Cdn Banks So SuperiorI've been saying all along, Cdn banks are nowhere near their US counterparts:
- Very limited subprime exposure (relatively small holdings of CDOs and minor amounts of business related to warehousing/underwriting)
- Very limited ABCP business as Cdn ABCP sector is very small compared to the US proprotionally.
- Very small exposure to "hung" private equity loans unlike huge holdings for US banks.
- Cdn economy way more solid. US housing on way down with reduced sales and prices, less mortgages and increasing defaults. Cdn housing pices are steady, sales brisk, and the economy in general much stronger thanks to a more commodity-based economy and lack of "excesses" in the system.
- Cdn banks just reported stellar and record earnings. TD and RY increased dividends and CM will this week as well - probably by about 10%.
- Cdn bank earnins look solid for next quarter as well. Increasing spreads will immediately help offset any negatives that may occur. More importantly, the higher banking spreads will help bank earnings long-term. As well, the likely increase in bank term deposits will reduce the banks funding costs. And banks now stronger competitive to non-bank financials whom the debt markets have become closed (i.e., more market share). Bottom line?: Cdn banks margins will greatly benefit from the credit squeeze and repricing of risk. But they won't have the pain of massive writedowns, huge reduction in underwriting business and system clogged of hung loans as its US counterparts.