays low its is in effect a rebate to the canadian shopper in the form of lower gas, that will be to the good of the banks i think


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## Killer Z (Oct 25, 2013)

This might not be for everyone, but since my time horizon is approx 20-25 years, I simply add to my Canadian bank positions (TD, RBC and BNS) twice a year, every year. Once at Jan/Feb and once at July/Aug. Not sure about seasonality or anything like that, but at the same time I do not really care to attempt to time it when it comes to stocks like these.


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## 1980z28 (Mar 4, 2010)

Looks like a good time to add


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## james4beach (Nov 15, 2012)

What are your thoughts on the current bank stock prices? I'm looking at CIBC (CM) for example, up 17% from February's lows!

Would you buy it here? There have been worries about the sector... are the worries over blown? Is it back to normal?


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## Oldroe (Sep 18, 2009)

The price of scrap metal has be going up. Cars just went from $100 MT to $120 MT. This means China is starting to gain strength and oil is stabilizing.


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## james4beach (Nov 15, 2012)

So are you saying it looks like the commodity bull market is coming back, and therefore the Canadian banks will excel again?


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## doctrine (Sep 30, 2011)

Banks are near 6 month highs, although still in correction territory from 2014 highs. Technically, they're back above the 200 day moving average, a very positive sign longer term. They're also leading the TSX index, another very positive sign, which is not yet above the 200 day. 

Personally, I am more likely to add to banks when they're beaten up, not on recovery, so I'm holding for now. Added to most of my bank holdings over the last 6 months anyway. BNS is up 20% from the low.


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## kcowan (Jul 1, 2010)

The worries are real and a major meltdown in real estate will aggravate the losses they are incurring in Alberta. But the government will do everything it can to prop them up.


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## birdman (Feb 12, 2013)

As I have posted before I think highly of the Cdn Banks and they represent in excess of 50% of my portfolio. Purchased CM for under 30.00 in 2000 and have collected all the divies which due to regular increases in these my current returns based on cost are very good. Yes, there are some ups and downs but I have full confidence in the Cdn Banks. In my opinion they are well capitalized, well diversified in their loan book, diversified in their businesses (foreign, domestic, brokerage, corporate, consumer, insurance, etc) and they change their business model during changing times (overhead reductions, electronic banking, etc). As I have posted before it seems that some are quick to criticize and fret needlessly about possible issues, mainly loan losses, for the banks. Yes, they did get hammered in the mid 1980's but remember that the prime rate was 22.75% at the time. Pretty hard to meet interest payments at that level. My latest pet peeve are people worrying about residential mortgage losses in overpriced markets. As I said before, banks loan to value are maxed out at 75% unless it is insured by CMHC and if property values fall by say 50% we must remember that proportionately there are probably few loans between say 50% L/V and 75% L/V and in some provinces you cannot simply walk away from your mortgage and are responsible for any shortfall in the case of foreclosure and sale. Furthermore, even if the value of the property falls it does not mean the owner(s) are going to try to walk away. Presently financial margins are getting squeezed but they take steps to offset this in other ways including increased fees, emphasis on other aspects of their business, and instituting cost efficiences. Yes, there will be ups and downs in profits due to things like property values, unemployment, oil prices, etc but its hard to beat their performance (100 years or thereabouts of never missing a dividend payment) and regular increases in these. I agree prices are perhaps a little high but if you are comfortable with say a 4.5% divy (and increasing) I suggest the risk is minimal and their price will increase over the longer term. I feel the downside risk in the stock price is a significant rise in interest rates where fixed income rates would be higher than the dividends. Mind you, I guess most dividend stocks would also suffer a decline and fall out of favour. Just my thoughts.


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## My Own Advisor (Sep 24, 2012)

I also think highly of CDN banks. 

Between direct ownership and indexed ETFs, about 40% of my portfolio is in banks. 

The way I see it, CDN banks are a cornerstone of our economy. There will be ups and downs, year to year, but over time (as in decades of time), these have been and will continue to be money making machines for investors.
http://www.myownadvisor.ca/canadian-dividend-stocks-buy-mostly-forget/


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## Pluto (Sep 12, 2013)

I believe it is a buy here. (I bought some of all the banks back when they were under sever pressure. That sell off seemed to discount a lot of the worries.) It is really best to buy this type of stock when they are taking a pounding - buy during times of worry, pessimism, and the like. If you wait until the fear is over, you don't get as good a price. Even so, it is still a buy here.


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## DividendPlanet.com (Mar 28, 2016)

In my opinion it all comes down to oil and real estate. If oil stays at current levels and doesnt go back to the mid 20's, Canadian banks should be ok, especially the ones like Canadian Western Bank in Alberta. 

On the other hand banks will need to put aside a lot more for losses, if the heated real estate markets start to come down, in cities likes Vancouver.

No matter what, I would wait for a pullback, to get back to the January lows before making a purchase.


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## kcowan (Jul 1, 2010)

DividendPlanet.com said:


> On the other hand banks will need to put aside a lot more for losses, if the heated real estate markets start to come down, in cities likes Vancouver.


The losses will come from bad commercial loans and lower commissions on new mortgage initiations. Fewer people in both cases will qualify.


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## humble_pie (Jun 7, 2009)

other negatives for canadian banks - in addition to oil price collapse & possible canadian housing plunges - include the looming june/16 british referendum on the Brexit plus widespread concern over banks' new bail-in provisions, which are being discussed in other threads, for example this one:

http://canadianmoneyforum.com/showt...get-Revealed?p=1084626&viewfull=1#post1084626

bank & finance sector is roughly 35% for me. I haven't sold anything, neither have i bought lately. Actively trading option positions on all shares, as always.


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## hboy43 (May 10, 2009)

Hi:

Wow, up to 50% banks for some. Sitting at about 18% here, maybe 20% financial. I have purchased MFC ~$16 and RY ~$67 recently.

So I am under weight, but that is more a comment on being over weight materials than under weight financial.

This is all very interesting to me. People are quite happy to pay @ PE 20 for say TRP which has had a big write off, but only want to pay @ PE 10 for banks which might have a problem one day. TRP still has pending problems too: cannot seem to get anything build anywhere, and there is talk of oil companies reneging on take or pay contracts. I don't see collective rationality here, but maybe it is just me.

I sold TRP ~$46 of late. Ten years out from today's starting points, I'd be very surprised if RY did not win vs TRP.

hboy43


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## treva84 (Dec 9, 2014)

IMO the real estate / oil fears are all speculative - they may or may not happen. As a share holder the biggest thing I am worried about is the decreasing ROE for all banks. For example RY's ROE has dropped 1% YOY and is expected to keep declining - there is clear evidence that the moat is eroding.


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