On October 2nd, 2018, Hamilton Capital will be launching the Hamilton Capital Canadian Bank Variable-Weight ETF (HCB). This ETF will consist of the Big-6 Canadian banks, rebalanced monthly to capitalize on the long-term mean reversion tendencies of the sector. Specifically, it will overweight the three most oversold banks from the prior month (to ~80%) and underweight the three most overbought banks (to ~20%). Please note: The…
Insights: Canada
Canadian Western Bank as a U.S. Mid-Cap Proxy
Canadian Western Bank has achieved highly material long-term outperformance versus its larger peers. In this post, we relate its sizeable outperformance to our preference for U.S. mid-cap banks. In our January 24, 2018 comment, “U.S. Banks: High/Low Growth Areas in One Map (i.e., ‘Follow the Sun’)”, we explained that there are vast demographic differences within the six distinct geographic regions of the United States (five of…
CIBC: On PVTB, Why We Agree with the Higher Bid (and Two Reasons Why it Should Not be Raised Further)
In this ETF Comment, we: (a) explain why we agree with CIBC’s decision to increase its bid for PVTB, and (b) provide two reasons why the bank should walk away from their bid, if this new price is not accepted.
Canadian Banks: Why U.S. Mid-Caps are Easier to Acquire (than 10 Years Ago)
In the Hamilton Capital Global Bank ETF (HBG; TSX), we generally seek to hold 50% North American banks, with an emphasis on the ~200 publicly traded U.S. mid-cap banks (those firms with <$100 bln in assets). As of the time of writing, HBG had exposure to 23 U.S. banks representing 43% of the ETF’s net asset value.
Canadian Banks: Revisiting our “End of an Era” Thesis (Five Years Later)
In May 2011, we wrote an essay entitled “The Canadian Banks – The End of an Era”. In this essay – which was excerpted in the Globe and Mail – we explained why the Canadian banks were entering a period in which their two-decade period of double digit EPS/dividend growth was ending. Specifically, we identified three reasons supporting this thesis: (i) the drivers of the sector’s…
In Person: Canadian Banks – A Conversation on International Expansion
Today, we hosted a fireside chat with three of the Big-6 Canadian bank CEOs at Toronto’s Fairmont Royal York Hotel. The conversation centered around the banks’ international platforms, discussing everything from their differing capital deployment strategies to their outlooks for their foreign platforms over the next decade.
Canadian Banks: Housing Correction Concerns Increasing Regulatory Risk
As we have highlighted in numerous Hamilton Capital Insights, regulatory risk is a key risk in global banking, and one we attempt to minimize our exposure. It is most intense for the mega-banks in the U.S. and Europe, particularly those with global investment banking operations (i.e., C, BAC, JPM, CSGN.VX, UBS.VX, DBK.GY, BARC.LN). Although post-crisis, those global banks have been the epicentre of regulatory risk, the recent…
Canadian Banks: More Risky vs. Less Risky Loans in One Chart
At present, the Canadian banks have outstanding asset quality. Although provisions rose notably for the second consecutive quarter in Q2, provision and gross impaired loan ratios remain below long-term averages. With Q3 reporting beginning August 23rd, we believe the market will be focused on two areas of potential deterioration: (i) energy loans (which have been driving higher loan losses), and (ii) Alberta consumer, particularly uninsured.
On Capital, Canadian Banks Continue to Lose Ground vs. Global Peers
In our Insight, “Canadian Banks – Are Falling Global Reserve/Capital Rankings Increasing Regulatory Risk?” (April 27th, 2016), we highlighted that on the most important capital ratio, CET1, the Canadian banks have an average ratio of ~10%, which is well below the average of ~13.5% for the banks in 35 “major” countries (ranking 34th out of 35). We also explained in that Insight that we believe the…
Part #3 of 3: Canadian Banks – Are Falling Global Reserve/Capital Rankings Increasing Regulatory Risk?
In our three-part series, Canadian Banks: How Worried Should You Be (about Rising Energy Losses, Low Reserves, and Recessionary Alberta)?, we have been reviewing the challenges facing the sector. In this Insight, we discuss another potential issue facing the Canadian banks: rising regulatory risk. With the sector near the bottom of global rankings for key capital and reserve ratios, we discuss the potential for policy makers to…
Part #2 of 3: Canadian Banks – How Worried Should You Be (about Rising Energy Losses, Low Reserves, and Recessionary Alberta)?
With a 20% rise in loan losses in fiscal Q1, it would appear that Canadian banks are entering at least a mild credit cycle. In our view, the magnitude of provisions for credit losses taken over the next several quarters will be influenced by three issues: (i) an over 50% decline in the price in oil is placing stress on more than $100 bln in drawn/undrawn…
Part #1 of 3: Canadian Banks – Are Sectoral Allowances the Solution to Low Reserve Ratios?
The Canadian banks have very low reserves-to-loans ratios (“reserve ratios”). Why? The banks are generally restricted by accounting rules from setting aside specific reserves until after there has been some form of impairment/loss event (often referred to as an “incurred loss” model). This makes it very difficult for the Canadian banks to set aside allowances/reserves for impaired loans in advance of loans going “bad”. The result,…