Monday, June 11, 2007

Banks with International Platforms

The Globe and Mail, 11 June 2007

Wolves like to hunt in a pack; Canada’s banks don’t. Which might explain the divergence between individual banks in the second quarter.

Blackmont Capital analyst Brad Smith points out that “operating scale and regional diversity” will increasingly separate the men in blue suits from the boys. And there was no mistaking that theme during the latest quarter as “scale players with significant international platforms” like Royal Bank of Canada, Bank of Nova Scotia and TD Bank led revenue growth, operating leverage, and profitability, he writes.
He figures the sell-off in banking stocks during the profit parade resulted from several minor profit misses, a perceived decline in earnings quality and most recently, the sharp rise in global bond yields. All of which reflects a “growing sensitivity to both growth and earnings qualities trends.” That’s why he figures banks like Scotiabank and Royal Bank are likely to deliver above-average investment returns.