Big Five banks of Canada: Difference between revisions
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===Potential Foreign Forays=== |
===Potential Foreign Forays=== |
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The strength of the Canadian dollar, which is now worth $ |
The strength of the Canadian dollar, which is now worth $1.007 USD, and relative weakness of U.S. bank prices have led commentators to suggest that the big five banks could consider an expansion into the United States. The weakeness of the Canadian dollar, as well as high U.S. bank stock prices, were commonly cited as obstacles to purchasing assets south of the border. |
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Due to the recent [[2007 Subprime mortgage financial crisis]], the Toronto-Dominion Bank's market capitalization now exceeds that of [[Merrill Lynch]]. Royal Bank of Canada has now eclipsed [[Morgan Stanley]] in terms of market valuation. According to figures compiled by a recent Bloomberg report, investors today are willing to pay about $2.60 for every dollar of book value at a Canadian bank, compared with $1.70 in the United States. That ratio is about the reverse of where it stood in late 1999. |
Due to the recent [[2007 Subprime mortgage financial crisis]], the Toronto-Dominion Bank's market capitalization now exceeds that of [[Merrill Lynch]]. Royal Bank of Canada has now eclipsed [[Morgan Stanley]] in terms of market valuation. According to figures compiled by a recent Bloomberg report, investors today are willing to pay about $2.60 for every dollar of book value at a Canadian bank, compared with $1.70 in the United States. That ratio is about the reverse of where it stood in late 1999. |
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Revision as of 21:28, 2 January 2008
In Canada, the term Big Five Banks is frequently used to refer to the five biggest banks that dominate the banking industry in Canada. All five banks are headquartered in Toronto or in Montréal. The Big Five Banks are all classified as Schedule I banks that are domestic banks operating in Canada under government charter. Widely used and trusted[1], their services form an important part of the Canadian economy. The banks' shares are widely held, with any entity allowed to hold a maximum of twenty percent, and there are also restrictions on foreign ownership.[2]
Ranking
The Big Five banks, listed in order of market capitalization on the TSE (largest to smallest) with their current corporate brand names, are (as of Dec. 2007):
- Royal Bank of Canada (RBC Financial Group) Mkt Cap: 65.68B
- Toronto-Dominion Bank (TD Bank Financial Group) Mkt Cap: 52.04B
- Bank of Nova Scotia (Scotiabank) Mkt Cap: 50.58B
- Bank of Montreal (BMO Financial Group) Mkt Cap: 32.00B
- Canadian Imperial Bank of Commerce (CIBC) Mkt Cap: 24.65B
In modern history, Royal Bank has always been the largest by a significant margin. Up to the late 1990s, CIBC was the second largest, followed by Bank of Montreal, Scotiabank, and TD Bank. During the late 1990s and beyond, this ranking changed due to several re-organizations. Royal Bank acquired Royal Trust, then the second-largest trust in Canada, in 1993, while Scotiabank purchased National Trust in 1997. As Scotiabank found no merger partners among the other banks in the big five group, it instead expanded its international operations (outside of the US) and passed the Bank of Montreal in size. TD Bank merged with Canada Trust, which was for a long time the largest trust in Canada, thus vaulting TD temporarily into the number two spot. While there were no major changes to Bank of Montreal, CIBC's unsuccessful foray into the US market led it to shed its assets there, dropping it to the number five spot.
The term Big Six Banks is frequently used as well. The "Big Six" also includes the National Bank of Canada, though it is significantly smaller than the other major banks and is focused in the province of Quebec. The Big Six chartered banks participate in the Large Value Transfer System (LVTS) together with eight other banks (including the Bank of Canada).
Proposed Mergers
In 1998, the Bank of Montreal proposed a merger with Royal Bank around the same time that CIBC proposed to combine with the Toronto-Dominion Bank. The banks argued that these mergers would enable them to compete globally with other financial institutions.
This would have left Canada with only three major national banks. Thus, the mergers were reviewed by the Competition Bureau of Canada. The Competition Bureau declared that negative effects (such as higher user fees and local branch closures) from the mergers would far outweigh the benefits of allowing the mergers. Ultimately, it was then Finance Minister Paul Martin who rejected both proposed mergers.[3] The issue since has not been revisited by succeeding Finance Ministers.
Potential Foreign Forays
The strength of the Canadian dollar, which is now worth $1.007 USD, and relative weakness of U.S. bank prices have led commentators to suggest that the big five banks could consider an expansion into the United States. The weakeness of the Canadian dollar, as well as high U.S. bank stock prices, were commonly cited as obstacles to purchasing assets south of the border.
Due to the recent 2007 Subprime mortgage financial crisis, the Toronto-Dominion Bank's market capitalization now exceeds that of Merrill Lynch. Royal Bank of Canada has now eclipsed Morgan Stanley in terms of market valuation. According to figures compiled by a recent Bloomberg report, investors today are willing to pay about $2.60 for every dollar of book value at a Canadian bank, compared with $1.70 in the United States. That ratio is about the reverse of where it stood in late 1999.
The last time the U.S. financial markets were weak, many Canadian bank CEOs were criticized for not making a more concerted buying effort. Some believed that these CEOs preferred to wait for Ottawa to bless domestic mergers before expanding into the US. Ending up, the federal government refused to allow the mergers, and is unlikely to do so now. Analysts also pointed out that Canadian banks have much stronger balance sheets today than they did 10 or 15 years ago, putting them in an even better position to be aggressive.[4]