On Thursday, the second significant bank acquisition was announced in two days, with NYCB acquiring AF, followed by KEY acquiring FNFG. As we have written in the past, with over 350 publicly-traded banks (5,600 in total), we expect the 30+ year secular trend of U.S. bank consolidation to continue for many years (see our December 13th, 2012 note “100 Bank Mergers”, where we discuss consolidation in the…
Insights: Subsector
Canadian Banks: ~$1 bln in Restructuring Charges in Past Year; What it Means
On October 15th, National Bank announced an $85 mln pre-tax restructuring charge (among other things). What is interesting is that this was the sixth such charge announced by the Canadian banks since Q4 2014.
Canadian Banks: New Federal Government Not (Likely) Significant to Banks
Last week, the Canadian federal election ended with a majority victory for the Liberal party. Although a minority win for the Liberals or governing Conservatives was seen as the most likely outcome according to the polls, the preferred outcome for the market (and the banks), in our view, was a Conservative or Liberal majority government. The worst plausible election outcome would have been a minority Liberal government supported…
Business Development Corps: Notes from NYC Field Trip
We recently travelled to New York City to meet with executives from a group of business development companies (“BDCs”), a diverse category of “other financials” focused on yields. There are over 30 publicly traded BDCs in our investable universe, with market capitalizations ranging from ~$100 mln to several billion dollars. Yields for these financials are generally over 8%.
European Trip to London, Frankfurt, and Madrid: Notes from the Field
A recent trip to Europe – 3 days in London at a European financial services conference, and 1 day field trips to Frankfurt and Madrid – gave us an opportunity to meet with executives from more than 25 financial services companies and agencies (including 19 banks and 3 insurers) representing 9 countries. Notably, the trip reinforced our European investment thesis, although a disparity of country and…
Deutsche Bank Pre-Announces Charges, Possible Dividend Reduction
After the U.S. close last night, Deutsche Bank (ticker: DBK GR) announced a series of write-downs, an increase in its litigation reserve, and a Management Board recommendation to reduce (or possibly eliminate) its dividend in 2015. Most of the announcement was anticipated and/or priced in with the exception of the announcement the bank might eliminate its dividend. As a result, at the time of writing, the…
Why CIBC Needs a Visible Capital Allocation Strategy
Since the end of the credit crisis (i.e., 2009), CIBC has generated core cash EPS growth above its Canadian banking peers as well as a (much) higher ROE. Despite exceeding its peers over the past four years on these important growth/profitability metrics, CIBC continues to trade at a notable P/E discount. So, in light of this post-crisis performance, and a (perceived) below-average risk profile, why does…
Why the Canadian Financials Will Likely Underperform their Global Peers
We are often asked for our thoughts on the Canadian financials relative to the global financials. Regular readers of our work will know that we favour financial services companies outside of Canada. There are many reasons, but the most compelling is that the Canadian financials have fully recovered (both in terms of valuation and earnings) from the most recent cycle, while the U.S. and global financials…
Will National Bank (Continue to) Be Re-Rated?
When trying to forecast the best performing Canadian bank, investors need to consider which bank stock has the potential to be re-rated higher by the market – i.e., which could benefit from relative multiple expansion. Looking at historical returns for the Canadian banks over virtually any period shows that the top performing bank stock often benefited from being re-rated. Click to Download»
Three Emerging Themes in Global Financials
A number of important themes are emerging in the financial services sector, which in North America alone includes over 1,000 companies, and over $4.5 trillion of market capitalization. Macro risks remain, but we believe that over the next 24 months, several themes offer excellent investing opportunities. Here is a description of just three…
Why We’re Not Short (or Long) the Canadian Banks
There has been a lot of discussion in recent months about the potential for a material decline in Canadian home prices and the possible fallout for Canadian financials, and the banks, in particular. The speculated financial services sector impact – should such a decline occur – has ranged from: (i) slower economic growth causing slower revenue/earnings growth (most likely), to (ii) a credit downturn (a possibility),…
Are MICs the “Canary in the Coal Mine”?
Over the past several months, there has been a lot of discussion about the potential for Canadian home prices to fall and the possible impact on the Canadian financials (and banks, in particular). After a near-vertical rise in over the past decade (see chart), Canadian home prices appear vulnerable to a decline. The speculated impact of a decline on the domestic financial services sector has ranged…