After a summer spent in the UK, it seems only appropriate that my first post after returning to Canada should echo my last one, namely to note further dividend increases by the Canadian banks. Furthermore, amongst those raising their payouts was Bank of Montreal (BMO-T;BMO-N) which had been the only one of the Big Six banks (RBC, TD, Scotiabank, BMO, CIBC and National Bank) not to have raised its payout since the Financial Crisis of 2008-09. In fact, BMO had not raised its dividend in 5 years, the longest period since the early 1980s, although its U$4 billion acquisition last year of US bank Marshall & Ilsley, the largest bank in Wisconsin, which effectively doubled the size of its US operations, had meant that it had considered issuing a large number of shares, giving it an excuse not to follow the example of its rivals.
TD led the way, raising its dividend 7%, followed by RBC with a 5.3% increase, CIBC with 4.4%, Scotia with 3.6% and BMO, whose 2 cent increase to $0.72 a quarter represented a 3% increase. The only one of the Big Six not to increase its dividend this quarter was National Bank, but that was because it had increased its dividend 5% the previous quarter. Between them, the Big Six banks made net profit of $8.3 billion in the quarter ending on 31st July, although that did include a large one-off profit of $614 million for Scotia, which had sold its Scotia Plaza headquarters building in Toronto. Canadian banks continue to be amongst the most profitable and soundest financial sector companies in the world, helped by the effective oligopoly they enjoy in Canada, reinforced this quarter by Scotia’s purchase of ING Canada, the eighth largest bank in Canada with 1.8 million customers and $30 billion in retail deposits for $3.1 billion ( a net $1.9 billion). Its Dutch parent was required to sell-off the 15 year old business, which had used its direct business model with no physical branches and higher deposit rates to attract almost 6% of the Canadian population who were dissatisfied with the conventional banks, as a condition of the financial aid it had received from the Dutch government during the financial crisis.
Having completed the acquisition of $24 billion of assets between 2009 and 2011, Scotia’s purchase may mark the start of another buying spree by the cash rich Canadian banks. Last year CIBC bought 41% of the American Century asset management business with U$112 billion in assets under management for $848 million, and other banks are looking at expanding their asset management arms, which do not require much, if anything, in the way of scarce bank capital, and provide steady fee based income, with RBC having bought PH&N in Canada in 2009 and Blue Bay in the UK for $1.6 billion in 2010 and Scotia having bought Dundee Wealth Management for $2.3 billion last year.
RBC is by far the best performer amongst the banks over the last year, up 21% on its disposal of its loss-making US retail operations, while TD is up 11%. The other banks are up less than 10%, led by National up 6.8%, Scotia (+3%) and CIBC (+1.8%), with BMO, probably due to its failure to raise its dividend actually down -0.4%. Based on the principle that I mentioned in my last post, that given the similarity of their businesses one should sell the best performer and buy the worst performer amongst the banks over the last year, it seems probable that BMO could be an out performer over the next few months, especially now it’s finally raised its dividend.