North American banks just ended one of the best quarters since the financial crisis. In the U.S., the FDIC reports that profits rose 21% from one year ago, with lending and deposits up, and the percentage of bad loans down. This is great news, but investors will have to wait a bit longer -- perhaps another 12 quarters --before yields and dividends increase to palatable levels.
Canadian banks turned in stellar numbers, as well, but that’s where the similarities end. The five largest banks produced a 45% increase in profits from last year, and have increased their dividend payments, as well. The Royal Bank of Canada
How they do it
Canadian banks have been on a North American spending spree, and are buying up almost everything in sight. This expansion has gone beyond Canada, and a strong U.S. presence by Toronto-Dominion Bank
Bank of Montreal
If all of the foregoing isn’t enough to impress you, consider that all five of Canada’s big banks were listed on the Global Finance 50 Safest Banks list for 2012. Only two publicly-traded U.S. banks made the cut, U.S. Bancorp, and Wells Fargo.
How long can these banks continue to burn so brightly? There's evidence that Canada’s red-hot housing market is showing signs of cooling, and consumers are concentrating on paying down their household debt. Certainly, these economic changes will have an effect on these big banks, but they are among the strongest and most stable in the world, so the damage should be slight. Even the fact that consumers are managing their debt levels is good news, as it makes it less likely that those with mortgages will find themselves unable to keep up their payments.
U.S. banks are on the mend, but Canadian banks are thriving right now -- and, if history is any indication, should continue to do so. For yield-starved investors, looking north is, as usual, not a bad idea.
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