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shorting Canadian Banks

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Deal Fanatic
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Dec 21, 2005
5865 posts
1672 upvotes
London, ON
MrMom wrote: Re: "The [New Issues/IPO] thread - BNS $76.15"

What's going on @jerryhung? ~2mm BNS traded at the open while the rest of the mkt is trading like it's NYE. BMO 74k, CM 94K, RY 75K & TD 147k
Dividend ex-date is jan4 for BNS...making the jan $69 & $70 calls priced kinda weird
💡😃😂😄
Banned
Jul 10, 2020
193 posts
161 upvotes
notenoughsleep wrote: Looks like no dividend hike for a bit.

https://www.theglobeandmail.com/busines ... -during-2/

The superintendent of one of Canada’s financial regulators won’t consider allowing banks and insurers to hike dividends, offer share buybacks or increase executive compensation until COVID-19 lockdowns have subsided.
These bank CEO's are relentless.
They are laying people off, or, getting ready to lay people off, and on top of that, want to re-start share buybacks... Like they are dying to buyback shares, rather than invest in their business to grow top line.

I guess they realize their business model is dying and the only way to save it is to squeeze the last few drops from the stone!
Sr. Member
Mar 8, 2004
755 posts
289 upvotes
pokemoncollector wrote: These bank CEO's are relentless.
They are laying people off, or, getting ready to lay people off, and on top of that, want to re-start share buybacks... Like they are dying to buyback shares, rather than invest in their business to grow top line.

I guess they realize their business model is dying and the only way to save it is to squeeze the last few drops from the stone!
Their business model is not dying.

In an environment where low interest rates are squeezing margins, there isn’t an easier way to grow EPS other than a few buybacks.

What would you rather they do? In my mind, now is the time to enter more of the US market and make some purchases down there with a stronger Canadian dollar.

Lots of risk with that too though as a number of banks have failed to turn a profit.
Deal Addict
Dec 3, 2014
2348 posts
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Ontario
Gabriella wrote: Their business model is not dying.

In an environment where low interest rates are squeezing margins, there isn’t an easier way to grow EPS other than a few buybacks.

What would you rather they do? In my mind, now is the time to enter more of the US market and make some purchases down there with a stronger Canadian dollar.

Lots of risk with that too though as a number of banks have failed to turn a profit.
My question for the banks is why do they keep acting like they have these massive loan loss reserves when the books clearly show that they took 80% of them off. That is this big cash pile they have - the money they set aside for loan losses. Now if we assume the government will just keep sending out stimulus money then maybe there is no loan risk. I know someone who just picked up a local eatery/coffee place for next to nothing. There are businesses failing and COVID is getting worse. A lot of them are starting to throw in the towel out of pure frustration with the lockdowns and escalating COVID rates coming up on one year of pandemic now.
Deal Fanatic
Nov 9, 2013
5885 posts
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Edmonton, AB
notenoughsleep wrote: Looks like no dividend hike for a bit.

https://www.theglobeandmail.com/busines ... -during-2/

The superintendent of one of Canada’s financial regulators won’t consider allowing banks and insurers to hike dividends, offer share buybacks or increase executive compensation until COVID-19 lockdowns have subsided.
That's probably what, a year at most? Then do shareholders see a double digit dividend hike thereafter?
Buy right, hold tight. Keep calm and go long.
Deal Addict
Feb 26, 2017
2902 posts
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treva84 wrote: That's probably what, a year at most? Then do shareholders see a double digit dividend hike thereafter?
I think it will be a small dividend increases as the payouts are out of their usual 40-50% range. I'm getting RY 49.5%, BMO 51%, TD 54% CM 55% and BNS 59% based on 2021 estimates without raises this year.
Deal Fanatic
Nov 9, 2013
5885 posts
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Edmonton, AB
Chance7652 wrote: I think it will be a small dividend increases as the payouts are out of their usual 40-50% range. I'm getting RY 49.5%, BMO 51%, TD 54% CM 55% and BNS 59% based on 2021 estimates without raises this year.
Thanks for keeping me rational Face With Stuck-out Tongue And Tightly-closed Eyes
Buy right, hold tight. Keep calm and go long.
Deal Fanatic
Jul 23, 2007
5134 posts
4928 upvotes
BNS's assessment of Canadian bank capital positions - "an embarassment of riches"

Deal Addict
Jul 30, 2012
2151 posts
3218 upvotes
llpresident wrote: My question for the banks is why do they keep acting like they have these massive loan loss reserves when the books clearly show that they took 80% of them off. That is this big cash pile they have - the money they set aside for loan losses. Now if we assume the government will just keep sending out stimulus money then maybe there is no loan risk. I know someone who just picked up a local eatery/coffee place for next to nothing. There are businesses failing and COVID is getting worse. A lot of them are starting to throw in the towel out of pure frustration with the lockdowns and escalating COVID rates coming up on one year of pandemic now.
Somewhat agree here... I'm not in the "Short" camp but consensus estimates have Banks increasing EPS by 8>10% in 2021. Business closures are likely coming in Q1 which sends ripple effects (further unemployment, consumer debt, business debt, reduced leases, etc) which will likely require loan loss reserves. Consumer mortgages likely peaked LY with historic low rates as well as brokerage commissions/activity due to WFH.

I don't see where the earnings growth of that magnitude is going to come from unless inflation, interest rate hikes/spreads are significant and on the horizon.
Deal Addict
Sep 2, 2004
3138 posts
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DealRNothing wrote: I don't see where the earnings growth of that magnitude is going to come from unless inflation, interest rate hikes/spreads are significant and on the horizon.
I agree with the economic concerns but the capital markets businesses looked pretty strong from what I saw in the Q4. Granted I only looked closely at RY's numbers so that may not be the case for the others.
Deal Addict
Jul 30, 2012
2151 posts
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Capt. wrote: I agree with the economic concerns but the capital markets businesses looked pretty strong from what I saw in the Q4. Granted I only looked closely at RY's numbers so that may not be the case for the others.
Capital Markets (brokerages) hit all-time records on new accounts for most FI's in N. America in '20. Most pundits saw this from more WFHer's that had "time" to open accounts and generate day/swing trading. I've read many pieces to this point but will simply post a sample article below. Historically, capital market divisions do well in "high" markets but tend to revert lower as market falls (more risk avoidance / less day trading activity typically). LY was definitely strong for these divisions across most FI's but not likely repeatable as we go into "return to office" and possible market correction during 1H. Thus, I lump this division into others that I see potential pressures on.

Young Investors pile into stocks_CNBC_May '20
Deal Addict
Dec 3, 2014
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Ontario
Capt. wrote: I agree with the economic concerns but the capital markets businesses looked pretty strong from what I saw in the Q4. Granted I only looked closely at RY's numbers so that may not be the case for the others.
@DealRNothing

I’m not a short bank guy either. I just bought some RY recently actually. Not a huge position but I am technically “long” banks. I know TD gets a lot of love around here, but that acquisition from Wells Fargo is an example of the sort of move I don’t think you would see RY make right now. Especially using the revenue from the loan loss reserves they took off to buy a loan business?

Look at the stuff RY focuses on: increasing capital markets and wealth management business. Diversifying the business. Investing in AI. Lowest payout ratio. RY just consistently makes smart decisions. Some of the other banks not so much.
Deal Addict
Dec 3, 2014
2348 posts
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Ontario
Stryker wrote: BNS's assessment of Canadian bank capital positions - "an embarassment of riches"

BNS assesses BNS and peers and gives stamp of approval. In other news, Tesla says Tesla is undervalued and BRK.A says it recommends a stock called BRK.B.

To be clear, I am not disputing this assessment as much as I am pointing out the inherent conflict of interest and the weight I give to a company essentially patting itself on the back.
Last edited by llpresident on Jan 15th, 2021 12:31 am, edited 1 time in total.
Deal Addict
Jul 30, 2012
2151 posts
3218 upvotes
llpresident wrote: @DealRNothing

I’m not a short bank guy either. I just bought some RY recently actually. Not a huge position but I am technically “long” banks. I know TD gets a lot of love around here, but that acquisition from Wells Fargo is an example of the sort of move I don’t think you would see RY make right now. Especially using the revenue from the loan loss reserves they took off to buy a loan business?

Look at the stuff RY focuses on: increasing capital markets and wealth management business. Diversifying the business. Investing in AI. Lowest payout ratio. RY just consistently makes smart decisions. Some of the other banks not so much.
If I had to only own one Bank (and for long term) it would be RY. As I strategically purchase/sell on valuations, I own/hold those with the "best" long-term performance (with the exception of NA as it is "too regional" for me). My holdings continue to be RY/TD/BNS on that basis and I do not expect to ever change those out with the "others" (i.e. BMO / CM).
LY, I was adding to RY in the high $70's and BNS in the low $50's - no TD add LY.
Deal Guru
Aug 17, 2008
10990 posts
13540 upvotes
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Answer not a fool according to his folly, lest thou also be like unto him = Never argue with an idiot, they'll only bring you down to their level & beat you with experience
Deal Addict
Sep 2, 2009
2978 posts
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Ottawa
DealRNothing wrote: If I had to only own one Bank (and for long term) it would be RY. As I strategically purchase/sell on valuations, I own/hold those with the "best" long-term performance (with the exception of NA as it is "too regional" for me). My holdings continue to be RY/TD/BNS on that basis and I do not expect to ever change those out with the "others" (i.e. BMO / CM).
LY, I was adding to RY in the high $70's and BNS in the low $50's - no TD add LY.
I might pick TD over RY (it would be close), but hold the same three overall.
Deal Guru
Aug 17, 2008
10990 posts
13540 upvotes
FWIW


CAN 2s5s continues to steepen. Another 20bps since Feb 3.
Answer not a fool according to his folly, lest thou also be like unto him = Never argue with an idiot, they'll only bring you down to their level & beat you with experience
Deal Guru
Aug 17, 2008
10990 posts
13540 upvotes
What analysts are looking for starting Tuesday.

Investors seek clues to how Canada’s big banks will use billions in excess capital
FEBRUARY 19, 2021
https://www.theglobeandmail.com/busines ... tpandemic/
Answer not a fool according to his folly, lest thou also be like unto him = Never argue with an idiot, they'll only bring you down to their level & beat you with experience
Deal Guru
Aug 17, 2008
10990 posts
13540 upvotes
Strong performance in all business segments except Corporate Services. The dividend is unch. Excerpts from the PR below. <edit: In today's head to head results, BMO's actual results vs expectations were > BNS.>

BMO Financial Group Reports First Quarter 2021 Results

Financial Results Highlights

First Quarter 2021 Compared With First Quarter 2020:

• Net income of $2,017 million, an increase of 27%; adjusted net income1 of $2,038 million, an increase of 26%

• Reported EPS2 of $3.03, an increase of 28%; adjusted EPS1,2 of $3.06, an increase of 27%

• Provision for credit losses (PCL) of $156 million, compared with $349 million

• Reported net efficiency ratio3 of 56.7%, compared with 60.8%; adjusted net efficiency ratio1,3 of 56.3%, compared with 60.3%

• ROE of 15.7%, compared with 13.3%; adjusted ROE1 of 15.8%, compared with 13.5%

• Common Equity Tier 1 Ratio of 12.4%, an increase from 11.4% in the prior year

TORONTO, Feb. 23, 2021 /CNW/ - For the first quarter ended January 31, 2021, BMO Financial Group (TSX: BMO) (NYSE: BMO) recorded net income of $2,017 million or $3.03 per share on a reported basis, and net income of $2,038 million or $3.06 per share on an adjusted basis.

https://newsroom.bmo.com/2021-02-23-BMO ... 21-Results
Last edited by MrMom on Feb 23rd, 2021 7:02 am, edited 1 time in total.
Answer not a fool according to his folly, lest thou also be like unto him = Never argue with an idiot, they'll only bring you down to their level & beat you with experience

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