You can’t keep a “good” oligopoly down. The big Canadian banks giveth and taketh in generous fashion. This past week delivered the generous earnings of the big Canadian banks. They take too much in fees from everyday banking. They take too much in fees from investments and advisory services (generally poor). But if you’re a shareholder in the big Canadian banks, you’re on the take. You’ll benefit from the oligopoly. Of course the big banks have become much more diversified over the last few decades with considerable business operations in the U.S. and beyond. That diversification has made them even better investments. We’ll take a brief look at earnings from the big Canadian banks.
While the Canadian economy is supposed to be crushed by Donald Trump, that is underway by the way, the Canadian banks are crushing earnings season. That might not add up.
Canadians should avoid bank mutual funds
But perhaps it’s another reminder that the stock market is not the economy and the Canadian banking sector is not the economy. I’d add, if the Canadian economy eventually takes a prolonged Trumping, er make that Thumping, of course the banks are going to feel it.
How much? Who knows? The banks have proven to be quite resilient in the past. See oligopoly ‘stuff’.
Less doomsday funds/ more profits
Most of the banks set aside less funds for potential credit losses, PCLs or provisions for credit losses. When less funds go under the mattress more funds show up in the profits category. That helped to drive some of the earnings growth, but there was more organic growth under the hood, from many segments for most of the banks. Below I will provide a simple summary of two important metrics, revenue and adjusted earnings. Adjusted earnings will remove any noise or special items that might distort the true earnings story.
Must read: Investing in Canadian banks.
Royal Bank of Canada was the outlier adding more money to their rainy day funds.
TD Bank (TD-T)
Revenue growth: $15.3 billion up 7.7% year over year.
Adjusted earnings per share of $2.20 up 7.3% year over year.
Royal Bank of Canada (RY-T)
Revenue growth: $16.99 billion up 16% year over year.
Adjusted earnings per share of $3.84 was up 17% year over year.
Scotiabank (BNS-T)
Revenue growth: $9.84 billion up 13.4% year over year.
Adjusted earnings per share was $1.88, from $1.63 last year up 15.3% year over year.
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Bank of Montreal (BMO-T)
Revenue growth: $8.99 billion up 9.8% year over year.
Adjusted earnings per share of C$3.23, up 22.3% year over year.
CIBC (CM-T)
Revenue growth: $7.25 billion up 10% year over year.
Adjusted earnings per share of C$2.16 up 5% year over year.
Here’s a very good summary from BNN Bloomberg on how each bank was able to manufacture the beats.
Don’t forget to take profits
Ya, it’s called rebalancing the portfolio.
I have trimmed some RBC a couple of times over the last month, to create retirement income. I’ll add more limit sales. I hold XFN-T in my RRSP, there is a limit sale that should hit the target soon, if the markets keep cooperating.
Take the gifts that keep on giving, because eventually they will stop giving. We have been blessed with some wonderful returns in recent years and recent decades. The banks and the financials are habitual outperformers.
I like the broader financials index. My allocation is now RBC and XFN-T in my RRSP. In my wife’s Canadian blue chip stock portfolio she holds RY-T, TD-T, BNS-T, BMO-T, POW-T, SLF-T and MFC-T.
NVIDIA – Wow! I’m happy to hold the AI semi’s, CHPS-T in my TFSA.
Bottoms up not elbows up
There’s no need to go ‘elbows up’ on Crown Royal. It is still very much a proud Canadian product …
Here’s the Food Professor’s take on why liquor boards should get involved in the tariff games.
Stay the course
And as always stay the course. We’ll see you in September …
More Sunday Reads
At Findependence Hub you can check out some of the Harvest high income ETFs, if that’s your type of thing.
Dan at Stocktrades takes a look at Sun Life after a trying quarter.
And who knew? You can change your mind on your OAS. up to one year of ‘back pay’ …
Ya, Aaron knew 😉
We check in with Dividend Hawk to see that he holds the Canadian banks in his personal portfolio.
Barbell Financial asked …
“We’re early!: I replied. I have Bitcoin at 3% of my RRSP and over 20% in my TFSA.
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Hi Dale! Would you share more about your thoughts and resources you trust about investing in bitcoin. Thanks!