What are we looking for?
North America’s biggest, most efficient banks.
My colleague Rob Belanger and I started with North American banks over $5-billion in market capitalization.
Tier 1 capital is the measure of a bank’s financial strength based on the sum of its equity capital and disclosed reserves. A firm’s risk-weighted assets include all assets that a firm holds that are systematically weighted for credit risk. Generally, a firm must have a ratio of Tier 1 capital to its risk weighted assets of more than 6 per cent to be considered well capitalized. We are looking for a large ratio.
The efficiency ratio shows the percentage of a dollar needed to produce $1 of revenue. We have sorted the banks based on the efficiency ratio, from best to worst.
We are looking for a low number when examining the percentage of non-performing assets in comparison to total assets. In simple terms, if a borrower fails to make a loan payment for 90 days it is considered to be a non-performing asset.
U.S. hedge funds see Canada’s housing market as a bubble set to burst and they want to take advantage of that by shorting the banks that hold the mortgages. The short interest ratio is a sentiment indicator derived by dividing the amount of stock that is sold short by the average daily volume of a stock. It determines how long it will take short sellers, in days, to cover their entire position if the price of a stock begins to rise.
What did we find?
Excluding the yield, one of the best banks on our list is First Republic. A relative newcomer on the scene, the company was formed in 1985 and operates predominantly on the U.S. West Coast. M&T Bank claims the highest short interest ratio at 11.06 days. The firm was started in 1856 and sports the best efficiency ratio but scores relatively poorly in the Tier 1 capital and non-performing asset categories.
While CIBC and the Bank of Nova Scotia are very close in most categories, we’ll give the edge to CIBC with its higher yield and better Tier 1 capital ratio.
While Bank of America only scores well in the Tier 1 capital ratio, the stock has doubled in the past 12 months.
Evident on our screen, bashing and shorting Canadian assets has been a popular chant this year. Pacific Investment Management Co. LLC (Pimco), the world’s largest bond fund, says the bearishness has gone too far. Playing the short side could be a dangerous gamble. As always, do your own research or contact an investment professional before buying.
North American banks ranked by efficiency ratio
|M&T Bank Corp.||MTB-N||15.42||10.62|
|Fifth Third Bancorp||FITB-Q||17.52||11.07|
|First Republic Bank||FRC-N||5.66||13.52|
|Bank of Nova Scotia||BNS-T||68.3||10.7|
|Wells Fargo & Co.||WFC-N||237.27||12.14|
|Royal Bank of Cda||RY-T||91.38||11.2|
|National Bank of Cda||NA-T||12.42||11.4|
All currencies are local. Source: Bloomberg, Wickham Investment Counsel Inc.
Total Assets (%)
|M&T Bank Corp.||MTB-N||15.42||10.62||50.2||1.26||11.06||2.35||40.45|
|Fifth Third Bancorp||FITB-Q||17.52||11.07||52.29||0.93||2.75||2.23||41.48|
|First Republic Bank||FRC-N||5.66||13.52||54.78||0.17||1.57||0.98||32.97|
|Bank of Nova Scotia||BNS-T||68.3||10.7||55.86||0.48||6.5||3.89||16.9|
|Wells Fargo & Co.||WFC-N||237.27||12.14||56.8||1.46||1.82||2.22||33.86|
|Royal Bank of Cda||RY-T||91.38||11.2||57.88||0.1||8.14||3.66||28.88|
|National Bank of Cda||NA-T||12.42||11.4||58.8||0.19||9.29||4.1||8.86|
|PNC Financial Svcs.||PNC-N||40.9||12||59.92||1.24||2.58||2.13||29.15|
|Bank of Montreal||BMO-T||40.67||11.3||61.76||0.51||9.89||4.41||16.29|
|Bank of America||BAC-N||159.86||12.16||69.91||1||0.9||0.27||103.95|
- Canadian Imperial Bank of Commerce$102.19-0.11(-0.11%)
- Bank of Nova Scotia$65.00+0.49(+0.76%)
- Toronto-Dominion Bank$57.67+0.21(+0.37%)
- Royal Bank of Canada$80.55+0.55(+0.69%)
- Bank of America Corp$14.88+0.18(+1.22%)
- M&T Bank Corp$119.37+1.60(+1.36%)
- U.S. Bancorp$42.95+0.28(+0.66%)
- Updated May 27 4:00 PM EDT. Delayed by at least 15 minutes.