Canadian Banks Ranking – Which One Of The Strongest Bank?

Cons:

  • Lack of growth vectors: With interest rates super low, interest margin will be squeezed. CIBC’s only way out is to do more loans. That could be a very difficult path in the next years considering the consequences of the pandemic on the economy.

Wait a minute… Pros are by far more numerous than the cons? Why is it at number 6? You’ll notice that each point of the pros side comes with a downside. CIBC is not bad, but there are better options. Not really convincing to me! This is why Canadian Imperial Bank is at number six.

5. ScotiaBank (BNS/BNS.TO)

The third largest bank in terms of assets and market cap. BNS has three business segments: Canadian banking, international banking, and global banking and markets. The full earnings review and my analysis were shared here.

Pros:

  • Best diversified, most international: For over a decade, BNS focused on growing outside Canada (especially in Central America and in South America). Obviously, their Gross domestic product (GDP) growth rate is better than US and Canada. Their perspective moving forward is also better (they should grow at a 3%-4% rate while it will be hard to reach over 1%-2% in Canada and the US).

Cons:

  • International exposure brings uncertainties: Before the pandemic, BNS had a great story, but they never capitalized on it, and they never outperformed other banks. Why? It’s complicated to do business in Central America! It took several years and several miss attempts for Canadian banks to enter the US. They made bad acquisitions and failed several times. Look at South America and Central America, you realise it’s a lot more complicated than making loans in the US. It’s even worse with the pandemic as countries with lower resources and weaker healthcare system will face more problems than in North America.
  • Worst performing stock from the top 6 over the past 10 years. With all the difficulties I just mentionned, I’m not expecting them to reverse that trend in the upcoming months and the upcoming years.

Overall, I think it’s going to be very hard for Scotiabank in the upcoming years. The dividend is safe, but I wouldn’t bet on that one to outperform the others.

4. Bank of Montreal – BMO (BMO/BMO.TO)

BMO conducts its business through three operating groups: Personal and Commercial Banking (P&C), Wealth Management and BMO Capital Markets. I’ve discussed their latest quarterly earnings and shared a full analysis in this recent post.

Pros:

  • Focus on capital markets and wealth management: They were the first in the country to have their own ETF suites. They saw where the market is going, and they took advantage of it. They were also among the first Canadian banks to make a move towards private banking with the acquisition of Harris Bank in Chicago. They’re well established in wealth management and in capital market and I like that.
  • Well established in the States.

Cons:

  • Revenue and earnings are more volatile: Because of that focus, their revenue and earnings are more volatile or riskier. Their dividend growth perspective versus the other five is lower.
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