canadian banks

BANK OF NOVA SCOTIA $38 (Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; Shares outstanding: 990.0 million; Market cap: $37.6 billion; SI Rating: Above average) is Canada’s third-largest bank after Royal Bank and Toronto-Dominion Bank, with total assets of $462.4 billion. It provides a wide variety of financial services through 2,560 branches and offices in Canada and over 50 other countries. The bank gets about a third of its revenue and earnings from its international operations. Unlike other Canadian banks, it has largely avoided expanding in the United States. That has helped it escape the big writedowns related to U.S. subprime mortgages. Instead, Bank of Nova Scotia prefers to focus on international regions such as Latin America, the Caribbean and Asia, where it can quickly expand its market share. Thanks to the spread of free trade and rising global prosperity, Bank of Nova Scotia’s revenue rose from $10.0 billion in 2003 (fiscal years end October 31) to $12.5 billion in 2007. Earnings grew from $2.34 a share (total $2.4 billion) in 2003 to $4.01 a share ($4.0 billion) in 2007....

The worldwide credit crisis has hurt all of Canada’s big five banks. Still, we continue to have a positive view of all of them. The banks have already taken substantial writedowns, which may cover most of the damage. As well, Ottawa’s new plan to buy up to $75 billion of home mortgages from the banks, if needed, further cuts their risk. All investors should aim to own two or three Canadian bank stocks as part of a well-diversified portfolio. For new buying, we still prefer Bank of Nova Scotia. It has the least exposure of the five to the subprime mortgage problems in the United States. As well, Bank of Nova Scotia’s expanding international operations will let it profit from rising prosperity in developing countries. The bank is also taking advantage of the turmoil in financial markets to expand its domestic wealth management businesses with timely acquisitions. BANK OF NOVA SCOTIA $38 (Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; Shares outstanding: 990.0 million; Market cap: $37.6 billion; SI Rating: Above average) is Canada’s third-largest bank after Royal Bank and Toronto-Dominion Bank, with total assets of $462.4 billion. It provides a wide variety of financial services through 2,560 branches and offices in Canada and over 50 other countries....

We advise most investors to place the bulk of their holdings in the Finance sector of their portfolio in two or more of the big five Canadian banks. The banks have been among the market’s top performers for several decades now, and continue to offer an attractive combination of growth and income. We also recommend that investors diversify their Finance investments with non-bank Finance sector stocks, such as these four. Like the big banks, they trade at reasonable levels in relation to their earnings. Great-West Lifeco and IGM Financial also pay above-average dividends. However, we see only three as buys right now. GREAT-WEST LIFECO INC. $32 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 894.4 million; Market cap: $28.6 billion; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $392.8 billion. The company also provides retirement planning and wealth management services. Power Corp. controls 70.6% of Great-West’s shares....

Canadian Imperial Bank of Commerce $63 (Toronto symbol CM Conservative Growth Portfolio, Finance sector; Shares outstanding: 380.8 million; Market cap: $24.0 billion; SI Rating: Above average) is the fifth-largest bank in Canada with assets of $343.1 billion. The problems with U.S. subprime mortgages have hurt CIBC more than the other big five Canadian banks. So far, CIBC has written off $6 billion worth of loans and illiquid securities. CIBC could face a further $1 billion in writedowns due to concerns over the financial health of several major bond insurers. These insurers provide CIBC and other banks with guarantees on securities they hold, such as bonds backed by U.S. subprime mortgages. In the three months ended April 30, 2008, CIBC lost $1.1 billion or $3.00 a share, mainly due to $1.7 billion (after-tax) in writedowns....

BANK OF NOVA SCOTIA $49.75, Toronto symbol BNS, earned $980 million in its second fiscal quarter ended April 30, 2008, down 5.8% from $1.04 billion a year earlier. Per-share earnings fell 5.8%, to $0.97 from $1.03. The declines were largely due to higher provisions for loan losses, which jumped to $153 million from an unusually low $20 million in the year-earlier quarter. Revenue rose 3.2%, to $3.2 billion from $3.1 billion, partly due to acquisitions. The bank has increased its quarterly dividend 4.3%, from $0.47 a share to $0.49. The new annual rate of $1.96 yields 3.9%. Bank of Nova Scotia is a buy....

BANK OF NOVA SCOTIA $47.82 (Toronto symbol BNS: SI Rating: Above average) is the second-largest of Canada’s five big banks, with assets of $449.4 billion. It has 1,000 branches in Canada. In the three months ended January 31, 2008, Bank of Nova Scotia earned $835 million or $0.82 a share, down 18.1% from $1.02 billion or $1.01 a share a year earlier. The latest earnings included $238 million in pre-tax writedowns and other charges. Without those charges, the bank would have earned about $1.00 a share. Revenue fell 9.7%, to $2.8 billion from $3.1 billion. The bank’s shares currently yield 3.8%. Bank of Nova Scotia has among the lowest remaining exposure to writedowns of asset-backed securities among Canadian banks. Future writedowns are likely to be minimal. Lower interest rates should spur demand for new loans. The bank is also doing a good job controlling non-interest costs....

Bank of Nova Scotia is down since November, along with most financial services stocks, mainly because of concerns over a general lack of liquidity for asset-based securities. The rising Canadian dollar has also hurt the performance of the bank’s international operations, which supply about a third of its earnings. Still, the long-term profit and dividend outlook for Bank of Nova Scotia remains strong. BANK OF NOVA SCOTIA $47.82 (Toronto symbol BNS: SI Rating: Above average) is the second-largest of Canada’s five big banks, with assets of $449.4 billion. It has 1,000 branches in Canada. In the three months ended January 31, 2008, Bank of Nova Scotia earned $835 million or $0.82 a share, down 18.1% from $1.02 billion or $1.01 a share a year earlier. The latest earnings included $238 million in pre-tax writedowns and other charges. Without those charges, the bank would have earned about $1.00 a share. Revenue fell 9.7%, to $2.8 billion from $3.1 billion. The bank’s shares currently yield 3.8%....

Portfolio diversification is an important strategy for cutting risk. We like all five big Canadian banks. But we still think adding non-bank stocks like these three insurance companies to your finance-sector holdings is a good idea for portfolio diversification: MANULIFE FINANCIAL $39.37 (Toronto symbol MFC; SI Rating: Above-average) sells life and other forms of insurance, as well as mutual funds and investment management services. It operates in 19 countries and territories worldwide. Manulife has assets under administration of $396.3 billion. Its geographic diversification in the U.S. and Asia, including China, offers growth prospects. The shares yield 2.2%. Manulife is a buy....

CANADIAN IMPERIAL BANK OF COMMERCE $69 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 335.0 million; Market cap: $23.1 billion; SI Rating: Above average) is Canada’s fifth-largest bank, with assets of $342.2 billion. CIBC has the most exposure to the U.S. subprime mortgage market among the top five Canadian banks. It has already written down its holdings by about $1 billion. CIBC now faces a further $2 billion charge due to growing uncertainty over hedges it purchased from troubled U.S. bond insurer ACA Financial Guaranty Corp. to protect it from subprime losses. In 2005, CIBC paid $2.5 billion (after-tax) to settle Enron-related claims. If you exclude writedowns and a gain on the restructuring of the Visa credit card system, CIBC’s earnings in the year ended October 31, 2007 rose 27.3%, to $9.24 a share (total $3.1 billion) from $7.26 a share ($2.5 billion) in 2006. Revenue grew 6.6%, to $12.1 billion from $11.35 billion, due to strong growth at its retail banking division plus an acquisition....

Bank stocks have moved down in the past few months, mainly because of concerns over a general lack of liquidity for securities backed by risky assets, such as subprime mortgages in the United States. This lack of liquidity makes it difficult to assess the market value of these securities, and has led to significant writedowns. Canada’s big five banks remain well capitalized, so these charges shouldn’t hurt their strong profit and dividend outlook. They’re still cheap in relation to earnings, and provide above-average yields. Investors should own at least one of these five banks in the Finance segment of their portfolio. CANADIAN IMPERIAL BANK OF COMMERCE $69 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 335.0 million; Market cap: $23.1 billion; SI Rating: Above average) is Canada’s fifth-largest bank, with assets of $342.2 billion....