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U.S. vs. Canada: How the big banks stack up Add to ...

Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc. michael@wickhaminvestments.com

What are we looking for?

Today’s screen compares the six largest U.S. banks and the six largest Canadian banks.

The screen

My colleague Rob Belanger and I ranked all 12 banks according to their market capitalizations. The six U.S. banks are collectively about twice the size of their Canadian counterparts.

The ROE, or return on equity, measures how efficiently a company can generate profits from its capital. The U.S. banks have been forced to deleverage in the years following their industry’s unprecedented taxpayer bailout, and our Canadian banks lead in the ROE category.

Our banks also rank much better in the non-performing asset (NPA) to total assets category. When a customer defaults on a loan, the bank writes it off as an NPA. We are looking for a low number in this category.

The Tier 1 capital ratio is a comparison between a banking firm’s core equity capital, and its total risk-weighted assets. We’ll call this one a draw.

The tangible book value (TBV) is the book value with all intangible assets, like goodwill, removed. Canada looks to be more expensive here.

The U.S. wins on the net interest margin ratio. This examines how successful a bank’s investment decisions are compared to its debt obligations. The U.S. banks on the whole made better investments with less interest expense.




The U.S. banks are being held back by lower leverage and higher capital requirements. There is little reason to bid up U.S. banks with ROEs so depressed.

While U.S. bank stocks have climbed this year, Citigroup, for example, is trading 93 per cent below its 2006 peak, with a current yield of 0.1 per cent.

In Canada, the combination of strong underlying credit fundamentals, a prudent regulatory environment, sound government fiscal policies and a more stable real estate environment have all contributed to the superior standing of Canada’s banks.

Royal Bank is trading 13 per cent higher than its 2006 peak, with a current yield of 4.3 per cent.


Close-up on the big banks

Company Market cap. ($ bil.) ROE % NPA to total assets %
Wells Fargo & Co 168.14 12.68 1.84
JPMorgan Chase 150.27 9.84 0.54
Citigroup Inc. 102.58 4.00 0.66
Bank Of America 98.30 1.85 1.15
US Bancorp 59.33 16.62 0.80
PNC Financial 28.74 7.72 1.34
average 101.23 8.78 1.05
Royal Bank Of Canada 80.35 19.21 0.26
TD Bank 72.15 14.85 0.30

Source: Wickham Investment Counsel Inc., Bloomberg


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