Diversification of Canadian Banks – Take Two

An old fashioned 'Bank' sign on a building exterior.

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Last week, I posted an article that took a deep dive on the geographical diversification of the Big Five Canadian banks – Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM). The article can be found here.

In that article, I presented data for geographical revenue diversification of the banks – and presented 10-year trend charts.

Revenue provides only part of the story, and I decided to continue digging and pull the earnings numbers as well. Unfortunately, the earnings presented in the annual reports are broken down by segment and not geographical regions, so there is no apple-to-apple comparison to see which geography is earning the most. However, looking at the segment breakdown can also provide some insight on which direction a bank is headed.

For the sake of completeness, I am also including the charts for geographical revenue diversification in addition to the earnings-by-segment charts. Enjoy.

Royal Bank of Canada (RY)

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Toronto-Dominion Bank (TD)

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Bank of Nova Scotia (BNS)

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Bank of Montreal (BMO)

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Canadian Imperial Bank of Commerce (CM)

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Summary

The fiscal year for the Big Five Canadian banks ends in October. With the end of the year, and a delay of a few weeks, companies release their annual reports which give investors a clear picture of the overall operations with breakdown in revenue and earnings. This is vital information for long term investors and provides visibility into the operations.

Management may say one thing or another, but the numbers always speak for themselves — and confirms whether management is executing the path that is paved by the ideas generated in order to look for stability and growth. This article takes a close look at the state of affairs of the Big Five Canadian banks and their geographical revenue diversification and segment earnings diversification.

 

16 thoughts on “Diversification of Canadian Banks – Take Two

  1. We didn’t bring enough cash, as a proud owner of BNS, I walked into the bank and test the service out. It was great! The line was long, so business is going strong. I read some report where BNS has too much exposure in South America, but I think not! I’m going to hang on to my BNS shares as long as I can.

    • Good to get a report from Latin America, Vivianne. I remember seeing BNS branches all over when I was in Mexico a few years ago. A company that has paid dividends for almost 200 years…I see absolutely no reason to sell. They have been through the worst of times. Definitely falls in the “Buy and forget” pile of companies.

      cheers
      R2R

  2. Great comparison of the of the Canadian banks. It’s always interesting to see how they are diversified in terms of operations and geography. I’m still holding on to my shares going forward despite a very difficult 2015. Of course, my primary concern is that the dividend remains safe which it is based on current cash flow. In the meantime, I’ll get paid to wait.

    • The dividend is as safe as they come. 150-200 years of dividend payments. Doesnt get any better than that. Its been a difficult 2015 and 2016 might be the same. I will be buying more when I start putting more money into that account where I hold BNS.

      Best
      R2R

  3. Roadmap,

    Cool analysis. Love that CM’s bread and butter is real deal banking. TD is very well known for their brokerage and wealth management and truly do provide you the breadth of a financial institution there. Very interesting. I like it! Who is your favorite?

    -Lanny

    • Oh, thats really hard to pick … they are all so good. But if you twist my arm and ask for an answer – my top two picks will be BNS and TD – which is why I picked them to invest in. Although I really dont see any problems with the other three — in fact, I may pick another one or two in the coming quarters/years.

      R2R

  4. Interesting info, it highlights the similarities between TD and RY. BMO lags a bit – have to wonder if it is energy loans or competition (US footprint overlap with USB). To elaborate on Vivianne’s concern, the report I read concerned their acquisition of C’s Panama and Costa Rica consumer business. I don’t necessarily see this as a major issue unless the strong US dollar continues to wreak havoc on emerging markets for an extended period.

    How about this for part 3: The benefits to Canadian bank earnings by playing the spread on Fed interest payments on both required and excess reserves. Particularly in a rising interest rate environment coupled with FX tailwinds (USD to CAD).

    • Hi Charlie,
      BNS sure has been shuffling things around over the past 2-3 years. They sold and wrote down a lot of their assets in South America. They seem to be more focused on building their brand in Central America now – which I personally think is a better option for international exposure. As manufacturing shifts to countries like Mexico – the strong US$ may not be seen as a bad thing for the Mexican and other central American countries – which also depend on tourism as a major part of their economy.
      Interesting suggestion…that really gives me something to think about – will have to see if I can get the data requested.

      cheers
      R2R

  5. Thanks for the article R2R! BNS was my first purchase in the banking sector and still adding to it. I plan on it to be one of my larger holdings in that sector and will eventually add another Canadian bank to go along with it.

    • Glad you like it, Agent.
      BNS is a great company – although it is going through some rough time due to the oil sector exposure and the high exposure to Latin American countries. But its one of my top core holdings as well – I will be adding to my position through this weakness.

      Best
      R2R

  6. hotrunner says:

    A GREAT Blog, GREAT Analysis, Friendly responses. You can tell that a lot of hard work, time and effort is being given to making this site very informative…..just an all around GREAT site to visit and learn. Thanks !

  7. This is an excellent summary. I love it. I always wondered how international exposures were like in other banks that I don’t own yet and this just summarized perfectly. TD bank is gaining higher US exposure which is great which I was considering to add soon. Their earning this quarter also surprised the market.

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