08 October 2009

Canadian Banks Rebound From Crisis Ahead of Rivals

Bloomberg, Matt Walcoff and Sean B. Pasternak, 8 October 2009

For Canada’s banks, it’s almost as if the financial crisis never happened.

The Chart of the Day shows bank stocks in Canada’s Standard & Poor’s/TSX Composite Index have recouped almost all of their losses since Aug. 8, 2007, the day before credit markets began seizing up. The nine stocks in the bank index trade at 91 percent of their level on that day, rebounding from a six-year low on Feb. 23. That compares with 53 percent for the MSCI World Bank Index and 35 percent for the S&P 500 Banks Index.

“It’s easier to be comfortable in the banking sector in Canada, because while they all have different strategies, they are all relatively conservative,” said Todd Johnson, who helps manage C$125 million ($115 million) at BCV Asset Management in Winnipeg.

Canada has the soundest banking system of the 133 countries surveyed in the Global Competitiveness Report of the World Economic Forum, which runs the Davos meetings of world leaders. The U.S. ranks 108th. No Canadian bank has failed since the early 1990s, and none of Canada’s 21 domestic banks has asked for a government bailout.

Royal Bank of Canada, the country’s largest lender, surpassed its August 2007 stock price on Aug. 27, and last week reached the highest price since July 2007. National Bank of Canada, the nation’s sixth-biggest bank, only needs to rise 1.3 percent to reach its Aug. 8, 2007, level. National Bank has surged 88 percent in 2009, the most among lenders in the S&P/TSX and S&P 500.

Analysts are betting the surge isn’t over. Canadian bank stocks with at least five analyst recommendations have an average rating of 3.49, with 5 as the top ranking. The average U.S. bank stock has a rating of 3.22 and the average European bank is at 3.03, according to Bloomberg surveys.