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Flee to Canada to Dodge U.S. Bank Stock Risk

Stocks in this article: BAC C JPM WFC RY TD BNS BMO CM

New York ( TheStreet) -- The strong fiscal fourth-quarter earnings performance of Royal Bank of Canada (RY) underscores the value investors see in the "Big Five" Canadian banks.

While some of the "Big Four" U.S. banks have achieved higher returns on average assets (ROA) during recent quarters, these earnings have been padded by large releases of loan loss reserves, which hasn't been the case for the largest Canadian banks.

Looking at year-to-date stock market performance, the contrast is striking. Through Thursday's market close, year-to-date declines for the big four U.S. banks ranged from 16% for Wells Fargo (WFC) to a very painful 58% for Bank of America (BAC), beleaguered with mortgage putback claims and uncertainty over its capital strength, although CEO Brian Moynihan is making steady progress in his plan to boost capital ratios through the sale of noncore assets.

For the largest five Canadian banks, year-to-date stock performance has ranged from a decline of 10% for Bank of Nova Scotia (BNS) to a positive return of 8% for Bank of Montreal (BMO). Meanwhile, the "Big Five" feature dividend yields ranging from 3.78% for Toronto-Dominion Bank (TD) to 5.00% for Canadian Imperial Bank of Commerce (CM).

Looking at five-year returns, you would have at least made some money with any of the big five Canadian banks, while taking significant losses on any of the big four U.S. banks.

Here's a quick look at the largest five Canadian banks, with data provided by SNL Financial:

  • Royal Bank of Canada is pulling out of the U.S., expecting to close on a deal to sell its U.S. subsidiary, RBC Bank (USA) to PNC Financial Services Group (PNC), in the first quarter of 2012, for $3.45 billion, which SNL said in June was a $112 million discount to the U.S. subsidiary's book value. Royal Bank's shares closed at $47.03 Thursday, declining 7% year-to-date. Based on a quarterly payout of 54 cents, the shares have a dividend yield of 4.59%. The shares trade for 2.2 times book value and 10 times the consensus fiscal 2012 earnings estimate of $4.55 a share, among analysts polled by FactSet. For the most recent five quarters of data available from SNL, Royal Bank of Canada's ROA has ranged from 0.70% to 1.04%. The consensus 12-month price target for the shares among analysts polled by FactSet is $55.20 and two out of seven analysts rate the shares a buy. The other five analysts all have neutral ratings.
  • Toronto-Dominion Bank on Thursday completed its acquisition of MBNA's Canadian credit card portfolio from Bank of America. The company also has continued expanding in the U.S., building on its acquisition of Commerce Bank of Cherry Hill, N.J., in 2007, through several subsequent acquisitions, including the purchase of three failed banks from the Federal Deposit Insurance Corp. last year. The shares closed at $71.90 Thursday and were flat year-to-date, with a dividend yield of 3.78%, based on a quarterly payout of 68 cents. ROA has ranged between 0.64% and 1.00% over the past five quarters. The shares trade for 10 times the consensus fiscal 2012 EPS estimate of $7.11 and 2.4 times tangible book value. All seven analysts covering Toronto-Dominion rate the shares a buy, and the consensus price target is $88.34.
  • Shares of Bank of Nova Scotia closed at $50.24 Thursday, declining 10% year-to-date. Based on a quarterly payout of 52 cents, the shares have a dividend yield of 4.14%. ROA has ranged from 0.80% to 1.09% over the past five quarters. The shares trade for nearly 11 times the consensus 2012 EPS estimate of $4.79 and 2.8 times tangible book value. The six analysts covering Bank of Nova Scotia are evenly split between buy and hold ratings, and the consensus price target is $61.12.
  • Bank of Montreal closed at $59.09 Thursday, returning 8% year to date. Based on a quarterly payout of 70 cents, the shares have a dividend yield of 4.74%. The bank's ROA has ranged from 0.67% to 0.78% over the past four quarters. The shares trade for 10 times the consensus 2012 EPS estimate of $5.74, and just under twice their tangible book value. Bank of Montreal has had the weakest earnings among the big five Canadian banks over the past five quarters, and also has the weakest sentiment among analysts. Out of nine analysts covering Bank of Montreal, four rate the shares a buy, three have neutral ratings, and two analysts recommend selling the shares. The consensus price target is $65.03.
  • Shares of Canadian Imperial Bank of Commerce closed at $72 Thursday, declining 5% year-to-date. Based on a quarterly payout of 90 cents, the shares have a dividend yield of 5.00%. ROA has ranged from 0.56% to 0.90% over the past five quarters, according to SNL. Five out of nine analysts covering the company rate the shares a buy, while the remaining analysts all have neutral ratings. The consensus price target is $84.82.

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