Shares of Canada-focused banks outstrip rivals with overseas bets
By Nivedita Balu
TORONTO, Aug 16 (Reuters) - Three ofCanada's largest banks, driven by domestic growth,have soared in the stock market this year on a spate of acquisitions, while lenders with global ambitions have sagged on rising costs in foreign markets.
Shares of Royal Bank of Canada RY.TO, CIBC CM.TO and National Bank NA.TO have outperformed the broader TSX index's .GSPTSE 9.8% rise so far in 2024. National Bank was the top gainer with a 15.2% rise, followed by RBC with about 13.5% and CIBC with 10.9%.
The TSX banking index .SPTTFS has advanced about 7.5%.
Shares of rivals that rely on overseas markets to increase revenuehave fallen, led by Bank of Montreal BMO.TO with an 11.3% drop; followed by Toronto-Dominion Bank TD.TO, down about 6%; and Bank of Nova Scotia BNS.TO with about 1%.
Among the winners, RBC was propelled by its acquisition of HSBC Canada this year and National Bank rose on its C$5 billion ($3.65 billion) proposal to buy Canadian Western Bank CWB.TO.
CIBC got a boost from its focus on digital banking and wealthy clients in Canada, and growing U.S. commercial accounts.
"It's really a question of more risk appetite. The expansion within Canada, the east-west expansion, is a much lower risk proposition" than growth south of the border, said Ben Jang, a portfolio manager at Nicola Wealth, which holds shares in TD, RBC and CWB.
However, Canada's Big Six banks - four of which are among North America's 10 largest - already control more than 90% of the domestic market.
Some sought growth abroad after the government quashed plans in 1998 to merge RBC and BMO, and TD Bank with CIBC. The push intensified with TD's U.S. acquisition spree in the mid-2000s and BMO's $16 billion purchase of regional U.S. lender Bank of the West in 2022.
Scotiabank expanded even further south, to the Caribbean, Mexico, Peru and Colombia and other parts of Latin America.
However, the southward drive has encountered roadblocks. TD has been plagued by U.S. regulatory probes into its anti-money laundering program, and RBC Capital Markets analysts in July flagged faster credit deterioration at BMO than its U.S. peers.
Scotiabank last year laid out a plan to focus on the North American corridor. Its stock fell 3.4% on Monday after it announced a surprisingly aggressive move to buy a 14.9% stake in U.S. bank KeyCorp KEY.N.
For Scotiabank, acquisitions have historically weighed on returns, National Bank analysts noted.
As markets get more crowded, new growth is more likely to come from wealth management or capital markets, which are typically more profitable than consumer banking, investors and analysts said.
"Banks that focus on Canadian banking supplemented with wealth and capital markets outperform banks that chase international banking growth," analyst Nigel D'Souza at Veritas Investment Research said.
Compared with the Canadian market, U.S. personal and commercial banking generates a lower return on equity and costs to retain deposits are high in competitive areas.
Investors betting on U.S. growth are better off owning shares of U.S. banks such as JP Morgan JPM.N, Fifth Third Bancorp FITB.N and Regions Financial RF.N, which have larger returns on equity than Canadian lenders like BMO or TDwith U.S. subsidiaries, D'Souza noted.
RBC and National Bank trade at 12 and 11 times forward earnings estimates, respectively, indicating higher growthexpectations over the next 12 months thanTD's 9.5and Scotiabank's 9.2. BMO and CIBC have a forward price-to-earnings ratioof around 10 times.
JP Morgan JPM.N trades at 12 times forward earnings and Bank of America BAC.N at 11 times.
The S&P 500 banks index .SPXBK, which tracks the largest U.S. banks, has jumped nearly 16% this year.
Canada's Big Six banks ended the second quarter with total deposits of $5.7 trillion, of which 21.8% came from the U.S., according to an analysis by financial data provider Wowa.ca.
When asked to comment, RBC, TD, Scotiabank, CIBC and National Bank all pointed to financial statements for details ontheir foreign exposure. BMO declined to comment.
"We do know that (operating in the U.S.) is costlier. But for the Canadian banks it's that added incremental revenue because our (Canada) market is already saturated," said Maria-Gabriella Khoury, senior director at Fitch ratings.
"Now it's more along the lines of let's see whose strategy works best."
"They have got to think of something else right now. And I think shareholders recognize that the growth is just not there(overseas)," said John Zechner of J. Zechner Associates.
($1 = 1.3693 Canadian dollars)
Big Canadian banks' exposure to International markets https://reut.rs/4fyiDGn
International exposure as a percentage of total loans https://reut.rs/3WF54Mq
Canadian banks focused on home turf stand out https://reut.rs/3YCe9IS
Deposit distribution for big six Canadian banks https://reut.rs/4de0vQu
Reporting by Nivedita Balu in Toronto, additional reporting by Fergal Smith; Editing by Richard Chang
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إخلاء المسؤولية: تتيح كيانات XM Group خدمة تنفيذية فقط والدخول إلى منصة تداولنا عبر الإنترنت، مما يسمح للشخص بمشاهدة و/أو استخدام المحتوى المتاح على موقع الويب أو عن طريقه، وهذا المحتوى لا يراد به التغيير أو التوسع عن ذلك. يخضع هذا الدخول والاستخدام دائماً لما يلي: (1) الشروط والأحكام؛ (2) تحذيرات المخاطر؛ (3) إخلاء المسؤولية الكامل. لذلك يُقدم هذا المحتوى على أنه ليس أكثر من معلومات عامة. تحديداً، يرجى الانتباه إلى أن المحتوى المتاح على منصة تداولنا عبر الإنترنت ليس طلباً أو عرضاً لدخول أي معاملات في الأسواق المالية. التداول في أي سوق مالي به مخاطرة عالية برأس مالك.
جميع المواد المنشورة على منصة تداولنا مخصصة للأغراض التعليمية/المعلوماتية فقط ولا تحتوي - ولا ينبغي اعتبار أنها تحتوي - على نصائح أو توصيات مالية أو ضريبية أو تجارية، أو سجلاً لأسعار تداولنا، أو عرضاً أو طلباً لأي معاملة في أي صكوك مالية أو عروض ترويجية مالية لا داعي لها.
أي محتوى تابع للغير بالإضافة إلى المحتوى الذي أعدته XM، مثل الآراء، والأخبار، والأبحاث، والتحليلات والأسعار وغيرها من المعلومات أو روابط مواقع تابعة للغير وواردة في هذا الموقع تُقدم لك "كما هي"، كتعليق عام على السوق ولا تعتبر نصيحة استثمارية. يجب ألا يُفسر أي محتوى على أنه بحث استثماري، وأن تلاحظ وتقبل أن المحتوى غير مُعدٍ وفقاً للمتطلبات القانونية المصممة لتعزيز استقلالية البحث الاستثماري، وبالتالي، فهو بمثابة تواصل تسويقي بموجب القوانين واللوائح ذات الصلة. فضلاً تأكد من أنك قد قرأت وفهمت الإخطار بالبحوث الاستثمارية غير المستقلة والتحذير من مخاطر المعلومات السابقة، والذي يمكنك الاطلاع عليه هنا.
