canadian banks
BANK OF NOVA SCOTIA, $51.63, Toronto symbol BNS, continues to build up its operations in China. This week, Bank of Nova Scotia agreed to buy 19.99% of the Bank of Guangzhou; the Chinese government owns the remaining 80.01%. This bank is the 29th largest in China, with 84 branches. Bank of Nova Scotia will pay $719 million when the deal closes in December 2011. To put that in context, it earned $1.2 billion, or $1.11 a share, in the three months ended July 31, 2011....
We’ve long recommended that all Canadian investors own shares of two or more of the big-five Canadian banks. That’s mainly because of the banks’ importance to Canada’s economy. However, each of the big five banks have different objectives, so they’re not all suitable for every investor.
Dividend paying stocks: Scotia is Canada’s most international bank
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BANK OF NOVA SCOTIA $58.14, Toronto symbol BNS, has joined a new consortium called Maple Group Acquisition Corp. Other members include CIBC, TD Bank, National Bank and five major pension funds. Maple wants to buy a controlling interest in TMX GROUP $45, Toronto symbol X, which operates the Toronto Stock Exchange. TMX has already accepted a takeover offer from the London Stock Exchange. (Note that Royal Bank and Bank of Montreal are advising on that potential merger. That’s why they are not part of Maple.)...
Investors continue to be concerned about high debt levels in many European countries. That’s especially true of the so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Portugal recently accepted a 78-billion euro ($107 billion Canadian) bailout package from the European Union and International Monetary Fund. That’s in addition to previous bailouts for Ireland (67 billion euros) and Greece (110 billion euros). Worries persist that Greece, in particular, may not be able to cut its spending enough to avoid defaulting on its debt.
Why we recommend that you focus on Canadian stocks—and limit your European holdings
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If you’ve been following our TSINetwork.ca Daily Updates, or subscribe to one or more of our newsletters and investment services, you’re likely familiar with our three-part investment advice. A key part of that advice is to invest mainly in well-established dividend-paying stocks. (The other two parts are to downplay stocks in the broker/media limelight and spread your money across the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.) With today’s low interest rates, investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price). Dividend paying stocks are responding by doing their best to maintain, or even increase, their payouts....
We recommended five newly issued bank preferreds in our February 2009 issue. The big five Canadian banks issued these preferreds on especially attractive terms to attract investors in a time of weak stock markets. Despite rising over 10% in price, their yields are still high. As well, holders can reset the dividends at higher rates in 2014 if interest rates rise. However, the banks have the right to buy back all five shares at $25 each in 2014. In that case, you’d have a capital loss if you bought them at today’s prices. The banks may choose to buy them back if interest rates stay low and bank credit quality remains high. That would let them issue new preferreds at lower rates. All five preferreds are worth holding, but we don’t recommend them as buys at today’s prices. BANK OF NOVA SCOTIA 6.25% SERIES 26 PREFERREDS $27.89 (Toronto symbol BNS.PR.T) yield 5.6%. Hold....
Over the past few decades, I’ve often pointed out that the top five Canadian banks have provided some of the highest returns with least risk that you could find in our market. That’s why I’ve long recommended that all Canadian investors own two or more. The top five banks slumped deeply during the 2007-2009 market downturn, like most stocks. But since the market turnaround of March 2009, several of the top five have recovered and gone on (at least briefly) to all-time highs. Few other stock groups have done as well. We continue to recommend all five, but our favourite is still Bank of Nova Scotia (we analyze the other four banks later in this issue)....
Investor concerns continue to mount over high debt levels in many European countries. That’s especially true of the so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Right now, the European Union and International Monetary Fund are working on a bailout of Greece. However, negotiations are moving slowly, mainly because Germany, which would shoulder most of the bailout, is insisting that the Greek government sharply cut its spending before any restructuring can go forward.
Most European economies still need considerable reform
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Last week, the U.S. Securities and Exchange Commission (SEC) announced that it was suing global investment bank and securities firm Goldman Sachs Group for defrauding investors. The SEC claims that Goldman Sachs misled investors about the risks of investing in certain mortgage-backed financial products. The SEC alleges that Goldman Sachs created these products with the help of a hedge-fund manager who then planned to sell short (or bet against them). Stock markets in the U.S. and Canada fell on the news of the SEC’s claims against Goldman Sachs. Shares of Canadian bank stocks also declined slightly, but they quickly recovered. That’s mainly because investors realize that the big-five Canadian banks had limited exposure to these types of complicated and risky financial products....
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