bank stock question | Page 2 | General financial discussion | Discussion forum

Bud said
they say bank stocks will be affected by zero interest rates margin compression. Once this settles will they still be growthy in a zero interest rate environment?  

zero/ very low rates makes it harder to get deposits, which they need in order to grow the mortgage / loan business.
On the other hand, banks are flexible and bank CEO are not shy from mass layoff, raises fees, cut spending to achieve target profit level.
So as long as the central banks keep money flowing to keep banks afloat, they will find ways to make money. But in the mean time, potential loan loss due to personal and business bankruptcies will be the headline keeping bank stocks lower.

Today on BNN:

«Think twice before increasing exposure to Canadian banks, analysts warn»

https://www.bnnbloomberg.ca/think-twice-before-increasing-exposure-to-canadian-banks-analysts-warn-1.1408141

Well, you may have to wait some time for growth especially BMO & Scotia who are well exposed to the oil industry. If you want to own Canadian banks, there presently cheap, so if you are in it for the medium/long term, they are good investments, but if you want growth in a shorter term, you would be better off in a high tech company or fund in MHO.

canadian.100 said

True - however, bank stocks (or for that matter stocks of any industry) should be bought for the medium/long term anyways. Big mistake to buy stocks if one needs the money in the short term.
In regard to the Canadian banks, a friend who is a bank manager of one of the major Canadian banks told me the banks have provided a healthy Allowance for Bad Debts/Write-offs for both corporate and personal receivables (loans and mortgages). As well, in the current situation, they will cut expenses by cutting hours for branches (I see those signs up already - shorter branch hours) and they will lay off staff to reduce staff costs. So, I think Canadian banks will come out just fine even if profits are considerably lower for the next few quarters while the economy is struggling. Remember Canadians are among the most indebted in the world - so service and interest charges which clients pay (Canadian and foreign) will keep the banks rolling along. As well, the Big 6 have almost a monopoly in Canada. Ultimately if the banks face headwinds, count on Justin Trudeau to help them out.  

For context, I bought 50 shares of TD at ~$20-21 per share in December 2008 or March 2009, somewhere around there, purchased another 50 a few years later, and TD subsequently paid a stock dividend equivalent to a 2-for-1 stock split. With the reinvested dividends purchasing some additional shares, I now have ~250 shares of TD at an adjusted cost of ~$30/share. Despite the significant correction, I've still nearly doubled my money. Prior to the correction, at one point, it was a near tripling. Times like this are rare and when you want to purchase normally fairly valued, reliable large cap stocks like this. 🙂

Don't forget, if you have no other sources of income (employment, pension, or interest), you can earn up to something like $45,000 in Canadian dividend income per year,* in a non-registered account, and pay no Canadian income taxes due to the generous dividend tax credit.

Cheers,
Doug

* Based on British Columbia provincial and federal income tax rates.

GS1 said
Last time I picked two of the big 5 bank stocks those two were the ones that went down.
 

What bank was that?

pooreva, at first you refer to selling and withdrawing shares from registered plan as being the same thing. Then your example seems to be about selling the shares while they're still in the plan, presumably withdrawing the cash later, which is likely what you're getting at. As Doug says, no tax implications on anything that happens while still inside registered plan, pay tax on your marginal rate on every dollar coming out of the plan.

Just ignore the noise.

So what if some banks are forced by a government to artificially suspend their dividends for a year or two. It's not like that dividend money will go bad in 90 days and the banks will have to toss it out in the garbage.

Once the dividends resume, that money will be paid out. Just look at what happened to the dividends of the Canadian banks after the government no longer objected to them raising their dividends.

The Bank of Montreal dividend, for example, is double what it was around 2009. A relative who bought the shares around that time initially received dividends each year of around 7% of cost. I just checked and he is now receiving dividends of about 15% of cost each year.

Loonie said
The Big Banks depend on a lot more than interest rate spreads for their profits. So it depends on how well diversified they are, what sorts of risks they took with their diversification, and how successful they are in these other spheres.
Their big thing domestically seems to be "wealth management" these days.
My impression is that they will basically do anything to make a buck. I found out the other day that RBC exploited my mother last year. She's getting close to 100 years of age and could not possibly have understood what she was being sold; nor was it appropriate for someone in her situation and at her age. I am livid.  

I checked the annual report of a bank a couple years ago. 15 billion in interest and 13 billion from fees. Then the expenses taken off. The remaining is profit/loss. Pay part of the profit to shareholders as dividends etc.