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.
Insights & Commentary
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…
On Greece, European Fixed Income Markets Remain Calm
The tiny country of Greece is dominating the news – yet again. Notwithstanding the wall-to-wall press coverage and declines in equity markets, it is worth noting that the changes in sovereign yields of other European countries remain muted, reflecting the fact Greece is extremely small, at just 1% of European GDP (< 2% of the eurozone).
Why This Weekend Was About Spain; Not Greece
Greece is in the headlines … again. But in our view, the events of this past month are about Spain, not Greece. There is no need for us to review the Greek soap opera (it is all over the news), but suffice to say, this is the first step in a process that virtually assures a terrible outcome for Greece (either painful internal devaluation, or an…
Syriza Forms Government in Greece
On Sunday, the far left party, Syriza, won the Greek election, and with a smaller (far right) anti-austerity party, has a coalition to form a government. While this could change over the next few days and weeks, the immediate market reaction has been surprisingly muted (given the press coverage). The Greek banks have all fallen sharply and Greek 10 year yields are up over 50 bps.
ECB Announces Quantitative Easing
As everyone knows, the ECB… finally (!)… announced open ended quantitative easing, the details of which are as follows: (a) amount of €60 bln a month until at least September 2016 (or ~€1.0 trillion) according to the capital key, which means purchases are roughly apportioned by GDP of each country. This amount includes existing ABS and covered bonds.
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»