Quote:
Originally Posted by Dean2
I copied some of the comments from a Bloomberg article and added my own clarifying comments.
Three major themes at play here like the article says, and at least a pair of them are tied to those U.S. regional bank concerns – namely, there remain questions on how exactly TD’s planned US$13.4-billion acquisition of First Horizon will play out. They can pay the break fee and walk away if the Bank does not agree to a much lower price that matches its current share price. There are also concerns over the value of TD’s roughly 10 per cent stake in Charles Schwab, which has been caught up in the downdraft that has hit the American banking system. TD has more than enough Capital to write Schwab to zero with no effect on their solvency.
The Canadian real estate thing is a red herring, all the Canadian Banks have very large mortgage portfolios. However, all loans with less than 25% equity are insured so the Bank has zero loss exposure on them and the average debt ratio on TD's portfolio, is just over 60%.
On top of that, shorting Canadian banks has long been something of a widow maker trade – with the hefty dividend yields on the Big Six, they end up being an expensive carry (shorts have to pay out dividends to those they borrow the stock from) and given the relative stability of the banking oligopoly in this country, those trades seldom work out. Some of the largest funds have accumulated many, many billions in losses over the last 16 years, shorting Canadian Banks.
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Now if only price had something to do with value....
The problem with the stock market is you get the "flavour of the month" and stock prices are driven up by public perception. Take the tech stock bubble for instance. Companies actually said that they would not make any money for the foreseeable future, and the next day the stock goes up 10 %. That was Amazon in the late 1990s by the way.
Sometimes there is something the public does not know that the Hedge Funds and insiders do know.
Shorting stock is a dangerous game. Look at what happened with GameStop which rocketed from $19 on Jan 11 2021 to $347 a share 16 days later. Someone figured out that there was not enough stock to cover all the short positions (138% of market cap), a Reddit movement started to drive the price, short positions paid dearly.
Anyways, we will sit on the sidelines and will see who was right. Either way, it puts a big damper on public perception of the Canadian Bank Stocks.
Drewski