The Best Banks In North America Probably Aren’t Where You Think

[jesseps]

At the turn of the century, U.S. banks like Citigroup, Wells Fargo, and Bank of New York Mellon dominated the list of the world’s highest-valued banks.

 

Of course though, the financial crisis and resulting recession altered all that. So by the end of the decade, that pecking order changed… a lot. Suddenly, a slew of Chinese and Brazilian banks had made the cut. For that matter, so had several Canadian financials, including the Royal Bank of Canada and the Bank of Nova Scotia.

 

These big Canadian banks typically generate return on equity between 13% and 20%. And they rarely produce negative returns on equity. In contrast, their comparable competitors in the U.S. ranged between 10% and 25% on their returns.

 

Knowing that, it suddenly makes sense why so many investors are taking their money north of the border…

 

How Canadian Banks Survived the Financial Crisis

 

Canadian banks survived the financial crisis without any infusion of government money. And since then, they have relied far less on liquidity support than either U.S. or European banks.

 

With a vast and stable domestic retail base, they also limited their exposure to more volatile money markets and securitized funding, even while most other western countries were loosening their standards. By law, Canadian banks had to meet tough regulations such as:

 

- Tier-one capital targets of at least 7%

- Leveraging ratio of debt-to-equity of no more than 20-to-1

- Capital requirement quality, where 75% of Tier-one capital had to be in common shares.

 

As a result, Canada’s five biggest banks – Royal Bank of Canada, Bank of Nova Scotia, Canadian Imperial Bank of Commerce , Bank of Montreal and Toronto-Dominion Bank – now have millions of excess capital.

 

Those five built up their capital cushion through fund raising forays and retaining earnings over the past two years. Their thrifty actions left them with the strongest balance sheets in the world… not to mention enough left over to maintain normal dividend payments to shareholders.

 

UBS banks analyst Peter Rozenberg believes Canadian banks represent the best of western banking institutions in a “new world.” This new world, he suggests, involves not only investors that want to see decent profits and dividends with strong capital bases, but also regulators that actually take risk into consideration for a change.

 

Read more

 

 

(Courtesy of Daily Markets)

[Maisonneuve]

This story is indicative of the positive feeling in this country in the last couple of years. There's a sense of optimism in Canada, relative to other Western nations, has is seeing are country rise on the world stage. The Vancouver Olympics is doing for Canada what Expo 67 did last century, only this time we're announcing that we are a progressive, post-modern nation, with trustworthy and stable financial institutions which are the cornerstones of our wealth. This is not to say that Canada is a country without problems. But in general, Canada is just a very optimistic country right now. More immigrants choose to come to Toronto, than New York, because the sense is that America's problems are bigger than Canada's and Canada is a mosaic and not a melting pot.

[Cataclaw]

I agree. Canada (and by inclusion Quebec) is doing very well compared to other western countries. Financial regulation is NOT an evil. Without regulation there is financial anarchy and we see saw that in the U.S these past few years.

[GoMontreal]

I agree. Canada (and by inclusion Quebec) is doing very well compared to other western countries. Financial regulation is NOT an evil. Without regulation there is financial anarchy and we see saw that in the U.S these past few years.

 

Conservative financial regulation is good and Harper has done well to keep us out of the mess. However, progressive/redistribute-the-wealth regulation is what brought down the US in this past recession and since Obama is increasing this progressive regulation, the US will be in dire condition for many years to come.

 

When you force banks to give mortgages to poor people without letting the banks ask the people if they have a job and what their assets are, that's a recipe for a real estate bubble.

 

The best regulation is no regulation in this case. If I have money to lend out, why the hell would I lend it to someone I knew wouldn't be able to pay me back unless I am forced to by a well-meaning foolish government? It would also make the clients responsible for where they get their loans (ex: get a bank that has a limited loan to debt ratio). Of course the government guarantees these loans because they know that those loans are risky and unsustainable and that's why you need to bailout banks afterwards.

 

The whole thing is completely ridiculous and I am glad to live in Canada today where our government is wise enough to not get into that mess.

 

However, don't be fooled, Quebec, as a nation, would be the 5th most indebted country in the world today and that doesn't take into account prerequation money (8.5 billion/yr) that we get from Alberta.

 

Canada is doing well in spite of Québec's idiotic and reckless financial choices.

Edited March 9, 2010 by GoMontreal

[Cataclaw]

Conservative financial regulation is good and Harper has done well to keep us out of the mess. However, progressive/redistribute-the-wealth regulation is what brought down the US in this past recession and since Obama is increasing this progressive regulation, the US will be in dire condition for many years to come.

 

When you force banks to give mortgages to poor people without letting the banks ask the people if they have a job and what their assets are, that's a recipe for a real estate bubble.

 

The best regulation is no regulation in this case. If I have money to lend out, why the hell would I lend it to someone I knew wouldn't be able to pay me back unless I am forced to by a well-meaning foolish government? It would also make the clients responsible for where they get their loans (ex: get a bank that has a limited loan to debt ratio). Of course the government guarantees these loans because they know that those loans are risky and unsustainable and that's why you need to bailout banks afterwards.

 

The whole thing is completely ridiculous and I am glad to live in Canada today where our government is wise enough to not get into that mess.

 

However, don't be fooled, Quebec, as a nation, would be the 5th most indebted country in the world today and that doesn't take into account prerequation money (8.5 billion/yr) that we get from Alberta.

 

Canada is doing well in spite of Québec's idiotic and reckless financial choices.

 

What?

 

*blinks*

 

The financial system in the U.S. was brought down because of a severely deregulated system (among other things), not "progressive regulation". Wow. I understand your need to fire off your conservative talking points, but at least get your facts straight.

[Gbx]

What?

 

*blinks*

 

The financial system in the U.S. was brought down because of a severely deregulated system (among other things), not "progressive regulation". Wow. I understand your need to fire off your conservative talking points, but at least get your facts straight.

 

I must say I agree with GoMontreal, the real estate crisis was linked to unproper governmental regulation and monetary policy in the US that encouraged banks to make loans they wouldn't have done otherwise. It is likely that no regulation at all would have produced a better result. But it is easier and more politicaly attractive to point at the "greedy" banks for the mess than confessing your own responsability. I'm still in favor of some degree of regulation though.

[GoMontreal]

What?

 

*blinks*

 

The financial system in the U.S. was brought down because of a severely deregulated system (among other things), not "progressive regulation". Wow. I understand your need to fire off your conservative talking points, but at least get your facts straight.

 

That's ridiculous, how was it deregulated? Where are your facts? Why would banks invest in money loosing loans?

[Malek]

GoMontreal you took many shortcuts in your argumentation, I don't feel like debating each one of them.

 

But to be precise, Obama did not open the "gates" for affordable housing, neither Bush. It was Clinton that severly changed the rules to let "anyone" get money for a house.

 

http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

[GoMontreal]

GoMontreal you took many shortcuts in your argumentation, I don't feel like debating each one of them.

 

But to be precise, Obama did not open the "gates" for affordable housing, neither Bush. It was Clinton that severly changed the rules to let "anyone" get money for a house.

 

http://www.businessweek.com/the_thread/hotproperty/archives/2008/02/clintons_drive.html

 

You're right, I did... However, I didn't say that Obama was responsible for what happened before he was in power. What I am saying is that he's not making things better.

 

Carter was the one that first put in the Community Reinvestment Act (CRA) but then, Clinton brought it into hyper-speed with his amendments. http://en.wikipedia.org/wiki/Community_Reinvestment_Act

 

I think that Clinton even tried to slow down the negative effects from his own amendments but democrats didn't want to make the necessary changes. Many republicans also saw the crisis coming and tried to do something about it but nothing came out of it.

 

When Harper came into power, he saw what was happening in the US and made necessary -fiscally conservative- changes.

[Cataclaw]

A lot of people were allowed to run loose and do whatever they wanted. Lending money to people they shouldn't have, providing people with mortgages that couldn't be paid, etc. Incorrect regulatory policy along with bad practice were a huge contributor to this mess. If you choose to believe otherwise, that's your prerogative.

 

As the most partisan person on mtlurb, your comments don't really surprise me, GoMontreal. It'll be a cold day in hell before you admit conservatives are capable of wrongdoing and liberals can be correct from time to time. With that in mind, i don't really feel like debating you on this one. If i wanted to listen to the same old talking points i'd turn on Fox news.

Edited March 9, 2010 by Cataclaw