NEW YORK - Canada's 5th largest bank reported their second quarter results today. The company said it earned $636 million or nearly $200 million less than PNC Financial the 6th largest bank in the U.S. by assets. Despite this shortcoming and the $1.2 billion haircut given to its stock today; the company still has a $2 billion higher valuation than PNC Financial.
TD Bank reported $1.3 billion of profit. The company has a market capitalization closing in on Bank of America despite BAC reporting $2 billion in a terrible quarter. It is interesting to see BAC valued at $115 billion and TD valued at $75 billion when $1.4 trillion of assets and $20 billion of earnings separate the companies. U.S. Bancorp valued at $50 billion has similar earnings capability yet it receives 66% of the valuation. USB has had the highest quality management over the last 10 years often returning over 40% on tangible equity. A ratio unheard of in the bank sector. A smart investors never compares to companies and says one is undervalued. At the same time smart investors don't invest in TD's when USB's are available. The question is, is USB undervalued? The answer is for the investor to determine. But the ones who buy TD when USB is there make for incorrect valuation in the market.
It proves true the oft heard expression that you "pay a wonderful price for a rosy headlines."
To read the full BAC report click here.
To read the full PNC report click here.
To read the full USB report click here.
No comments as to the dividends - fact is US bank assets are a big question mark and they don't pay diddly dividends to protect themselves from the unknown. This isn't happening to CDN banks.
ReplyDeletePNC Financial now has a pretty nice sized dividend.
ReplyDeleteSecond of all I think you are taking the easy way out to say "U.S. Banks have big question marks on assets"
Most U.S. Banks balance sheets reflect loan losses of 10% of their entire portfolio a number unlikely to be hit.
Second of all Most U.S. Banks don't own Euro Debt unlike European Banks another big plus.
Lastly Fannie Mae and Freddie Mac provide a huge amount of liquidity to U.S. Banks something not seen in Canada.
Canadian banks have no headline risk. But you pay 3 times the price for a cheery picture.
You can buy BMO at $40 billion or PNC which is twice the bank at $32 billion. Or Bank of Nova Scotia at $60 billion or twice the bank in USB at $50
Or TD Canada Trust at $75 billion or 5 times as large BAC for $115 billion.
BAC is the only bank I listed with real problems but they don't really have any when you factor in those prices. I take BAC in a heartbeat over TD.