As the Toronto Stock Exchange, the primary trading platform for each of the big five Canadian banks, each reporting in Canadian dollars, is all the financial performance figures in this article in Canadian dollars, unless otherwise stated.
It was recently revealed that US hedge fund manager Steve Eisman, who became acquainted with Michael Lewis' book, The Big Short detailing Eisman's successful short-circuit of the markets before the Financial Crisis hit, has now built short positions against Canada's big five bank deposits, and requires slower economic growth and normalizing credit conditions. None of these points seem so incredible.
Many Canadian households overindulged at near record low interest rates in response to the successive Bank of Canada cuts to their trendsetting lending rate and pulling too much of their household budgets to pay off. And low interest rates again push banks' margins. Higher interest rates will throw up the bank's loan burden levels, but the risk of higher prices now appears to be slim to non-existent in the short term.
I have owned four of the big five Canadian banks for a longer time than I can remember (full positions in BNS, TD and RY and a half position in BMO). They have been consistently good investments over a long period of time, but it is also true that Canadian households have never incurred debt burdens that make up almost 180% of disposable income.
Source: Statistics Canada, "Debt and wealth among Canadian households" 19659007] "Big Five" is the name of the five largest banks that dominate the banking sector in Canada. In alphabetical order they are:
- Bank of Montreal (TSX: BMO) (NYSE: BMO)
- Bank of Nova Scotia or Scotiabank (TSX: BNS) (NYSE: BNS)
- Canadian Imperial Bank of Commerce ( NYSE: RY)
- Toronto-Dominion Bank (TSX: TD) (NYSE: TD)
Although the Macro environment of Canada's large five bank deposits does not look as good as it did a year ago, when we expected interest rates to rise, They would still be the core business of investor portfolios because of their stability, resilience – and their secure, growing dividends. These banks have had years of profitable growth, and shareholders have come to rely on them for ever-growing dividends and capital gains.
Canada's Big Five banks and their subsidiaries are at the heart of Canada's financial system. They are the most important players in virtually all financial markets in Canada, with the exception of insurance and car leasing, where they face regulatory constraints.
The five major banks have extensive and comparable national footprints in Canada, which make up their primary market. But each also has an important international presence that varies from one institution to another in terms of strategy and geography. Over the years, their domestic strategies have focused on differentiating product and service quality differentiation, instead of waging war on price, but despite this attempt to achieve differentiation, there are more similarities than differences in banks' domestic strategies. Due to the limited growth opportunities in Canada, they have been driven to pursue growth strategies in key foreign markets that have the potential for greater profits.
It is difficult to find relatively safe investments with 4% + dividend yield and solid growth prospects. The benefits of investing in high quality stocks with above average returns, good growth prospects, and attractive pricing are well-known to long-term investors. This article discusses such a group – Big Five Canadian Bank Stocks.
All five banks are headquartered in Toronto. And all five are classified as Schedule In domestic banks operating in Canada under government charter. The Canadian banking industry includes nine domestic banks, 50 active foreign banking subsidiaries, and 37 full-service foreign bank branches and foreign bank lending companies operating in Canada. Big Five Bank's shares are largely held without a single entity being allowed to hold more than 20%.