Canadian Banks Hold More Risk Than Reward
They offer competitive advantages and fair yields, but little upside in a challenging environment.
We think Canadian banks will continue to benefit from their home country's structurally attractive banking market. However, we think current multiples of 2-3 times tangible book value offer investors little margin of safety. Furthermore, we see dark clouds forming on the horizon and think there is a reasonable likelihood of slower growth and higher loan losses in the near future.
Canadian banks have historically traded at high premiums, and five of the six that we cover carry wide economic moat ratings because we think they benefit from structural, sustainable competitive advantages. As a group, the major Canadian banks have outearned their cost of equity for the past decade, and we see no reason for that trend to reverse.
Dan Werner does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.